What is Carbon Tax? How Does it Affect Your Company?
Sustainability has become an increasingly pressing issue in recent years, as businesses and governments around the world have recognized the urgent need to address climate change, biodiversity loss, and social inequality. One of the key drivers of sustainability is regulation, which creates incentives for companies to adopt more sustainable practices and provides a framework for accountability and transparency. In this article, we will explore the role of regulation in driving sustainability and the different forms that regulation can take, from mandatory reporting requirements to tax incentives for green investments.
We will look at the current and upcoming regulations related to sustainability reporting and compliances.
Singapore
Carbon Tax
Singapore’s carbon tax underpins our net zero targets and climate mitigation efforts by providing an effective economic signal to steer producers and consumers away from carbon-intensive goods and services, hold businesses accountable for their emissions, and enhance the business case for the development of low-carbon solutions. In all, the carbon tax currently covers 80% of our total greenhouse gas (GHG) emissions from about 50 facilities in the manufacturing, power, waste, and water sectors. The carbon tax forms part of Singapore’s comprehensive suite of mitigation measures to support the transition to a low-carbon economy.
Carbon Tax in Singapore from 2019 to 2023
Singapore implemented a carbon tax, the first carbon pricing scheme in Southeast Asia, on 1 January 2019. The carbon tax level was set at S$5/tCO2e for the first five years from 2019 to 2023 to provide a transitional period for emitters to adjust.
Key Updates to Singapore’s Carbon Tax Post-2023 (Effective from 1 January 2024)
To support our net zero target, the carbon tax will be raised to S$25/tCO2e in 2024 and 2025, and S$45/tCO2e in 2026 and 2027, with a view to reaching S$50-80/tCO2e by 2030. This will strengthen the price signal and impetus for businesses and individuals to reduce their carbon footprint in line with national climate goals.
Source: NCCS
Reducing Tax with International Credits
Starting from 2024, businesses can utilize high-quality international carbon credits to offset a maximum of 5% of their taxable emissions. This move aims to ease the burden for companies that can procure reliable carbon credits cost-effectively while also promoting the local demand for high-quality carbon credits and driving the growth of properly regulated carbon markets. However, all international carbon credits used under the carbon tax regime must satisfy specific eligibility criteria to guarantee their environmental integrity and compliance with Article 6 of the Paris Agreement.
The facility-level limit has been set at 5% to ensure that the industry continues to prioritise domestic emissions reduction, while providing an additional decarbonisation pathway for hard-to-abate sectors that may find it challenging to significantly cut emissions in the near to medium term.
Who is covered under the carbon tax?
The carbon tax is levied on facilities that directly emit at least 25,000 tCO2e of greenhouse gas (GHG) emissions annually. It currently covers six GHGs, namely carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6). From 2024 onwards, the carbon tax coverage will be expanded to include nitrogen trifluoride (NF3) emissions. This is aligned with the United Nations Framework Convention on Climate Change (UNFCCC) and its Katowice rulebook, which requires all parties to include NF3 in the reporting of their national emissions inventory by 2024.
In all, the carbon tax currently covers 80% of our total GHG emissions from about 50 facilities in the manufacturing, power, waste, and water sectors. Facilities in other sectors also indirectly face a carbon price on the electricity they consume as power generation companies are expected to pass on some degree of their own tax burden through increased electricity tariffs. When we account for fuel excise duties that incentivises the reduction of transport emissions, the overall coverage rises to about 90%.