Policy and Market Report Feature: Singapore’s Carbon Tax Scheme

Authors: Fundi Maphanga & Micaela Passetti

In this edition, we delve into Singapore’s carbon tax scheme. Specifically, we detail the carbon tax price, project the supply of International Carbon Credits (ICCs) eligible under the scheme, and forecast the demand for credits by taxpayers.

Singapore is a leader in regional carbon pricing, applying a tax to entities emitting at least 25,000 tonnes of CO2e annually, affecting 50 facilities in the manufacturing, power, waste, and water sectors. This tax covers 80% of jurisdictional emissions and includes CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride, and nitrogen trifluoride.

The carbon tax enables Singapore to set ambitious climate targets by reflecting carbon's negative externalities and funding decarbonisation efforts. Singapore is praised for price certainty and a transition framework supporting emissions-intensive trade-exposed companies to decarbonise and prevent leakage. Moreover, from 2024, facilities can offset up to 5% of emissions using ICCs aligned with the ICC Framework.

Providing price certainty allows the market time to adjust

The carbon tax, introduced at S$5 per tonne ($3.70/t) from 2019 to 2023, increased to S$25 ($18/t) per ton for 2024 and 2025. It is expected to further rise to S$45 per tonne in 2026-2027, with the aim of reaching S$50-S$80 per tonne ($36/t - $57.60/t) by 2030.?

Due to the Transition Framework in place, certain emissions-intensive trade-exposed (EITE) sectors, such as chemicals, electronics, and biomedical manufacturing, receive transitional free allowances to encourage decarbonization and prevent leakage. Allowances are time limited, and the amounts given are determined by self-reported performance by facilities against efficiency benchmarks which are rewarded for credible transition pathways, similar to frameworks implemented in other jurisdictions including the EU, South Korea and California.

Project eligibility criteria to offset emissions?

The ICC Framework empowers Singapore to collaborate with other nations in advancing its climate objectives. It encompasses a collection of principles referred to as the Eligibility Criteria for high-integrity projects and credits, which ICCs must adhere to within an Article 6 agreement.

Each individual project requires an LoPE from the government and has to take additional administrative steps on top of receiving an LoA. The LoA certifies that a project meets specific eligibility criteria set by the Singapore government.

The ICC Framework’s stringent requirements (qualitative criteria) included in Implementation Agreement with Papua New Guinea are as follows:

1. Project Type and Location: Eligible project types include those using offshore wind technology, waste-to-energy technology, or those linked with energy storage systems, among others.
2. Approved Carbon Crediting Programmes: The ICCs must be issued under recognized carbon crediting programmes such as the Gold Standard, Verra’s Verified Carbon Standard, the Global Carbon Council, and the American Carbon Registry. These programmes ensure that the credits are robustly validated, verified, issued, and retired.
3. Compliance with Methodologies: The Eligibility List excludes renewable energy projects (with a few exceptions) and Reducing Emissions from Deforestation and Forest Degradation (REDD/REDD+) projects or programmes in High Forest cover, Low Deforestation (HFLD) countries. While most forest conservation carbon credits (REDD+) are excluded, exceptions are made for Jurisdictional and Nested REDD+ projects using a jurisdictional approach in countries with significant deforestation, such as those under the VCS's Jurisdictional and Nested REDD+ (JNR) Framework, which offers stricter oversight.
4. Listing on the National Registry: The National Environment Agency (NEA) is developing a national registry to account and track the ICCs surrendered by taxable facilities, ensuring compliance with Article 6 of the Paris Agreement.?

Forecasted Aggregate supply

Singapore has entered into Memorandums of Understanding (MOUs) with 16 countries and is currently finalising implementation agreements with Bhutan, Ghana, Paraguay, and Vietnam. Currently, Singapore’s only implementation agreement is with Papua New Guinea, and no active projects meet ICC criteria published in December 2023.

Applying the latest ICC criteria against projects, we have identified 77 potentially ICC-aligned projects with a projected total of 21 million issuances. Full ICC eligibility would require a complete implementation agreement, for projects to have received letters of authorisation, and for the host governments (seller countries) to have applied a corresponding adjustment to transferred mitigation outcomes. According to our AlliedOffsets Liquidity Scores, the most liquid project is GSR407 Gyapa Cookstoves in Ghana, developed by Relief International.

Ghana’s jurisdictional REDD+ program under the ART TREEs standard (ART106) is also expected to be eligible for ICC supply. The program accounts for 2.6 million hectares of forest (64% of the National Forest area), across 10 political regions including Ahafo, Ashanti, Bono, Greater Accra and Western North. To avoid double counting, issuances from the four registered and pipeline VCS projects will be deducted from accounted TREES units (ERRs).

Cookstove projects already locked in to supply Ghanaian-Swiss partnership for ITMOs

We assume that many of these cookstove projects have been committed by Ghana to meet its partnership Switzerland are collaborating on a climate initiative under a bilateral agreement signed at COP26. The Transformative Cookstove Activity project in rural Ghana, Switzerland’s third authorised activity under Article 6.2 of the Paris Agreement, is the first fully authorised cookstove activity. Co-developed by ACT Group and Envirofit, the project aims to distribute 180,000 improved cookstoves. The Swiss-based KliK Foundation will purchase the resulting Internationally Transferred Mitigation Outcomes (ITMOs). Ghana’s Carbon Market Office has confirmed the project's contribution to its Nationally Determined Contributions and will adjust its emissions registry accordingly. The project is expected to generate 3,231,171 ITMOs over the crediting period from Q2 2023 to 2030, with 403,896 ITMOs issued annually.

Quality/Integrity: How many projects are likely to receive a CCP label?

Eligible programs have to meet Singapore’s criteria of meeting seven internationally recognised principles of high environmental integrity: no double-counting, additional, real, quantified and verified, permanent, no net harm, and no leakage) and represent emissions reductions or removals that occur between 1 January 2021 and 31 December 2030.?

Labels from IC-VCM’s Core Carbon Principles (CCPs) are set to represent an internationally approved benchmark for integrity in the market. Of the 77 potentially ICC-aligned projects, we have pinpointed the projects with the highest and medium likelihood of meeting the CCP standards.

Project developers must balance considerations of higher prices under Singapore’s carbon tax scheme, and scaling high hurdles of administrative assessment. Limited supply of authorised credits, evolving ICC implementation agreements, and pending CORSIA demand for Eligible Emissions Units (EEUs) set to increase overtime, project developers are still assessing opportunities.

Aggregate demand

Singapore's carbon tax currently covers about 80% of the jurisdictional greenhouse gases, amounting to approximately 64,090,000 tonnes in 2020. This implies that 51,272,000 tonnes of CO2e are covered by the tax. According to regulations, about 5% of taxable emissions can be offset using carbon credits, allowing for the offsetting of 2,563,600 tonnes of CO2e (based on 2020 jurisdictional GHG emissions).

Total emissions? × Tax coverage percentage (80%) × Offset percentage (5%)

(64,090,000 × 0.80) × 0.05

51,272,000 × 0.05 = 2,563,600 tonnes of CO2e

Due to the Transition Framework in place, certain emissions-intensive trade-exposed (EITE) sectors receive transitional free allowances. The amount of allowances awarded to each facility is determined based on its performance on internationally-recognized efficiency benchmarks, where available, and the facility’s decarbonization plans. Although these transitional allowances cover only a portion of companies’ emissions, and their allocation undergoes regular review, they effectively reduce the overall emissions covered by the carbon tax. Therefore, when assessing the demand for carbon credits, it is essential to have a nuanced understanding of sector-specific allowances.

For more detailed information, download our latest Policy Report here!