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Introduction
“The era of global warming has ended; the era of global boiling has arrived.” With this declaration made by United Nations Secretary-General António Guterres on 27 July 2023, the urgency of climate action is taken yet another notch higher.¹ Just as many countries around the world strive to create a greener future, Singapore has too.
This Policy Explainer is the first of a two-part series outlining Singapore’s strategy to combat climate change and mitigate its impacts. This piece will focus on two key policies intended to combat climate change, namely the introduction of carbon taxes and the incentivisation of electric vehicles (EVs) usage, as outlined in Singapore’s Climate Action Plan and further developed in the Singapore Green Plan 2030.
Singapore and Climate Change
The Importance of Global Warming on Singapore
As a low-lying island city-state, Singapore is particularly vulnerable to the impacts of climate change. Between 1975 and 2009, sea levels at the Singapore Strait have risen at a rate of 1.2mm to 1.7mm per year. The Centre for Climate Research Singapore projected that sea levels may rise up to one metre by 2100, on top of increases in daily mean temperature and heavier rainfall.² If not mitigated, these will lead to coastal flooding, posing a threat to existing infrastructure and the daily lives of Singaporeans.
Singapore's carbon footprint is small relative to countries around the world, but the country still plays an important role in the global ecosystem. Singapore currently generates 0.11% of global emissions.³ As a country, Singapore is relatively green in its production (126th out of 142 countries in emissions/$ GDP). However, its per capita emissions are relatively high (ranked 27th out of 142 countries, emissions/capita).⁴ This makes it important for Singapore to not only reduce emissions locally but also invest in green efforts in other countries.
Singapore’s Plans
Bearing in mind climate concerns on both a local and global scale, Singapore’s Climate Action Plan was published in 2016 following the Paris Agreement which was signed at the 2015 United Nations Climate Change Conference in Paris (COP21). The Paris Agreement is a legally-binding treaty which sets out to limit the temperature increase to 1.5°C above pre-industrial levels.⁵
Singapore’s Climate Action Plan consists of three main thrusts to build up three types of resilience:
Climate resilience enables Singapore to address the existential threats of climate change, especially rising sea levels;
Resource resilience ensures that Singapore will have a safe and secure supply of critical resources, like food, water and materials;
Economic resilience is important for the future Singapore economy to remain competitive by overcoming carbon and resource constraints.⁶
These three thrusts outlined in Singapore’s Climate Action Plan integrate with further targets outlined in 2021 in the Singapore Green Plan 2030. The two plans work in conjunction towards the revised pledge to peak emissions by 2030 at 65 million tonnes of carbon dioxide (CO₂)⁷ and achieve net zero emissions by 2050.⁸
Among the many policies set out in Singapore’s Climate Action Plan then expanded under the Singapore Green Plan 2030, two of which will be explored in detail, namely carbon taxes and promoting electric vehicles. These policies are designed to nudge individuals to change their behaviour via pricing mechanisms.
Carbon Taxes
Overview of Carbon-Based Taxation in Singapore
Singapore makes use of carbon taxation in its efforts to meet its sustainability and emission targets. This was implemented by the National Environment Agency (NEA) in 2018 with a tax of $5 per metric tonne of carbon dioxide equivalent ($5/tCO₂e) from 2019 to 2023 on businesses producing more than 25,000 tCO₂e, with plans to expand in the future.⁹
This carbon tax currently covers about 80% of Singapore’s total greenhouse gas (GHG) emissions, 54% of which comes from the petrochemical plants on Jurong Island.¹⁰ In future, Singapore will gradually increase the carbon tax yearly, increasing it to $25 for 2025 and $45 for 2026 (see Figure 1).¹¹
Analysis of Carbon Taxation in Singapore
The economic rationale of imposing carbon taxes stems from a need to internalise the additional costs on third parties. These costs are indirect consequences of releasing emissions — known as negative externalities.
Some of such third party costs include:¹³
Flooding of coastal areas which could lead to injury of others and destruction of property;
Threats to Singapore’s food security as extreme weather events in the form of heat waves, droughts and hurricanes could adversely affect the food stock of other countries and hence Singapore’s food supply. This is particularly concerning given that Singapore imports more than 90% of its food from 170 countries.¹⁴
The imposition of such a tax thus forces firms to internalise such costs in their production decisions. This raises the cost of production, thereby incentivising firms to cut back on carbon emissions.
Another benefit is that the government is expected to generate around $200 million per annum in carbon tax revenue from 2019 to 2022.¹⁵ This revenue in return could be used to fund high-cost decarbonisation technologies that require high carbon prices to break even through schemes such as the Resource Efficiency Grant for Energy and the Energy Efficiency Fund.¹⁶ ¹⁷
This revenue can be used to help with the setting up of a regional carbon trading hub which will aid the development of compliance. Additionally, it can also be used to create voluntary carbon credits, given to firms investing in green technologies which can be used to offset the cost of the carbon tax.¹⁸
For households, this carbon tax is anticipated to have an impact on the price of electricity for residents if electricity companies decide to pass on cost increases to consumers. This is in line with the policy intention of raising the cost of consuming products which generate more carbon emissions. Deputy Prime Minister Lawrence Wong predicted an increase in utility bills of about $4 per month for an average four-room household.¹⁹ The policy thus aims to encourage households to practise energy-saving habits and switch to energy efficient appliances.
Despite a significant rise in carbon tax, the lower end of the estimated value of carbon, about $100 per tonne,²⁰ is still well above the proposed level of carbon tax of Singapore. This suggests that carbon taxes should be raised further.
However, the optimisation of tax adjustments is a delicate matter — on the one hand, policymakers need to price carbon accurately to effectively discourage the overproduction of carbon; on the other hand, overly high carbon taxes could increase production costs, reducing the competitiveness of Singapore's industries as consumers turn to competitors who have no or minimal carbon taxes.²¹ The rise in costs will also be significant in non-traded but carbon-intensive sectors, such as power generation companies. The need to balance these two opposing factors could thus explain Singapore’s gradual rollout of carbon taxes.
Incentivising Electric Vehicles (EV)
Overview of EV Policies in Singapore
In line with targets first set out in Singapore’s Climate Action Plan and later expanded in the Green Plan 2030, it is the Government’s goal for all newly registered cars to be cleaner energy models by 2030 and for all cars to be running on cleaner energy by 2040.
To achieve this, the Land Transport Authority (LTA) has implemented two primary measures:²²
Increasing EV Charging Points: Target to deploy 60,000 EV charging points across Singapore by 2030, comprising 40,000 in public car parks and 20,000 in private premises.
Reducing Taxes on EV Purchases: Conducted via the EV Early Adoption Incentive (EEAI) scheme from 1 January 2021 to 31 December 2023, which consists of a rebate of 45 per cent off the Additional Registration Fee (ARF) for EVs, capped at $20,000.
Analysis of EV Policies in Singapore
One advantage of encouraging EV adoption is the reduction of GHG emissions it brings about. LTA estimates that between 1.5 and 2 million tonnes of carbon emissions could be reduced annually if all light vehicles ran on electricity.²³ In this vein, schemes that provide rebates or subsidies, such as the EEAI, are necessary, since they make EVs relatively more affordable vis-a-vis traditional internal combustion engine vehicles, thereby boosting EV demand.
Another advantage of encouraging EV adoption is the reduced reliance on imported refined petroleum it brings about for Singapore. Although Singapore is the petroleum refinery hub for the SEA region, Singapore still imports more refined petroleum than it exports, with a net export of negative US$9.14 billion in 2021.²⁴ As EVs do not directly consume petrol, the demand for petrol will decrease, thus reducing the amount of petrol imported into the country and improving the government budget.
Despite the measures taken to encourage EV adoption, the results attained have been relatively modest thus far. For instance, while EVs made up almost 12% of all car sales in Singapore last year, they still only represented 1% of cars on the road.²⁵
Why is this so? One impediment to EV adoption is the investment in public infrastructure needed to encourage EV use, namely the provision charging points.²⁶ Yet, a chicken and egg problem exists. While sufficient charging infrastructure is required to minimise the hassle of EV use, high EV use is needed to justify the costs of building charging infrastructure in the first place. To resolve this paradox, the Government has opted to address both aspects concurrently.
While the future of EVs is uncertain, we could analyse Norway’s success in integrating EV’s into the transport system, with more than 20% of Norway’s registered cars being Battery Electric Vehicles (BEV) and BEV holding a 79.2% market share. Its programme started in 1990 when they removed import tax on BEVs and throughout the years, they added a variety of benefits to EV users such as eliminating road tax, giving them the ability to use bus lanes, and no toll road fees.²⁷ Singapore’s current EV policies appear to be moving in a similar direction, suggesting that they will see success with time.
Conclusion
Despite Singapore’s small size, she has a duty to reduce its carbon footprint by pursuing more sustainable practices. Singapore aims to achieve these goals through both the Climate Action Plan and the Green Plan 2030 with efforts such as increasing taxation on CO₂ emissions and encouraging EV adoption. While ambitious, bringing these policies to fruition will aid Singapore to become a leader in combating climate change. Thereafter, she may facilitate international cooperation, with every country not only playing their part but also working together to battle the existential threat of global warming.
The next Policy Explainer will explain some measures that Singapore is taking to better equip herself to deal with the impacts of climate change.
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