Singapore Budget 2018: Singapore's carbon tax to start at S$5 a tonne

Singapore

INDUSTRY observers welcomed Singapore's soft start in its implementation of a carbon tax through an initial price lower than the range provided earlier by the government, though some affected companies continue to hope for benchmarks to be used together with the tax.

The gradual increase upwards will help companies to decide whether they want to pay the tax or spend on projects to reduce their carbon emissions, said Nanyang Technological University (NTU) department of economics head Euston Quah.

Singapore's carbon tax will start at S$5 a tonne for five years from 2019, and, following a review in 2023, eventually be raised to between S$10 and S$15 a tonne by 2030, said Finance Minister Heng Swee Keat.

The tax will bring in nearly S$1 billion in revenue in the first five years, but the government is prepared to spend more than this amount in the same period to help companies improve energy efficiency and reduce emissions.

"The carbon tax will apply uniformly to all sectors without exemption," he said on Monday. "This is the economically efficient way - to maintain a transparent, fair and consistent carbon price across the economy to incentivise emissions reduction."

The review of the tax rate in 2023 will take into account international climate change developments, the progress of Singapore's emissions mitigation efforts and the Republic's economic competitiveness, he added.

The carbon tax is expected to affect some 40 companies - in the power generation, petrochemical and semiconductor sectors - which account for about 80 per cent of Singapore's national greenhouse gas emissions. The impact on individual households will be minimal, with the S$5-a-tonne price, if fully passed on to consumers, translating to an increase in electricity price of 0.21 cents per kilowatt hour, or a 1 per cent increase from current SP electricity tariffs, according to the National Climate Change Secretariat (NCCS).

Singapore's greenhouse gas emissions amounted to 49 million carbon dioxide equivalent tonnes in 2012, with the industry sector accounting for about 59 per cent.

Subodh Mhaisalkar, executive director of the Energy Research Institute at NTU, said the initial price of S$5 will allow the country to analyse the impact of the carbon tax on economic competitiveness as well as its effectiveness in reducing emissions.

"Countries such as Japan and territories like British Columbia also started with low carbon taxes in the range of S$4 to S$15, but have seen significant reductions in emissions," he said.

In a pre-Budget consultation session, industry participants had suggested that the government consider using industry benchmark targets, with companies which are more energy efficient than these benchmarks paying less or no tax, while those less efficient will pay a more hefty tax.

Explaining why the government has not taken this route, NCCS said determining the level of benchmarks for each sector and ensuring that they are equitable across sectors will be a "highly complicated and contentious" process, going by the experience of other jurisdictions.

It would also impose additional reporting and verification requirements on companies, especially for those with specialised products, it added.

Every unit of emissions should face a uniform price signal since they contribute equally to climate change. Having various facilities pay different effective prices for each unit of emission will also make the price signal much less transparent, said NCCS.

"Competitiveness is best addressed through energy efficiency improvements," it said in a media statement.

The government will provide support through schemes such as the Productivity grant (Energy Efficiency) - PG (EE) - which encourages industrial facility owners and operators to invest in energy-efficient equipment or technologies, and the Energy Efficiency Fund (E2F), which supports companies undertaking energy efficiency assessments and investments.

Power generation firm PacificLight Power, while welcoming the government's carbon tax proposal for a more sustainable future and the review of the tax over time, hopes the government will re-examine setting industry benchmarks based on best-in-class targets.

It is not feasible to remove carbon emissions from the power generation sector entirely, said its chief executive Yu Tat Ming. "To be effective, a carbon tax should be applied to those parties that can act to improve energy efficiency and undertake behavioural changes," he added.

Singapore Refining Company, which owns one of the country's three refineries, said it shares Singapore's concerns about climate change risks.

"(Nevertheless), while we recognise the complexity of implementing the new carbon tax, sound government policy must balance economic growth, energy security and environmental goals," said its chief executive and general manager James Er.

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