Doom or bloom - how can businesses prepare for Carbon Tax 2024?
Singapore has remained steadfast in its raised national climate goal of net-zero emissions by 2050 with the latest carbon tax policy announcement.
While Singapore has introduced a carbon tax with a gradual increase in pricing to drive businesses towards higher decarbonisation efforts, the global and regional regulatory landscape on carbon pricing is still fragmented, with different countries being at different stages of implementing either a Carbon Tax or Emissions Trading System (ETS) mechanism.
Businesses operating in Singapore have been generally supportive of these measures, as it sends a positive signal in making firmer plans to decarbonise and are already anticipating that it will set a tone for the rest of the region. Many are taking this opportunity to understand the potential impact a carbon price can have on their local and regional operations.
Impact on businesses
The Singapore government has laid out a progressive increase to S$25 per ton by 2024, S$45 per ton by 2026 and a view to arrive at S$50–S$80 per ton in 2030. This will have a significant impact on operating costs as they are passed through from power producers/retailers.
Taking Singapore’s data centre industry as a case example, cumulative taxes, which are already paid in millions of dollars, can be expected to increase between 3 to 4-fold. There are also concerns regarding the fair treatment of companies who are already taking green initiatives and whether the carbon tax mechanism recognises these efforts.
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Singapore’s carbon tax mechanism allows high-quality, international credits to be used by regulated entities to offset 5 per cent of their taxable emissions, thereby lowering their tax liability. But there are no existing mechanisms for carbon tax waiver based on decarbonisation measures (e.g., Renewable Energy Certificates) that companies indirectly exposed to the carbon tax can utilise in a green-solutions scarce landscape like Singapore.
The way forward
Businesses must employ effective strategies to manage their operational costs to continue on their decarbonisation journey and navigate the changing carbon policy landscape over the next few years to ensure that they are well-placed to adequately respond.
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- Evaluate the impact on your operating costs
To help manage higher operating costs, many businesses are already taking measures to improve energy efficiency. But beyond optimising for efficiency, businesses can also have a more hands on approach to their energy procurement by requesting for more transparency from their utilities to make more judicious decisions.
Some businesses are already looking for a breakdown into network charges, levy on power prices and carbon tax passed through. Lastly, businesses should also take advantage of government grants to invest in new technologies and pilot solutions.
- Monitor carbon tax developments within Singapore and the region
The sustainability landscape is always evolving – trends and regulatory developments are constantly changing at both the local and regional level. Just recently, Indonesia has embarked on launching its own emissions trading scheme and is expected to impose a carbon tax, starting with coal-fired power stations, in July 2022.
It is vital for businesses to closely monitor such policy changes so that they can continually review and adapt their net-zero roadmaps when regulations shift.
With the carbon market evolving fast and carbon credit prices trending upwards, now is the time for companies to get involved. Companies that familiarise themselves with the market and establish a carbon compensation strategy sooner rather than later will give themselves a head start on meeting their carbon tax obligations or corporate targets in a cost-effective manner and be prepared for future policy and regulatory changes.
- Set an internal price on carbon
Corporates should plan ahead and mitigate implications from future carbon price hikes or new carbon pricing policies by implementing an internal carbon price within their organisation. This corporate-wide internal pricing creates multiple sources of value for your companies and serves as a guide for your business decisions and investments, especially amidst a fragmented carbon regulatory environment. Some benefits include:
- Accelerates reduction in emissions by embedding the cost of carbon into purchasing decisions
- Mitigates the risks associated with higher future prices of carbon-intensive products and services
- Raises awareness of commitments to addressing climate change with investors and customers
- Continued public-private dialogue to strengthen the carbon tax mechanism
As businesses ramp on adopting green solutions to reach their decarbonisation goals, there is an opportunity for both public and private sector to engage in ongoing dialogue to periodically review and provide feedback on policies. This ensures that relief is provided for companies that are making genuine efforts to decarbonise through legitimate green initiatives.
A price on carbon is few of the many enablers that can propel organisations to embark on their decarbonisation journey. It helps businesses to be competitive in a low-carbon future, by enhancing the business case to invest in low-carbon technologies and carbon markets and ensuring new investments and economic activities are aligned with a low-carbon future. Companies must actively plan out the best emissions reduction pathway in the short, medium, and long-term for sustainable success.
The writer is the managing director, head of APAC, sustainability solutions at Engie Impact.
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