Bill to amend Carbon Pricing Act 2018 passed to increase carbon tax rates, introduce industry transition framework and option to use eligible international credits
1 December 2022
On 8 November 2022, the Carbon Pricing (Amendment) Bill (“Bill”) was passed in Parliament. Among other things, the Bill will increase carbon tax rates and the price of a fixed-price carbon credit, introduce a transition framework to give eligible companies in emissions-intensive trade-exposed (“EITE”) sectors more time to adjust to a low-carbon economy, and provide companies an option to use eligible international carbon credits in lieu of paying carbon tax for up to 5% of their taxable emissions from 2024 onwards.
Previously, the Ministry of Sustainability and the Environment (“MSE”) conducted a public consultation on a draft of the Bill. The public consultation concluded in August 2022. More information on MSE’s response to feedback received from the public consultation is set out in our previous article titled “Bill introduced to amend Carbon Pricing Act 2018: Increase in carbon tax, industry transition framework and option to use eligible international carbon credits”.
In her opening and closing speeches at the second reading of the Bill, the Minister for Sustainability and the Environment, Grace Fu, set out the key amendments to the Carbon Pricing Act 2018 (“CPA”) that will give effect to the key changes announced at Budget 2022 and strengthen Singapore’s carbon pricing regime. These are set out below.
Revised carbon tax levels
The Bill will amend the Third Schedule to the CPA to adopt the revised carbon tax levels of S$25 per tonne for greenhouse gas emissions in 2024 and 2025, and S$45 per tonne for greenhouse gas emissions in 2026 and beyond. The carbon tax level will be raised progressively in phases and with advance notice, to give businesses time to plan and carry out their low-carbon transition. The progressive increases will set Singapore on a trajectory to reach between S$50 and S$80 per tonne by 2030.
Industry transition framework
The Bill will insert new sections 20A to 20G in Part 5 of the CPA to set out the broad parameters of the industry transition framework, which will provide transitory allowances to companies in EITE sectors that face intense competition in the global market. These transitory allowances will not offset the entire carbon tax obligation of the EITE companies. These allowances will be limited to only a portion of companies’ emissions, help to alleviate near-term competitiveness concerns, and support companies as they work on reducing emissions and invest in cleaner technologies. The provision of a transition framework minimises the risk of carbon leakage, where companies relocate to another jurisdiction with less stringent climate policies. Similar to Singapore’s corporate income tax framework under the Economic Expansion Incentive (Relief from Income Tax) Act 1967, the industry transition framework will be administered by the Minister for Trade and Industry, who can assign relevant functions and powers to an appropriate public body. The amount of allowances awarded to each facility will be determined based on their performance on specified energy efficiency or carbon intensity benchmarks, or their decarbonisation plans.
Companies in non-EITE sectors can continue to tap on support from the Government through broad-based schemes such as the Economic Development Board’s (“EDB”) Resource Efficiency Grant for Emissions and the National Environment Agency’s (“NEA”) Energy Efficiency Fund.
International carbon credits framework
The international carbon credits framework (“ICC framework”) will be set up through sections 33A to 33D in Part 5 of the CPA.
International carbon credits
International carbon credits (“ICC”) are tradable certificates that represent the reduction or removal of emissions from the atmosphere, generated from projects or programmes outside Singapore. These carbon credits are generated by emissions reduction or removal projects that would not have materialised under a business-as-usual scenario but are made possible due to financing from carbon markets, e.g. reforestation projects and projects that help local communities switch from firewood to cleaner biogas cookstoves.
The ICC framework parameters apply only to carbon tax-liable companies that are surrendering credits to fulfil part of their carbon tax liabilities. They do not apply to the voluntary carbon market, where any company can purchase carbon credits to offset their own carbon footprint voluntarily and as part of their corporate climate targets.
Cooperation through carbon markets
Pursuant to the Paris Agreement Article 6 rulebook which was finalised at COP26, countries can cooperate through carbon markets to mutually support their respective climate targets and the raising of global climate ambition. Singapore has signed Memorandums of Understanding (“MOUs”) with Indonesia, Morocco, Colombia, and Vietnam, and exchanged Letters of Intent with Ghana to affirm their shared commitment to advancing cooperation and capability building on carbon markets. Singapore will step up efforts to engage more like-minded partner countries with credible climate targets, both in the region and beyond.
Under the ICC framework, companies will have the option to tap on eligible ICC to fulfil part of their carbon tax liability. Currently, companies only have one mode of carbon tax payment - by surrendering a corresponding amount of fixed-price carbon credits (“FPCC”) purchased from NEA at the prevailing carbon tax level. The Bill will amend existing sections 2 and 17 of the CPA to define an ICC as a certificate representing one tonne of emissions reductions or removals generated from projects and programmes outside Singapore, and to allow companies to surrender eligible ICC as a valid alternative mode of carbon tax payment, in addition to FPCC.
At the technical level, the Government is working closely with key players in the carbon services and trading ecosystem to develop the ICC framework. In July 2022, NEA signed MOUs with leading carbon crediting programmes, namely, Verra and Gold Standard. With these MOUs in place, companies will be able to acquire eligible ICC from projects registered with these programmes and surrender them to offset part of their carbon tax liabilities.
Ensuring high environmental integrity and eligibility criteria for surrendered ICC
The ICC framework will ensure that the ICC surrendered are of high environmental integrity and compliant with Article 6 of the Paris Agreement. The new section 33A will stipulate that all ICC surrendered must adhere to a set of eligibility criteria, which will be prescribed in subsidiary legislation. One such requirement is “no double-counting”, which occurs when an eligible ICC accrues to both Singapore and the host country producing this ICC. To prevent this ICC from being double-counted, the host country must authorise a corresponding adjustment, to “give up” the emissions reduction to Singapore. These are standards which must be mutually agreed upon when Singapore concludes carbon credits collaboration with partner countries.
In addition, the Government intends for the eligibility criteria to minimally reference the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
To provide more clarity on the eligibility criteria, the Government will publish a whitelist of ICCs that are acceptable, which will highlight the eligible host countries, carbon crediting programmes, and methodologies.
An International Carbon Credits Registry (“ICC Registry”) will also be developed. When ready, the ICC Registry will serve as a record-keeping system to track and account for the usage of ICC by carbon tax-liable companies to offset their taxable emissions.
The Government will review the eligibility criteria periodically.
Prioritising emissions through domestic abatement efforts
While the ICC framework provides a complementary pathway for companies to decarbonise, reducing emissions through domestic abatement efforts will remain the Government’s priority. A new section 33B will stipulate that the ICC surrendered must be capped at a prescribed facility-level limit, currently intended to be set at 5% of taxable emissions. This will be prescribed in subsidiary legislation. This limit is aligned with other comparable jurisdictions with similar climate ambitions and ensures that the ICC framework does not diminish the impetus for companies to cut emissions. The Government will continue to review the facility-level limit over time to align with international developments.
Singapore as carbon services and trading hub
The Government’s intent is for the ICC framework to catalyse local demand in carbon markets and support the vision of establishing Singapore as a carbon services and trading hub. An example is the Climate Action Data Trust (“CAD Trust”) which will be officially launched in December 2022 as a global market infrastructure supported by the World Bank, the International Emissions Trading Association, and the Singapore Government. The CAD Trust will provide an open-source system to link and harmonise information about carbon credits and projects across registries globally. This initiative will drive market transparency, strengthen trust, and advance global climate action.
The Bill will also update the list of greenhouse gases to include nitrogen trifluoride (“NF3”) and refine carbon tax administration.
Updates to list of greenhouse gases and inclusion of NF3
The list of greenhouse gases and their Global Warming Potential values will be updated in the First and Second Schedules to the CPA, in line with newer standards adopted by the Intergovernmental Panel on Climate Change. The Bill will amend the Second Schedule to remove NF3 as a non-reckonable greenhouse gas. This will bring NF3 emissions within the coverage of the carbon tax, and the Government intends to do so from 2024 onwards. This is aligned with the UN Framework Convention on Climate Change and its Katowice rulebook, which require all parties to include NF3 in the reporting of their national emissions inventory by 2024. The inclusion of NF3 will mainly affect facilities in the electronics sector, but transitional support will be provided to affected companies through grants and incentives such as the Resource Efficiency Grant for Emissions and Investment Allowance for Emissions Reduction.
Refinements to carbon tax administration
The Bill will introduce amendments to improve tax administration. To minimise unintended gaps in carbon tax collection when there is a transfer in operational control over a taxable facility, the Bill will amend various sections of the CPA to impose revised registration, reporting and payment obligations. To reduce compliance costs, the deregistration criteria will be expanded to allow companies to apply for deregistration if their facility has ceased operations. In addition, NEA will be empowered to deregister a registered company and facility if the person has wound up, been dissolved, or ceased to exist. As the carbon tax level is raised from 2024 onwards, the Bill will (1) prescribe the treatment for the carryover or refund of FPCC purchased at the “old” price, and (2) increase the thresholds for waivers of small assessments and appeals to the High Court by a commensurate degree, to simplify administration and minimise the regulatory burden on taxable facilities.
The following materials are available on the Parliament website www.parliament.gov.sg, MSE website www.mse.gov.sg, EDB website www.edb.gov.sg, and NEA website www.nea.gov.sg: