Singapore is set to provide refiners and petrochemical companies with rebates of up to 76% on the upcoming carbon tax for 2024 and 2025. This move aims to alleviate financial pressures and enhance competitiveness against rivals in regions like China and the Middle East, as reported by sources familiar with the situation.

The new carbon tax rate, effective January 1, requires businesses emitting over 25,000 metric tonnes of carbon annually to pay US$25 per tonne until 2025, a significant increase from the previous US$5 per tonne during 2019-2023. The tax will rise to US$45 per tonne in 2026-2027, and potentially reach US$50-80 per tonne by 2030, as announced by the government in 2022.

Analysts estimate that the carbon tax will cost refineries between 80 cents and US$1 per barrel of crude input, which could represent about 25% of their current profit margins in Singapore. To help ease this burden, major refining companies are being offered transitional rebates that lower their effective tax burden to between US$6 and US$10 per tonne of emissions.

While refiners will initially pay the full US$25 per tonne, they can apply for rebates to mitigate the overall costs. The three main refineries in Singapore, operated by Shell, ExxonMobil, and Singapore Refinery Co, have a combined capacity of 1.119 million barrels per day.

The concessions are expected to remain in effect at least through 2024 and 2025, with discussions about potential future rates starting in 2026. The carbon tax increase follows a period of elevated refining margins due to disruptions in the oil trade after the Ukraine war and post-COVID demand. However, these margins have reportedly halved since their peak in February 2022.

The introduction of a transition framework last year aims to assist companies in emissions-intensive sectors, including chemicals, electronics, and biomedical manufacturing, as they transition towards lower emissions. A spokesperson from Singapore’s Ministry of Trade and Industry noted that allowances will apply only to a portion of a company’s emissions, determined by efficiency benchmarks or the robustness of decarbonization plans.

Overall, the government is committed to supporting businesses in adapting to these changes while maintaining environmental goals.