SINGAPORE
Today-Feb 28
By Melissa Low*
In his Budget 2018 speech, Minister for Finance Heng Swee Keat announced that Singapore’s carbon tax rate will be set at S$5 per tonne of carbon dioxide equivalent for an initial period of five years from 2019 to 2023.
This is especially timely given the designation of 2018 as Singapore’s Year of Climate Action. However, as Singapore relies heavily on trade and foreign investment, there have been concerns that the carbon tax will affect competitiveness of firms operating here.
Since the tightening of reporting requirements and introduction of equipment standards under the amended Energy Conservation Act last year, companies already have to manage additional compliance costs related to these enhanced regulations.
The carbon tax will be applied uniformly to all sectors for facilities that emit above 25,000 tonnes of CO2 in annual emissions without exemption. The first tax will be collected in 2020, based on emissions data from 2019. This is expected to affect between 30 to 40 large emitters mainly from the petroleum refining, chemicals and semiconductor sectors.
The announced rate is lower than the S$10 to S$20 per tonne earlier announced and anticipated. Beyond that, the Government intends to increase the carbon tax to between S$10 and $15 per tonne of carbon dioxide equivalent by 2030.
While some have suggested that the initial rate of S$5 is low, Environment and Water Resources Minister Masagos Zulkifli has said that the amount is fair and will help companies affected to transit to the tax regime, become more efficient.
In his Budget speech, Mr Heng had also explained that the rate “cannot be directly compared” with other countries as those with higher headline carbon prices also have significant exemptions for particular sectors, which lower the effective carbon prices.
Differentiated carbon prices, in the form of exemptions or allowances reduces transparency. It is important and prudent that the Government does not inadvertently cross subsidize certain sectors by setting aside a pot of money for free allowances or industry assistance.
To minimize additional compliance burden on companies, the Carbon Pricing Bill was built on existing procedures and requirements in the Energy Conservation Act (ECA) introduced in 2012.
Under the Carbon Pricing Bill, facilities will be required to submit a verifiable emissions report starting from January 1, 2019 until the day immediately before deregistration. The emissions reports will have to be prepared and submitted based on their monitoring plan, of which guidelines were enhanced in April 2017 as part of amendments to the ECA.
Since 2013, facilities using more than 54 terrajoules of energy annually have had to submit emissions use reports and energy efficiency improvement plans.
There have been calls for the government to share detailed collected data on Singapore’s emissions, including those of individual emitters. However, competitiveness concerns may deter this.
Instead of detailed data on companies, the Government could consider sharing information on whether companies are collectively meeting their improvement plans in order to be accountable to the public.
There are avenues for companies to tap on an array of programs and incentive schemes to improve energy efficiency, and to help offset compliance costs related to additional reporting requirements.
For instance, the Energy Efficiency Fund, launched in April 2017, supports efforts by businesses to improve energy efficiency of industrial facilities.
Through the fund, the National Environment Agency places greater emphasis on improving manufacturing Small and Medium-sized Enterprises’ energy efficiency efforts with the support of the Singapore Economic Development Board.
These government initiatives are not without challenges. First, improving the energy efficiency of the industrial sector – the largest consumer of energy that accounts for 60 per cent of Singapore’s greenhouse gas emissions – is one of the key strategies to reduce emissions and fulfil Singapore’s pledge under the Paris Agreement.
Singapore has said it would reduce emissions intensity by 36 per cent from 2005 levels by 2030, and stabilize emissions with the aim of peaking around 2030.
However, these new regulatory measures and a carbon tax will incur costs that affect industry competitiveness.
As a small island state that relies heavily on trade and foreign investment, the Singapore government must pay attention to this and continue to study the optimal mix of policies and technologies to achieve its 2030 commitment, while ensuring that the economy remains competitive.
Second, companies may not regard energy efficiency improvements as a priority, and instead regard the new requirements as an additional step for them in maintaining product quality. In ensuring product specifications are met, depending on the feedstock and materials used, more energy could be needed to complete the manufacturing process. This is potentially where there could be a misalignment between government policies and business sentiments.
With the new policy changes introduced, much of the responsibility will be on local companies to step up and adhere to the enhanced regulations under the ECA and Carbon Pricing Bill. If done satisfactorily and in line with international standards,
Singapore will be in a good position to participate in external carbon markets in future. This is important, given that international market mechanisms currently being developed under the Paris Agreement’s rulebook is expected to play a significant role in facilitating countries in meeting their climate goals.
*Melissa Low is a Research Fellow at the Energy Studies Institute, National University of Singapore.
(first published in Today – https://www.todayonline.com/commentary/new-carbon-tax-challenges-ahead-implemention )
