Opening Speech by Masagos Zulkifli, Minister for the Environment and Water Resources, at the Second Reading of the Carbon Pricing Bill

Mr Speaker, Sir, I beg to move, “That the Bill be now read a Second time.”

Intention of the Bill

The Carbon Pricing (CP) Bill seeks to impose a carbon tax on certain greenhouse gas emissions (or GHG emissions) of business facilities, measured from 2019 onwards. The Bill also imposes obligations concerning the reporting of GHG emissions of business facilities, in place of the obligations currently in the Energy Conservation Act.

Global Transition to a Low-Carbon Economy

I have spoken in this House about how climate change poses existential challenges for Singapore. We are already experiencing its impacts – changing weather patterns, more intense rainfall and rising sea levels. Singapore is thus an active advocate and contributor to global climate action, as this is the only way to preserve a habitable planet for our children. This is also why we are rallying Singaporeans in this Year of Climate Action. Since launching in January, about 50,000 individuals, organisations and educational institutions have taken the climate action pledge; our Climate Action video has been viewed more than a quarter million times. We are encouraged by the passion and activism of so many Singaporeans and businesses, doing their part for climate action.

Our 2016 Climate Action Plan outlines the climate adaptation measures we are taking to build Singapore’s resilience to climate change, as well as the climate mitigation measures to reduce greenhouse gas emissions in every sector through driving energy efficiency, robust transport policies around what we term ‘Car-lite Singapore’ and waste management policies aiming for a ‘Zero Waste Nation’. The carbon tax is thus an integral part of this suite of mitigation measures to nudge our industries towards a low carbon footprint. Put together, they will enable Singapore to meet our commitments under the Paris Agreement.

But climate change also presents new opportunities for our companies. The World Bank estimates that climate-smart investments amounting to US$23 trillion will be needed to meet the Paris commitments. That means US$23 trillion in demand for clean energy, low-emissions transport and sustainable urban solutions.

Investors are moving in this direction. Under the Climate Action 100+ Initiative, 256 investors managing US$28 trillion in assets have committed to work with companies to reduce emissions. Companies that adopt greener technologies and climate-friendly practices will find it easier to operate and thrive. China has already made a strategic choice and stated its ambition to transform its economic development and shift towards a low-carbon economy. Globally, many companies are following suit. To maintain our competitive edge, Singapore companies must also transform. Consumers all over the world will soon demand products and services that use the smallest carbon footprint. We must move early. The Government will help. The Minister for Finance has clearly stated that we are prepared to spend more than what we collect in carbon taxes over the next 5 years to help our companies, including SMEs, improve their carbon efficiency and shift to the low-carbon economy.

Rationale for Carbon Tax

Our companies reported an energy efficiency (or EE) improvement rate of 0.4 per cent in 2014 and 0.6 per cent in 2015. I am happy that our EE improvement rates continue to rise and for 2016, we have achieved an EE improvement rate of 0.8 per cent. This means reduced carbon emissions from industry. However, we still have some way to go, as leading jurisdictions such as Belgium and the Netherlands achieve annual improvement rates of one to two percent.

The carbon tax will incentivise companies to improve energy and carbon efficiency, while giving them the flexibility to take action where it makes business sense. My Ministry held a consultation session recently with industry and NGO participants. Many participants agreed on the need for climate action and supported pricing carbon.

This is consistent with the views expressed by business leaders worldwide. For example, Chairman and CEO of ExxonMobil, Darren Woods blogged that, “A uniform price of carbon applied consistently across the economy is a sensible approach to emissions reduction. This would promote greater energy efficiency and the use of today’s lower-carbon options, avoid further burdening the economy, and also provide incentives for markets to develop additional low-carbon energy solutions for the future.”

The Carbon Pricing Bill

Since the Finance Minister announced the carbon tax at Budget 2017, we have been consulting stakeholders closely on implementation. To manage compliance costs for companies, the Bill builds on the existing requirements in the ECA. Similar to the ECA, the Carbon Pricing Act will be administered by the National Environment Agency (NEA).

Keeping in mind companies’ compliance costs and our international competitiveness, we studied the laws in other carbon pricing jurisdictions, such as the European Union, California, and South Korea, to ensure that our requirements are appropriately calibrated, and aligned to international practices. We also took reference from the requirements and associated penalties in relevant domestic legislation, including the ECA, as well as the Income Tax Act and the Goods and Services Tax Act.

We have also transferred all the GHG emissions reporting requirements from the ECA to the CP Bill.

Through many rounds of consultations with potentially affected companies, NGOs and the general public since early 2017, we have received constructive and useful feedback to refine the Bill. I would like to thank everyone who participated.

Mr Speaker, allow me to go through the key components of the Bill which are contained in Parts 3 to 5.

Part 3 – Coverage And Definition of Facility

Part 3 of the Bill identifies the persons and business facilities that must be registered under the Bill. Facilities from the manufacturing, power generation, water supply and waste management sectors will be covered.

We have made refinements to how the ECA defines a “business facility” to provide greater clarity to companies and to align our definition with international practices. A business facility is a single site where a business activity that involves the emission of greenhouse gases and forms a single undertaking or enterprise is carried out.

The person, which can be a company or other legal person, having operational control over the facility must be registered under the Bill, and will be responsible for fulfilling the obligations under the Bill.

A business activity can be an activity or a series of activities. The Bill allows for business activities that are carried out at two or more parcels of land separated from one another to be treated as carried out at a single site in certain instances, including if the activities are under the operational control of the same person and are carried out in an integrated manner with clear dependencies between the activities.

Other jurisdictions have similar practices, where separate installations with technical connections or in physical contact, can form a single facility. This was also requested by the industry. We hope that this exception will encourage companies to consider the synergies across plants in order to reap greater emissions reduction and improve resource efficiency. It will also lower compliance cost as only one emissions report needs to be submitted for a single business facility spanning multiple premises.

The Bill imposes obligations in relation to two types of facilities – taxable facilities and reportable facilities.

Taxable facilities are those that emit 25,000 metric tonnes of carbon dioxide-equivalent (tCO2e) and above of GHG emissions annually. This threshold does not include the GHG emissions listed in Part 2 of the Second Schedule which I will elaborate on later.

These facilities will have to undertake more rigorous measurement, reporting and verification processes, or MRV in short, and will have a carbon tax imposed on their GHG emissions. Together, the facilities that cross this threshold account for about 80 per cent of Singapore’s GHG emissions.

We took reference from key jurisdictions such as the EU and South Korea in deciding on the threshold level of 25,000 tonnes. We aim to strike a balance between maximising our emissions coverage while managing the compliance cost for smaller emitters.

Nevertheless, we still want to encourage smaller emitters to monitor and reduce their emissions. Hence, the second category called reportable facilities – those that emit at least 2,000 tonnes but less than 25,000 tonnes – must have their GHG emissions measured and reported, but will not be taxed.

Part 4 – Measurement, Reporting, And Verification (MRV)

A robust MRV regime forms the foundation of an effective carbon pricing scheme. For reportable facilities, the measurement and reporting requirements will be similar to their existing ECA reporting practices, whereas taxable facilities will adhere to a more stringent set of MRV requirements.

Emissions reports for taxable facilities must be submitted annually based on a monitoring plan. The monitoring plan sets out data management practices to ensure that GHG emissions data is measured and reported accurately and robustly. The registered person having operational control of a taxable facility will also be required to engage a qualified independent third party, accredited by NEA, to verify the emissions reports. This provides an independent review of the measurements and reporting of a facility’s GHG emissions, akin to a company engaging an external auditor to audit its financial statements.

Part 5 – Tax And Mechanism

The details of the carbon tax can be found in Part 5 of the Bill. As announced by the Finance Minister in the 2018 Budget, the carbon tax rate will start at S$5 per tonne of GHG emissions, which the Government intends to raise to between S$10 to S$15 by 2030. The initial rate of S$5 per tonne has been specified in the Third Schedule and can only be amended by an Act of Parliament.

Our carbon tax will be applied uniformly without exemptions. It will take the form of a fixed-price credits-based mechanism. This means registered persons will pay the carbon tax by surrendering carbon credits equivalent to their carbon tax liability. These carbon credits can only be bought from NEA at a fixed price.

We have designed our carbon tax this way to give us the flexibility to introduce international credits or link to other emissions trading systems, if and when there are opportunities to do so. However, in the initial phase, international credits or offsets will not be allowed as we want our companies to focus on reducing their emissions. That said, we recognise that companies welcome the potential use of international credits. We are monitoring the global discussions on the use of and accounting of international credits and will continue to study this issue.

First and Second Schedule – Coverage of Greenhouse Gas Emissions

The carbon tax will be levied on the direct emissions of six types of greenhouse gases – namely carbon dioxide, methane, nitrous oxide, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride. These are the six gases that Singapore is required to report under the United Nations Framework Convention on Climate Change.

To reduce compliance costs, there will be a list of GHG emissions that are excluded from the carbon tax, similar to the practice in other carbon pricing jurisdictions. The list comprises small sources of emissions which have a disproportionately high cost to measure and report compared to the amount of carbon tax collected. These sources of emissions are typically from ancillary processes and are insignificant compared to a facility’s total GHG emissions.

The list of excluded emissions is specified in Part 2 of the Second Schedule. It includes GHGs emitted from fire extinguishers, and HFC and PFC emissions from air-conditioning equipment used for non-manufacturing purposes, such as in office buildings.

The list also includes GHG emissions that, in line with international GHG reporting protocols, are not counted towards a company’s emissions, such as the carbon dioxide emissions from biofuels. Furthermore, we will exclude emissions arising from the use of petrol, diesel and compressed natural gas (CNG). As highlighted by the Finance Minister in his recent Budget speech, excise duties have been levied on these fuels, which already encourage reduction of their use and therefore reduce GHG emissions; and hence no additional carbon tax will be levied.

Although the excluded emissions are not taxed, registered persons will still be required to measure and report most of this data, using simpler methods to estimate such emissions. This data will enable us to track whether these emissions have grown over time and review the list of excluded emissions, if necessary.

Penalties and Appeal Mechanism

Given that we are imposing a tax on GHG emissions, for parity, the penalties on taxable facilities relating to reporting and tax payment have been pegged to the equivalent penalties for fraud and tax evasion in the Income Tax Act.

The Bill also provides an avenue for a registered person to appeal to the Minister against NEA’s decision pertaining to the deregistration of taxable facilities, approval of verified emissions reports or monitoring plans, or tax assessments and refunds. These disputes may involve highly technical and specialised industrial processes. Hence, the Bill allows the Minister to delegate the appeal to a Panel that must comprise at least one person with the requisite technical expertise.

Conclusion

Mr Speaker, to conclude, the carbon tax is a key part of our measures to achieve Singapore’s climate pledge and enhance the competitiveness of our companies and economy. It will provide a price signal to incentivise energy and carbon efficiency improvement across the economy, and encourage investment in clean, sustainable solutions.

It is a significant step to bring us closer to a liveable and sustainable Singapore, where thriving businesses have low carbon footprints and where climate action is a way of life for all. Through this transformation, our companies will be able to remain internationally competitive and capture opportunities in the low-carbon economy of the future.

Sir, I beg to move.

Source: Ministry of the Environment and Water Resources