How will carbon taxes work in Singapore?

27 February 2017

On 20 February 2017, Singapore announced its intention to introduce a carbon tax of between S$10 and S$20 per tonne of greenhouse gas emissions. That will impact 30 to 40 large direct emitters in the country, including power stations and refineries. The impact of the carbon tax is equivalent to an increase in the cost of crude oil by US$3.50 to US$7 a barrel, or as much as 12% of current crude oil prices, the Government said.

Carbon taxes have been flogged for damaging the economy, and indeed the oil majors in Singapore have also flagged their concern that a carbon tax regime added to the refining and petrochemical industry in Singapore may well adversely impact Singapore’s competitiveness as an export manufacturing centre. 

However, if the push for carbon taxes is to meet Singapore's commitment to reduce its emissions intensity by 36% from 2005 levels by 2030 and to reduce its GHG emissions by 16% from the BAU levels by 2020, then success stories abound (eg Sweden) of how carbon taxes have yielded positive results in discouraging fossil fuel emissions and promote clean energy. As carbon taxes makes polluting activities more costly, it also renders clean technologies more affordable as the price signal increases over time. Such taxes are therefore very likely to spur investments into EE (energy efficiency) and RE (renewable energy) in Singapore.  Solar energy of course remains the most promising RE source for power generation in Singapore; but hybrid electricity solutions and offsite power purchases may also find new favour with large consumers.

The big questions in Singapore now are the correct pricing to impose for pollution and the mode of implementing the taxation. For example, how strong should the economic signal (i.e., the carbon price) be to reduce emissions meaningfully and to switch to cleaner energy? Should particular emission sectors which are critical to Singapore's economy be exempted? How will carbon tax revenues to be used? Will tax revenues translate into governmental investment into EE, RE or green infrastructure? Will the households and consumers enjoy corresponding tax breaks? 

The Singapore Government will conduct public consultations on the proposed carbon tax in March 2017. The final carbon tax and exact implementation schedule will be decided after consultations and further studies. Measures will also be introduced to help ease the transition.

Authors

Seah-Sandra

Sandra Seah

Joint Managing Partner
Singapore

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