Carbon tax-liable companies in Singapore will be permitted to carry forward unused carbon offset allowances from 2024 into 2025, the National Environment Agency (NEA) announced, citing a limited supply of international carbon credits.
Currently, firms subject to the carbon tax may offset up to 5 per cent of their emissions annually using eligible carbon credits. Under the new provision, companies that do not utilise this allowance in 2024 may apply it in full to 2025—effectively enabling them to offset up to 10 per cent of their emissions next year.
This temporary concession affects approximately 50 major industrial facilities across Singapore’s manufacturing, power, water, and waste sectors. These facilities, each emitting over 25,000 tonnes of greenhouse gases annually, have been subject to a carbon tax of S$25 per tonne since 2024—an increase from the S$5 rate in place between 2019 and 2023. The tax is scheduled to rise to S$45 per tonne in 2026 and 2027, with a target of S$50–S$80 per tonne by 2030.
The NEA explained that the carry-forward policy was implemented in light of the “constrained supply of international carbon credits for emissions year 2024.” Although Singapore has signed carbon trading agreements with seven countries—including Ghana, Paraguay, and Bhutan—no carbon credits have yet materialised from these partnerships. Additional negotiations are ongoing with more than 15 other countries, including Malaysia, the Philippines, and Sri Lanka.
The effectiveness of the measure, however, has prompted questions among climate policy observers. Melissa Low, research fellow at the NUS Centre for Nature-based Climate Solutions, questioned whether further rollovers might be allowed if credit shortages persist, and what this might imply for the integrity of the carbon tax mechanism. “What does it mean for the effectiveness of the carbon tax if companies are allowed to offset up to 10 per cent of their emissions with carbon credits, on top of the allowances?” she asked.
Senior research fellow Kim Jeong Won of the NUS Energy Studies Institute expressed concern over potential tax avoidance if repeated rollovers lead companies to bank credits strategically for future use when tax rates are higher. “The percentage carried over would need to be adjusted to prevent this,” she said.
Industry stakeholders are also closely watching the market implications of the move. Rueban Manokara, global lead of the carbon finance and markets task force at the World Wide Fund for Nature, noted that the rollover might assure market participants that anticipated demand from major emitters has not disappeared. However, he cautioned that “other market implications of the rollover are still unclear,” including whether credit prices might rise due to improving sentiment.
Singapore’s government has been pursuing large-scale procurement of carbon credits as part of its net zero strategy. In September 2024, it invited proposals for nature-based carbon projects capable of delivering a minimum of 500,000 credits each. Concurrently, the government and Ghana called for carbon project developers to submit applications under their bilateral agreement. More than 10 projects have reportedly received preliminary approval, including initiatives in sustainable agriculture and clean household energy, though full validation and authorisation remain pending.
These developments follow earlier government support for large emitters. In 2024, rebates of up to 76 per cent were offered on carbon tax liabilities for refiners and petrochemical firms to help manage the transition to higher carbon costs while maintaining competitiveness.
It remains to be clarified whether the 2024 offset limit will be calculated based on emissions from 2024 or 2025. ST has contacted the NEA for further comment.
-The Business Times
