SM Teo Chee Hean at the Committee Of Supply 2022

A Decisive Move to Net Zero

Mr Chairman, Sir.

Context and stock take

Climate change is a real and existential threat. The latest findings from Work Group 2 of the Intergovernmental Panel on Climate Change (IPCC)’s Sixth Assessment Report, which were released last week, assessed that the impacts of climate change are more apparent and will affect us more severely than previously thought. We are already seeing some of these effects – stronger and longer heat waves, unprecedented droughts and floods, sea-level rise and storm surges affecting communities all over the world.

In the past year, international resolve to take urgent and decisive action to reduce greenhouse gas emissions has grown. In November 2021, as part of the COP-26 Glasgow Climate Pact, it was agreed that all Parties should aim to achieve global net zero emissions by mid-century, in order to keep the 1.5-degree goal within reach.

Members of this House have also called for more decisive action on climate change. Indeed, since 2021, this House debated two motions on climate change. This House acknowledged climate change as a global emergency and called to accelerate efforts against climate change. Members made several suggestions, including increasing the carbon tax substantially, green financing, creating green jobs and strengthening corporate accountability.

Mr Chairman, Singapore has taken important steps to contribute to the global effort to tackle climate change. Two years ago, Singapore submitted our enhanced Nationally Determined Contribution (or NDC) for 2030, and our Long-Term Low Emissions Development Strategy (or LEDS) under the Paris Agreement – to halve emissions from our 2030 peak to 33 million tonnes of carbon dioxide equivalent by 2050, with a view to achieving net zero emissions as soon as viable in the second half of the century.

Ms Cheryl Chan, Ms Poh Li San, Mr Louis Chua, Mr Louis Ng and Prof Koh Lian Pin asked about Singapore’s key considerations, and the process for setting our climate targets and the time-frame. In our LEDS two years ago, we laid out three thrusts to achieve our aspiration: first, transforming our industry, economy and society; second, harnessing low-carbon technologies; and third, pursuing international collaboration, for example in the form of carbon markets and electricity imports. We said that we would continue to review our climate goals with the aim of achieving net zero emissions as soon as viable. If the potential emissions reductions from each of these thrusts are available sooner, we will be able to realise our goals earlier.

Mr Chairman, since then, there have been important developments at COP-26 at Glasgow. This marks an inflection point. More countries pledged to reach net zero by mid-century. More companies have also made net-zero commitments. This will spur greater investment in low-carbon solutions, making them technologically and economically viable earlier. The Paris Agreement Article 6 rulebook for international carbon markets was also finalised. With these important developments, we are now able to have greater clarity and raise our ambition to achieve net zero emissions by or around mid-century in line with the Glasgow Climate Pact.

Mr Chairman, this is a significant improvement over our current LEDS. We are making a decisive move: one that is necessary, practical and implementable. We are making a commitment on behalf of generations of Singaporeans to come, spanning several decades into the future. I am glad that members from both sides of this House support these moves.

Before we finalise our plans and declare a specific net zero year, we will consult closely with industry and citizen stakeholder groups. This is because raising climate ambition will bring about many benefits but also entail some costs and trade-offs. These engagements will take place under the Green Plan, and our broader SG Together movement. We will at the same time review our 2030 NDC. We will then declare and make a formal revision to both our NDC and LEDS later this year.

Why we can: International Developments

Let me elaborate on why we assess that we can now make this decisive move, and why we should do so.

First, why we can. COP-26 successfully finalised the rulebook for international carbon markets. Carbon markets allow Singapore to access global mitigation opportunities through international carbon credits and provide an additional option for us to decarbonise.

I thank Minister Grace Fu and our officers for playing a key role as co-facilitator of the COP-26 multi-lateral discussions on Article 6 to finalise these rules. This was one of the most difficult negotiations in COP-26. These rules lay the foundation for rigorous, robust and credible carbon markets, and provide clarity on environmental integrity and accounting by buyer and seller countries when reporting their national emissions. They enhance the transparency of international carbon trading, and provide the necessary quality assurance for Singapore to use high quality international carbon credits to help meet our climate goals.

I agree with Mr Henry Kwek on the need to strike the right balance between pursuing domestic mitigation and using carbon credits. As we strive to reach net zero earlier, we will need to do both. We will continue to prioritise domestic efforts to meet our climate goals. However, as a small, alternative energy disadvantaged city state, we will need to look beyond purely domestic mitigation and consider other measures such as importing low-carbon hydrogen and carbon capture, utilisation and storage, which are reliant on international cooperation. Carbon credits will help offset our residual emissions to reach net zero, and at the same time spur the development of high quality carbon markets in Singapore.

Second, major countries and companies are making substantial investments in decarbonisation technologies, making them technologically and economically viable earlier. Global investment in energy transition hit a record high of over S$1 trillion in 2021, an increase of 27% over the previous year. Under our own Research, Innovation and Enterprise (RIE) 2020, we had invested about S$370 million in decarbonisation solutions over the 5-year period. And in the next 5-year period, this will continue to be a priority in RIE 2025, where we will invest about the same amount, with potential for further funding from the White Space provision as needed. These investments in low-carbon solutions will drive down costs, and accelerate technical viability and commercial scalability, allowing us to lower our emissions earlier.

Third reason why we can: more global corporates are making commitments to reduce emissions. When the global Climate Ambition Alliance was launched at COP-25 in 2019, fewer than 100 companies committed to net zero by 2050. But just two years later in 2021, some 5,000 companies have committed to net zero – a significant fifty-fold increase, which we expect will increase further.

Private financing is also shifting towards sustainability and low-carbon projects. At COP-26, the Glasgow Financial Alliance for Net Zero, a coalition of 450 financial firms representing some 40% of global banking assets, pledged to make over S$170 trillion of private capital available for investment to reach global net zero by 2050.

Sustainable private financing and corporate net-zero targets have a powerful mutually reinforcing effect. They draw capital towards sustainable projects, and make it more difficult and expensive to finance projects which are not. This will not only accelerate global emissions reduction, but also provide capital to create new economic opportunities in the global green economy.

With these positive international developments, we now have confidence that Singapore can more effectively find solutions to address our alternative energy constraints. We cannot wish these constraints away, but we now have more options to enable us to reach net zero earlier.

Why we should: A decisive shift to a decarbonised economy

Mr Chairman, I have just explained why we now can move decisively to net zero. I will explain why we should make a decisive shift. We want to take advantage of the positive global trends in sustainable financing and corporate net zero targets to make Singapore an attractive place for green economic activities in industry, services, and finance. This will re-position our economy and establish our competitive edge early in a low-carbon future. Let me describe some of the potential new growth opportunities.

First, in existing industries. Manufacturing makes up about 20% of our GDP and offers many good jobs for Singaporeans. The world is moving away from traditional carbon-intensive industries. For example, the energy and chemicals sector is itself reorientating to pursue sustainable production and new areas of growth. Singapore is positioning itself as a first-mover to capture these opportunities and jobs. In November last year, our Economic Development Board announced the “Sustainable Jurong Island” plan to transform Jurong Island into a Sustainable Energy and Chemicals Park that makes and exports sustainable products globally. We are also moving ahead with plans to be a hub for sustainable aviation fuels, and in the future for hydrogen. Several major companies which already have a strong presence here have committed to making major investments in their operations and products to align with our mutual goals for zero emissions by mid-century. We hope to attract new companies too, which share our sustainable net-zero ambition.

Second, we are a global financial centre. We are building the capabilities to catalyse sustainable and green finance in the region. Global sales of green bonds grew from nearly nothing in 2012 to S$380 billion in 2020. The Monetary Authority of Singapore and the Institute of Banking and Finance Singapore have set out 12 technical skills and competencies in sustainable finance to help financial institutions and training providers promote careers in sustainability and climate change-related jobs.

Third, growing new green sectors. We are developing Singapore as an international carbon trading and services hub with Singapore-based global carbon exchanges such as Climate Impact X and AirCarbon Exchange. We will continue to develop the larger ecosystem by anchoring key activities such as project development, financing and certification in Singapore.

We will signal to global markets and corporates that Singapore is ready to be a good partner and location for forward looking companies which have clear low-carbon goals. This will create many good jobs for Singaporeans and enhance Singapore’s value proposition in the future low-carbon global economy.

An appropriate carbon price signal to enable a low-carbon economy and society

Mr Don Wee, Mr Gan Thiam Poh and Ms Cheryl Chan asked how the revised carbon tax levels will support our green transition. As we make a decisive shift towards a low-carbon future, we need to provide the right price signal to shape responsible behaviour. We have always priced key resources like water, energy, and waste disposal properly so that consumers and businesses make appropriate decisions taking the true costs into account. This policy has served us very well.

In the same way, the revised carbon tax levels will provide the appropriate carbon price signal for individuals and businesses to internalise the cost of carbon emissions in their consumption and business decisions.

In Parliament last February, Members proposed raising the carbon tax, with suggestions ranging from S$30 to S$133 per tonne of emissions. I am glad that during the discussions of these two motions this past year, and during this Budget session itself, members from both sides of this House have so strongly spoken in support of a significant carbon tax.

Our proposed carbon tax out to 2030 is set at a level that sends a significant price signal to influence consumer and business behaviour. Announcing our intentions and the expected trajectory early provides predictability for investment decisions. We also take reference from the carbon price levels of competitor jurisdictions. China and South Korea, which submitted net zero pledges within the last two years, have sizeable emissions-intensive sectors, and export to our region as well; the International Energy Agency estimates that to match their targets, China and South Korea would have carbon prices of S$45 and S$61 per tonne respectively in 2030. But, we should bear in mind that they have a range of renewable alternatives, including nuclear which is not available to us in this time frame. The 2030 projected carbon price for the EU is about S$174 per tonne. The EU has legacy emissions-intensive sectors, some of which are still reliant on coal, that will require considerable effort to de-carbonise.

Another useful reference is the internal carbon prices that many corporates are already using to make their medium- to long-term business and investment decisions. For example, the multinational consumer goods company Unilever already currently uses an internal carbon price of S$77 per tonne, and Temasek uses an internal carbon price of S$57 per tonne currently.

An appropriate carbon price will shape responsible behaviour. Individuals and households will have greater incentive to adopt more sustainable lifestyles, such as conserving electricity and using more energy-efficient appliances. The savings from these changes will offset the increases in utility charges. The carbon tax will also provide an impetus for businesses to be more resource efficient and invest in decarbonisation solutions.

Mr Don Wee, Ms Foo Mee Har, Mr Gan Thiam Poh and Ms Cheryl Chan asked how the Government will help minimise the impact of carbon tax on households and businesses, and account for the use of the revenue collected from the carbon tax. Mr Chairman, I would like to emphasise that the Government will not derive additional net revenue from the carbon tax. The Government will flow the additional tax collected back to help households and businesses transition to a low-carbon future. 950,000 households have already benefitted from U-Save rebates from 2019 to 2021, and we will provide additional support to help households manage the cost of utilities. But saving energy, and not just helping to pay the bills is an even more important way to lower emissions and household utility bills. As of January 2022, about 70,000 or 22% of eligible households have registered for the Climate-friendly Household Package which subsidises the upfront cost of switching to energy-efficient appliances for lower income households, and more than 19,000 vouchers have already been utilised. All in, Mr Chairman, almost a million households and more than 200 businesses have already benefitted from these schemes that we have implemented over the years. The carbon tax will fund additional schemes to support households and businesses to achieve greater carbon efficiency and decarbonisation, and these schemes will be subject to the usual stringent governance and accountability frameworks and KPIs for the use of public funds.

We recognise that it will not be easy for the emissions-intensive trade-exposed sector to fully decarbonise their emissions in the near to medium term while remaining competitive with other manufacturing locations. Therefore, we will also use the carbon tax collected to provide transitory support for existing investments, which have contributed to the current and earlier phases of Singapore’s economic growth. This will give them time to make the transition to a low-carbon economy, without blunting the price signal and being very clear about what our trajectory is.

Mr Louis Ng asked to expand the coverage of the carbon tax to include all reportable facilities. At this point in time, we will retain the threshold of 25,000 tonnes of emissions. This covers about 80% of our emissions and is already one of the highest in the world. Coupled with our existing taxes on transport fuels, we are achieving around 90% coverage. Lowering the threshold would impose significant regulatory additional burden and costs on companies without any meaningful increase in coverage.

Assoc Prof Jamus Lim asked how we can catalyse the purchase of high quality carbon credits. Providing companies with the flexibility to surrender high quality international carbon credits to offset up to 5% of their taxable emissions, will help to create local demand for high-quality carbon credits and catalyse the development of a carbon services hub in Singapore. It will also cushion the impact for companies that are able to source for cost-effective and credible carbon credits.

We will have clear environmental integrity criteria to ensure that the carbon credits surrendered by businesses to offset their emissions are aligned with international carbon market rules finalised at COP-26, and reflect an actual reduction in global emissions.

Making the decisive shift together

Mr Chairman, the carbon tax is but one part of our comprehensive package of measures to move our nation decisively towards a low-carbon future. Last year, we launched the Green Plan, a whole-of-nation movement to advance our national agenda on sustainable development. All the Green Plan Ministries have gathered again during the COS this year to explain how the various initiatives under the Green Plan will be enhanced and implemented.

Mr Chairman, all of us have a part to play. We can and we should make this decisive move to net zero. We must advance on this sustainability journey together as a nation, and we will require the participation and support of all Singaporeans to do so. There will be costs to bear and trade-offs to be made. But this move will reposition Singapore and bring significant benefits for generations of Singaporeans to come. By moving decisively now, we are charting the path to a cleaner, greener Singapore for our future generations – with a sustainable environment and lifestyles, a forward looking economy with new green jobs, and a brighter future at the fore-front of a low-carbon world.

Thank you, Mr Chairman.

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Annex

Comparing Singapore’s Carbon Prices with Other Jurisdictions and International Organisations

¹ 2021 carbon prices are from the respective countries’ exchanges as at 31 Dec 2021.
² The estimated 2030 carbon prices for South Korea and China are from International Energy Agency’s World Energy Outlook 2021. EU’s estimated 2030 carbon price is from Bloomberg New Energy Finance (BNEF).
³ The projections by the international organisations are computed based on the midpoint estimates or median scenario.