Climate change is the existential threat of our times, and unless all countries collectively keep greenhouse emissions at a level consistent with an increase in not more than 1.5oC of global warming above pre-industrial levels, long term changes to the climate systems will persist for centuries to millennia, causing increased intensity in climate and weather extremes, global sea level rise, species loss and extinctions, and climate-related risks to health, livelihoods, food security, water supply, human security, and economic growth.1 Singapore will not be spared from these effects. The rise in sea level will affect low-lying Singapore. Variability in the weather will bring more frequent periods of drought and greater frequency of intense rainfall. Singapore's ecosystem's natural process will be altered and its biodiversity will be put at risk and biodiversity. Warmer temperatures will increase the threat of vector-borne diseases in the region and increase heat stress. Singapore will also be vulnerable to disruptions to global food supply due to extreme weather events.2
The Carbon Pricing Act3 was passed by Parliament on 20 March 2018, and came into force on 1 January 2019. It is a part of a slew of climate change mitigation and adaptation measures adopted by Singapore4 to enable it to meet its "nationally determined contribution"5 under the 2015 Paris Agreement,6 and encourage energy and carbon efficiency improvement across the economy, and investment in clean, sustainable solutions.7 The CPA applies only to the prescribed "industry sectors".8 These are the sectors consisting of persons carrying out in the course of business, manufacturing and manufacturing-related services; the supply of electricity, gas, steam, compressed air and chilled water for air-conditioning; and water supply and sewage and waste management.9
Registration and deregistration of persons and business facilities
The CPA provides for the circumstances for registration with the National Environment Agency ("NEA"), where the total amount of reckonable greenhouse gas10 ("GHG") emissions11 of a business facility12 has a carbon dioxide equivalence of 2,000 tCO2e, whilst the business facility is under the operational control13 of a person in any year. The person must apply to be registered as a registered person and the business facility as his reportable facility by 30 June of the following year.14 If the carbon dioxide equivalence of the total amount of reckonable GHG emissions from the business facility is at least 25,000 tCO2e, he must also register the business facility as his taxable facility. The CPA also provides the circumstances for deregistration of a person and/or his reportable or taxable facility.15 Reportable facilities that are not taxable facilities will not be taxed, but are still encouraged to monitor and reduce their emissions.16
A registered person must submit to the NEA for approval, emissions reports relating to the greenhouse gas emissions (other than the excluded GHG emissions specified in Part 3 of the Second Schedule of the CPA)17 of every reportable facility of the registered person, for each year beginning with the year in which the reportable facility is registered as such; and ending with the day before the reportable facility is deregistered as such or the registered person ceases to have operation control over the facility, whichever occurs first. For a taxable facility, the report must be prepared based on a monitoring plan submitted to and approved by the NEA;18 and be subject to verification by an accredited external auditor, and be accompanied by the auditor's report.19
Measurement, reporting, and verification
In order for the tax regime be effective, it must be underpinned by robust measurement, reporting, and verification measures. These are provided for in the Carbon Pricing (Measurement, Reporting and Verification) Regulations 2018 ("MRVR").20 The requirements are said to take reference from international standards, and are aligned with international practices.21
An emissions report must set out, among other things, all data about the amount of materials consumed or produced by a process or activity, and is used to compute GHG emissions for the business facility; the computation of GHG emissions from each GHG emissions stream from the business facility; and specify the total GHG emissions from the business facility.22
A monitoring plan of a taxable facility must set out, among other things, all GHG emissions streams from the taxable facility; every primary and alternative method, step and procedure used or to be used to compute the total GHG emissions from the taxable facility; and a quality management framework to ensure the integrity of the process of, and the computation of, the total GHG emissions from the taxable facility.23
Assessment of monitoring plan
Where the NEA considers that specialised technical knowledge is required to assess any process at a taxable facility, or disagrees with the registered person on any matter set out in a monitoring plan, it may direct the registered person to have its monitoring plan first assessed by an external auditor with sufficient relevant knowledge and experience in accordance with the MRVR, before approving it.24
Verification of emissions report
An emissions report of a taxable facility must also be verified by an external auditor accredited by the NEA.25 The auditor must appoint a verification team comprising a lead verifier,26 and such additional verifiers as the auditor thinks necessary.27 Where the taxable facility operates in a complex sector – namely, the refining of oil and gas, and large scale manufacture of chemical products; the manufacture (other than large scale manufacture) of chemical products; and the manufacture of semiconductor devices and wafers – the external auditor must be accredited for the sector28 and one of the verifiers of the verification team must be an expert in that complex sector.29 The auditor must also appoint an independent reviewer30 to identify any errors made by the verification team in the conduct of the verification engagement. The reviewer must not be a member of the verification team and must not undertake any verifications activities of the team.31
The auditor cannot carry out the verification engagement until the verification team has first assessed that the auditor is accredited for the industry sector in which the taxable facility operates; the accredited external auditor and the registered person are independent of each other; and the accredited external auditor has the competence, personnel and resources to conduct the verification engagement in accordance with the MRVR.32 To verify the emissions report to a reasonable level of assurance, the verification team must next develop a verification plan that will minimise the verification risk associated with the verification engagement. The verification plan is subject to review by the independent reviewer.33 A summary of the verification must be submitted to the NEA. The verification plan must not be released to the registered person; and must be made available to the NEA upon request.34 The verification team then proceeds to assess, based on the verification plan, whether the emissions report complies with the approved monitoring plan,35 and prepares a verification report. The report must include a verification opinion statement of whether the verification team is able to state with a reasonable level of assurance, that the aggregated error in the total reckonable GHG emissions for the reporting period does not exceed the prescribed materiality limit.36 Before the report is issued to the registered person, the independent reviewer reviews the verification activities conducted and related information and documents to ensure that there are no errors or omissions in the verification report; the verification activities conducted by the verification team comply with the MRVR; and the evidence gathered through the verification activities supports the verification opinion statement.37 The verification report is submitted with the emissions report by the registered person to the NEA; and also separately submitted by the accredited external auditor to the NEA.38 The NEA is not bound to approve an emissions report by virtue of the verification report for the emissions report having a positive verification opinion statement.39
Carbon tax is chargeable on the total amount of reckonable GHG emissions (other than excluded GHG emissions)40 of a taxable facility of a registered person in each reporting period, as assessed by the NEA based on the verified emissions report that is approved by the NEA, provided the total amount of reckonable emissions is at least 25,000 tCO2e.41 The tax amount is calculated at the rate of $5/tCO2e.42 The tax must be paid by the later of 30 September of the year immediately following each reporting period, or 30 days after the service on the registered person of a notice of assessment by the NEA. Financial penalties may be imposed for late payment of tax. Payment is in the form of surrender of carbon credits by the registered person from his registry account opened by the NEA for the taxable facility,43 or cancellation of such credits by the NEA.44 The registered person must apply to and pay the NEA for such credits to be credited into the account, at the current price of $5 per credit. According to the Minister during the Second Reading of the Carbon Pricing Bill 2018, the choice of a fixed-price credit-based system as the payment mechanism, allows for the use of a tax rather than emissions trading system ("ETS") to price carbon for greater price certainty and stability, while putting in place key building blocks to link the carbon price with that of ETS markets in other jurisdictions should it be found feasible to do so in the longer term.45
While the CPA is silent on the uses to which the revenue collected from it will be put to, the Minister has stated in Parliament that the existing utility rebates for eligible households are expected to be able to cover the expected increase in the cost of electricity and gas arising from the carbon tax. The Government is also "prepared to spend more than the estimated S$1 billion in carbon tax revenue that will be collected in the first five years, on worthwhile carbon abatement projects".46
A registered person who is aggrieved by a decision of the NEA can appeal to the Minister against the decision. The Minister may determine the appeal; or if he considers the issues to be such nature or complexity that the appeal ought to be considered and determined by persons with particular technical or other specialised knowledge, he may establish an Appeal Panel47 to consider and determine the appeal.48 An appellant or the NEA may appeal to the High Court from the decision of the Minister or an Appeal Panel upon any question of law or of mixed law and fact, provided the decision of the Minister or the Appeal Panel results in a change of at least $500 in the amount of tax charged.49 The rationale for this threshold appears to be to limit appeals to the High Court only when the amount at stake is sufficiently large, but may not be a satisfactory one as it does not allow for appeals where the issue at stake is one of public importance notwithstanding the small amount of tax involved.50
Although the carbon tax rate is relatively low for now, the government has made clear its intention to increase the rate within a decade. That does not leave affected businesses with a lot of time to continue with business as usual, until the tax hits before reacting with stop-gap measures. Investors and business leaders who have not already done so now have an additional reason to consider adopting holistic business and investment strategies that take into account the threats and sustainability investment opportunities that the projected medium and long term carbon price increases may bring.
1. "Summary for Policymakers", in V Masson-Delmotte, et al, (eds), International Panel on Climate Change: Global Warming of 1.5°C – An IPCC Special Report on the Impacts of Global Warming of 1.5°C Above Pre-Industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the context of Strengthening the Global Response to the Threat of Climate Change, Sustainable Development, and Efforts to Eradicate Poverty (World Meteorological Organization, 2018), (https://www.ipcc.ch/site/assets/uploads/sites/2/2018/07/SR15_SPM_High_Res.pdf).
2. National Climate Change Secretariat, "Impact Of Climate Change On Singapore", (https://www.nccs.gov.sg/climate-change-and-singapore/national-circumstances/impact-of-climate-change-on-singapore).
3. Act 23 of 2018 ("CPA").
4. National Climate Change Secretariat, "Reducing Emissions", (https://www.nccs.gov.sg/climate-change-and-singapore/reducing-emissions/reducing-emissions); and National Climate Change Secretariat, "Adapting To Climate Change", (National Climate Change Secretariat, "Reducing Emissions", (https://www.nccs.gov.sg/climate-change-and-singapore/reducing-emissions/reducing-emissions); and National Climate Change Secretariat, "Adapting To Climate Change", (https://www.nccs.gov.sg/climate-change-and-singapore/adapting-to-climate-change/overview).
5. "Singapore's Intended Nationally Determined Contribution (INDC) and Accompanying Information", (https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Singapore%20First/Singapore%20INDC.pdf).
6. UNTC Registration No 54113.
7. See the Minister's speech during the Second Reading of the Carbon Pricing Bill 2018. See Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M M, Minister for the Environment and Water Resources).
8. CPA, s 5.
9. Carbon Pricing (Registration and General Matters) Regulations 2018 (S858/2018) ("RGMR"), rg 3.
10. The First Schedule of the CPA sets out the greenhouse gases as carbon dioxide, methane, nitrous oxide, Sulphur hexafluoride, nitrogen trifluoride, specified hydrofluorocarbons, and specified perfluorocarbons, and their global warming potential.
11. A "reckonable GHG emission" is any greenhouse emission as specified in the First Schedule of the CPA, other than the non-reckonable greenhouse gas emissions specified in Part 2 of the Second Schedule of the CPA Although non-reckonable greenhouse gases need not be included for the purpose of determining whether the registration thresholds have been attained, non-reckonable greenhouse gases that are not also the excluded greenhouse gases set out in Part 3 of the Second Schedule must still be measured as tax may still be payable on non-reckonable greenhouse gases that are not excluded greenhouse emissions. According to the Minister during the Second Reading of the Carbon Pricing Bill 2017, Non-reckonable gases are "small sources of emissions which have a disproportionately high cost to measure and report compared to the amount of carbon tax collected. These sources of emissions are typically from ancillary processes and are insignificant compared to a facility's total GHG emissions". See Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M M, Minister for the Environment and Water Resources).
11. CPA, s 5.
12. According to s 3 of the CPA, a "business facility" is a single site (see CPA, s 3(3) and RGMR, rg 4, for circumstances where activities carried on separate parcels of land are still considered as being carried out on a single site) at which any activity or series of activities that involves the emission of greenhouse gas and forms a single undertaking or enterprise, is carried out.
13. According to s 4 of the CPA, the person considered to have "operational control" over a business facility is the person who has the greatest authority to introduce operating policies; health and safety policies; and/or environmental policies of the business facility.
14. CPA, s 7.
15. CPA, s 9.
16. This is according to the Minister during the Second Reading of the Carbon Pricing Bill 2018. See Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M, Minister for the Environment and Water Resources).
17. According to the Minister during the Second Reading of the Carbon Pricing Bill 2018, excluded emissions are "small sources of emissions which have a disproportionately high cost to measure and report compared to the amount of carbon tax collected. These sources of emissions are typically from ancillary processes and are insignificant compared to a facility's total GHG emissions". See Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M, Minister for the Environment and Water Resources). They must however still be measured and reported, using simpler methods to estimate the emissions to enable tracking.
18. See CPA, s 13 for the requirements of the monitoring plan.
19. CPA, s 11.
20. S 857/2018.
21. See Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M M, Minister for the Environment and Water Resources).
22. MRVR, rg 4.
23. MRVR, rg 6.
24. CPA, s 13, and MRVR, rg 8.
25. Accreditation is awarded according to Part 4 of the MRVR.
26. See MRVR, rg 31, for the requirements for a lead verifier.
27. MRVR, rg 13.
28. MRVR, rg 30(b).
29. MRVR, rg 33.
30. See MRVR, rg 32, for the requirements for an independent reviewer.
31. MRVR, rg 14.
32. MRVR, rg 15.
33. MRVR, rg 18.
34. MRVR, rg 19.
35. MRVR, rg 20.
36. MRVR, rg 23. The materiality limit for a taxable facility with a total reckonable GHG emissions less than 1,500,000 tonnes of carbon dioxide equivalence is 5% of the total reckonable GHG emissions for the reporting period, and 2% of the total reckonable GHG emissions for the reporting period, for a taxable facility with total reckonable GHG emissions equal to or more than 1,500,000 tonnes of carbon dioxide equivalence.
37. MRVR, rg 22.
38. MRVR, rg 24.
39. MRVR, rg 25.
40. "Excluded GHG emissions" are greenhouse emissions emitted in the circumstances set out in Part 3 of the Second Schedule of the CPA. According to the Minister during the Second Reading of the Carbon Pricing Bill 2018, excluded gas emissions are "small sources of emissions which have a disproportionately high cost to measure and report compared to the amount of carbon tax collected. These sources of emissions are typically from ancillary processes and are insignificant compared to a facility's total GHG emissions". See Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M M, Minister for the Environment and Water Resources).
41. CPA, s 16.
42. CPA, Third Schedule. The Minister announced during the Second Reading of the Carbon Pricing Bill 2018 that the Government intended to raise the tax rate to between S$10 to S$15 by 2030. See Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M M, Minister for the Environment and Water Resources). The government has also announced that it is commissioning a study of the impact of carbon pricing in other countries and in Singapore, taking into consideration the direct and indirect (compliance) costs of carbon taxes and emissions trading systems, and the effectiveness of various measures of reducing carbon emissions. See Ng Jun Sen, "Singapore to Use Study on Carbon Pricing to Shape Future Tax", (13 August 2018) Straits Times.
43. CPA, s 17.
44. CPA, s 29.
45. See Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M M, Minister for the Environment and Water Resources).
46. Singapore Parl Debates; Vol 94, Carbon Pricing Bill; [20 March 2018] (Masagos Zulkifli B M M, Minister for the Environment and Water Resources). See also National Energy Agency, "Energy Efficient Singapore", (https://www.e2singapore.gov.sg/Default.aspx), for some of the existing multi-agency incentives and programmes for improving energy efficiency.
47. See CPA, s 39, for the composition of an Appeal Panel.
48. CPA, s 34.
49. CPA, s 37.
50. See also The Pathway to Paris: A Commentary on the Carbon Pricing Bill (January 2018) (Asian School of the Environment Club, Nanyang Technological University; Bachelor of Environmental Studies Student Committee, National University of Singapore; Environmental Law Students Association, National University of Singapore Law Faculty; I'dECO; The Yale-NUS Sustainability Movement), p 38, (https://drive.google.com/file/d/14rLFJ6-OLpHWttVH0NSLfnvawKGKeTb2/view).
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