How will the carbon tax increase affect us

How Will The Carbon Tax Increase Affect Us?

A plan to increase Singapore’s carbon tax to S$50 – S$80 per tonne of greenhouse gases(tCO2e) by 2030 was announced in the recent Budget 2022. Do you know that Singapore has already implemented a carbon tax on 1 January 2019? The carbon tax is set at S$5/tCO2e from 2019 to 2023 and is set to ramp up in the coming years to attempt to reach Singapore’s net-zero emissions target by 2050.

Let’s take a deeper look at what is a carbon tax and how will the increase affect us?

What Is Carbon Tax?

A carbon tax is a tax on greenhouse gas emissions. Although it is called “carbon tax”, in Singapore’s case, not all greenhouse gases (GHGs) that are taxed have carbon in them.

The six GHGs that will be taxed in Singapore are as follows

Greenhouse Gas Common Sources
Carbon Dioxide (CO2)

GWP – 1

Burning of fossil fuels for

  • Transportation
  • Electricity
  • Industrial processes
Methane (CH4)

GWP – 25

Animal farms

Natural gas and petroleum systems


Nitrous Oxide (N2O)

GWP – 298


Fuel combustion

Chemical production

Hydrofluorocarbons (HFCs)

GWP – up to 14,800


Aerosol propellants


Fire retardants

Perfluorocarbons (PFCs)

GWP – up to 12,200

Aluminium production

Semiconductor manufacturing

Sulphur hexafluoride (SF6)

GWP – up to 22,800

Electricity transmission and distribution

**GWP = Global Warming Potential. Carbon dioxide’s GWP is 1 as it is the reference point.

Although not directly a source, there are existing reservoirs of carbon dioxide and methane trapped under ice. When climate change brings our temperature higher, it will melt the ice and release large volumes of these two GHGs into the atmosphere.

In the future, Singapore will also be taxing a seventh GHG, nitrogen trifluoride (NF3) which has a GWP of 17,200.

How Is Carbon Tax Calculated?

There are two categories of sources that make up the GHG emissions, fuel and Industrial Processes and Product Use (IPPU). For fuel, it is quite straightforward where each fuel will have a fixed formula of GHG produced when burnt. For IPPU, depending on the process and product, different amounts of GHG is produced.

By adding the GHG emissions for both categories, we will get the total GHG emissions.

Year Carbon Tax Rate/tCO2e (S$)
2019 – 2023 5
2024 – 2025 25
2026 – 2027 45
2028 – 2030 50 – 80 (estimated)

Depending on the carbon tax rate, we will multiply the amount of emission by the prevailing tax rate to get the tax payable.

The facilities will need to report their emissions on the Emissions Data Monitoring and Analysis System website.

How Does Carbon Tax Work?

The carbon tax will apply to facilities that directly emit at least 25,000 tCO2e annually. The tax will directly hit about 50 facilities in the manufacturing, power, waste, and water sectors.

Under the Carbon Pricing Act, any industrial facility that has a GHG emission level of 2,000 and above needs to register as a reportable facility and submit an annual Emissions Report.

Once they start to exceed the threshold as a reportable facility, they will need to start paying the carbon tax.

According to the Carbon Pricing Act, there will be penalties for not registering as a reportable and taxable facility.

Businesses and households will then be indirectly affected as these companies will inevitably pass down the cost increases.

This carbon tax will cover 80% of Singapore’s GHG emissions and if we include fuel excise duties, it will cover about 90%.

How Can Carbon Tax Reduce Climate Change?

The carbon tax is used to disincentivize GHG emissions while indirectly incentivizing the use of cleaner fuels and processes. It will make “dirtier” fuel and “inefficient” processes more expensive and hopefully it will encourage corporations to switch to “cleaner” fuel and/or “more efficient” processes.

When corporations switch to “cleaner” fuel and/or “more efficient” processes that are relatively new, optimistically more research and resources will be used to make the processes even more efficient.

The taxes will also be used to reduce the impact on households and to fund the transition to greener tech and processes.

Why Is Dealing With Climate Change Important To Singapore?

Although carbon tax will inevitably increase prices at least in the short to medium term, it is important that Singapore deal with climate change due to the following reasons.

Low-Lying Island City State

With rising sea levels, it will directly affect Singapore as a low-lying city state. We have about 30% of our island less than 5 metres above sea level. It is estimated that Singapore could experience an average increase of sea level by 1 metre by 2100. It might seem far away but it will be a real problem for our future generations.

Droughts And Floods

With increased extreme weather variability, we will be facing an increased number of incidents of droughts and floods. Droughts will affect our water supply while high amounts of rain will lead to flash floods, damaging nature and property.

When the water supply agreement between Singapore and Malaysia ends in 2061, it will be especially important to make sure we are ready for any spikes in water demand.


When the average temperature goes up, it can affect Singapore’s plants and animals. This can affect our ecosystem’s natural processes such as soil formation, nutrient storage and pollution absorption. If these natural processes fail, it can worsen the cycle by further destroying even more plants and animals.

Public Health

Vector-borne diseases like dengue are more prevalent during warmer periods of the year, which will be even more prevalent when our average temperature increases. There are about 50 active dengue clusters currently.

Extreme weather conditions will also place more stress on the elderly and sick, which in turn place higher stress on our healthcare system, increasing our healthcare costs even more.

Urban Heat Island Effect

When we increasingly urbanize Singapore, vegetation and forests have made way for buildings and infrastructure. When temperatures go up, we rely even more on air-conditioning, worsening the urban heat island effect.

Food Security

Extreme weather conditions will threaten global food security. Although we are planning to hit 30 by 30, Singapore is still very vulnerable to food prices as we import a high percentage of our food.

Green Growth Opportunities

Besides avoiding the negatives of climate change, we will also be able to harness green growth opportunities. Under one of the 5 pillars of our 2030 Green Plan, we plan to be a green growth hub that develops sustainability solutions and be a leading centre for green finance and services.

What Will Carbon Tax Be Used For?

The tax revenue collected will be put back into the economy to help companies build energy efficiency capabilities and also to provide rebates for utility bills and a fund to help lower-income families to switch to energy-efficient appliances.

Carbon Tax Across The World

For reference sake, we will take a look at the different carbon tax rates in various countries. I have converted them to SGD for easier comparisons. This is a very simplified comparison as there can be different implementations across different countries.

Country Carbon Tax Rate/tCO2e (S$)
Japan 1.94
Mexico 2.36
Argentina 4.11
Singapore (2019 – 2023) 5
South Africa 6.79
United Kingdom 18.40
Singapore (2028 – 2030) 50 – 80
Switzerland 75.29
Sweden 101.83

Source: World Bank

Who Will Carbon Tax Directly Affect?

Major Facilities

The tax is applied on facilities that directly emit at least 25,000 tCO2e of greenhouse gas (GHG) emissions annually and includes six GHGs that Singapore is currently reporting to the United Nations Framework Convention on Climate Change (UNFCCC), namely carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6). Singapore will also start reporting a seventh GHG, nitrogen trifluoride (NF3) by 2024. As such, we intend to include NF3 as a taxable gas at a suitable juncture.

In all, the carbon tax currently covers 80% of our total GHG emissions from about 50 facilities from the manufacturing, power, waste, and water sectors. Facilities in other sectors would also indirectly face a carbon price on the electricity they consume as power generation companies are expected to pass on some degree of their own tax burden through increased electricity tariffs.

Household And Businesses

At least some, if not all of the carbon tax, will be passed down to businesses and ultimately households. It will hurt lower-income households more as they have lower amounts of discretionary income. With the increase in GST over the next couple of years, it will also aggravate the impact on lower to middle-income households. The funds raised from the increases in GST will be spent on social and healthcare which will indirectly benefit the lower and middle-income households more.

There will be rebates and grants but we are not sure how much will the rebates cushion the impact.

How Will Carbon Tax Affect Us?

It should increase prices across the board at least in the short to medium term for businesses and households. A high amount of the carbon tax will be taxed on manufacturing, power, waste, and water sectors which are at the top of the supply chain, flowing down to businesses and then to the end consumer.

Hopefully, in the long term after the switch to more efficient processes and renewable energy, the impact of the increase in prices can be reduced or even be cancelled out.

What we can do at the household level is to make lifestyle changes to reduce the impact of the carbon taxes on us.

  • Take public transport over private hire over owning your own vehicle
  • Lower the use of air-con
  • Eat out less, cook at home
  • Switch to more efficient electrical appliances

Even without the increased carbon taxes, we can do these things to save money in general.

Do leave a comment with how else can we reduce the impact of carbon taxes.


Carbon tax will be increased from S$5 to potentially S$80 per tonne of emissions by 2030. It is one of the approaches that will try to bring down our carbon emissions to reach net-zero by 2050. Climate change will bring about problems and opportunities that we need to address. Prices will increase across the board for the short to medium term at least. Carbon taxes will be used to help lower the impact of price increases for households and to aid the transition to cleaner technologies for companies.


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