The first carbon tax in ASEAN
Just a few short weeks ago, the Singapore carbon price bill was approved in Parliament. Now the work to define the regulations and guidance begins but this step means that emitters will definitely need to pay for emissions occurring in the 2019 calendar year. I've done a thorough review of the Bill and developed a report that details what companies need to be aware of to be compliant with the Bill. The executive summary is reproduced below. If you'd like a copy of the full report, please email me at firstname.lastname@example.org . I will also post it on the engeco home page for download (www.engeco.com.au).
The Singapore Government is introducing a carbon tax that applies to facilities with emissions above the 25,000 t of GHG per annum threshold. Emissions occurring during calendar year 2019 will be taxable, with the first payments due in the second half of 2020. It is estimated that approximately 40 facilities will be considered to be taxable facilities and will have a direct liability. It is probable however that carbon costs applied to power generating facilities will be passed through to end customers, so all energy users may see increased costs.
The introduction of a carbon price is part of Singapore’s overall strategy to achieve its emissions intensity reduction goals, set under the global agreement for climate action – the Paris Agreement. Importantly, the framework of this carbon price provides a way for Singapore to increase ambition under the Paris Agreement as countries’ targets are progressively tightened in future. For the initial stages of the carbon price implementation in Singapore, the price will be set at $5 SGD per tonne of CO2-e. The Singapore Government has already flagged its intention to increase this to a target level of $10 - $20 per tonne in coming years, and it may need to be increased further as well, depending on future changes to the country’s emissions reduction targets.
The carbon pricing bill itself manages emissions on a facility basis (as opposed to a corporation basis). Depending on the emissions generated by a facility, at a particular geographical location, it may either be a reportable facility or a taxable facility. A reportable facility is one with reportable emissions in excess of 2,000 t CO2-e per annum (some emissions sources are excluded from reporting – hence “reportable emissions”). The key compliance requirements for a reportable facility are that emissions are reported to the Government annually. This does sound relatively simple but the detail of the emissions estimation methodologies to be employed is not yet defined. If emissions reporting is to be completed using an international standard such as the GHG Protocol or ISO 14064, then the emissions inventory must still conform to certain minimum requirements; namely, emissions inventories should be:
Relevant – Appropriately reflect the emissions of a facility and be appropriate for the needs of users of this information
Complete – Account for all emissions sources within the facility boundary
Consistent – Use consistent methodologies such that comparisons of emissions can be made between facilities and over time for a particular facility
Transparent – Have clear audit trails and documentation, with all assumptions and methodologies clearly explained
Accurate – Be neither over nor underestimatesof the true value, with uncertainties minimised
Larger facilities, with reportable emissions in excess of 25,000 t CO2-e per annum are known as taxable facilities. The compliance requirements for a taxable facility are much greater than those for reportable facilities. Taxable facilities will need to provide a monitoring plan for emissions that detail the instrumentation and methodologies used to develop the inventory. These facilities will also be required to have their emissions reports verified by a third party. This is important as the emissions report will now represent a liability to a facility and should be recorded on a company balance sheet. Finally, taxable facilities, as suggested by their name, will be required to acquire carbon credits equivalent to their emissions for a calendar year – and then acquit those credits against their liability. The carbon price mechanism being employed by the Singapore Government acts as a tax – as the price is centrally set (in this case $5) and may be adjusted as progress to overall emissions reduction goals is monitored.
Although functionally, the carbon price acts like a tax, it uses carbon credits as the basis. Currently, the only source of carbon credits is the Government – at a fixed price. Basically, a facility will receive an assessment of carbon tax payable from the Government. They will then need to acquire carbon credits to cover this liability and then acquit those credits to actually pay the assessment. The credits will then be removed from circulation to prevent them from being double counted. The important thing about this framework is that it leaves optionality for the Government to allow facilities flexible compliance mechanisms in the future, by allowing carbon credits from other schemes to be used, or by allowing companies to generate credits through emissions reduction activities – thus creating a secondary market domestically.
This document describes in detail, the contents of the Carbon Pricing Bill – and provides a summary of what facilities and businesses need to do to be compliant with the legislation. As mentioned previously, development of this framework is key to helping Singapore meet its overall climate goals. In addition, it provides the Government will a reasonable amount of flexibility to increase its level of ambition in future years, as other countries do the same through the UN process.
As far as what businesses should be doing now to prepare, it is recommended that businesses take time to understand the following points;
What facilities exist in a particular corporate group?
What are the boundaries of those facilities and who has Operational Control?
What are the estimated reckonable emissions for each facility and will the facility be a reportable facility or a taxable facility?
Does the facility require an emissions reporting system or database to streamline reporting activities?
For facilities that are taxable facilities, the costs that will be applicable and whether these costs need to be included in budgets
Potential pass through arrangements for carbon costs and documentation of pass through calculations to justify those decisions
Potential of implementing abatement options to reduce exposure to the carbon price for liable entities
Alternative energy arrangements such as lower carbon alternatives for companies indirectly exposed to carbon prices (e.g., through electricity import) to minimise cost impacts