S'pore mulls prepaid carbon credits to link up with systems elsewhere

Singapore

SINGAPORE, in preparing for the possible integration of its carbon tax framework with external carbon markets in future, will use a credits-based mechanism for its carbon tax.

Facilities that have to pay a carbon tax will therefore do so by buying and surrendering the number of carbon credits corresponding to their greenhouse gas emissions, according to a draft carbon pricing bill.

The carbon credits will be issued by the National Environment Agency (NEA) at a fixed price, which will be determined closer to the implementation date of Jan 1, 2019. The government has also not yet indicated the actual amount of carbon tax, though it had said this will be between S$10-20 a tonne of greenhouse gas emissions.

The Ministry of the Environment and Water Resources (MEWR) on Tuesday morning launched a public consultation on the draft bill on the website of government feedback unit Reach.

The government announced plans to implement a carbon tax from 2019 during the Budget session earlier this year. The tax is part of a suite of measures that will help the city-state meet its commitments to the Paris agreement to reduce carbon intensity by 36 per cent from 2005 levels by 2030.

The tax will be applied on power stations and other large direct emitters which each produce over 25,000 tonnes of carbon dioxide equivalent of greenhouse gases a year. There are currently 30 to 40 of such large emitters, mainly from the petroleum refining, chemicals and semiconductor sectors, said the National Climate Change Secretariat (NCCS).

The increase in operating cost from such a tax is equivalent to the impact of an increase in crude oil prices of US$3.50-US$7 a barrel, according to NCCS.

Under the draft bill, NEA will determine the number of carbon credits that each taxable facility has to surrender, based on the emissions report that it has submitted for that year and verified by an independent third party. The carbon tax will be imposed on the facility's total emissions of six greenhouse gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.

The government had said that it remains open to linking the proposed carbon tax framework to external carbon markets where feasible. The Business Times understands that the use of carbon credits in the tax framework will put in place certain building blocks that will make it easier to link with a larger carbon trading system in future.

Constant van Aerschot, executive director at non-profit organisation Business Council for Sustainable Development Singapore, said all carbon pricing mechanisms will have their respective pros and cons.

"What is more important for the industry is to have clarity on future policies and regulations so that they can adapt their business model and make investment decisions that are future-ready," he said.

In addition, whatever the carbon mechanism put in place, it needs to be part of a wider set of policies such as performance standards for buildings or transport, and other fiscal incentives, he added.

In an earlier consultation conducted by the NCCS, there had been concerns raised that linking Singapore's carbon market with international markets will result in an outflow of funds from the economy. This would make projects that reduce emissions in Singapore less bankable and therefore less likely to proceed.

In its response posted on the NCCS website, the government noted that one of the benefits of a linked carbon pricing system is that emissions reductions take place where they are least costly.

"However, this needs to be balanced against outflow of funds and reduced incentive to undertake domestic mitigation projects," it added. "Jurisdictions that allow the use of international carbon credits usually set a limit on the amount of credits that can be used."

Several respondents also expressed concerns over the administrative burden for monitoring, reporting and verification of greenhouse gas emissions.

To minimise additional compliance burden on companies, MEWR said it has, in developing the Carbon Pricing Bill, built on existing procedures and requirements under the Energy Conservation Act (ECA). Previous measurement and reporting requirements under the ECA will now be consolidated into the new Carbon Pricing Bill, including the enhanced requirements under the amendments made to the ECA this year.

The bill also sets out, among other details, penalties for non-compliance with specific requirements such as the timely surrendering of credits.

The consultation period for the draft bill will last for six weeks, till Dec 8.