Did you know that Singapore is the first country in Southeast Asia to introduce a carbon tax? This tax is imposed on greenhouse gases (GHGs) emitted during the production of goods and services. The tax is designed to make emitters internalise the external costs associated with these emissions – such as damage to crops, healthcare costs from heatwaves and droughts, and property losses due to flooding and rising sea levels – making emitters financially accountable for their environmental impact.
Introduced in 2019 at S$5 per tCO2e [1], Singapore’s carbon tax has since increased fivefold to S$25 per tCO2e for 2024 and 2025, and is set to rise to S$45 per tCO2e for 2026 and 2027, reaching S$50 to S$80 per tCO2e by 2030. This tax applies to facilities emitting at least 25,000 tCO2e of GHGs annually, primarily targeting companies in emissions-intensive trade-exposed sectors such as chemicals, electronics, and biomedical manufacturing. Despite this threshold, the increasing tax rate serves as a strong incentive for all businesses to reduce their carbon footprint, aligning with national climate goals.
Carbon Credits
To complement the carbon tax, businesses can explore purchasing carbon credits to mitigate their environmental impact. Carbon credits allow companies to compensate for their emissions by investing in projects that reduce or remove GHGs from the atmosphere, thereby contributing to global climate change efforts.
A carbon credit represents a reduction in GHG emissions. These credits are generated by projects that avoid or remove emissions, such as renewable energy initiatives like wind or solar power, reforestation efforts, or technologies that directly capture carbon from the air. Of the 19 countries that Singapore is collaborating with on carbon credits, Singapore has signed Article 6 [2] implementation agreements with Papua New Guinea and Ghana, allowing tax-liable companies to purchase carbon credits from projects in these countries, provided they meet Singapore’s Eligibility Criteria.
Starting on January 1, 2024, carbon-tax liable companies in Singapore may also use high-quality international carbon credits (ICCs) to offset up to 5% of their taxable emissions. However, not all projects qualify; the Ministry of Sustainability and the Environment and the National Environment Agency have established stringent Eligibility Criteria under the International Carbon Credit Framework to ensure that only high-quality credits are used. Companies that procure ICCs priced below the prevailing tax rate of S$25 per tCO2e may potentially reduce their carbon tax liability.
Singapore as Asia’s Carbon Hub
Globally, jurisdictions such as the EU, US and China have established carbon markets. The development of a robust carbon services and trading hub in Singapore can present significant green growth opportunities as the country strengthens its commitment to provide a decarbonisation pathway for hard-to-abate sectors.
Currently, Singapore is home to Climate Impact X (CIX), a voluntary global carbon trading platform jointly established by DBS, the Singapore Exchange, Standard Chartered Bank and Temasek. CIX features a Carbon Exchange, a digital platform for trading large volumes of high-quality carbon credits, and a Project Marketplace, which allows direct purchasing of high-quality carbon credits from specific projects.
With a robust infrastructure for carbon trading and a commitment to decarbonisation, Singapore is poised to play a pivotal role in shaping the future of carbon markets in Southeast Asia and beyond.
