1. Mr Speaker, I thank Members for their support of the Bill.
Value of Carbon Tax
2. Minister Grace Fu has highlighted the urgent need for the world to address climate change. Singapore is firmly committed to doing its part in the global effort to reduce greenhouse gas emissions. To meet our climate commitments, we have put in place a robust suite of measures to spur and support companies to decarbonise.
3. The carbon tax forms a key part of this effort. It prices carbon to guide investment decisions by companies and spurs companies to reduce their emissions while giving them the flexibility to do so in a way that makes the most economic sense. As climate action gains greater urgency globally, the transition towards lower-carbon and carbon-neutral operations will increasingly become a prerequisite for consumers, for investors. Hence, it is in the companies’ commercial interest to decarbonise and in the same way, it is also critical for Singapore to transit to a low-carbon economy to maintain our long-term economic competitiveness, to remain an attractive investment and business destination as reminded by Ms Janet Ang, Mr Xie Yao Quan and many other members during their very passionate speeches earlier, and to ensure good jobs for Singaporeans and good jobs created here in Singapore.
4. We have sought public and industry feedback on the draft Carbon Pricing (Amendment) Bill. The majority of respondents acknowledged the role of an appropriate price signal for carbon in order to enable the low-carbon transition.
5. For example, some respondents favoured a more aggressive carbon tax trajectory, given the latest recommendations by the Intergovernmental Panel on Climate Change for stronger actions to reach the Paris Agreement goals and the urgency to reduce rising greenhouse gas emissions.
6. On the other hand, some companies are concerned that the higher carbon tax will add to cost pressures, especially for export-oriented companies that have to compete with those from jurisdictions with lower or no effective carbon price.
7. Apart from the public consultation and since the announcement of the changes to carbon tax earlier this year, we have been engaging businesses that will be directly impacted by the increase. We appreciate their feedback that they recognise the need for an appropriate carbon price but they are also concerned about the impact of higher carbon taxes on their operating costs and competitiveness.
8. We hear and we understand their need for time to make the necessary investments and changes to transit towards greener operations. This is, especially so for companies that depend on low-carbon technologies which are still under development, like CCUS – carbon capture, utilisation, and storage, like low-carbon hydrogen that some of the speakers talked about - Ms Poh Li San, Mr Cheng Hsing Yao and Mr Xie Yao Quan.
Introduction of Transition Framework
9. So I wish to assure the House that in designing the carbon tax framework, we have taken into consideration all these varying views and feedback. I want to assure the House that we will continue engaging companies on their sustainability journey, including our SMEs, our LLEs. Let me now respond to the points raised by Members on the impact of the carbon tax on businesses and how the Government is committed to actively supporting our companies as they adjust to the revised carbon tax regime.
10. Firstly, I wish to highlight that under the carbon tax regime, only facilities that directly emit at least 25,000 tonnes of CO2-equivalent greenhouse gases annually will be subject to the carbon tax. Now in this way, the carbon tax is targeted to apply to the key nodes of emissions in our economy. It will cover about 80% of our total carbon emissions. Businesses that are large emitters, for example in the Energy & Chemical sectors, will be directly impacted by the carbon tax.
11. We recognise the challenges that companies face, especially amid other increasingly tough operating conditions. The impact of the revised carbon tax regime will be especially pronounced for companies in Emissions-Intensive Trade-Exposed (in short, EITE) sectors, such as the chemicals and semiconductor sectors. Ms Janet Ang earlier and Mr Xie Yao Quan during their speeches, reminded us that these companies compete globally and face competition from counterparts in jurisdictions which have lower or in fact, no carbon prices. In addition, many jurisdictions with carbon prices offer generous allowances and support to companies in EITE sectors to protect their business competitiveness. The allowances provided could cover as high as 100% of the companies’ emissions in some of these countries.
12. Now, it is with these factors in mind that the Government decided to announce the changes to our carbon tax rates ahead of time. We have spelt out the rates for up to 2027 and provided a range for up to 2030. This demonstrates our commitment to work closely with the industries to make the green transition as smooth as possible, and by providing companies with advance notice, we hope it will facilitate their business decisions and plans for decarbonisation. During her passionate speech, Ms Janet Ang reminded us that many EITE companies have placed substantial investments in Singapore that continue to provide good jobs for Singaporeans and contribute to our economy’s growth.
13. The sustainability journey is one that we walk together – and we seek to smoothen the transition path for companies by providing the necessary support for their decarbonisation while maintaining Singapore’s competitive edge.
14. Hence, we will introduce a transition framework which will provide eligible companies with transitory allowances for a portion of their emissions, a portion of their emissions.
Principles of Transition Framework
15. Members Mr Don Wee and Mr Leon Perera have asked if the transition framework will erode the price signal for companies to decarbonise and if the framework should be tightened. Let me reassure Members that the transition framework will not give a ‘free pass’ to the companies. The transition framework will not give a ‘free pass’ to the companies.
16. Singapore has committed to enhancing our 2030 Nationally Determined Contribution (NDCs) to reduce our emissions to around 60 million tonnes of CO2 equivalent in 2030 and that is after peaking emissions earlier, and to achieve net zero by year 2050.
17. This means that the Singapore Government is accountable to these international climate commitments and hence we will ensure that the transition framework will effectively, robustly drive companies to decarbonise. To address Mr Don Wee’s concern, we will work with companies, including the large emitters, to ensure they have decarbonisation plans aligned with Singapore’s net zero commitment. We are mindful that the transition allowances provided will not run counter to our long-term goals. I want to ensure and emphasise that the amount of allowances provided will only be for a portion of the companies’ emissions, and this will be determined based on internationally-recognised efficiency benchmarks where available, or based on the facilities’ decarbonisation plans. Now this means that any emissions above the allowances will still be taxed at the prevailing carbon tax rate. In time, when appropriate, the Government will also release aggregated information on the amount of allowances provided, but I think, Members have also raised and would also understand that we will need to bear in mind considerations such as whether such disclosures inadvertently divulge commercially-sensitive information.
18. To address Mr Don Wee’s query, the allowances are only provided for the carbon tax and are not tradable.
19. In addition, the allowances will also be reviewed regularly against how the companies have fared against the efficiency benchmarks, where available, or based on their decarbonisation plans. Earlier in their speeches, Mr Cheng Hsing Yao and Ms Janet Ang spoke about the need to ensure that we are not too prescriptive and I agree with them. We agree with them. We need to ensure that the framework retains some flexibility, adaptability to ensure that as we transit into a low-carbon future, Singapore remains a compelling and attractive business location here so that we can create good jobs, including new green jobs for Singaporeans. We will also take into consideration international developments and technological developments of decarbonisation technologies, including CCUS and low-carbon hydrogen, much like how Ms Janet Ang spoke about the need to consider the state of technology development in determining the allowances. So I can assure her that we will keep our eyes and ears very close on the global developments, not just efficiency standards but also the low carbon technology developments.
20. Furthermore, only existing investments and commitments will be eligible for transitory allowances. Many of these investments were made amidst a different operating context and would require time, for them to transit and for them to make the necessary investments to ease into lower-carbon operations. Without transitory support, there will be a significant near-term impact on their competitiveness. So the transitionary support would especially help companies that have made large capital investments in Singapore and contributed to our economic story and the growth of jobs here in Singapore.
21. The transition framework will also help to mitigate the risk of carbon leakage, a risk that many Members spoke around in their speeches, so that we can avoid companies shifting operations to other jurisdictions with lower or no effective carbon prices. Members reminded us that today, as we debate this bill that Singapore is the only country within Southeast Asia to implement a carbon price regime. So we want to make sure we mitigate any risk of carbon leakage because such an outcome would result in the loss of jobs and loss of economic value in Singapore, with no overall global reduction in emissions, if there is carbon leakage.
22. Mr Louis Ng, in his earlier speech, and Ms Poh Li San, asked about the period of transition that will be provided to companies in EITE sectors. I want to assure them that we will calibrate the duration of the transition framework based on international developments and technological developments of decarbonisation technologies. We are aware that carbon prices in other jurisdictions are not static – some may continue to maintain very low and, in some cases, no carbon prices for specific sectors, while others may raise carbon prices more aggressively. We are keeping a very close eye on that. We also recognise that companies will need time to transit to low-carbon operations. The Government will consider all these factors when calibrating the transition framework. We will also inform companies in advance of the changes, to facilitate business planning.
23. Mr Leon Perera earlier proposed that allowances be awarded only to facilities that have received allowances for no more than one of the four preceding emissions years. I want to share with him that companies shared with us during the consultation that they need time to develop and implement new technologies to decarbonise and transform their operations. This effort could take a couple of years. Hence restricting allowances in the manner suggested will not provide the support needed by companies, nor meet the intended objective of the transition framework.
24. Mr Leon Perera also proposed that the awards of allowances, includes information such as reasons for awarding the allowances, be listed on a public registry. Members will appreciate, earlier on Ms Janet Ang shared about that, that doing this might be unwise. Members will appreciate that doing so may reveal commercially sensitive information about a facility’s scale of operations and revenue etc and over time, really erode Singapore’s competitiveness as a business and investment location and at the end of the day, it will affect our ability to create good jobs for Singaporeans. I have already stated that the Government will, in time, release aggregated information on the amount of allowances provided. I have also explained the reasons and basis for awarding the allowances earlier.
25. Mr Don Wee earlier also asked if Singapore is considering a Carbon Border Adjustment Mechanism (CBAM). A CBAM proposes a carbon tariff on carbon-intensive imports to stem carbon leakage to countries without a carbon price. We currently have no plans to introduce a CBAM. As a small market, putting in place tariff barriers would disadvantage our very own companies and have a limited impact on stemming carbon leakage. Having said that, we will continue to monitor global developments on CBAM and calibrate our position accordingly.
Government’s Support for Businesses and Households
26. Mr Cheng Hsing Yao and Mr Mark Chay spoke about the need to ensure energy security, resilience and preserve optionality as Singapore moves towards net zero emissions. I fully agree with them because energy security is always at the top of our minds even as we seek to decarbonise our grid. For example, as we scale up electricity imports, we will put in place sufficient backup generation capacity to ensure a continuous supply even in the event of disruptions. Many members also spoke about how we also recently announced our national hydrogen strategy. Indeed like what Mr Cheng Hsing Yao and Mdm Poh Li San had said, hydrogen can complement and diversify our power mix alongside solar, imported electricity and other potential low-carbon energy sources. So in importing hydrogen, like any other energy source, we will adopt a diversified portfolio to ensure energy security and to ensure energy resilience.
27. We are pressing ahead with the development of such low-carbon alternatives, which will provide more options for businesses and consumers seeking to purchase renewable energy. But even so, and especially in the interim, I think you will agree with us that businesses and consumers and in fact all of us, must play a part to improve energy efficiency, and optimize and reduce energy consumption.
28. Ms Poh Li San, Mr Xie Yao Quan, Ms Janet Ang, and Mr Mark Chay asked about support for companies that are paying higher electricity prices either due to the current energy situation or indirectly due to the carbon tax. We understand the challenges that our businesses are facing. We recognize that companies will be affected by the indirect impact of the carbon tax, through electricity prices.
29. Earlier 2M Tan See Leng addressed many of these energy PQs and shared with the House, that as Singapore imports more than 90% of our energy needs, we cannot be fully insulated from developments including volatilities in the global energy market. This is why we have adopted a calibrated approach of right-pricing electricity, to help encourage prudent use of electricity.
30. At the same time, we will continue to support businesses, our SMEs to make more sustainable business decisions. For instance, we have schemes to help our companies like our SMEs improve their energy efficiency, which will in turn reduce their energy costs as well as the indirect impact of the carbon tax. These include the Resource Efficiency Grant for Emissions (REG(E)) administered by the EDB and the Energy Efficiency Fund (E2F) administered by the NEA. Let me cite two projects very quickly. One project under the REG(E) scheme supported the replacement of a facility’s existing chiller system with a more energy efficient one, achieving energy savings of more than 3,600MWh, now what does this mean? This is equivalent to an abatement of over 1,700 tonnes of carbon emissions annually. Now this is one REG(E) project and we want to encourage our companies to come onboard the various schemes, whether is it REG(E) or the Energy Efficiency Fund or the more recently rolled-out Energy Efficiency Grant (EEG).
31. Now to Mr Mark Chay’s query, we also periodically review these schemes to assess if updates and refinements are needed to keep them relevant. We want to make sure they are relevant and accessible to our SMEs. For example, the Energy Efficiency Fund was just enhanced about 6 months ago, in April 2022. We raised the grant support cap for the adoption of energy-efficient technologies, from what used to be 50 per cent, we raised this to 70 per cent of the qualifying costs. NEA has also recently simplified the grant application, as well as the disbursement process for standard retrofit projects. This makes it easier for our SMEs, our companies to apply and benefit from the Energy Efficiency Fund.
32. Let me give you another quick example that even micro-enterprises and smaller SMEs can come on board. This example is from a local company which benefited from the Energy Efficiency Fund and the company’s name is Kawarin Enterprise Pte Ltd. Ta steel manufacturing company. With support from the Energy Efficiency Fund, Kawarin upgraded their old air compressors to more energy-efficient models. This has allowed them to enjoy annual cost savings of more than $30,000 and abated about 48 tonnes of carbon annually. This is just one Energy Efficiency Fund project and hope Members of the House can.
33. I want to assure the House that the Government will continue to monitor overall costs for businesses and households, which could be driven by multiple factors we discussed, besides the carbon tax, and MTI and economic agencies stand ready to provide more assistance when needed.
34. Mr Speaker Sir, the Government remains fully committed to working with the industry on its decarbonisation journey to become more sustainable and more competitive in a low-carbon economy. By working in partnership and taking the necessary bold steps today, we can chart Singapore’s transformation towards a greener and more sustainable future together.
35. Thank you.