Budget 2022: Large emitters can buy carbon credits to offset carbon tax bill from 2024

Businesses will be able to use "high quality, international carbon credits" to offset up to 5 per cent of taxable emissions, in lieu of paying the carbon tax. PHOTO: ST FILE

SINGAPORE - Large emitters in Singapore will from 2024 be able to buy international carbon credits to reduce the carbon tax they have to pay.

Finance Minister Lawrence Wong said on Friday (Feb 18) that businesses will be able to use "high-quality, international carbon credits" to offset up to 5 per cent of taxable emissions, in lieu of paying the carbon tax.

"This will moderate the impact for companies," he said. "It will also help to create local demand for high-quality carbon credits and catalyse the development of well-functioning and regulated carbon markets."

Singapore's carbon tax applies to all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year.

The current rate, which will be in place until next year, is $5 per tonne of emissions. But this will go up to $25 in 2024 and 2025, $45 in 2026 and 2027, before reaching $50 to $80 per tonne by 2030, Mr Wong announced on Friday.

"I appreciate that some businesses and households may require support as they adjust to the carbon tax increase," he said.

Partially offsetting tax liabilities with international carbon credits would mean that firms can shrink their tax bill if they buy credits generated by, say, a forest conservation project in Indonesia.

Essentially, it means that a company here would have the option to pay another entity to reduce emissions in another jurisdiction where it may be cheaper to do so.

Mr Wong also said the Government is mindful that firms in emissions-intensive and trade-exposed sectors may face higher costs than those in countries with lower or no carbon tax.

Such sectors include, for instance, the petrochemical sector. Singapore is one of the top 10 exporters of refined oil products in Asia, according to the Economic Development Board.

"Some firms will also need a little more time to make the necessary reduction in emissions or investment in cleaner technologies," he said.

To this end, the Government will in 2024 be implementing a transition framework to support such firms and manage the near-term impact of the carbon tax on their competitiveness, said Mr Wong.

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The framework provides existing companies with allowances for a share of their emissions, which means they would not have to pay carbon taxes for these allowances.

"The allowances will be determined based on efficiency standards and decarbonisaton targets," Mr Wong said.

"This will help mitigate the impact on business costs, while still encouraging decarbonisation."

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For households, Mr Wong said the higher carbon tax will be felt mainly through an increase in utility bills. At a carbon tax rate of $25 per tonne of emissions, a household living in a four-room Housing Board flat can expect to see a $4 increase in monthly utility bills, he said.

"We will provide support, such as additional U-Save rebates, to help cushion the impact during the transition," he said.

More details will be announced next year ahead of the carbon tax increase in 2024, Mr Wong said.

The National Climate Change Secretariat urged households to practise energy-saving habits and switch to energy-efficient appliances to mitigate cost impact.

Eligible households can tap the Climate Friendly Households Programme to make the switch to more energy- or water-efficient appliances.

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