What Does Carbon Tax & Its Reporting mean for Singapore Companies?

To achieve a greener, more sustainable and economically competitive future, Singapore, in its Budget 2022 , announced a hike in its carbon tax rates. The carbon tax rate hike aligns with Singapore’s climate ambition to achieve net zero emissions by or around mid-century (NCCS, 2022).

In layman’s language, a carbon tax means a fee imposed by the Government on the industries that burn carbon-based fuels like coal, oil and gas; and produce carbon dioxide through their operations.

The carbon tax is one of the popular carbon pricing mechanisms adopted globally. Singapore was among the first Southeast Asian nations to implement a carbon tax and pricing scheme on 1 January 2019 (NCSS, 2022). This highlights Singapore’s deep interest in playing its part in reducing global concentrations of greenhouse gases (GHGs) and adapting to the impact of climate change.

Registration requirements for reportable and taxable facilities

Reportable facilities: Under the Carbon Pricing Act, any industrial facility that emits direct greenhouse gas (GHG) emissions equal to or above 2,000 tonnes of carbon dioxide (tCO2e) annually has to register itself as a reportable facility through the Emissions Data Monitoring and Analysis (EDMA) System available at https://www.edma.gov.sg/ (NEA, n.d)

Taxable facilities: Any industrial facility that emits direct GHG emissions equal to or above 25,000 tCO2e annually will be required to be registered as a taxable facility under the CPA through the EDMA System (NEA, n.d).

Who is liable to pay carbon tax?

Taxable facilities must pay a carbon tax from 1 January 2019 onwards for reckonable GHG emissions (NEA, n.d).

Reckonable GHG emissions as per Carbon Pricing Act, include all direct emissions of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6) from: Fuel combustion, and Industrial processes and product use (IPPU).Reckonable emissions also include CH4 and N2O emissions from combustion of biofuels or biomass (NEA, March 2021).

Carbon tax liability can be calculated by multiplying the carbon dioxide equivalence of the total amount of reckonable GHG emissions (rounded up to the nearest metric tonne) with the carbon tax rate.

The carbon tax is set at $5 per tonne of GHG emissions (tCO2e) from 2019 to 2023. However, the carbon tax rate will be raised in a staggered fashion over the years in the following manner:

2024 and 2025: $25 per tCO2e

2026 and 2027: $45 per tCO2e

By 2030: $50 to $80 per tCO2e

Source: NEA, n.d

The carbon tax is applied equally to all sectors, including energy-intensive and trade-exposed sectors (EITE sector) (NCSS, n.d). .

Reporting Requirements for Greenhouse Gas Emissions

Emissions Report: A Reportable facility is required to compile and submit an Emissions Report annually for each facility.

A taxable facility will have to prepare its emissions report based on the approved monitoring plan (a document that identifies and describes the facility’s GHG emission sources and streams) and shall be submitted after the verification performed by NEA- accredited third party verifier.

The Emissions Report for each reporting period shall contain information on the facility’s activity data, computation for each direct greenhouse gas (GHG) emission, and the total direct GHG emissions. It is required to compile and submit an Emissions Report annually for each facility subject to the Carbon Pricing Act (CPA).

What is a carbon credit?

The carbon tax can be paid either by surrendering carbon credits or through the credit registry account to which the tax is charged. Carbon credits are credits businesses can purchase, and each carbon credit represents one tonne of emissions, so buyers of the credits can offset this amount from their total emissions (Singapore Legal Advice, 2022).

As announced in Budget 2022, companies may surrender high-quality international carbon credits to offset up to 5% of their taxable emissions from 2024. This will help the companies cushion the impact of increased rates, create local demand for high-quality carbon credits, and catalyze the development of well-functioning and regulated carbon markets (NCSS, n.d).

Carbon tax - Conclusion

As seen in many countries, Carbon taxes are often passed onto consumers through increasing commodity prices, fuel and transport. This can impact lower-income household consumers, as they will bear the burden of rising costs.

Since the carbon tax costs can be passed on to the consumers, it might not motivate the corporates to switch to lower carbon alternatives.

However, measures like providing subsidies to lower-income households to offset rising electricity costs and incentivizing businesses to deploy energy-efficient technology can be contemplated.

Ms Grace Fu, the Minister for Sustainability and the Environment in Singapore, said during a forum at the Singapore University of Social Sciences (SUSS) that the carbon tax hike is meant to signal to companies that carbon emissions have a direct cost on the environment.

The staggering hike in a carbon tax will give companies enough time to make alterations in their operations to protect them from the increasing cost of electricity. The rate increase will not only discourage the use of grid electricity, but it will also promote investments in green technology and super low energy facilities that will, in turn, facilitate the reduction of Singapore’s carbon footprint.

Get professional to assist you pay taxable carbon tax for reckonable GHG emissions.

Frequently Asked Questions

1. Can taxable facilities be deregistered?
Yes, the taxable facility can be deregistered in case of the following:
- When you stop having operational control over the facility;
- The total amount of reckonable GHG emissions does not exceed the annual 25,000 tCO2e thresholds for three consecutive years; or
- Where any modification to any work process at the facility is completed such that the total amount of reckonable GHG emissions does not meet the yearly 25,000 tCO2e thresholds and is unlikely to hit the threshold for the next two years.
2. What is the due date for submitting the Emissions Report?

The Emissions Report shall be submitted by 30 June of the year following the end of each reporting period.
3. Are companies allowed to use international carbon credits to set off their carbon tax liability?

Yes, the Government in the 2022 finance budget has stipulated that companies can use their international credits to offset the carbon tax liability.
4. What is a Fixed-Price Credit-based (FPCB) carbon tax system?

It is a tax mechanism where companies pay the carbon tax by purchasing and surrendering non-tradeable carbon credits. It represents the equivalent amount of verified emissions. These carbon credits can be purchased from the Government at a fixed price.
5. Why is there a need for a transition framework for EITE sectors?

Companies in such sectors may shift their operations to countries with less stringent carbon prices, resulting in job losses without benefitting the climate. To avoid such a scenario, the Government has rolled over a transition framework wherein allowances are provided for part of companies’ emissions, based on efficiency standards and decarbonization targets.