Come next week, all eyes will be on the Budget 2023 announcement by Finance Minister Lawrence Wong. Ahead of Feb 14, The Edge Singapore gathered predictions and wishlists from consultants, corporates and advocates that are specific to Singapore’s sustainability agenda.
From climate adaptation strategies to tax incentives on green buildings, they emphasise a need to balance decarbonisation goals with support for businesses amid the green transition.
At last year’s Budget, Wong, who is also the deputy prime minister, announced Singapore’s plans to reach net-zero emissions by or around 2050, bringing the previous timeline forward by up to 50 years. The government updated this plan in October 2022 to achieve net-zero emissions by 2050.
According to Taimur Baig, managing director and chief economist at DBS Bank, Budget 2023 will mark a shift from emergency spending and allocation to deal with the pandemic to a more conventional one. The government had committed around $100 billion to support the economy when Covid-19 hit.
“The country’s current target is to reduce emissions to around 60 million tonnes of carbon dioxide equivalent by 2030, after peaking emissions earlier,” says Baig. “We expect these high-level targets to inform all budgets going forward and we anticipate more announcements on initiatives advancing decarbonisation.”
Last year, Wong also announced that by 2030, Singapore’s government and statutory boards would issue up to $35 billion in green bonds to fund public sector green infrastructure projects, such as charging points for electric vehicles (EVs).
See also: Parliament passes carbon tax rate hike from 2024, Singapore's emissions to peak by 2028
To further encourage the adoption of EVs, input tax should be claimable on GST incurred for related expenses, says Yeo Kai Eng, EY’s Asean indirect tax leader. “Likewise, expenses incurred on EVs by businesses should be fully tax-deductible and capital allowances claimable on the purchase of EVs.”
Industry and transport are major sources of greenhouse gas emissions, says DBS’s Baig, and Singapore, as a key global transportation node, has “a major role” in decarbonising the shipping and aviation sectors. “Recent budgets contained measures to facilitate private adoption of cleaner energy vehicles; we expect to see more such announcements this year.”
Among last year’s announcements was a hike in carbon taxes, with Singapore’s carbon tax rate set to rise up to 16 times the current rate of $5 per tonne of emissions by 2030. The first hike to $25 per tonne is expected in 2024, after Parliament passed the Carbon Pricing (Amendment) Bill on Nov 8, 2022.
See also: Singapore sets 2050 net-zero target, unveils national hydrogen strategy
While the carbon tax rate hike is a “welcome move”, Baig calls for targeted technical and financial support to further ease the transition for small- and medium-sized enterprises (SMEs).
Woo Qiyun, sustainability consultant at Singapore-headquartered climate-tech start-up Unravel Carbon, hopes the government can encourage companies of various sizes to measure and report their emissions, particularly from their supply chains. “This would mean increased support for SMEs to begin embarking on this effort, and also to develop strong standards to encourage comparable, verifiable and robust sustainability reporting.”
For residents, carbon taxes may lead to a “modest rise” in household utility bills, says DBS’s Baig. “Some cash support or rebates would help to cushion those in the lower-income bracket.”
Woo hopes gains from carbon taxes can be apportioned to vulnerable groups.
While there are GST vouchers, it would be timely to consider ringfencing a portion of environmental taxes, such as the carbon tax, towards supporting communities who will bear the brunt of increased living costs.
Post-pandemic, the Ministry of Trade and Industry has been updating its Industry Transformation Maps (ITMs), which outlines strategies for 23 major industry sectors to adapt and grow.
First launched in 2017, Wong unveiled the revised 2025 roadmap for the financial sector in October 2022. The National Environment Agency announced the most recent ITM update on Jan 17, for the environmental services sector.
See also: Singapore approaches its 'first exam' with 2030 green targets: PwC Singapore
Woo hopes the ITMs can integrate sustainability across all sectors to include “strong, quantifiable environmental goals”.
In the coming months, businesses will grapple with tough decisions as the world faces bearish economic conditions, warns Schneider Electric’s Yoon Young Kim. Investments in green technologies and emission-reducing initiatives may face cost-cutting measures, he adds.
Nonetheless, we believe that now is especially not the time to dial back on driving sustainability and decarbonisation.
Continued support for businesses is crucial, says Kim, Schneider Electric’s cluster president of Singapore, Malaysia and Brunei. “Carbon tax amounts are not small but can be reduced through carbon-limiting technologies or improving a building’s energy efficiency. A large portion of the costs of these upgrades can be offset through grants. Hence, we expect Budget 2023 to expand on the support to encourage companies to make the green transition.”
Nevertheless, the energy transition will continue to be a key focus area, says Xylia Sim, energy and infrastructure counsel at global law firm Linklaters. “Green hydrogen has the potential to be a low-carbon alternative to promote the decarbonisation of high-carbon sectors. In Singapore, this could help with decarbonising hard-to-abate sectors, such as shipping and aviation, while supporting Singapore’s energy security.”
Singapore launched its national hydrogen strategy last October, estimating that the low-carbon fuel could supply half of the republic’s power needs by 2050. Sim adds: “With its strengths in research and development, Singapore is well-positioned to capitalise on the nascent stage of hydrogen technologies to support the development of a hydrogen economy.”
With Singapore’s tourism sector poised for a strong recovery in the coming months, CapitaLand Investment (CLI) hopes to see tax incentives for hotels to green their buildings.
But not everyone is on a level playing field on this decarbonisation journey, says Beh Siew Kim, chief financial and sustainability officer, lodging, at CLI. “Financing and tax incentives can therefore be introduced to bridge this gap, especially for businesses that are committed to sustainability.”
More explicitly, KPMG calls for incentives to bridge a demand-supply gap for green buildings, including a 200% tax deduction on financing costs and rental of green properties, a 30% property tax rebate and a 50% exemption on taxable gains from green building sales.
“Singapore can lead the development and implementation of asset recycling frameworks to refinance brownfield infrastructure,” says Ajay Kumar Sanganeria, partner and head of tax at KPMG in Singapore. “These mechanisms will optimise private sector innovation, investment and efficiency in operating infrastructure assets while freeing up capital that can be deployed to other priority greenfield infrastructure projects.”
From 2024, the government will allow businesses to use “high-quality, international carbon credits” to offset up to 5% of their taxable emissions. By purchasing carbon offsets, businesses compensate for unavoidable emissions by funding projects that remove, avoid or reduce emissions.
To facilitate future carbon trading, Singapore is home to two initiatives. In December 2022, the International Emissions Trading Association (IETA), the World Bank and the Singapore government launched the Climate Action Data Trust (CAD Trust), a platform to share information about carbon credits and projects.
CAD Trust will integrate data from multiple global registries, such as Verra, Gold Standard, American Carbon Registry and Global Carbon Council; and make this information available to the public in 1Q2023.
Last November, Singapore-based carbon exchange and marketplace Climate Impact X (CIX) held its first major carbon credit auction. Launched in 2021, CIX is a joint venture between DBS Bank, the Singapore Exchange, Standard Chartered and Temasek.
CIX will leverage Nasdaq’s matching technology to power its spot trading platform, set to launch in early 2023 for financial institutions and institutional investors worldwide.
Businesses welcome greater clarity on carbon taxes and carbon credits, says Beh, who is also The Ascott’s managing director of Vietnam, Cambodia, Myanmar, Japan and Korea.
Expanding on grants and schemes in this regard will be a welcome initiative to help organisations shoulder the financial burden from higher carbon taxes and accelerate their green transition.
The Monetary Authority of Singapore stated in 2021 that global demand for voluntary carbon credits is expected to grow 15-fold to 2 billion tonnes in 2030.
Hence, EY hopes Singapore can include carbon credits as designated investments for funds’ tax incentive schemes, which will offer tax exemptions.
Desmond Teo, EY Asean private tax leader, says: “We observed that investors are taking a keen interest in the carbon market to achieve sustainability objectives for their portfolios. To facilitate the trading liquidity of carbon credits, we suggest that carbon credits be included in the list of designated investments.”