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Carbon tax may be passed on to consumers, but impact modest: Experts

SINGAPORE — Hit with a new carbon tax for every tonne of greenhouse gas they produce, power stations and other large emitter of such gases will likely pass on at least some of their costs to consumers, but the impact appears to be modest for now, said experts.

SINGAPORE — Hit with a new carbon tax for every tonne of greenhouse gas they produce, power stations and other large emitter of such gases will likely pass on at least some of their costs to consumers, but the impact appears to be modest for now, said experts.

But the implementation of such a tax could throw up hiccups down the road, as the experiences of some other countries have shown — such as the tax having a regressive impact and hitting low-income end users harder, or the tax being politically unpopular.

Finance Minister Heng Swee Keat announced during the Budget speech on Monday that the Government is looking at imposing a carbon tax rate of S$10 to S$20 per tonne of greenhouse gas emissions, which contribute to global warming.

For households, the tax rate would be equivalent to an increase in electricity prices of 0.43 to 0.86 cents per kilowatt-hour. This is a 2.1 to 4.3 per cent increase from current electricity tariffs. For businesses, the increase in operating cost from the proposed tax rate represents a 6.4 to 12.7 per cent increase from current oil prices.

Speaking to TODAY, SIM University economist Walter Theseira noted that as with any tax, the costs tend to be shared with both sides of the market, in this case, between the emitters and the end-users. “The costs of energy generation will go up with the tax and power generators have the ability to pass through those costs to consumers – just like power generators pass through the costs when fuel prices go up,” he said.

He added: “For your consumer, I do not expect that these few percentage points increase in the electricity portion of the bill will cause most consumers to even turn down the air-conditioning (for instance), they are probably not going to notice it.”

Ms Melissa Low, a research fellow at the Energy Studies Institute at National University of Singapore (NUS), said the objective of the carbon tax is to have people undertake informed decisions about how they consume energy.

As such, it is important that the carbon tax is reflected in the electricity tariffs, even though she noted that the impact will be minimal here.

But Assistant Professor Yang Nan from NUS Business School warned against the carbon tax becoming regressive, and affect lower-income consumers to a larger extent and widening the inequality gap, he added.

In Ireland for instance, a 2008 study found that carbon tax was regressive and affected the poorer households.

But a modest increase in welfare payments would offset these negative impacts of a carbon tax in the lower half of the income distribution, noted the study.

Based on the experiences of other countries, Dr Theseira said the carbon tax here has to cover the right activities to reduce the carbon footprint, and minimise “harmful avoidance behaviour”, such as importing carbon-intensive products from countries that do not impose similar taxes.

The carbon tax will also have to be politically sustainable. Australia for instance, repealed their carbon tax in 2014 two years after it was implemented. This was amid claims that such a form of tax penalised legitimate businesses, cost jobs and drove up energy prices.

“If the public does not support the broader objective of environmental sustainability, it will be difficult to continue with the tax,” added Dr Theseira.

In response to queries, the National Climate Change Secretariat (NCCS) noted that Singapore remains open to linking the carbon tax framework to external carbon markets where feasible.

Among other things, Singapore is discussing the development of international carbon market rules at the United Nations Framework Convention on Climate Change.

“The use of international carbon credits is one of the issues being studied. Discussions are only at a preliminary stage, and it is too early to speculate on how international carbon markets will evolve. We will be monitoring international developments for now,” added the NCCS spokesperson.

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