Singapore announced plans today to increase its carbon tax in a bid to curb greenhouse gas (GHG) emissions.
The government plans to increase the country's carbon tax from S$5/t ($3.70/t) currently to S$25/t in 2024-2025 and S$45/t in 2026-2027. The tax rate will be reviewed with a long-term view of raising it to S$50-80/t by 2030, said the country's finance minister Lawrence Wong today at the unveiling of the country's budget for 2022.
Singapore was the first country in southeast Asia to introduce a carbon tax. In 2020, the government implemented a S$5/t carbon tax rate based on 2019 GHG emission levels to companies that produce at least 25,000 t/yr of CO2e.
The government's initial intention was to raise the tax level to S$10-15/t by 2030. The country's new plan to raise it to S$25/t, significantly higher and earlier than its initial target, signals a greater urgency for the city-state's refining and petrochemical industries to decarbonise.
The government will allow businesses to use "high-quality international carbon credits" to offset up to 5pc of taxable emissions in lieu of paying carbon tax.
The new tax rate will force industry members to start looking at efforts to reduce carbon emission, said market participants in Singapore. Some companies have formed internal working groups to assess potential new investments to minimise carbon tax exposures.
Questions of competitiveness
Challenges are mounting for Singapore's refiners and petrochemical producers as the new tax rate risks lowering their competitiveness. Elsewhere in southeast Asia, Indonesia is the only other country that has shown a degree of seriousness in taxing carbon emissions.
Singapore houses some of the biggest fossil fuel-reliant industries in southeast Asia, while remaining openly cognizant of the impacts climate change has on its long-term well-being. The island-nation's central bank, the Monetary Authority of Singapore, has conducted stress tests for climate change-related risks on the city-state's financial health, among the region's first, if any.
Moving to net-zero emissions will be a "very costly affair for Singapore," said Wong, but added that the cost "cannot be skimped on." The country is now targeting net-zero emissions by the middle of the century.
Meanwhile, the country's energy and chemical hub Jurong Island employs some 26,000 people, according to government-owned infrastructure company Surbana Jurong. And this excludes services related to oil and gas outside Jurong Island, such as shipyards and trade finance.
While indirect carbon emissions are not taxed, costs are expected to be passed down and incorporated into sales prices and contract premiums, hence risking the country's overall cost-competitiveness. Metrices adopted and the required rates of returns to assess decarbonisation investments also remain sporadic.
Efforts have been underway to offset rises in operational expenditures since the introduction of the first carbon taxes. Companies such as ExxonMobil and Chang Chun, which are US and Taiwan-headquartered respectively, have embarked on projects to save energy.
Singapore-based Petrochemical Corporation of Singapore, a joint venture between Sumitomo Chemical, Qatar Petroleum International, and Shell, also completed its plan to reduce flaring and increase ethylene yield.
Shell has announced plans to build a unit that is capable of upgrading 50,000 t/yr of pyrolysis oil produced from converting plastic waste in Singapore. The plant, Shell's first and Asia's biggest, is expected to start operations in 2023. It announced plans to cut crude processing capacity in Singapore by around half just the year before.