February 5, 2024

How the Carbon Tax Will Benefit Singapore's Economy and Environment?

In a world increasingly grappling with the impacts of climate change, governments around the globe are seeking innovative ways to reduce carbon emissions and transition towards a more sustainable future. Singapore, a thriving hub of commerce and innovation, has stepped into the forefront of this global movement by introducing a carbon tax. This bold initiative reflects the city-state's commitment to mitigating climate change and fostering a greener, more resilient economy.

Brice Degeyter
Brice Degeyter
Bizsu founder
Image of Earth with global temperature and emission calculations

Understanding the Carbon Tax:

The concept of a carbon tax is straightforward: it is a levy imposed on the carbon content of fuels. The primary aim is to incentivize businesses and individuals to reduce their carbon footprint by making carbon-intensive activities more expensive. In Singapore's case, this policy was officially implemented in 2019, marking a significant milestone in the nation's commitment to sustainable development.

Reasons Behind the Implementation:

Several factors influenced Singapore's decision to introduce a carbon tax. Firstly, the city-state recognized the global imperative to address climate change and acknowledged the role that carbon emissions play in exacerbating environmental challenges. By imposing a carbon tax, Singapore aimed to signal its dedication to international climate goals and demonstrate responsible environmental stewardship.

Secondly, the carbon tax serves as a powerful economic tool. It creates a financial incentive for industries to adopt cleaner technologies, invest in renewable energy, and improve energy efficiency. In doing so, the government seeks to stimulate innovation and position Singapore as a leader in sustainable practices, potentially attracting environmentally conscious businesses and investors.

Key Features of Singapore's Carbon Tax:

  1. Gradual Implementation: Singapore's carbon tax is implemented gradually, starting with a modest rate and a focus on major emitters. This allows businesses to adjust their operations and make necessary changes to comply with the new regulations over time.
  2. Sectoral Approach: The tax is applied on a sectoral basis, with the power generation and petrochemical industries being the initial focus. These sectors are significant contributors to carbon emissions, and targeting them first allows the government to address high-impact areas efficiently.
  3. Carbon Pricing Mechanism: The carbon tax is part of a broader carbon pricing strategy that incorporates market-based mechanisms. This encourages industries to find the most cost-effective ways to reduce their emissions, fostering innovation and competitiveness within the market.

Benefits of Singapore's Carbon Tax:

  1. Economic Incentives for Innovation: By putting a price on carbon emissions, the carbon tax incentivizes businesses to innovate and adopt cleaner technologies. This not only reduces their environmental impact but also positions them as leaders in a global economy shifting towards sustainability.
  2. Revenue Generation for Green Initiatives: The revenue generated from the carbon tax can be channeled back into sustainability efforts. This could include funding for renewable energy projects, research and development of green technologies, and initiatives to enhance energy efficiency across various sectors.
  3. Global Leadership in Climate Action: Singapore's adoption of a carbon tax reinforces its commitment to global climate goals. It positions the city-state as a responsible and proactive participant in international efforts to combat climate change, enhancing its standing on the world stage.

Singapore's Carbon Tax: A Data-Driven Approach:

Singapore's decision to implement a carbon tax in 2019 was not arbitrary; it was a strategic move rooted in environmental responsibility and economic foresight. Covering 80% of domestic emissions, the carbon tax sets a clear path for businesses to adapt progressively. The numerical foundation of this tax reflects Singapore's commitment to achieving tangible reductions in carbon emissions.

As of the latest available data, Singapore's per capita carbon dioxide emissions stood at approximately 7.7 metric tons in 2018. This figure places Singapore among the top emitters globally on a per capita basis. The introduction of the carbon tax is a crucial step toward addressing this challenge, encouraging industries to adopt cleaner technologies and reduce their carbon footprint.

Vision of a Carbon Hub: Economic Implications:

The Economic Development Board (EDB) estimates that Singapore's carbon hub could generate an impressive $5.6 billion in gross value to the state's economy by 2050. This projection is underpinned by the vibrant ecosystem that Singapore has cultivated, boasting over 100 carbon service providers — the highest concentration in South-East Asia. The economic potential of the carbon hub is not just a vision but a numerical forecast backed by meticulous analysis.

In 2020, Singapore's carbon market transactions amounted to $134 million, according to data from Refinitiv. This figure underscores the nascent yet rapidly growing nature of the market. With 16 Asian nations expressing their intention to supply carbon credits to the global market, Singapore's strategic positioning is poised to capitalize on this growing trend.

Strategic Positioning: Proximity and Influence:

Singapore's strategic location and influence are pivotal to the success of its carbon hub. The city-state's proximity to approximately a third of all nature-based solutions for carbon removal in Asia positions it as a key player in the region's carbon market. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is one such initiative where Singapore's strategic position as an international aviation and shipping hub makes it an attractive destination for carbon credit trading.

From 2027, aircraft operators will be legally required to purchase carbon credits to offset emissions from all international flights. This mandate, coupled with Singapore's established infrastructure and expertise in aviation, opens up lucrative opportunities for the carbon market. The International Air Transport Association (IATA) estimates that the aviation industry's global emissions could be reduced by up to 2.5 billion tonnes from 2021 to 2050 through CORSIA.

Transition to a Compliance Market: Future Economic Gains:

Singapore's forward-looking approach aligns with international trends, particularly the shift from a voluntary carbon market to a compliance market. The EDB's estimation that a carbon hub could generate $5.6 billion in gross value by 2050 takes into account the anticipated transition and the legal requirements for sectors like aviation. As other sectors, including shipping, are expected to follow suit, Singapore's early investments in the carbon market are poised to yield substantial economic returns.

Catalyzing Growth During the Pandemic: Climate Impact X (CIX) and Financial Institutions:

Even during the challenging times of the COVID-19 pandemic, Singapore showcased its commitment to sustainable growth. The government's establishment of a task force to explore potential new growth areas highlighted the resilience and adaptability of Singapore's economic strategy. Financial institutions, such as DBS and Standard Chartered, collaborated to form Climate Impact X (CIX) in 2021.

Mikkel Larsen, CEO of CIX, emphasizes the catalytic role Singapore plays in helping neighboring countries find a platform for their carbon credits. The voluntary carbon exchange launched by CIX in June 2021 has garnered attention, offering a marketplace for carbon credits primarily from nature-based carbon removal projects.

Carbon Trading Platforms: Numbers Speak Volumes

The emergence of carbon trading platforms in Singapore provides a tangible manifestation of the city-state's commitment to sustainability. Climate Impact X (CIX) and AirCarbon Exchange (ACX) are two prominent platforms that have contributed significantly to Singapore's carbon market landscape.

CIX, as of its latest data, offers just under 50 projects to several hundred companies. The selective approach to project inclusion ensures high-quality nature-based carbon removal projects, making it a sought-after marketplace for businesses aiming to offset their emissions voluntarily.

ACX, Singapore's other carbon trading platform, has evolved significantly beyond its initial focus on the CORSIA market. Utilizing blockchain technology and smart contracts for transparency and efficiency, ACX offers voluntary carbon credits from diverse sources, including renewable energy projects, clean cookstoves, and nature-based solutions.

The Trade in Numbers: Potential and Growth

As of 2021, ACX reported being the first global carbon exchange to employ blockchain technology and smart contracts. This technological innovation enhances transparency and efficiency, two critical elements in the carbon trading landscape. With the capacity to participate in various carbon markets, including the new international market emerging from Article 6 of the Paris Agreement, ACX is poised for substantial growth.

Asia Carbon Institute (ACI): Certifying Carbon Credits

The newest entrant in Singapore's carbon market, Asia Carbon Institute (ACI), launched in August 2021, focuses on certifying and issuing carbon credits. Founder John Lo underscores the institute's emphasis on technology-based and urban-related carbon removal solutions. This approach addresses the less-developed methodologies in these areas compared to nature-based solutions.

According to Lo, Asia is home to more than 60% of all megacities and serves as a hub for many carbon-intensive manufacturing industries. However, there has been relatively little focus on carbon credits addressing these areas. ACI's numerical emphasis on technology-based solutions highlights a critical niche in the carbon market that aligns with the dynamic landscape of Asian urbanization and industrialization.


Singapore's journey into the realm of carbon trading, characterized by the introduction of a pioneering carbon tax and the establishment of a vibrant carbon hub, is rooted in strategic planning and economic foresight. The numerical foundation of this green shift encompasses per capita emissions, market transactions, economic projections, and the potential for emissions reduction in sectors like aviation.
The city-state's commitment to sustainability, even during the challenges posed by the COVID-19 pandemic, is evident in the establishment of platforms like Climate Impact X (CIX) and the collaborative efforts of financial institutions. The emergence of carbon trading platforms like CIX, ACX, and ACI provides a numerical testament to the burgeoning potential of Singapore's carbon market.
As Singapore positions itself at the forefront of global efforts to combat climate change, the integration of relevant numbers, statistics, and facts underscores the city-state's commitment to turning its green vision into a quantifiable reality. The journey has just begun, and Singapore's carbon initiatives are poised to leave a lasting impact on the landscape of environmental sustainability and carbon markets, setting a precedent for other nations to follow.