How Singapore compares with other nations
Based on information from the United Nations, 130 countries have now set or are considering a target of reducing emissions to net zero by 2050. The adoption of carbon pricing as a key economic lever to reduce emissions is expected to be a global norm in time.
As for the right price of carbon to allow countries to achieve enough reduction to keep the global increase in temperature below 2 degrees Celsius, the International Monetary Fund recommends a 2030 carbon price floor of US$75 for advanced economies, about US$50 for high-income emerging markets such as China and US$25 for lower-income emerging markets such as India. The announced increase in Singapore’s carbon tax is therefore in the right direction.
Riding on the back of the passage of Article 6 of the Paris Agreement, the trading of carbon credits on a global scale is set to grow and will likely drive a steady growth in carbon markets. Hence, the announcement that companies will be given the option to use high-quality international carbon credits to offset up to 5% of taxable emissions in 2024 is a leading one, putting Singapore among jurisdictions that have implemented similar mechanisms, such as Japan and the European Union. Indeed, this announcement is a strategic and welcomed move — one that will position Singapore well to become a carbon services and trading hub.
But will the use of carbon offsets help companies manage the cost of carbon tax?
The price of carbon offsets is a function of multiple factors — mainly project types and the country of origin — and is expected to increase given demands from the private sector to become net zero or carbon-neutral. Given the range of projects available in the market, some more credible than others, the specific mention of high-quality carbon credits such as offsets from nature-based climate solutions is noteworthy. The Singapore Government has yet to provide details on what would qualify as high-quality carbon offsets. However, this option can potentially cushion the impact of the hike in carbon tax if companies can successfully invest in such qualifying carbon credits or secure them in advance and at prices below the increased carbon tax.