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Overview of Singapore’s Carbon Tax Policy and Revenue Projections
In 2024, Singapore increased its carbon tax rate from SGD 5 to SGD 25 per ton of CO₂ equivalent—a fivefold hike aiming to reinforce its commitment as a regional climate policy leader. However, the expected revenue of SGD 1 billion (~USD 776 million) fell short by over 30%, with actual revenue reaching an estimated SGD 640 million (~USD 497 million).
Key Reasons Behind the Revenue Shortfall
Experts attribute the shortfall primarily to extensive tax exemptions and transitional allowances offered to industries heavily exposed to global competition. Despite the increased rate, relatively stable emissions and the lack of full taxation have dampened revenue growth.
Impact of Tax Exemptions and Transitional Allowances
Transitional allowances, designed to ease the financial burden on sectors such as chemicals, electronics, and biomedical manufacturing, have significantly reduced taxable emissions. Reports indicate some companies, particularly in petrochemicals and refining, were exempted from up to 76% of their carbon tax liabilities in 2024 and 2025.
International Carbon Credits and Offset Usage
Although Singapore permits the use of international carbon credits for offsetting emissions, uptake has been minimal to none so far. To address this, the government increased the allowable offset cap from 5% to 10% of emissions for 2025, aiming to enhance flexibility for businesses.
Policy Challenges and Global Comparisons
Similar to Singapore, other countries face balancing competitiveness with effective carbon pricing. For instance, Sweden provides prolonged tax breaks with significant rate reductions for emission-intensive manufacturers, raising concerns about potential dampening of emission reduction incentives.
Future Outlook and Recommendations for Singapore’s Carbon Tax
Singapore faces a critical juncture: how to phase down subsidies while maintaining business competitiveness. Strategic policy adjustments, greater transparency in allocation of allowances, and fostering carbon credit market participation are essential steps toward a more effective carbon tax framework.
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