More ambitious net-zero target for Singapore could mean tougher climate policies

SINGAPORE businesses must prepare for more aggressive climate policies if the government tightens its deadline to achieve net-zero greenhouse gas emissions, market observers told The Business Times.

Singapore launched a public consultation on Monday (Sep 5) on whether to set a hard 2050 net-zero target instead of the current “by or around mid-century” goal.

Getting there could require an expanded carbon tax regime to cover more than just facilities emitting at least 25,000 tonnes of greenhouse gases annually, said Singapore Management University (SMU) assistant professor of economics Goh Jing Rong. A tiered carbon tax structure could be implemented so that lighter emitters are subjected to a lower tax rate than heavier emitters, he said.

Singapore could also steepen the planned trajectory for raising the carbon tax rate. The current S$5 per tonne rate is already set to rise to S$25 from 2024, followed by S$45 in 2026 and 2027, with a view to reaching between S$50 and S$80 by 2030.

Sharad Somani, partner and head of infrastructure at KPMG Asia Pacific, said: “We may reach that S$80 target faster than anticipated and should not be surprised if there is a need to increase beyond that figure.”

Beyond the carbon tax, more focused policies could be aimed at emissions-intensive industries within the manufacturing sector, such as energy and chemicals.

Zhang Weina, the deputy director of the Sustainable and Green Finance Institute at the National University of Singapore (NUS), said heavy polluters may be required to set emission targets. Further to that, the associate professor said an emission trading system is plausible as well, raising the prospect of a local version of the European Union’s “cap and trade” framework.

OCBC chief economist Selena Ling said the hard-to-abate industries potentially face high upfront capital costs to switch out less efficient systems for ones with greater energy efficiency.

At risk

The sectors to watch are high energy-consuming sectors such as aviation and semiconductor manufacturing, according to Christopher Gee, who leads the governance and economy department at the Institute of Policy Studies.

“Industry will have to adapt, and the pace of the increases in the carbon tax, plus any exemptions or rebates will affect these industries’ margins,” Gee, a senior research fellow, said.

SMU’s Goh expected the impact to be the hardest on companies with oil refineries, power generation plants, waste management, and manufacturing plants for chemicals and electronics.

Fang Eu-Lin, the sustainability and climate change leader at PwC Singapore, identified the energy, petrochemical, transportation, and real estate industries as among the core contributors of Singapore’s carbon profile. 

For these industries, however, she pointed out that the authorities have identified chosen areas of focus that can aid in the transition, such as sustainable financing, carbon trading, carbon services, and empowering nature-based solutions. “Organisations should consider these risks and opportunities as they develop their strategies for the future,” she said.

“What is vital is a just transition for impacted industries, and for other ecosystem players to support from a transition financing and shoring up of capabilities perspective, and trust and transparency over the progress and targets,” she added.

Yvonne Zhang, the sustainability and climate director at Deloitte Southeast Asia, said price takers in the power sector and the difficult-to-abate supply chain sector are already prepared to face a prolonged period of pricing uncertainty. “The new timeline may actually ease their pricing anxiety and enable effective risk mitigation and strategic planning,” she said.

Winners

UOB’s chief sustainability officer Eric Lim said setting a 2050 target will provide “much-needed clarity” on the national development strategy and economic framework. Carbon-intensive sectors will feel the urgency to transform their business models to low energy and low carbon alternatives, he added.

Listed producers and investors in clean electricity across South-east Asia are widely expected to be among the winners of a more decisive pivot to net zero, given Singapore’s plans to import renewable energy. 

Singapore announced in October 2021 that it plans to import about 30 per cent of its electricity from low-carbon sources by 2035. In June this year, Singapore started importing renewable energy from Laos, via Thailand and Malaysia.

NUS economics associate professor Alberto Salvo said the pressure to decarbonise electricity generation will drive up demand to move to integrated electricity markets across the region, which may involve importing from different countries’ solar farms.

Gee said clean energy companies providing envirotech solutions will be in huge demand, while Goh said more incentives and subsidies will be directed towards greener energy sources or products.

Swati Sharma, who lectures environmental economics at Nanyang Technological University, listed businesses dabbling in green building material and electronic recycling as likely beneficiaries as well.

That said, she noted that the pace of transition should be carefully watched, with the phasing down of high-emission activities happening progressively and in combination with the ramp-up of low-emissions. “If one goes faster or slower than the other one, it might create various types of social and economic disruptions that will come with an additional price tag, such as public backlash, skewed supply and demand, and sudden changes in employment patterns,” she said.

Some costs of transitioning may also be temporary.

KPMG’s Somani expected technology breakthroughs in the new energy space – green hydrogen, renewable generation, battery storage, and electric vehicles (EVs) – to reduce prices in the medium term. In the meantime, however, countries will have to “bite the bullet” and bear with rising prices, he said.

Agreeing, Goh said the “pinch” from carbon taxes is unlikely to persist for companies as alternative sources of energy replace carbon-intensive ones. This means that the total amount of carbon taxes paid may not increase even as the tax rate per tonne of carbon dioxide equivalent creeps up, he said.

“Even if (the 2050 target) is ‘too ambitious’, and we fall short of meeting (it), I believe we would be in a much better position than if we had held on to our original target,” Goh added. “Either way, I do think it is the responsible thing to do, for the climate and for our future generations.”