SINGAPORE – A European environmental tax regimen that took effect on Jan 1 has so far had “minimal” impact on Singapore, said the Ministry of Trade and Industry (MTI).
In response to queries from The Straits Times, an MTI spokesperson said that goods that would attract the levy – dubbed the Carbon Border Adjustment Mechanism (CBAM) – made up less than 1 per cent of Singapore’s domestic exports to the European Union and Britain in 2025.
The mechanism applies to imports of cement, iron and steel, aluminium, fertilisers, as well as hydrogen and electricity. The manufacturing process behind such products can generate large amounts of planet-warming emissions.
Mr Hong Tin Wei, director for environmental, social and governance and sustainability services at accounting and advisory firm Grant Thornton Singapore, said firms here that are engaged in chemical and iron and steel-related manufacturing, followed by aluminium‑related manufacturing, are expected to be the most affected by the levy.
However, experts note that while the scheme’s impact on Singapore is currently muted, the Republic’s high dependence on imported goods could make it susceptible to price increases in raw materials. This could happen if producers elsewhere raise their prices to offset investments made into emissions-cutting technologies.
The CBAM was implemented to prevent carbon leakage – which occurs when firms move production to countries with weaker climate rules – by putting a price on carbon on certain imported goods.
This helps to ensure that producers subject to strict environmental conditions do not “lose out” to cheaper imports from jurisdictions where such standards may be more lenient.
The European Union’s CBAM became fully operational on Jan 1 after being in a transitional phase since October 2023. Meanwhile, Britain’s CBAM is scheduled to come into effect on Jan 1, 2027.
The MTI spokesperson said that both the EU and Britain’s schemes allow for eligible carbon prices paid abroad on CBAM goods to be accounted for in levy calculations.
“Singapore has a carbon tax regime,” said the spokesperson. “Carbon costs already applied to goods exported from Singapore should be accounted for in the CBAM levy to avoid double taxing the same unit of emissions.”
The levy refers to a charge imposed on CBAM-regulated goods imported into the EU. Importers must purchase CBAM certificates in an amount equivalent to the embedded carbon emissions in their imports.
For 2026 and 2027, Singapore’s carbon tax rate is $45 per tonne of greenhouse gas emissions.
NUS’ Energy Studies Institute senior research fellow Kim Jeong Won explained that this means that EU importers can deduct the carbon price already paid in the exporting country from the CBAM amount due.
However, exporters must submit verified emissions data and proof of carbon tax payment for this to happen.
But she noted that Singapore’s current carbon tax rate remains lower than the carbon price in the EU – which has been in the range of €70 (S$104) to €85 since the second half of 2025.
Dr Kim added: “EU importers are still likely to face a top-up payment under CBAM to bridge the gap between Singapore’s carbon tax and the prevailing EU (carbon) price.”
Still, Singapore’s carbon tax regime supports the competitiveness of Singaporean businesses in the EU market, she noted.
This is because the carbon tax paid here will reduce the financial burden on EU importers, who may have to bear higher costs if they import such goods from jurisdictions without carbon pricing schemes, Dr Kim said.
However, the EU will deduct only the carbon price actually paid outside its jurisdiction.
“It means that if producers have not paid the full carbon price because they received free allowances or rebates, the deduction is limited to the amount actually paid,” Dr Kim said.
Currently, more than 20 firms here from emissions-intensive, trade-exposed sectors are eligible to receive transitory allowances that act as a carbon tax “discount” of sorts.
The quantum, which companies they were given to and how long they would be in place for have never been officially revealed. However, ST has reported that the carbon tax revenue collected in 2024 and 2025 was less than the expected amount, which experts said reflects the use of such allowances.
Dr Kim said this could affect the CBAM levy that EU importers will have to pay for Singapore-made products.
“In this sense, for Singapore companies that benefited from transitory allowances, the EU will credit only the net amount (paid) rather than the full statutory carbon tax rate,” she said.
Dr Xu Haoxin, managing consultant for energy at consultancy firm Ramboll, said that CBAM does not automatically recognise free allocations or allowances.
“If a firm benefits from allowances or offsets that reduce its effective carbon cost, this may not fully translate into CBAM deductions,” she said.
While the impact of CBAM on Singapore is currently “muted”, Dr Kim noted that it is important to consider the indirect impact of the mechanism through international trade, given Singapore’s high reliance on imports.
The mechanism is expected to push global producers of CBAM-covered products to invest in decarbonising their production technologies and processes to reduce their emissions to maintain their competitiveness in the EU export market, she said.
“If producers raise product prices to offset these investment costs, importing countries like Singapore will have to bear higher prices,” she added. “Such increases in the cost of raw materials and commodities could, in turn, affect various sectors in Singapore, including construction, agriculture and certain manufacturing industries.”
One major challenge in complying with CBAM is the technical and administrative burden of collecting emissions data and aligning it with the mechanism, said experts.
Mr Hong said that Singapore exporters must provide detailed carbon intensity information to purchase CBAM certificates, but many firms here do not yet have the systems in place to measure and track this.
Dr Kim said many Singaporean firms may also lack the technical capacity and expertise to calculate the necessary data needed for CBAM, and this could lead to higher compliance costs.
The Government is looking into how to make the process smoother. In July 2025, MTI commissioned a consultancy study on the differences between Singapore’s carbon tax regime and the EU and Britain’s CBAM regimes to identify ways to help companies comply with both more smoothly, said its spokesperson.