Carbon Pricing (Amendment) Bill 2nd Reading Opening Speech - Grace Fu
Opening speech by Ms Grace Fu, Minister for Sustainability and the Environment, Carbon Pricing (Amendment) Bill, 2nd Reading, 8 November 2022
1 Mr Speaker, I beg to move, “That the Bill be now read a Second time.”
2 This House has spoken extensively about the urgent need to address climate change. It is the greatest existential challenge to humanity today. Members have endorsed: a motion last year declaring climate change a global emergency and a threat to mankind; and another motion this year calling on the Government to advance Singapore’s inclusive transition towards a low-carbon society, in partnership with corporates, civil society, and the community. Both motions received support from all sides of the House. The world is already experiencing more extreme weather events, from devastating floods in Pakistan, Thailand, Indonesia and Australia, to the record-breaking droughts and heat waves in Europe, China and Africa. In the absence of more ambitious climate action, the toll on human lives and livelihoods will be massive. By 2050, it is estimated that climate change could lead to 250,000 excess deaths per year worldwide, and reduce global annual output by US$23 trillion – the equivalent of wiping out the GDP of the United States.
3 Recent events — the war in Ukraine, on-going COVID-19 pandemic — have caused economic hardship and energy shortages throughout the world, casting a dark shadow on climate action. We must press on as climate change does not wait for events to be over. Countries are gathering in Egypt for the 27th United Nations Climate Change Conference, or COP-27, to implement the Paris Agreement goals of capping long-term temperature rise and enhancing climate resilience. In their latest report released ahead of COP-27, the UN Climate Change Secretariat has warned that the world is not on course to meet these targets. Collectively, we must do better to turn the tide and secure a liveable and sustainable future. Two weeks ago, at the Singapore International Energy Week, DPM Wong announced that Singapore will raise our ambition to achieve net zero emissions by 2050. We will also revise our medium-term international commitment — our Nationally Determined Contribution, or NDC — to peak our emissions earlier and reduce our emissions to around 60 million tonnes by 2030.
4 Singaporeans have shown strong support towards our green transition, as announced by DPM. Our stakeholder consultations show that an overwhelming majority of corporates, NGOs and citizens believe that addressing climate change is a key priority.
5 We are making headway in our green transition. We are decarbonising our power sector by increasing solar deployment, and harnessing green electricity imports from the region. Our National Hydrogen Strategy was recently unveiled at the Singapore International Energy Week. We are partnering major industry players in the Energy and Chemicals sector to develop needle-moving solutions such as carbon capture and storage. We have enhanced grant support for companies hoping to deploy energy-efficient technologies. We will promote resource circularity in our local industry to further reduce energy consumption and curb emissions. We are greening our public transport operations and expanding the electric vehicle ecosystem. And we are venturing beyond our shores and seeking out opportunities for international collaboration on green technologies and carbon markets, to get to net zero.
6 We need an effective carbon price to activate carbon mitigation solutions that will help us achieve our net zero ambition. The carbon price provides an effective policy to motivate emitters to take action to reduce their emissions. Setting the price at the right level requires careful calibration. Too low a carbon price will not provide sufficient incentive to make the necessary changes to achieve our emissions target. Too high a price will make the change too steep, erode competitiveness, and destabilize our corporate sector. The proposed carbon price was set after careful balancing of the environmental, economic and social needs of our country. We have considered the availability of cost-effective green technologies and products, the pace of change we need to have and that our private sector can manage, and the support we need to give our companies and people to cushion the impact where necessary. All that with the intention of reaching our net-zero pathway.
7 Carbon pricing has been implemented in many countries. Close to 70 jurisdictions around the world have implemented carbon pricing instruments, covering about a quarter of global emissions. Major economies, such as the EU, are driving global convergence through the imposition of carbon border adjustment mechanisms, intending to place equivalent tariffs on imports from countries with low or no carbon prices.
8 Members from both sides of the aisle have spoken in support of a higher carbon price on multiple occasions.
9 At Budget 2022, the Government announced that Singapore will raise the carbon tax and make a decisive move to achieve our net zero ambition.
Intention of the Bill
10 The Carbon Pricing (Amendment) Bill will give effect to the key changes announced at Budget 2022, and strengthen our carbon pricing regime.
Revised Carbon Tax Levels
11 First, the Bill will amend the Third Schedule to the Carbon Pricing Act, or CPA, to adopt the revised carbon tax levels of $25 per tonne for greenhouse gas emissions in 2024 and 2025, and $45 per tonne for greenhouse gas emissions in 2026 and beyond. We have decided to raise the carbon tax level progressively in phases and with advance notice, to give our businesses time to plan and carry out their low-carbon transition. The progressive increases will set us on a trajectory to reach between $50 to $80 per tonne by 2030.
Industry Transition Framework
12 Second, the Bill will insert new Sections 20A to 20G in Part 5 of the CPA to set out the broad parameters of the industry transition framework, which will provide transitory allowances to companies in Emissions-Intensive Trade-Exposed or EITE sectors that face intense competition in the global market. We are mindful that our EITE companies will face higher costs than their counterparts in jurisdictions with no or lower effective carbon prices. These transitory allowances will not offset the entire carbon tax obligation of the EITE companies. It will be limited to only a portion of companies’ emissions, help to alleviate near-term competitiveness concerns, and provide a form of support to the companies as they work on reducing emissions and invest in cleaner technologies. By providing for a transition framework, we minimise the risk of carbon leakage – where companies relocate to another jurisdiction with less stringent climate policies. Similar frameworks have also been implemented in other jurisdictions with carbon pricing schemes, including the EU, South Korea, and California. Similar to our corporate income tax framework under the Economic Expansion Incentive (Relief from Income Tax) Act 1967, the industry transition framework will be administered by the Minister for Trade and Industry, who can assign relevant functions and powers to an appropriate public body. To drive our industry towards becoming best-in-class, the amount of allowances awarded to each facility will be determined based on their performance on specified energy efficiency or carbon intensity benchmarks, or their decarbonisation plans.
13 Companies in non-EITE sectors can continue to tap on support from the Government through broad-based schemes such as EDB’s Resource Efficiency Grant for Emissions and NEA’s Energy Efficiency Fund.
International Carbon Credits Framework
14 Third, the Bill will set up the International Carbon Credits framework, or ICC framework, through Sections 33A to 33D in Part 5 of the CPA. International Carbon Credits (ICC) referred to in the Bill are tradable certificates that represent the reduction or removal of emissions from the atmosphere, generated from projects or programmes outside Singapore. These carbon credits are generated by emissions reduction or removal projects that would not have materialised under a business-as-usual scenario, but are made possible due to financing from carbon markets. Examples include: reforestation projects that sequester more carbon in the atmosphere; or projects that help local communities switch from firewood to cleaner biogas cookstoves, which reduce emissions from current sources. A robust carbon market which efficiently matches the demand and supply of high-quality carbon credits has multiple benefits. Carbon-emitting companies gain access to an alternative decarbonisation pathway for hard-to-abate emissions. Much-needed finance can be channelled to support emissions reduction or removal projects globally. These projects can bring valuable co-benefits, such as biodiversity conservation and air pollution reduction. The development of well-functioning carbon markets is thus a vital part of global efforts to get to net zero. With the finalisation of Paris Agreement Article 6 rulebook at COP-26, countries can now cooperate through carbon markets to mutually support their respective climate targets and the raising of global climate ambition. As an alternative-energy disadvantaged country with limited domestic mitigation potential, Singapore is keenly exploring these new possibilities. In recent months, we have signed Memorandums of Understanding with Indonesia, Morocco, Colombia, and Vietnam, and exchanged Letters of Intent with Ghana to affirm our shared commitment to advancing cooperation and capability building on carbon markets. We will step up our efforts to engage more like-minded partner countries with credible climate targets, both in the region and beyond.
15 Under the ICC framework, companies will have the option to tap on eligible ICC to fulfil part of their carbon tax liability. Currently, companies only have one mode of carbon tax payment – by surrendering a corresponding amount of Fixed-Price Carbon Credits (FPCC), as referred to in the Bill, purchased from NEA at the prevailing carbon tax level. The Bill will amend existing Sections 2 and 17 of the CPA respectively: first, to introduce the definition of an ICC, as a certificate representing one tonne of emissions reductions or removals generated from projects and programmes outside Singapore; and two, to allow companies to surrender eligible ICC as a valid alternative mode of carbon tax payment, in addition to FPCC.
16 The ICC framework will ensure that the ICC surrendered are of high environmental integrity and compliant with Article 6 of the Paris Agreement. The new Section 33A will stipulate that all ICC surrendered must adhere to a set of eligibility criteria, which will be prescribed in subsidiary legislation. We intend for our eligibility criteria to minimally reference the Carbon Offsetting and Reduction Scheme for International Aviation, more commonly known as CORSIA, standards. These are a set of environmental integrity standards that have been developed and backed by a multilateral process led by the International Civil Aviation Organisation (ICAO), in consultation with green groups and experts, and are widely regarded as some of the most rigorous in the industry. As the market for carbon credits is nascent and growing, we will review our eligibility criteria periodically to align with developments.
17 I should emphasise that while the ICC framework provides a complementary pathway for companies to decarbonise, reducing emissions through domestic abatement efforts will remain our priority. Hence, the new Section 33B will stipulate that the ICC surrendered must be capped at a prescribed facility-level limit. This is currently intended to be set at 5% of taxable emissions, and will be prescribed in the subsidiary legislation. This limit is aligned with other comparable jurisdictions with similar climate ambitions, such as South Korea and California, and ensures that the ICC framework does not diminish the impetus for companies to cut emissions. We will continue to review the facility-level limit over time to align with international developments.
18 The ICC framework parameters apply only to companies that are carbon tax-liable and are surrendering credits to fulfill part of their carbon tax liabilities. They do not apply to the voluntary carbon market, where any company can purchase carbon credits to offset their own carbon footprint voluntarily and as part of their corporate climate targets.
19 The Bill will also update the list of greenhouse gases to keep pace with the latest global developments, and refine carbon tax administration.
Updates to List of Greenhouse Gases and Inclusion of Nitrogen Trifluoride (NF3)
20 The list of greenhouse gases and their Global Warming Potential values will be updated in the First and Second Schedules to the CPA, in line with newer standards adopted by the Intergovernmental Panel on Climate Change, or IPCC. The Bill will also amend the Second Schedule to remove nitrogen trifluoride, or NF3, as a non-reckonable greenhouse gas. This will bring NF3 emissions within the coverage of the carbon tax. We intend to do so from 2024 onwards. This is aligned with the UN Framework Convention on Climate Change and its Katowice rulebook, which require all parties to include NF3 in the reporting of their national emissions inventory by 2024. The inclusion of NF3 will mainly affect facilities in the Electronics sector, but transitional support will be provided to affected companies through grants and incentives such as the Resource Efficiency Grant for Emissions and Investment Allowance for Emissions Reduction.
Refinements to Carbon Tax Administration
21 The Bill will also introduce amendments to improve tax administration. To minimise unintended gaps in carbon tax collection when there is a transfer in operational control over a taxable facility, the Bill will amend various sections of the CPA to impose revised registration, reporting and payment obligations. To reduce compliance costs, the deregistration criteria will be expanded to allow companies to apply for deregistration if their facility has ceased operations. In addition, NEA will be empowered to deregister a registered company and facility if the person has wound up, been dissolved, or ceased to exist. As the carbon tax level is raised from 2024 onwards, the Bill will also: prescribe the treatment for the carryover or refund of FPCC purchased at the ‘old’ price; and increase the thresholds for waivers of small assessments and appeals to the High Court by a commensurate degree, to simplify administration and minimise the regulatory burden on taxable facilities.
22 Mr Speaker, to conclude, the Carbon Pricing (Amendment) Bill will ensure that our carbon pricing regime: remains fit for the future, strengthens the impetus for businesses and individuals to reduce their carbon footprint, and supports the growth of the green economy, in particular by contributing to the establishment of high-integrity, internationally credible carbon markets.
23 It is informed by our principled, balanced approach to carbon pricing, and reflects Singapore’s unwavering commitment to decisive climate action.
24 With that, Sir, I beg to move.