The recent COP28 summit marked a pivotal moment in the global commitment towards climate change. Nations pledged to treble renewable energy capacity and double energy efficiency by 2030, while gradually phasing out fossil fuels. This heightened level of commitment to mitigate climate change signals intensified competition between countries to achieve a regional or global leadership position.
Situated strategically, Singapore boasts robust infrastructure, a strong financial eco-system and a robust governance framework, making it an ideal contender for this leadership role. The nation’s firm foundation in the green transition is evident in its nationwide circular economy initiatives, the Singapore Green Plan 2030, and in advancements in new energy and clean technology across sectors in recent years.
To cement its position as a climate leader, Singapore must centre its efforts on green innovation and innovative financing. These will be critical pillars in the development of novel solutions and pilot projects that can harmoniously bridge economic progress and environmental protection.
The upcoming Budget 2024 hence presents a significant opportunity to provide catalytic support for the development and adoption of green innovation in Singapore. This can be achieved by concentrating on areas such as private capital for green initiatives, tax incentives and bolstering research and development (R&D) support as well as adoption in the areas of advanced energy solutions.
Mobilising private capital for climate initiatives
Singapore's financial ecosystem — which includes a multitude of commercial banks, multilateral organisations, and long-term capital providers such as pension funds and insurance companies – is uniquely positioned to secure private sources of capital.
Unlocking institutional financing would be critical in funding climate initiatives. Given the higher risk profile of new energy projects, it would be imperative to attract longer-term, low-cost capital providers such as insurance and pension funds, multilaterals and philanthropic organisations. When pooled together with traditional finance providers, these capital providers can turn blended finance into a key enabler in driving the green revolution.
This could lay the groundwork for a public, private and philanthropic partnership (3P) approach – utilising public funds significantly alleviates concerns about potential risks tied to investing in innovative, yet unproven, green technologies. This 3P partnership could promote cross-border risk sharing and rewards distribution concerning climate initiatives in Southeast Asia, fostering an inclusive and collaborative approach to climate action.
The implementation of an inclusive financial model is quintessential in raising funds and providing financial incentives to expedite project origination and conceptualisation. For instance, companies involved in green project origination could benefit from a 200 percent tax deduction on financing costs, offsetting initial research and conceptualisation expenses.
Our proposal calls for an ambitious mobilisation of S$100 billion over the next seven years via a tripartite partnership involving the public sector, private sector, and philanthropies. To demonstrate commitment, the Government could consider allocating up to one percent of our gross domestic product to this fund, delivered through a mixture of existing and new tax incentives, grants, and loan guarantees.
Additionally, an inclusive financial model could incorporate a tiered credit line for climate financing, catering to a range of stakeholders from large corporations to individuals developing or utilising innovative green energy solutions. Different credit tiers will prevent companies embarking on smaller-scale green projects from incurring undue financial stress.
Support for green technology solutions via tax incentives
In an inflationary environment where sustainability goals can be burdensome, tax incentives, grants and loan guarantees can serve as powerful strategies to promote the development of green technologies such as clean energy production, electric mobility, energy storage and charging infrastructure. Furthermore, the convergence of some of these technologies, such as electric vehicles and electric storage systems, opens possibilities to innovate and transform our energy landscape.
Incentivising support for R&D, which can come in the form of financial incentives and grants, is crucial in the advancement and adoption of these nascent green technologies. These measures have the potential to anchor landmark green projects in their early stages in Singapore and elevate its status as a green innovation hub.
Extra support is also needed for transmission and distribution infrastructure, particularly for hydrogen utilisation and renewable energy sources. A significant gap currently exists in private sector involvement in these areas. Critical gas and power transmission networks could be categorised as “national energy security infrastructure” eligible for tax concessions, credit guarantees and blended financing. These measures can help to mitigate risks, making it more attractive for private sector players to participate.
Incentivising businesses to adopt energy-efficient solutions
To bolster green innovation, it is crucial that businesses across sectors adapt to the changing landscape by reducing emissions and incorporating energy efficiency technologies. This will ensure their longevity in an increasingly green-centric economy. To facilitate this transition, projects related to energy transition can be made eligible for specific tax incentives, enhanced allowances or deductions. Mitigating these associated costs can motivate companies to adopt energy-conserving production processes and invest in more energy-efficient equipment.
We propose the expansion of the government’s Energy Efficiency Fund (E2F) by extending the scope of energy-efficient equipment supported under the E2F. This could include equipment and technologies related to solar or hydrogen. Government incentives, such as a gross-floor-area bonus or tax deductions, could also be introduced to encourage owners of older buildings to refurbish their premises and implement sustainable solutions.
In conclusion, the upcoming Budget provides a key opportunity to build a robust financing structure and relook tax incentives needed to successfully navigate the transition to a green economy. This strategy will secure a stable and sustainable energy future for Singapore, help it to attain regional leadership and harness green innovation as a key economic pillar for the country in the coming decade.