Power producers and large carbon emitters in Singapore will have to pay a tax for each tonne of carbon they release starting 2019 in what is the first national carbon pricing scheme introduced in Southeast Asia.
Calling it the “the most economically efficient and fair way” to reduce greenhouse gas emissions, Singapore’s Finance Minister Heng Swee Keat announced the carbon tax in his Budget speech in Parliament on Monday.
The government is proposing a S$10 to S$20 tax per tonne of greenhouse gas released as a “price signal to incentivise industries to reduce their emissions”.
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Although it is broadly called a carbon tax, Singapore will charge companies for belching these six greenhouse gases – carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulphur hexafluoride (SF6).
Revenue collected will fund measures to help industries cut their emissions further, and the carbon tax could spur the “creation of new opportunities in green growth industries such as clean energy”, Heng explained.
“This may also spur the creation of new opportunities in green growth industries such as clean energy,” he added.
Starting next month, the government will conduct both consultations with the general public and the industry - especially companies that will be directly impacted by the levy.
The carbon tax will also help Singapore achieve its Paris Agreement goals and is meant to complement the host of other measures proposed in the Singapore Climate Action Plan released in 2016.
The country, which is the world’s 26th largest carbon emitter per capita despite its small land area, aims to cut emissions intensity, or emissions per dollar of GDP, by 36 per cent below 2005 levels by 2030. It also promised to reach and stabilise peak emissions by 2030.
The move fulfils Singapore’s promise from seven years ago. Speaking at Singapore International Energy Week in 2010, Prime Minister Lee Hsien Loong promised to introduce a carbon pricing scheme in Singapore should a global climate change deal materialise.
“If there is a global regime to curb carbon emissions and that means that Singapore will have to reduce our own emissions more sharply than we are doing now, in order to comply with international obligations, then we will have to make the carbon price explicit, to send the right price signals,” he said then.
Lee added that Singapore has long applied a “shadow” carbon price within its cost-benefit analysis of regulations and policies so “government policies and decision-making can be better informed and can be rational”.
Singapore’s National Climate Change Secretariat (NCCS), which worked on the proposal for a carbon tax, told the press that a carbon tax was a more practical solution for carbon pricing given the small size of the Singapore market. The NCCS is part of the Strategy Group within the Prime Minister’s Office.
Professor Euston Quah, Head, Department of Economics at Singapore’s Nanyang Technological University believes the imposition of a carbon tax is “beneficial” for the country overall because it changes the relative prices between renewable and non-renewable energy resources. This makes renewable energy more appealing.
“But in Singapore’s case, as we are a renewable energy deficient country, our solution is to become more energy efficient through the use of technology, changing consumer demand for energy, and raising the cost of carbon emissions,” he explained.
The carbon tax, applied upstream to the biggest greenhouse gas emitters such as power plants, petrochemical companies and semiconductor manufacturers, is expected to have a cascading effect through the rest of society.
Not only are power generators and other large emitters likely to adopt more energy-efficient processes, any attempt to pass on the tax by increasing electricity prices will prompt energy users, from businesses to households, to take more energy-saving measures and actions.
Nevertheless, Heng was quick to reassure his audience: “The impact of the carbon tax on most businesses and households should be modest.”
According to NCCS calculations, the carbon tax would translate to a 2.1 to 4.3 per cent increase in current electricity tariffs. The average four-room HDB flat owner can expect to pay S$1.70 to S$3.30 more per month above their usual S$72 in electricity bills.
Impact on business
Companies will not be left out in the cold by the carbon tax, and the Singapore government has said it will “study modes” of assistance to help the private sector deal with the transition.
It will offer support such as enhanced energy efficiency incentives and capability-building to help companies set up better energy management systems.
NTU’s Professor Quah said the choice of a carbon tax is already more “business-friendly” since it makes the cost of emissions control more predictable than other carbon pricing mechanisms.
“Singapore’s overall competitiveness should not be affected given the small carbon tax, and also since other jurisdictions (cities, sub-national regions and nations) are also applying a form of carbon pricing,” he said.
Of the four Asian tiger economies – Singapore, Hong Kong, South Korea and Taiwan – only South Korea and Taiwan have a carbon pricing scheme, and within the Southeast Asia region only Singapore has declared its intention to launch one.
Singapore’s proposed S$10 to S$20 carbon tax is on the lower end of the spectrum of carbon tax prices across the world. Sweden charges the world’s highest fees at US$131 per tonne while Mexico’s fuel tax is less than US$1 per tonne, based on the World Bank’s State and Trends of Carbon Pricing 2016 report.
As we are a renewable energy deficient country, our solution is to become more energy efficient through the use of technology, changing consumer demand for energy, and raising the cost of carbon emissions.
Professor Euston Quah, Head, Department of Economics, Nanyang Technological University
A Shell spokesperson reiterated the company’s support for carbon pricing but added that the carbon tax policy “must ensure companies can compete effectively with others in the region who are not subject to the same levels of CO2 costs”.
In a similar vein, an ExxonMobil representative said the energy giant would work with the government to balance the “risks posed by greenhouse gas emissions and ensuring Singapore remains a strong, internationally competitive economy, supported by an affordable energy supply”.
But Paul Maguire, president and CEO of Senoko Energy, which runs the biggest power station in Singapore, told Eco-Business: “The carbon tax, as proposed, will substantially increase the cost of supplying electricity to Singaporeans. Such a large burden cannot be borne by the power generation sector which today is struggling to be profitable.”
He said that Senoko, which supplies 20 per cent of Singapore’s energy needs, already uses some of the most efficient technology available. “With some plants being only a few years old, any further efficiency gains from this fleet of generators are likely to be modest.”
Major real estate developer City Developments Limited’s (CDL) chief sustainability officer Esther An said the firm had been intending to establish an internal carbon price since 2015. A carbon price would enable CDL to stress-test its business operations and connect climate exposures to financial value, therefore mitigating potential climate risks on financial peformance, she elaborated.
Other Singapore-based companies Eco-Business approached for comment, including BASF, said the impact would depend on the details of the final carbon tax scheme.