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The carbon price is just around the corner

December 12, 2018

The following is a reprint of an article published by Austcham Singapore in their Access Asia magazine for December/January.

  • The carbon pricing scheme in. Singapore comes into effect from 1 January

  • This has the potential to have an impact on all businesses

  • The initial price is relatively low, but in line with pricing schemes globally, but will likely increase in future

  • Exploring direct and indirect regulatory/compliance impacts should be part of climate strategy for businesses

On 1 January 2019, the first carbon price in the ASEAN region comes into law. This has the potential to have an impact on all Singaporean businesses and provides a signal that the Singapore Government takes climate change seriously and is committed to climate change action. The implementation of the carbon price in Singapore also signals Singapore’s intention to lead the region in terms of carbon reduction policy.

 

At a high level, the carbon price legislation imposes a requirement to report and pay for carbon emissions on a facility basis, once those emissions breach the threshold set by the Government. For the carbon price legislation, a facility is defined as a single site, where a business’ activities are carried out – and those activities generate greenhouse gas (GHG) emissions. Only direct emissions are included (that is, those that occur within the site boundary) and there are some exclusions, like emissions generated from transport activities and other relatively minor emissions sources but, by and large – facilities that emit over the threshold will need to pay. Indirect emissions, such as those associated with purchase of electricity from an electricity provider are excluded from paying for the carbon price directly though pass through may result in that price being paid anyway.

 

There are actually two emissions thresholds in place under the Carbon Pricing Act. The threshold to report, verify and pay for emissions is 25,000 tonnes of greenhouse gases per year. A separate threshold, set at 2,000 tonnes of greenhouse gases per year, triggers a requirement to report emissions to the Government. These two thresholds determine whether a facility is a Reportable Facilityor a Taxable Facility. A reportable facility is merely required to register as a reportable facility with the National Environment Agency (NEA) and then provide an annual report of emissions numbers – covering the calendar year reporting period. This starts from 1 January 2019. 

 

For those facilities that are taxable facilities, there is more of a process to go through to be compliant with the legislation. The facility must be registered with the NEA as a taxable facility. They must also prepare a monitoring plan for submission to the NEA. This monitoring plan details what emissions are reportable for that facility and how the facility is planning to estimate those emissions. This plan gets approved by the NEA and forms the basis of the emissions calculations/report and the emissions verification. The facility then collects the required information during the year as per the monitoring plan. The emissions report, which contains information on the total emissions for the reporting year, must go through a verification process using an external third party to ensure the numbers are materially correct prior to final submission. Once the verification is complete, the report is submitted to the NEA, who apply the carbon price and request payment for those emissions.

 

To pay for the emissions, a flat $5 (SGD) per tonne of GHG emissions is applied by the NEA, who summarises this information into an assessment notice that is issued to the company with control of the facility. Rather than the NEA just sending an assessment that must be remitted as a direct payment – the legislative framework is set up using carbon credits. The company must purchase the required amount of credits (each credit is worth one tonne of GHG emissions) and surrender them to the NEA. Currently, there is only one seller of credits (the Government) for a flat price ($5 each) but this structure means that it could potentially be more flexible in future – and allow for other sources of credits such as international credits purchased on a secondary market or credits generated by a company through abatement activities.

 

The price point for the carbon tax at first glance seems low – it does send an important signal though, that the Government is taking climate action seriously, and it also gives businesses an opportunity to adapt to the new framework in the short term. When compared to other carbon prices globally, the $5 SGD per tonne price appears to be on the bottom end of headline prices in jurisdictions that have pricing. This doesn’t quite tell the whole story however. What’s important is the effective carbon price that is applicable in a jurisdiction. For example, Singapore’s carbon price is a flat price that applies to all covered emissions from a facility. Other jurisdictions may have issuance of free permits or similar schemes that reduce a company’s exposure to the carbon price and results in a lower effective carbon price compared to the headline carbon price. The Singaporean Government has also made it quite clear that there is a timetable for increasing the carbon price over time and there’s an expectation that it will be increased to approximately $15 per tonne in the short to medium term – and it may even go higher in line with global decarbonisation efforts.

There are approximately 40-50 facilities that will be covered by the carbon price in Singapore. In general, these are the high emitting industries of power generation, oil refining, petrochemicals and other chemical manufacturing. In addition, the semi-conductor industry is likely to be liable under the scheme due to their use and generation of synthetic greenhouse gases, which are much more powerful than the combustion related greenhouse gases. The indirect impact on Singaporean businesses is much greater than those 40-50 facilities though. As the power generating industry will be liable, it is almost certain that the carbon price will be passed through to consumers of electricity as slightly increased power prices. This will mean additional costs for all businesses – depending on the electricity provider.

 

So what should businesses do to prepare for the carbon price? Those that are taxable facilities have already been liaising with the NEA to ensure monitoring plans are set so they should be aware of the reporting requirements. As part of good governance and climate strategy development, those facilities should at least be exploring the impact of decarbonisation scenarios and increasing carbon prices on the business. Taxable facilities should also be ensuing that their reporting systems are robust and that reported emissions will be accurate prior to engaging a verification auditor. Other companies, that have reportable facilities, should determine whether they are actually reportable facilities and ensure they have the systems and processes required to report emissions to the NEA. Finally, all other companies should explore the impact of increased electricity costs on their bottom line and see what abatement/efficiency options may be available to them or if they have any opportunities to change electricity suppliers to one with lower carbon intensity. In this process, electricity users will have to obtain an understanding of the carbon intensity of their suppliers and explore what pass through arrangements look like under supply contracts.

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