Carbon Pricing (Amendment) Bill 2nd Reading Closing Speech - Grace Fu

Closing speech by Ms Grace Fu, Minister for Sustainability and the Environment, Carbon Pricing (Amendment) Bill, 2nd Reading, 8 November 2022

1 Mr Speaker, I thank Members for their support and constructive views on this Bill.

2 I am heartened that all Members agree that the revised carbon tax regime set out in the Bill is a decisive step in climate action. The revised carbon tax levels will incentivise energy and carbon efficiency in all sectors, and tilt the scales in favour of additional decarbonisation solutions, such as carbon capture, utilisation and storage, and low-carbon hydrogen. They have been calibrated to enable the pace of transformation needed to achieve our net zero ambition, while allowing businesses to stay economically competitive as they embark on their low-carbon transition. Our approach provides certainty by giving advance notice to companies and announcing the rates ahead of time.

3 I will respond to Members’ questions on the issues raised, under three broad themes: First, the environment. How do we maintain a strong impetus for decarbonisation, ensuring that the allowances granted under the transition framework do not blunt the purpose of the carbon price, and that the international carbon credits (ICC) regime is robust? MOS Low Yen Ling has addressed Members’ questions on the transition framework and industry support schemes. I will speak about the ICC regime shortly. Second, the economy. Members spoke on the need to maintain our economic competitiveness amidst the transition to a low-carbon economy, which MOS Low has spoken on. Many Members have also highlighted how this new carbon tax regime can create new growth opportunities. How can we support a vibrant carbon services ecosystem in Singapore which can create good, green jobs for Singaporeans? Third, the society. As we update the carbon tax regime, how do we deliver an inclusive transition towards a low-carbon society?

4 Let me address these issues in turn.

Upholding the Environmental Integrity of Carbon Credits

5 First, on the environment. As Ms Janet Ang has highlighted, we must ensure that the carbon credits surrendered or “off set” are of high environmental integrity. Ms He Ting Ru brought up the same point.

6 Our ICC framework will be underpinned by a set of robust criteria, which will minimally be aligned to the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) standards which have been endorsed internationally.

7 CORSIA standards are amongst the most rigorous in carbon markets worldwide, and they include criteria such as additionality and permanence. Additionality means that emission reductions must be “above business as usual” levels. Permanence requires emission reductions to be durable and irreversible.

8 Furthermore, we will ensure alignment with international rules, such as Article 6 of the Paris Agreement. One such requirement is “no double-counting". Double-counting occurs when an eligible ICC accrues to both Singapore and the host country producing this ICC. To prevent this ICC from being double-counted, the host country must authorise a corresponding adjustment, to “give up" the emissions reduction to Singapore. These are standards which must be mutually agreed upon when we conclude carbon credits collaboration with partner countries.

9 We will publish a white-list of ICCs that are acceptable, which will highlight the eligible host countries, carbon crediting programmes, and methodologies. This will provide more clarity to companies and to the public, on what our eligibility criteria entails. By placing emphasis on the quality of eligible ICC surrendered, we ensure that companies exercise care and due diligence in sourcing high-quality ICC responsibly and avoid the associated pitfalls, as Ms Janet Ang and Ms He Ting Ru have highlighted.

10 On the carbon credits registry: later this week, NEA will be calling a tender for the development of the International Carbon Credits Registry, or ICC Registry. When ready, the registry will serve as a record-keeping system to track and account for the usage of ICC by carbon tax-liable companies to offset their taxable emissions. The ICC registry will be an integral part of our ICC framework.

11 In developing and implementing our ICC framework, we have been and will continue to work closely with industry players, green groups and other key stakeholders.

12 Sir, I've explained quite extensively how we develop our ICC framework with high standards — CORSIA, additionality, permanence, Paris Agreement Article 6, no double counting, registry and so on. And there is also a parallel workstream that is going on for the voluntary market. So MAS, SGX, for example, are hard at work on credible and robust taxonomies. This is a very nascent area and I think many parties, many different organisations, different sectors, are working very quickly to get alignment and harmonisation of standards. Singapore must be there in order to have the first mover advantage that Ms Ang has talked about. In this way, we hope that by having the ICC framework as a foundation, the voluntary markets can take guidance, and also benefit from the carbon services competencies that we will help develop in Singapore. Although this Bill does not address the voluntary carbon market, which I'll talk about later on, I hope that my explanation on what we are doing on ICC helps address some of the concerns over greenwashing.

Growing our Carbon Services Ecosystem

13 Second, on the economy, and creating growth opportunities, specifically how the Government will unlock supply of ICC and support the growth of the carbon services and trading ecosystem in Singapore.

14 I agree with Ms Janet Ang on the importance of diversifying our sources of credit supply, including our source countries and the types of carbon credit projects. I spoke earlier about our Government-to-Government engagements, which are progressing well. We will advance talks with like-minded countries to establish implementation agreements and bilateral frameworks to guide interested parties to procure and trade high quality credits. At the technical level, we are working closely with key players in the carbon services and trading ecosystem to develop the ICC framework. In July, NEA signed Memorandums of Understanding with leading carbon crediting programmes, namely, Verra and Gold Standard, which together account for over 70% of global carbon credit issuances. With these MOUs in place, companies will be able to acquire eligible ICC from projects registered with these programmes, and surrender them to offset part of their carbon tax liabilities.

15 Our intent is for the ICC framework to catalyse local demand in carbon markets and support our vision of establishing Singapore as a carbon services and trading hub. Carbon services are a promising potential growth area for Singapore that can create good, green jobs for Singaporeans, while contributing to the global agenda on climate change. Growth in carbon markets will drive demand for jobs related to low-carbon project development, financing, consultancy, and measurement, reporting and verification, or MRV. Singapore is well placed to leverage these opportunities. One notable example is the Climate Action Data Trust, or CAD Trust, which will be officially launched next month as a global market infrastructure supported by the World Bank, the International Emissions Trading Association, and the Singapore Government. The CAD Trust will be anchored in Singapore to provide an open-source system to link and harmonize information about carbon credits and projects across registries globally. This initiative will drive market transparency, strengthen trust, and advance global climate action. And Singapore, I think, is well placed because we have developed trust and confidence with investors over decades, and we will maintain this confidence and high level of integrity in this new area that we go into as well. The CAD Trust will join a thriving ecosystem of over 70 organisations in Singapore, providing carbon services to the region and beyond.

16 Ms Janet Ang asked if the Government plans to ensure the credibility of voluntary carbon trading activities in Singapore and manage related risks. Other members also asked about the development of voluntary carbon trading activities. I would like to clarify again that the ICC framework’s parameters do not apply to the voluntary carbon market. Our approach is to build up a vibrant carbon services ecosystem, and provide the space for leading international and corporate initiatives to shape the voluntary marketplace. These include the Voluntary Carbon Markets Integrity Initiative and the Integrity Council for the Voluntary Carbon Market, which develop guidelines that promote the trading of voluntary carbon credits with high environmental integrity. As companies’ use of voluntary carbon credits evolves, we will continue to study whether there is a need to adopt a more prescriptive approach.

17 Ms Poh Li San and Ms Janet Ang raised concerns that setting the facility-level limit for the use of ICCs at 5% might be too low, considering the current limitations in technologies that can achieve emissions reduction at scale and the need to support a vibrant carbon market. As mentioned earlier, we are starting with 5% as the facility-level limit to prioritize domestic abatement efforts. Are we right? Does it have to be 5%? Can it be 8%, can it be 3%? Nobody knows, this is a nascent area. What we will do is start at 5%, which we think we can manage, and then as the market develops, we will see how it goes and make changes along the way. So, I would just like to say to Members that in this phase, let's not be too prescriptive. Let us have an effective system that we can help grow from a very nascent stage to something that we can be proud of. If we start with too many rules, it may make the scheme ineffective even if it is the most transparent in the world. We will review the facility-level limit over time and align with international best practices, as carbon markets develop.

18 This brings me to Ms He Ting Ru’s proposed amendment pertaining to instances where the prescribed facility-level limit is lifted. We are not able to support the proposed amendment, as it involves the publication of identifiable information relating to the registered business facility, and breaches the confidentiality of carbon tax data which companies are accorded under the Carbon Pricing Act. I hope that I have explained sufficiently how our overall framework supports transactions of high environmental standards and that there are sufficient safeguards in terms of the registry, in terms of standards that will allow a nascent system to grow. I understand that Ms He Ting Ru has suggested that perhaps we can have disclosure without financial details. But imagine the situation where we are discussing with companies on what ICC they are engaging in. If the company has something groundbreaking that requires significant amount of ICC to justify the investment, but if the system up there says that "look, anything above 5% – disclosure, disclosure – even though details are not there, but names will be flashed on the papers". Do you think there will be more companies stepping forward or there will be fewer companies stepping forward? So, we have to be quite practical at this stage. Feel our way through and then if we find that 5% is indeed not sufficient, Members can be assured that I will come back to this chamber to ask for this level to be increased. Because we are all in the same boat. We want the same thing, which is a well-functioning carbon credit system that has environmental integrity.

Delivering an Inclusive Low-Carbon Transition

19 I will now address the final group of issues which deal with balancing the interests of all stakeholders as we manage a fair and inclusive transition.

20 Ms Janet Ang and Mr Louis Ng asked about the Government’s plan for the carbon tax to be imposed on more emitters, beyond the large emitters.

21 The current carbon tax threshold of 25,000 tonnes ensures that the carbon price is efficiently applied at key nodes of the economy, and maximises coverage while it minimises - I would say optimises - administrative burden on businesses. This covers around 80% of Singapore’s emissions, one of the most comprehensive in the world. Coupled with our existing taxes on transport fuels, which is not subject to carbon tax — we have a separate tax on fuel — we are achieving around 90% coverage, one of the world’s highest.

22 Mr Louis Ng asked how compliance costs would increase if the next tier of facilities, that is, the reportable facilities, were taxed as well. Such facilities will have to incur not just the cost of reporting or the cost of paying taxes, they will have to get their reported emissions verified. Because once you have to pay tax, we will need you to have it checked by experts, by auditors. And this will be a cost burden for a company perhaps with a much lower carbon tax. So, the cost of compliance would be disproportionate to the carbon tax payable. Furthermore, as reportable facilities contribute only about 1% of Singapore’s emissions, it would add little to the already high coverage of 80%.

23 I thank Mr Louis Ng and Mr Leon Perera for their suggestions on publishing carbon tax data, including those proposed as amendments to the Bill.

24 Public disclosure of data needs to be contextualised, so that it can be interpreted fairly and meaningfully. Our large emitters have products and production processes that are often heterogenous, specialised and proprietary. Publishing the emissions or ranking of top emitters without providing context of the business’ nature or the size of its operation may not be helpful in understanding how well a company is doing in mitigating its emissions. Two refineries, same products altogether, both getting the same amount of allowances – is that definitely fair? What if I tell you that one refinery actually is adopting very carbon inefficient processes. The other one is way ahead. Without background information, without understanding its processes, you can’t just look at two numbers and say “this is fair” or “this is not fair” and (question) why you're given this. There must be a workable system. And I think as MOS Low has explained, companies have to be benchmarked, they will have to produce their decarbonisation plans, so that we can support them on a multi-year, decarbonisation journey. For accountability to their stakeholders, we encourage all companies to size, analyse, and publish their environmental impact to explain how they are managing emissions-related risks, in relation to their commitment to decarbonisation. Companies listed locally are already subject to SGX requirements to do so, as in many jurisdictions globally. Nonetheless, we will study possible ways to better facilitate environmental impact disclosure, in a manner that respects commercial sensitivity.

25 We appreciate the concerns from Mr Gan Thiam Poh and Mr Xie Yao Quan, Mr Mark Chay and Associate Professor Jamus Lim that the revised carbon tax levels will lead to higher costs amidst rising inflationary pressures. Members of both sides of the House recognise the effectiveness of a carbon tax depends on the price level and have spoken in support of a rise in the carbon tax. We all agree that $5 is not right, so we need to move. Global warming does not pause because of inflation. Rather than holding back our plans, the Government has been and will continue to provide support in a targeted manner to affected businesses and households, as part of our long-standing commitment to an inclusive low-carbon transition.

26 This is where I listened closely to Associate Professor Jamus Lim and I have difficulty accepting his recommendations on implementation. First, he has acknowledged that he has actually asked for a higher carbon tax range. He quoted $80 to $133 as a range, and with $100 as a useful midpoint or benchmark for our carbon tax level. This $80 to $133 is significantly higher than what we have stated, which is $50 to $80. I am glad that the Workers’ Party is supporting an even higher carbon tax range. As the Minister for Sustainability and the Environment, you are the best champion along with me. Second, he went on to say that this is actually not a very good time, because we have inflation and energy shortages. And he says that instead of binding us to fixed number, we should perhaps adhere to a central rate, but with a variable component that varies over time, according to conditions of the economy. In other words, scale back when the economy is in recession, and raise when the economy is strong. Associate Professor Lim has suggested this as a way to ease implementation.

27 I find it hard to implement. First, I would like Associate Professor Lim to give me a three-year projection of what the economic conditions will be and then what that variation would be. Secondly, he said that MAS will be able to project that. Nobody can project what has happened. We've all seen how exogenous factors have affected our economic conditions. Who has expected COVID-19? Who has thought about the Ukraine war? So, what do we do? We go out to the market, stand in a chamber here and say, by the way, we are going raise carbon tax, but we cannot be sure — it's somewhere around $80 to $133 per tonne. But you know there is some middle number, and then you can move around a bit. How can a company make plans like that? When you want them to invest in a plant that is energy efficient, that captures carbon or uses green hydrogen, you have to tell them what is likely going to be the prevailing carbon tax. So that when they do multi-year calculations – as Mr Leon Perera has stated that this is what companies would do – sometimes for 10-20 years, they need to have certainty. Otherwise, they will not be able to price in the effect of a higher carbon price. It will be unfair to companies who have invested in hydrogen, who would turn around and find that there are no takers because the carbon price differential is missing. For the Government to say that it was going to do it, but actually because of the economic situation, is now not doing. So, we find it very hard to accept his suggestion. He has also suggested that maybe we should push back the tax. We are suggesting that we raise the carbon tax in 2024. And that leaves us six years to 2030. If you are going to push back one to two years until the recession is completely over, which we do not know when that is going to be, that means that it leaves us with about four years to raise it from $5 to $100 per tonne. Is that better or not for companies? I find it hard to accept his suggestion for implementation.

28 As Ms Poh Li San and Mr Don Wee have pointed out, the Government does not expect to derive additional revenue from the upcoming revisions to the carbon tax, and that is correct.

29 The carbon tax revenue will be used to accelerate decarbonisation efforts and Singapore’s inclusive transition to a green economy. MOS Low Yen Ling has spoken about how the Government is supporting our industry along their decarbonisation journey. In addition to energy efficiency support measures for businesses, Mr Mark Chay will be pleased to note that we have earmarked funds under the Research, Innovation and Enterprise 2025 plan for the research, development and demonstration of low-carbon technologies that can drive deeper decarbonisation.

30 We will cushion the impact on our households. While I cannot accept Associate Professor Lim’s suggestion, we will have to, from time to time, evaluate our carbon tax. Maybe we have it too high, maybe we have it too low, maybe we can move faster. Maybe there are already technologies out there that can make carbon capture cost-effective. We will have to change, but we need to give companies sufficient notice. And in a year when business is bad, or utilities are high like we are experiencing now, you can be assured that the Government will have very targeted measures that are relevant for that time and the same with households. For the House and Members’ information, $25 per ton is our next step – from $5 to 25 in 2024. We have not even raised the carbon tax yet, so none of the higher utility costs today is attributable to carbon tax. At $25 per tonne, the rise in carbon price would translate to an estimated increase of about $4 per month in the utility bills for an average 4-room HDB household.

31 When the carbon tax was first introduced in 2019, U-Save rebates were provided to offer transitional support to help affected households adjust. We have been and will continue to support households with U-Save rebates. As Members would know, I think in the last 6 to 12 months, we have been supporting our households because of inflation and high utility costs. It is no secret that we support households. For example, for households in four-room flats, we will support up to five months of utility bills. Just to put things in context again, carbon tax, as it stands now – for a year, every year, we are collecting to the tune of $200 million. That's all. $200 million. It is not enough to affect the costs of goods. Inflationary pressures have been caused by other factors. The utility bills support, the U-Save rebates that I mentioned, that go to households, cost the government $580 million for the financial year 2022. This is to give you a measure of the scale that we are talking about, we are prepared to support households, even above what we are collecting, whether it’s GST or carbon tax.

32 I think Members have the assurance that while we have fixed the carbon tax according to a schedule to give companies certainty, we will always be mindful about the needs of companies, the needs of households and the needs of society. We are also reviewing ongoing schemes, such as the Climate Friendly Households Programme, to encourage more households to mitigate the long-term cost impact by making the switch to energy-efficient appliances and water-saving fittings. We will monitor the prices and review the need for more support for households when the revised carbon tax is implemented in 2024. Members, if you have residents who fit the criteria, who want to reduce their utility bills by switching to more energy efficient appliances, please step forward. Please ask them to apply to NEA.

Conclusion

33 Mr Speaker, the Carbon Pricing Bill was first introduced in this House in 2018 as a key step in readying our economy and strengthening our competitiveness as the world transitions to a low-carbon future.

34 Since then, we have accelerated our sustainability journey and stepped up our climate ambition. As Ms Poh Li San noted, achieving net zero by 2050 will be a daunting, but necessary undertaking.

35 With our enhanced climate targets, Singapore’s carbon pricing regime must evolve in tandem.

36 As Members have noted in today’s debate, our carbon tax regime must strike a fine balance between three imperatives – the environment, our economy and our society: To reach our ambition of net zero emissions by 2050, we must drive decarbonisation while ensuring that ICC are sourced from projects of high environmental integrity. And here again I would like to thank members who have spoken in support of a higher carbon tax rate. In particular, I note Workers' Party's position. All your members, Ms He Ting Ru, Associate Professor Jamus Lim, Mr Leon Perera, Mr Louis Chua, want an even higher tax. They think that we are still too low at $50 to $80 per tonne. As Minister for Sustainability and the Environment, I would really want to raise it as high as possible. So you’re really along with me on this journey, but we have to take into consideration the next point, which is the economy. As we make the transition to a low-carbon economy, we must keep an eye on our economic competitiveness, so that Singapore remains an attractive investment and business destination and generates green growth opportunities and good jobs for Singaporeans. And we must strive to deliver an inclusive transition for our society, and spur action across the whole-of-society and catalyse partnerships across the people, public and private sectors.

37 The proposed changes, as set out in this Bill, have been carefully considered in close consultation with the industry and the public. Taken together, they will enable the next lap of our green transition, and lay the building blocks for Singapore as an economically competitive global sustainability hub.

38 With an effective carbon price as the cornerstone of our climate mitigation efforts, the Government will continue to push the envelope on all fronts, to secure a climate resilient and sustainable future for Singapore.

39 I call on all Members of the House to give your support to this Bill. Thank you.