Singapore Launches South Asia’s First Carbon Tax

Taxes are unpopular. But not as unpopular as rising sea levels. Recognizing that action is needed  if the country wishes to mitigate the negative effects of climate change, Singapore became the first South East Asian country to institute a Carbon Tax in 2019. Carbon pricing can be one of the surest ways to nudge industry towards adopting cleaner processes and create funds to facilitate industry transformation while  driving innovation.

“In the face of climate change, we decided we needed it. It is something that is necessary, it is something that you cannot run away from.”

– Benedict Chia, Director for Strategic Issues, National Climate Change Secretariat, Singapore

However, not all forms of carbon tax are equal. Some allow emitters to buy, sell or trade emissions allowing wealthier enterprises to sidestep emissions caps. Problems can also arise when emitters think their emission caps have been set unrealistic low leading to a sentiment of being unjustly taxed which can turn to resentment. Singapore is accommodating these possible issues by introducing what it calls a “fair” and “transparent” carbon flat tax. Simply put, you pay for what you emit, emissions trading is not allowed (since there are no emission caps to circumvent), and there are no exemptions. All operations emitting 25,000 tonnes of GHG emissions or more will pay a flat rate of EUR3.25 per tonne equivalent (tCO₂e). Singapore believes the a flat tax sends a consistent price signal to the market while incentivising emissions reductions in the most economically feasible way.

Singapore’s carbon tax income will be used to help emitters upgrade their energy efficiency by offering up to 50 per cent of costs. The tax revenue will also be used to facilitate carbon abatement measures, fund energy innovation and build public awareness of ways to save energy in daily life. Singapore will review its carbon tax initiative in 2023. At that time the country expects to raise its tax rate to somewhere between EUR6.50 and EUR9.75 per tCO₂e. Long-term, Singapore intends to link its carbon tax framework with other jurisdictions as outlined in the Paris Climate Accord. Singapore believes that cooperation and collaboration among nations will help each achieve their climate pledges. After all, this is the most important goal.

If you want to learn more about what the new carbon tax in Singapore entails and how to get involved in solving challenges within the green transition in the country, please reach out to: Quercus Group