Finance Minister Heng Swee Keat said in his Budget speech on Monday (19 February) that large carbon emitters will be taxed S$5 for each tonne of greenhouse gases generated from next year to 2023, which is a significantly lower rate than the S$10 to S$20 per tonne envisioned last year by the authorities. This is said to give the industry more time to adjust and implement energy efficiency projects.
The minister said that the tax rate will be reviewed by 2023, with the intention of increasing it to between S$10 and S$15 per tonne by 2030.
Mr Heng said that the review will consider global climate change developments, the progress of Singapore’s emissions mitigation efforts and its economic competitiveness.
The first carbon tax is expected to be paid in 2020 based on emissions in 2019.
The carbon tax will apply to about 30 to 40 of the largest emitters here that each produce 25,000 tonnes or more of greenhouse gases a year, which account for about 80 per cent of Singapore’s emissions.
“The carbon tax will encourage businesses to take measures to reduce carbon emissions,” he said, adding that companies that do so will be more competitive, as more countries impose tighter limits on their carbon emissions and international agreements on climate change like the Paris Agreement take effect.
The minister noted that the initial rate of S$5 per tonne “cannot be directly compared” to those in other jurisdictions as those with higher headline carbon prices also have significant exemptions for particular sectors, which lower their effective carbon prices.
Many wanted the carbon tax to be implemented based on emissions performance benchmarks for fairness as opposed to a flat rate, saying that this system allows those that perform at or better than the benchmark to get free allowances. The Government, however, has decided to implement a credits-based carbon tax uniformly across sectors with no exemptions.
Mr Heng said on Monday that the tax will apply uniformly to all sectors, stressing that this is the economically efficient way to maintain a transparent, fair and consistent carbon price across the economy to incentivise emissions reduction.
He said that the Government is prepared to spend more than S$1 billion in the first five years to support projects that reduce emissions. As part of this, it will set aside funds from next year to support companies in improving energy efficiency.
Mr Heng also noted that the authorities expect to collect a carbon tax revenue of almost S$1 billion over the first five years.
He said that this will be done through schemes like the Productivity Grant (Energy Efficiency) and the Energy Efficiency Fund, as well as giving more support to projects that achieve greater emissions reductions.
“I urge companies to do their part for a higher quality living environment for all by putting in meritorious proposals for emissions abatement and energy efficiency,” he said, “There will also be new opportunities in areas like sustainable energy and clean technology. We have to start preparing early so that industries have more time to adapt.”
The ministry, however, stressed that when it comes to households, the impact of the carbon tax will be “small”, making up about 1 per cent of total electricity and gas expenses on average. He also noted that additional rebates will be provided to help households to adjust.
The carbon tax is expected to translate to a rise in electricity prices of about 0.21 cents per kWh, assuming the full tax is passed on to end-users.
The minister said that Housing and Development Board (HDB) households will receive about S$20 more in Utilities-Save rebates to offset the impact of the carbon tax between 2019 and 2021, which is expected to be about 1 percent of their total gas and electricity bill if the full costs are passed on by power generation companies, which translates to about S$0.30 to S$1.10 per month for one-room to executive flat households.
The minister said that the increase in U-Save will cover the expected average increase in electricity and gas expenses for HDB households arising from the carbon tax,”
The Ministry of Trade and Industry will work with the Consumers Association of Singapore and Competition Commission of Singapore to look out for any unfair pricing and coordinated price hikes that are anti-competitive.
Mr Heng said that the Government will study how to account for these emissions and take action where necessary for smaller emitters that account for the remaining 20 per cent of Singapore’s emissions.
He stressed that the carbon tax will not be imposed on petrol, diesel and compressed natural gas as excise duties already encourage the reduction of the use of these fuels. For now, these excise duties will not be raised but the Government will continue to review and adjust them periodically.
MEWR (Ministry of the Environment and Water Resources) is said to be working with the community to help households save energy, and will announce more details at a later date.