Singapore: The economics of environment sustainability
Singapore: The economics of environment sustainability
Key points
- Economic growth and environment sustainability need not be at odds with each other.
- The cost of environment sustainability is too large for either the public or private sector to bear alone; instead, the government can provide catalytic funding and work with corporates to achieve national decarbonisation targets.
In his Budget 2024 statement, Singapore’s Deputy Prime Minister (DPM) and Finance Minister Lawrence Wong emphasised that Singapore will “make no apology for pursuing growth”. While he acknowledged that embracing sustainability will entail the imposition of additional costs on businesses, going green can also be a competitive advantage, and it is important that local companies are “sustainability-ready”.
DPM Wong’s speech highlights how we are in a catch-22 situation. Economic growth is often carbon intensive, so much so that modern degrowth economists have argued that society’s current model of economic growth is unsustainable, and that degrowth policies which shrink economies would instead place less stress on global resources and improve wellbeing. Detractors, on the other hand, are quick to point out the trade-offs that degrowth may cause in terms of quality of life and human welfare.
At the same time, the cost of environment sustainability is not insignificant, and there are plenty of debates on who should be funding this. One school of thought is that corporates, which are often the largest polluters, should be penalised for the damage they have caused to the environment. Others believe that governments and regulators (and hence, taxpayers) should walk the talk and fund decarbonisation, given that they are the ones setting net-zero commitments. Disagreements on who should pay for green policies have even resulted in the phenomenon of “green lashing” in Europe, where looming elections and discontented voters could put the future climate agenda at risk.
While Singapore’s approach to environment sustainability may not be the most perfect nor the most ambitious, we think there is merit in highlighting the various ways in which the Singapore government is striking a balance with, partnering and galvanising the private sector to decarbonise, without compromising on economic growth. We anchor our discussion in recent measures announced during Budget 2024 and beyond that cut across the industrial and financial sectors, and highlight eight companies under our coverage that are contributing to the transition.
Catalytic government funding to spur private sector investments in clean energy transition
According to the Energy Market Authority, power generation accounts for about 40% of Singapore’s emissions, with 95% of electricity generated from natural gas. Singapore’s energy transition will be costly, given the need for new submarine power cables for clean electricity imports, power generation facilities if the country scales up its use of hydrogen fuel, and energy storage systems to provide a reliable supply of clean electricity to end-consumers. Such costly investments cannot be done by the private sector alone and will need catalytic funding from the government.
Exhibit 1: Multiple initiatives have been announced during Budget 2024 that support and encourage private sector investment into national decarbonisation efforts
| Initiative | Details |
| Future Energy Fund |
|
| Refundable Investment Credit (RIC) |
|
| Research, Innovation and Enterprise 2025 Plan (RIE2025) |
|
Source: Various new sources and government agencies; Internal estimates
There are a few companies under our coverage that could potentially benefit from these schemes. Firstly, Sembcorp Industries has been actively growing its renewables business. In Singapore, the firm has won tenders relating to solar projects, such as the recent tender from Jurong Town Council (JTC) for a 60ha solar project on Jurong Island.
Meanwhile, Keppel Ltd is involved in various clean energy solutions. This includes the Keppel Sakra Cogen Plant (KSC Plant), a 600MW state-of-the-art, advanced combined cycle gas turbine (CCGT) power plant. Expected to be completed in 1H26, KSC Plant will be Singapore’s first hydrogen-ready cogeneration plant, and could save up to 220,000 tons of carbon dioxide per year as compared to Singapore’s average operating efficiency for generating an equivalent amount of power.
Separately, Keppel Infrastructure Trust has been building up its renewable energy portfolio overseas through wind farm assets in Europe and a German solar portfolio. In April 2023, KIT’s holding, City Energy – together with Osaka Gas Singapore and their joint venture, City-OG – Woodside Energy Ltd and Keppel Data Centres have signed a memorandum of understanding (MoU) to study the feasibility of establishing a long-term, stable supply chain of sustainable liquid hydrogen (LH2) from Western Australia to Singapore and potentially Japan.
Finally, ST Engineering is involved in smart utilities. This includes streetlights that can automatically adjust their lighting intensity based on the ambient environment so as to consume less energy; smart water meters that can highlight leakages when there is a spike in water consumption; and the use of sensors in utility services to collect data for pattern analysis and resource optimisation. In February 2022, STE signed an MoU with Japanese manufacturer IHI Corporation to jointly pursue opportunities in urban solutions, energy management and hydrogen technology, ammonia solutions and space data applications.
Travellers to pay green fuel levy on flights out of Singapore from 2026
Singapore’s transport minister announced at an industry summit on the eve of the Singapore Airshow that all flights departing from Singapore will have to use 1% sustainable aviation fuel (SAF) from 2026. This proportion could potentially increase to 3-5% by 2030. Costs will be borne directly by travellers, and this will be dependent on factors such as flight distance and travel class. Based on the Civil Aviation Authority’s (CAAS) projections, the price of economy class tickets on short-, mid- and long-haul flights is expected to increase by S$3, S$6 and S$16 respectively. Given that this is not a significant jump from current flight ticket prices, we do not expect the green fuel levy to have much of a dampening effect on travel demand and thus a significant impact on national carrier Singapore Airlines – unless the mandated proportion (and corresponding levy) rises by a larger magnitude in the medium term.
The aviation industry is one of the most difficult to decarbonise. Globally, SAF use needs to rise to 65% by 2050 in order for the aviation industry to achieve net zero carbon emissions. However, SAF currently accounts for only 0.2% of the jet fuel market despite its benefits. As a nascent technology, SAF costs three to five times more than conventional jet fuel due to capacity and feedstock constraints. Fuel expense is one of the most significant operating costs for airlines, and the transition to more expensive SAF will certainly weigh on margins. With airlines just starting to turn the corner post-pandemic, carriers may not be willing to bear the high costs of SAF.
Exhibit 2: The International Air Travel Association (IATA) has cut back SAF production expectations due to delayed output from several refineries
| Year | Estimated SAF Output (Mt) | Global jet fuel (Mt) | SAF as a % of global jet fuel |
| 2019 | <0.02 | 287 | <0.01% |
| 2020 | 0.05 | 157 | 0.03% |
| 2021 | 0.08 | 189 | 0.04% |
| 2022 | 0.24 | 233 | 0.10% |
| 2023E | 0.45-0.5* | 286 | 0.17% |
| 2024E | 1.5 | 301 | 0.50% |
Source: IATA; Internal estimates
*Note: Figure based on current insights. 4Q23 numbers have yet to be confirmed in retrospect.
Singapore’s proposed levy is seen as “mild” and “lags global targets”. In Europe, for example, airlines are obliged to use a minimum 2% SAF by 2025, 6% by 2030 and 70% by 2050. However, Singapore’s approach to decarbonising the domestic aviation industry is sensible, in our view.
Stimulating demand: Unlike in Europe, where airlines pay for blended fuel and decide what proportion of costs will be passed on to passengers through ticket prices, the CAAS will centrally procure SAF to achieve better prices through demand aggregation and economies of scale. Airlines do not have to bear the costs, and those that wish to go beyond the 1% may also ride on the central procurement mechanism to purchase additional SAF.
Building supply: Finnish energy company Neste expanded the capacity of its Tuas South Refinery in Singapore in 2023. The expanded refinery allows it to produce up to a million tons of SAF each year, representing 10 times its previous capacity. It also acquired a minority stake in Changi Airport Fuel Hydrant Installation to establish an integrated SAF supply chain to Changi Airport.
Singapore’s Sustainable Air Hub Blueprint therefore alleviates the burden of cost for airlines, striking a balance between maintaining Singapore’s status as a global aviation hub and signalling the city state’s commitment to reduce domestic aviation emissions.
Electric Vehicle (EV) charging: Short-term pain for long-term gains
Another type of sustainable mobility, EVs, faces a chicken-and-egg problem. The installation of EV charging infrastructure is necessary to support widespread EV adoption; however, charging stations are often unprofitable, especially in initial phases where the EV population is not yet sufficiently large.
According to Bloomberg reporting, EV chargers need to reach 15% utilisation before they are able to turn a profit. As at the end of 2023, EVs and hybrid vehicles made up only 10.8% of the total motor vehicle population in Singapore, though infrastructure utilisation figures are unavailable.
Despite the fact that EV charging infrastructure may only see more meaningful returns in the medium to long term, companies such as ComfortDelGro and KIT are already paving the way for EV adoption. CD’s wholly owned subsidiary, ComfortDelGro Engineering, as well as KIT’s City Energy are both involved in the installation and management of EV chargers.
Simultaneously, Singapore’s government is also ramping up efforts to encourage the adoption of EVs as part of the Singapore Green Plan 2030. In September 2023, the Land Transport Authority (LTA) and National Environment Agency (NEA) announced the extension of the EV Early Adoption Initiative – which was due to end on 31 December 2023 – by a further two years, albeit with lower rebates.
Exhibit 3: Selected incentives for owners of clean energy vehicles
| Incentive | Details |
| EV Early Adoption Incentive (EEAI) | From 1 January 2024 to 31 December 2025, newly registered fully-electric cars and tais will receive 45% rebate off Additional Registration Fee (ARF), capped at S$15,000. |
| Enhanced Vehicular Emissions Scheme (VES) | From 1 January 2024 to 31 December 2025, VES Brand A1 rebate for cars will remain at S$25,000. VES Brand A2 rebate for cars will be lowered to S$5,000. |
| Commercial Vehicles Emissions Scheme (CVES) | Commercial vehicles are categorised into three bands resulting in a S$15,000 surcharge for the most pollutive vehicles to S$15,000 incentive from the lowest pollutive vehicles, effective from 1 April 2021 to 31 March 2025. |
Source: LTA
Green financing extended to not just enablers, but also adopters
EnterpriseSG first launched the Enterprise Financing Scheme – Green (EFS-Green) in October 2021 to provide green financing to project developers, system integrators as well as technology and solution enablers that develop enabling technologies and solutions to reduce waste, resource use or greenhouse gas (GHG) emissions. The scheme was well received, and close to S$100m of green loans had been provided to more than 30 small and medium enterprises (SMEs) by the end of 2022, across areas like solar energy, energy storage and energy efficient technologies.
At Budget 2024, it was announced that the scope of EFS-Green will be broadened to include the financing of green technology and solution adopters effective 1 April 2024, in order to support more local enterprises in the adoption of green solutions to reduce their carbon footprint. To catalyse lending from partner financial institutions such as DBS Group Holdings and United Overseas Bank, EnterpriseSG will continue to provide 70% risk-share.
Conclusion
Pursuing sustainability need not be at the expense of economic growth. In this report, we have explored how the Singapore government has adopted different roles to encourage decarbonisation:
- Providing co-funding to catalyse private sector investments into critical clean energy infrastructure;
- Serving as an aggregator of demand to encourage adoption of nascent technologies in a manner that is commercially feasible;
- Providing incentives to end-users to switch to EVs, which will encourage corporates to invest in EV charging infrastructure and promote a virtuous cycle; and
- Agreeing to share the risk with financial institutions to catalyse green loans.
Only time will tell what type of fruits the trees that we are planting today will bear, but the Singapore approach presents an interesting model of how the public and private sectors can work hand-in-hand to bear the cost of environment sustainability and build a better shared future for all.
Important information
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