A year into the Singapore Green Plan 2030, the Republic is deepening its commitment to green initiatives with more ambitious climate goals.
According to Finance Minister Lawrence Wong’s Budget 2022 speech, Singapore now aims to achieve net zero emissions by or around 2050, and will update its Low-Emission Development Strategy (LEDS) later this year.
Previously, Singapore aimed for peak emissions by 2030 and to halve that figure by 2050, before reaching net zero emissions in the latter half of the century. The new goal brings forward our net zero timeline by up to 50 years.
“Singapore takes these commitments very seriously,” says Wong. “We are on track to achieving our 2030 target. We have since reviewed our longer-term plans. With advances in technology and new opportunities for international collaboration in areas like carbon markets, we believe we can bring forward our net zero timeline.”
Wong also unveiled a headline figure for Singapore’s green finance sector. By 2030, Singapore’s government and statutory boards will issue up to $35 billion in green bonds to fund public sector green infrastructure projects.
The government will publish a Singapore Green Bond framework and issue its inaugural green bond later this year.
The first such bond by a statutory board here was announced last August. Then, the National Environment Agency issued a $3 billion multi-currency medium-term note and green bond framework, with proceeds going to sustainable infrastructure development projects like the Tuas Nexus, Singapore’s first integrated water and solid waste treatment facility.
The move to issue green bonds is welcome, but investors are becoming more critical of such schemes amid claims of greenwashing, says Yu-En Ong, head of Singapore, Norton Rose Fulbright. “Investors are demanding more transparency and diligence to ensure that this financial product meets the sustainability criteria.”
Carbon tax ‘too aggressive’?
See also: Forging ahead with courage
In addition, Singapore will raise its carbon tax rate in stages from now till 2030, growing up to 16 times the current rate of $5 per tonne of emissions.
The rate will first rise to $25/tonne in 2024 and 2025, before hiking further to $45/tonne in 2026 and 2027. By 2030, Singapore's carbon tax rate will reach between $50 and $80 per tonne.
Singapore’s carbon tax applies to all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year. This covers some 30 to 40 large emitters, like oil refineries and power generation plants, which contribute 80% of Singapore’s greenhouse gas emissions.
By putting a price on emissions, companies are incentivised to reduce their carbon footprint.
The move is “very bold”, says Selena Ling, head of treasury research and strategy at OCBC Bank. “It may even be seen as too aggressive from members of industry and companies.”
From a societal point of view, however, it is the right thing to do, adds Ling. “What’s important is that the additional carbon tax revenue will be channelled into solutions. So, the focus is to invest in costly low-carbon infrastructure, green the aviation and tourism industries and capture economic opportunities in areas such as green finance.”
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Even at its 2030 peak, however, Singapore's carbon tax rate will still pale in comparison to that of other countries.
Ireland, for example, charges about 41 euros ($62) per tonne, while Sweden has the highest carbon tax rate of about 1,200 krona ($173) per tonne. Singaporean investment company Temasek, too, has an internal carbon price of US$42 ($56) per tonne.
Carbon pricing varies wildly around the world. Yet, the global average emissions price is only US$3 per tonne, according to the International Monetary Fund (IMF).
Last June, the IMF proposed an international carbon price floor, divided into three tiers. To address such inconsistencies, each tonne of emissions should, by 2030, cost a minimum of US$75, US$50 or US$25, depending on whether the emission is in an advanced, high- or low-income market, says the IMF.
Singapore must be prepared to review its carbon prices regularly, says Cherine Fok, director of sustainability services at KPMG in Singapore. “We have to be conscious that the new pricing of [carbon] is estimated based on the current projections around the urgency and scale of climate transition. It is also pegged to carbon regimes across the world.”
She adds: “Whether the revised pricing and the timing of the revisions remain fit… for an open economy like Singapore remains to be seen. As a nation, we must be prepared to review our plan of action regularly to ensure its effectiveness.”
Cushioning the blow
With a higher carbon tax, household utility bills will rise in tandem, says Wong. At a rate of $25/tonne, for example, a household living in a 4-room HDB flat will see an increase of about $4 per month in utility bills.
Says Wong in his Budget speech: “I should clarify that I do not expect to derive additional revenue from this increase in the carbon tax.”
“Some of the revenue will be used to cushion the impact on households and businesses,” adds Wong. “A large part of the revenue will be used to support a decisive shift towards decarbonisation through investments in new low-carbon and more energy-efficient solutions.”
To that end, the government will provide households with additional U-Save rebates to help cushion this price hike, and more details will be announced in next year's Budget.
From 2024, the government will allow businesses to use “high-quality, international carbon credits” to offset up to 5% of their taxable emissions. “This will create local demand for high-quality carbon credits,” says Wong.
A carbon credit is a permit that allows a company to emit one tonne of greenhouse gas.
The carbon tax rate hike is not about increasing revenues for the government, says Saravanan Rathakrishnan, associate at law firm RHTLaw Asia. Rather, it will contribute to the greening of Singapore and its economy, “which puts it in good stead for green finance and ESG-related investments — a new frontier for growth.”
While there may be temporary increases in costs of doing business in Singapore, these will be largely transitory as firms learn to adapt, Rathakrishnan tells The Edge Singapore.
Higher carbon taxes will also force landlords to upgrade old buildings to become more energy-efficient, says Tay Hong Beng, partner and head of real estate at KPMG in Singapore.
“The progressive increase in carbon tax will eventually lead to an increase in utility prices, and landlords may seek to pass on the increase to their tenants. However, increasing utility costs will make older, less energy-efficient buildings unattractive to tenants,” says Tay.
Tay adds: “To maintain occupancy levels, landlords of older buildings will eventually need to invest in making their buildings more energy-efficient. As retrofitting projects take time to implement, landlords may discover that it makes economic sense to undertake improvements sooner, rather than wait for the further increases in carbon tax, which we know will happen.”
The increase of Singapore’s carbon tax will “decisively” move the needle on Singapore’s decarbonisation roadmap, says Tan Wooi Leong, senior director, energy and industrial, Surbana Jurong.
“At this revised carbon tax rate, mid- to heavy-duty transport sectors may accelerate their electrification or even adopt hydrogen as fuel. Industries in petroleum and chemicals, iron and steel, cement and other major greenhouse gas emitters will see more value in adopting renewable energy, electrifying their processes and/or introducing new energy alternatives in their operations,” adds Tan.
This will affect nearly all sectors in Singapore. Says Tan: “Major logistics firms have begun to study the feasibility of decarbonising entire trucking fleets. Real estate developers are exploring low carbon construction materials and energy-efficient solutions for their developments.”
More EV charging points
Singapore aims to be a “car-lite” city, and will maintain its zero growth rate for private vehicles alongside plans to phase out internal combustion engines by 2040.
While public transport is still the cleanest mode of transport, Singaporeans have embraced electric vehicles (EVs), says Wong. The share of EVs among new car registrations here has jumped from 0.2% in 2020 to 4% last year.
Singapore will further accelerate EV adoption by building more charging points, with such infrastructure financed by green bonds.
Adequate charging infrastructure is critical to the continued growth of EVs in Singapore, says Satya Ramamurthy, partner at KPMG in Singapore. “Accessibility of EV charging infrastructure nationwide will be critical to the continued growth momentum in Singaporeans’ adoption of EVs.”
The green initiatives announced at Budget 2022 are “a bold but welcome statement”, says Sharad Somani, partner and head of infrastructure advisory at KPMG in Singapore. “Budget 2022 proposes a robust, three-pronged approach to increase carbon tax, innovate low-carbon technologies and turbo-charge the green finance ecosystem in Singapore. This will help local companies not only make bold investments towards cleaner fuel and reduced emission targets, but also help organisations develop new skills and capabilities in the area of green economy.”
Photos: Albert Chua, Samuel Isaac Chua / The Edge Singapore, Bloomberg
