S$45 per tonne of CO2. In 2026, the city-state will raise its carbon pricing to this level, an 80% increase from the S$25/tCO2e of 2024. This progression places Singapore among the jurisdictions with the highest carbon prices in Asia, testing at full scale the capacity of an export economy to maintain its competitiveness under strong climate constraints.

The Singaporean experience extends beyond the local framework. It questions the political and economic viability of substantial carbon prices in a region where industrial competition remains fierce and where national climate policies remain heterogeneous.

70% of national emissions under pricing since 2019

Singapore has applied its carbon tax since 2019, initially covering installations emitting more than 25,000 tonnes of CO2 equivalent per year. This threshold captures approximately 70% of national emissions, affecting around fifty industrial installations in refineries, petrochemicals, and electricity production. The system concerns the Jurong Island complexes that refine 1.5 million barrels of oil daily.

The price escalation follows a programmed trajectory. From S$5/tCO2e in 2019, the price rose to S$25/tCO2e in 2024, before reaching S$45/tCO2e in 2026. Government projections suggest a range of S$50 to S$80/tCO2e in the following decade, aligned with IPCC recommendations to contain warming below 2°C.

This controlled progression allows industrialists to anticipate their low-carbon investments. Shell, ExxonMobil and other majors present at Jurong Island have already announced carbon capture and storage projects worth several hundred million dollars. The predictability of the price signal matters as much as its level.

Competitiveness preserved by moderate energy intensity

Singapore maintains its competitive advantage despite rising carbon costs. The Singaporean economy has a carbon intensity of approximately 0.07-0.13 kg CO2 per dollar of GDP according to 2022-2023 data, which demonstrates very low carbon intensity compared to the regional average. This relative carbon efficiency limits the impact of the tax on production costs.

The manufacturing industry, which represents 21% of GDP, concentrates its activities on high value-added segments: semiconductors, pharmaceutical products, precision equipment. These sectors better withstand the carbon surcharge than traditional heavy industries. The added value per tonne of CO2 emitted reaches S$4,200 in electronics, compared to S$850 in steel.

Oil refining, the main industrial emitter, benefits from its regional hub position. Singaporean refineries process Malaysian and Indonesian crude to re-export refined products throughout Southeast Asia. This geographical specialization limits relocation risks despite growing fiscal pressure.

Border adjustment mechanisms in preparation

The Singaporean government is preparing mechanisms to avoid carbon leakage. The Monetary Authority of Singapore (MAS) is studying the introduction of carbon border adjustment mechanisms, similar to the European CBAM planned for October 2026. These import taxes would compensate for the competitive advantage of foreign producers not subject to carbon pricing.

Priority sectors include steel, aluminum, cement, and basic chemicals. Singapore massively imports these industrial inputs from Malaysia, Indonesia, and China, where carbon prices remain low or non-existent. A border adjustment would level the competitive playing field while preserving national tax revenues.

Technical implementation proves complex. Carbon intensity of imports must be calculated, origin certifications verified, and disguised protectionist measures avoided. Singapore relies on its expertise in international trade and privileged relations with regional partners to calibrate these mechanisms.

Revenue recycling toward low-carbon innovation

Carbon tax revenues, estimated at S$1.2 billion in 2026, fund measures that support decarbonization efforts and the transition to a green economy. This system subsidizes industrial decarbonization projects: energy efficiency, process electrification, green hydrogen, direct CO2 capture.

The Public Utilities Board (PUB) invests S$500 million in low-carbon desalination. Singapore currently has three operational desalination plants that can meet up to 30% of current water demand, with a goal of maintaining this proportion against growing demand by 2060. The electrification of these installations via solar energy imported from Malaysia and Australia constitutes a major decarbonization challenge for the water sector.

Nanyang Technological University develops electrical storage solutions to smooth solar intermittency. These giant batteries, partially financed by carbon revenues, will support Singapore’s goal of increasing its solar energy deployment to at least 2 GWp by 2030, which can meet approximately 3% of projected electricity demand in 2030. The energy transition self-finances through pricing of residual emissions.

Regional spillover effect: Malaysia and Thailand observe

The Singaporean experience influences regional climate policies. Malaysia is preparing its own carbon pricing system for 2025, initially set at 10 Malaysian ringgits per tonne ($2.3), ten times less than the Singaporean level. This price difference creates growing commercial tensions between the two integrated economies.

Thailand has been testing a voluntary carbon market since 2023, covering power plants and cement works. Prices are established around $3 to $5 per tonne, reflecting the absence of binding obligations. Bangkok carefully observes the economic impact of Singaporean policy before considering more aggressive pricing.

Indonesia resists any form of national carbon pricing, favoring forest compensation mechanisms. Jakarta fears that carbon pricing would penalize its steel, nickel, and chemical exports to Singapore. This regulatory divergence complicates regional economic integration and fuels debates on border adjustments.

Continental price signal for a decarbonized Asia

Singapore demonstrates that an open economy can impose high carbon prices without losing its competitiveness, provided it relies on appropriate industrial specialization and sophisticated adjustment mechanisms. The rise to S$45/tonne in 2026, then toward S$50-80/tonne in the following decade, outlines a trajectory compatible with international climate objectives.

The impact extends beyond the city-state’s borders. In a region where Chinese emissions stagnate despite growth, the Singaporean example tests the political feasibility of ambitious climate policies. If the model withstands the test of international competition, it could inspire other Asian economies seeking to reconcile growth and decarbonization.

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