16-fold increase in Singapore carbon tax will improve cost competitiveness of low-carbon technologies and electricity imports

In 2018, Singapore became the first country in Southeast Asia to impose a carbon tax
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The carbon tax was initially priced at S$5 per tonne from 2019 to 2023, with plans to increase the tax to between S$10 and S$15 per tonne by 2030
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When the policy was released, Singapore made a climate pledge to reduce its carbon intensity by 36 percent from 2005 levels and to peak emissions around 2030
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According to Singapore's FY22 Budget, the carbon tax level will be raised to S$25 per tonne in 2024/2025 from the previously planned S$10 to S$15 per tonne, and to S$45 per tonne in 2026/2027 , and raised to S$50 to S$80 per ton in 2030
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If Singapore is to meet its new target of net-zero emissions by the 2050s, it will have to significantly increase its carbon tax
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An increase in the carbon tax from S$25 per tonne in 2024 to S$80 per tonne in 2030 could lead to an increase in electricity prices by US$7/MWh to US$22/MWh
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This is because the country's gas-fired generators are relatively young, with around 70 percent of units still in operation by 2030, and will remain marginal units that determine wholesale market prices for electricity
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Based on the average wholesale electricity price of US$82/MWh over the past five years, and taking into account the government’s announcement of a carbon tax of up to S$80/tonne in 2030, the wholesale electricity market price will surge by about 27%
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This will put pressure on electricity consumers and is one reason regulators have delayed implementing forward capacity markets
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At the same time, this also brings a worrying problem - because electricity retailers are reluctant to sign fixed-price contracts in the next few years, large electricity users currently have to face the dual pressures of high electricity prices and market volatility at the same time
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The government said it would take some transitional measures to ease the burden on residential and commercial users
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Combined cycle gas turbines (CCGTs) with carbon capture technology will be more expensive in terms of short-term marginal cost (SRMC) than those without carbon capture as the carbon tax is raised to the lowest level the government intends to implement by 2030 competitiveness
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The carbon tax will promote the adoption of low-carbon technologies in the power industry, thereby creating a level playing field for emerging low-carbon technologies, enabling them to compete in the wholesale electricity market
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Fiscal funds from carbon tax revenue have been earmarked for decarbonization, which can help further increase the application of low-carbon technologies
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At the same time, it is necessary to continue to support hydrogen co-firing technology, because its short-term marginal cost is still slightly higher than that of combined cycle gas turbine without carbon capture; on the other hand, the long-term marginal cost (LRMC) of combined cycle gas turbine + carbon capture technology is still high In cases where carbon capture is not applied, a one-time financial support for the technology is required
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Comparing the carbon emission reduction costs of the two schemes, the emission reduction cost per ton of the hydrogen co-firing technology is still seven times that of the combined cycle gas turbine + carbon capture technology
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A carbon tax makes electricity imports a more viable option, even for users who have not committed to renewable energy
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In the absence of any carbon tax, the proposed electricity import project currently has a landing price of $100/MWh to $150/MWh, much higher than the average wholesale electricity price of the past five years
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Given the increasing carbon tax, the difference between the cost of a combined cycle gas turbine without carbon capture and the cheapest imported land tariff will shrink substantially, and with the carbon tax exceeding S$80/t after 2030, the gap will further narrow.
It will be further narrowed and provide a strong long-term value proposition for driving electricity users to sign long-term power purchase agreements (PPAs) with electricity importing projects – locking in long-term electricity prices and avoiding the risk of fuel price volatility and future carbon tax increases
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