Carbon tax relief for trade-exposed industry: the Transition Framework

The problem this solves

The technical term is carbon leakage: emissions do not disappear, they relocate to a jurisdiction with weaker rules. A carbon price that causes leakage costs jobs at home and achieves nothing globally.

The companies most at risk are described as emissions-intensive trade-exposed (EITE), meaning they both emit a lot per unit of output and sell into international markets where they cannot simply pass the cost to customers.

How the relief works

Eligible existing EITE facilities receive transitory allowances. The allowances are set using:

• internationally recognised efficiency benchmarks where such benchmarks exist for the process concerned, and
• the facility's own decarbonisation plans.

The benchmark approach is deliberate. Because allowances are pegged to what an efficient operator in that industry would emit, a facility that is dirtier than the benchmark gets relatively less protection, and a facility that is cleaner keeps more of the benefit. Relief is therefore tied to performance rather than simply to size.

Three features limit the relief:

1. Partial coverage. Allowances cover only a portion of a facility's emissions. Every additional tonne still carries a price, so the incentive to abate is preserved at the margin.
2. No new investments. New investments are not eligible for transitory allowances. The framework cushions an existing industrial base through a transition; it does not subsidise new emissions-intensive capacity.
3. Periodic review. Allowances are reviewed regularly and the framework is designed to taper over time.

Why this matters when reading the headline tax rate

This is the single most common misreading of Singapore's carbon tax. The headline rate - S$45 per tCO2e for 2026 and 2027 - is the rate applied to taxable emissions. For an EITE facility holding transitory allowances, the effective cost per tonne emitted is lower, sometimes considerably.

Anyone modelling the cost of carbon for a specific Singapore facility, or comparing Singapore's carbon price to another country's, needs to account for this. Reporting the headline rate as the effective price paid by industry overstates it.

Equally, the framework does not mean a facility escapes the price signal. Coverage is partial by design.

What the tax revenue funds

Carbon tax revenue supports decarbonisation rather than disappearing into general spending. Named channels include:

• the Energy Efficiency Grant (EEG), offering up to 70 per cent support for SMEs and 30 per cent for non-SMEs on pre-approved energy-efficient equipment
• the Investment Allowance for Emissions Reduction (IA-ER), an allowance on capital expenditure for approved projects that improve energy efficiency or reduce greenhouse gas emissions

Both were retained in Budget 2026.

Who to ask

Eligibility and allowance levels are handled case by case with the National Climate Change Secretariat, MSE and the Economic Development Board, informed by the facility's decarbonisation plan. There is no published self-assessment test to apply.