In depth
We discuss the key provisions of the Act below.
Key Amendment 1: Progressive Increase In Carbon Tax Rates
As part of Singapore's plan to reach a carbon tax level of SGD 50/tCO2e to SGD 80/tCO2e by 2030, the Act prescribes a progressive increase in the carbon tax rates from SGD 5 per tonne of GHG emissions ("/tCO2e") as follows:
- for GHG emissions in 2024 or 2025 - SGD 25/tCO2e; and
- for GHG emissions in 2026 onwards - SGD 45/tCO2e.
Key Amendment 2: Industry Transition Framework For Companies In EITE Sectors
In recognition of challenges faced by companies in EITE sectors (e.g., chemicals, electronics and biomedical manufacturing sectors) in transitioning to low carbon operations, and to mitigate the risk of carbon leakage, the Act provides eligible EITE companies with transitory allowances to offset a portion of their carbon tax obligations for existing investments.
Companies in non-EITE sectors (e.g., power generation and waste management sectors) will continue to receive support from existing schemes such as the Economic Development Board's Resource Efficiency Grant for Emissions and the National Environment Agency's Energy Efficient Fund.
Key Amendment 3: Use Of ICC To Pay Carbon Tax
Prior to the Act's creation of the ICC framework, surrendering fixed-price carbon credits was the only mode of carbon tax payment. The ICC framework provides an alternative option for carbon-tax liable companies to fulfil part of their carbon tax liabilities by surrendering eligible ICCs. Notably, the ICC framework does not apply to the voluntary carbon market.
Key Amendment 4: Revised List Of Greenhouse Gases And Global Warming Potential Values
For alignment with the latest standards enunciated by the Intergovernmental Panel on Climate Change, the Act updated the list of greenhouse gases and their Global Warming Potential values. In particular, the addition of various hydrofluorocarbons ("HFCs") and perfluorocarbons ("PFCs") to this list is noteworthy for companies in the EITE sectors as these fluorocarbons are often used as refrigerants in the biomedical manufacturing sector for example. As such, companies producing these gases will now have to include the respective HFCs and PFCs in calculating their GHG emissions.
Relatedly, the electronics and semiconductor sector will likely be affected by the removal of nitrogen trifluoride ("NF3") from the list of non-reckonable GHG emissions, bringing NF3 emissions within the coverage of the carbon tax.
Commentary
With the progressive increase in carbon tax rates, it is imperative for companies to consider steps to focus on investments in technologies that will reduce emissions and to find ways to optimise their energy mix. Companies should also undertake a review of their emissions against the revised list of greenhouse gases.
We would be happy to provide you with advice tailored to your specific needs on how to fulfil your obligations under this Act. Please get in touch with your usual Baker McKenzie contact in this regard.
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