Singapore to Launch Carbon Tax in 2019

23 February 2017

Singapore revealed plans on Monday 20 February to put in place a carbon tax from 2019, making it the first Southeast Asian economy to introduce a mandatory carbon pricing scheme.

Recognising the island nation’s vulnerability to sea level rises, Finance Minister Heng Swee Keat, who announced the carbon tax during his budget speech this week, described it as the “most economically efficient and fair way” to meet Singapore’s greenhouse gas (GHG) reduction target under the UN’s Paris climate agreement.

Under the new global climate accord, which was reached in the French capital in late 2015 and entered into force last November, Singapore has committed to reduce its emissions intensity by 36 percent below 2005 levels by 2030.

Policy design

While the exact tax level and implementation schedule remain to be hammered out following industry and public consultations, the government is considering a carbon tax between S$10 (US$7) and S$20 (US$14) per tonne of climate-warming GHG emissions. Six GHGs, including carbon dioxide (CO₂), methane, and hydrofluorocarbons, will be covered.

The tax will apply to power stations and other large emitters producing over 25,000 tonnes of CO₂ equivalent per year. The government estimates that some 30 to 40 companies fall in this category.

The city-state favoured a carbon tax over an emissions trading scheme, describing it as more practical instrument for a nation of its size. Carbon taxes price emissions at a level set by the government, whereas emissions trading schemes cap overall emissions and allow the trading of emission units, which then drives the formation of a carbon price.

“A carbon tax can provide greater price certainty and stability that will incentivise investment in energy efficiency and low-carbon solutions,” explained Singapore’s National Climate Change Secretariat.

Some experts suggest, however, that Singapore would be a suitable candidate for an emissions trading scheme.

“Singapore which is massively trade-exposed has the opportunity to become a hub for carbon trading as London has done,” argued Jeff Swartz from the International Emissions Trading Association (IETA) in comments to the Financial Times. IETA is a non-profit group focused on supporting businesses in the field of carbon markets.

Green growth, competitiveness considerations

The government says that it hopes that the carbon tax will drive growth and jobs in the clean energy sector.

“[The carbon tax] may also spur the creation of new opportunities in green growth industries such as clean energy,” Heng said, adding that the tax revenues will help fund industry measures to reduce emissions.

The chairperson of the Singapore Environment Council, Isabella Loh, shared this view. “Singapore should aspire to be a global leader in the research and development of renewable technologies as this will boost [its] economy by creating jobs and attracting investments,” Loh told Channel News Asia.

The Singapore Environment Council is an independent, domestic non-profit that supports the advancement of environmental causes at the national level.

Meanwhile, Singapore’s oil refineries, which already face stiff competition from China, are reportedly contemplating the impact of the carbon tax on their operations. Petroleum refining is one of the country’s main sources of GHG emissions. As one of Asia’s biggest refining centres and main oil trading hubs, some fear that the carbon tax may put pressure on the competitiveness of Singapore’s economy.

Royal Dutch Shell and ExxonMobil, who run two of the country’s three oil refineries, were generally supportive of the carbon tax, but highlighted the need to safeguard the sector’s competitiveness.

Shell said that the company supports a strong and stable government-led carbon price, but pointed to the importance of policy design which “must ensure companies can compete effectively with others in the region who are not subject to the same levels of carbon dioxide costs.”

ExxonMobil, while warning of the additional cost for the industry, stated its commitment to work with the government during the consultation process.

“A uniform price of carbon applied consistently across the economy is a sensible approach to emissions reductions,” Exxon’s spokesman said.

Global carbon pricing trends

The overall impact on Singapore’s competitiveness may however be limited by the relatively low tax level as well as the increasing global move towards carbon pricing. According to the World Bank, 40 countries and 20 sub-national entities operate a carbon pricing scheme, and many more are planned.

China, which has piloted several regional trading markets, is slated to launch the world’s largest carbon market later this year. (See Bridges Weekly, 9 September 2015) Other Asia-Pacific nations currently pricing carbon include Japan, New Zealand, and South Korea. Beyond this region, both Canada and Mexico last year announced the introduction of mandatory carbon pricing schemes from 2018. (See Bridges Weekly, 15 December 2016)

The EU, which currently hosts the world’s largest carbon market, last week voted in favour of reforms to strengthen its scheme from 2021 onward, while a group of prominent US Republicans recently put forward a proposal for a revenue-neutral carbon tax starting at US$40 per tonne. (See Bridges Weekly, 16 February 2017)

The spread of carbon pricing creates opportunities for cooperation, including through the potential linking of programmes, which many experts say could help lower competitiveness concerns and drive deeper emissions cuts. Singapore has already indicated its openness to linking its carbon tax with other carbon pricing mechanisms “where feasible.”

ICTSD reporting; “Singapore carbon tax set to squeeze oil groups,” FINANCIAL TIMES, 21 February 2017; “Big emitters face carbon tax from 2019,” BUSINESS TIMES, 21 February 2017; “Carbon tax regime timely, could boost Singapore’s economy: Stakeholders,” CHANNEL NEWS ASIA, 20 February 2017; “Singapore Plans Southeast Asia’s First Carbon Tax From 2019,” BLOOMBERG, 21 February 2017; “Budget 2017: Singapore to impose carbon tax on large direct emitters,” CHANNEL NEWS ASIA, 20 February 2017.

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