Carbon tax set at S$5 per tonne for first five years

SINGAPORE – Large carbon emitters will be taxed S$5 for each tonne of greenhouse gases generated from next year to 2023 – a significantly lower rate than the S$10 to S$20 per tonne envisioned last year by the authorities.

The carbon tax – first announced by Finance Minister Heng Swee Keat in last year’s Budget – will be increased to between S$10 and S$15 by 2030, Mr Heng said on Monday (Feb 19).

The increase will take place after reviews of international climate change developments, the progress of efforts in mitigating emissions and Singapore’s economic competitiveness, he said.

Households will receive about S$20 more in Utilities-Save rebates to offset the impact of the carbon tax, which is expected to be about 1 per cent of their total gas and electricity bill if the full costs are passed on by power generation companies. The increase translates to about S$0.30 to S$1.10 per month for one-room to executive flat households.

The carbon tax will apply to about 30 to 40 of the largest emitters here that each produce 25,000 tonnes or more of greenhouse gases a year. They account for about 80 per cent of Singapore’s emissions.

The carbon tax is one prong of Singapore’s strategy to meet its commitments under the Paris Agreement to cut emissions intensity by 36 per cent from 2005 levels, by 2030.

In the wake of the announcement last year, major emitters said the move could hurt Singapore’s competitiveness.

The initial rate is to give the industry more time to adjust and improve energy efficiency, said the National Climate Change Secretariat (NCCS) said on Monday.

The initial rate of S$5 per tonne “cannot be directly compared” with other jurisdictions as those with higher headline carbon prices also have significant exemptions for particular sectors, which lower the effective carbon prices, said Mr Heng.

DISAPPOINTING OR PRUDENT?

Experts were divided on the impact of the carbon tax rate set by the Government.

Dr Sanjay Kuttan, programme director at Nanyang Technological University’s (NTU) Energy Research Institute, said the rates were “a bit disappointing”.

While this could send a political signal given Singapore’s chairmanship of the Association of Southeast Asian Nations this year, he questioned if levying S$5 per tonne would be enough to change companies’ practices.  

If Singapore’s competitiveness is the concern, the Government could impose a higher tax rate but provide incentives to the more efficient companies, he added.

PwC Singapore’s corporate tax partner Paul Cornelius felt the initial tax rate to be “very conservative” when compared with some other countries, which have generally priced carbon at US$10 to US$20 per tonne of emissions.

But Mr Sharad Somani, KPMG’s partner in its infrastructure projects advisory practice, called it a “prudent balancing act” between driving the right behaviour and ensuring the economy has enough time to absorb the associated increases in cost.

NTU’s economics department head Euston Quah said the carbon tax’s impact on emissions will have to be studied over several years.

“It’s not so much about the amount of the tax but, rather, to get people to become aware that their actions contribute to carbon emissions … (and) get people into the habit to pay for what they have caused,” he said.

NO EMISSIONS BENCHMARKS

In a pre-Budget consultation session last month, large emitters had called for the Government to set emissions benchmarks for each industry to provide clarity, and for those who are less efficient pay a heftier tax.

But Mr Heng said the tax will apply uniformly to all sectors.

“This is the economically efficient way – to maintain a transparent, fair and consistent carbon price across the economy to incentivise emissions reduction,” he said.

The NCCS said ensuring benchmarks are equitable across sectors would be a highly complicated and contentious process.

Benchmarks would impose an additional burden on companies, which would have to submit more data, it added.

But some industry players reiterated the call for a differentiated approach on Monday.

Royal Dutch Shell’s chief economist Steven Fries said this will allow the Government to set a high enough price to incentivise companies to be more efficient while “safeguarding competitiveness by keeping the average carbon tax low”.

PacificLight Power chief executive Yu Tat Ming said: “To be effective, a carbon tax should be applied to those parties that can act to improve energy efficiency and undertake behavioural changes… We hope that the government will re-examine setting industry benchmarks based on best-in-class targets.”

ExxonMobil Singapore said it remains committed to working constructively with the Government to reduce the risks of climate change in the most efficient way for Singapore, while the Singapore Semiconductor Industry Association said the lower initial tax rate will help speed up energy efficiency in some companies.

Mr Heng said the authorities expect to collect a carbon tax revenue of almost S$1 billion over the first five years.

To reduce emissions intensity as soon as possible, he is prepared to “spend more than this amount” over the same period of time to support “worthwhile projects”.

From 2019, funds will be set aside through existing schemes like the Productivity Grant (Energy Efficiency) and the Energy Efficiency Fund for companies.

Further details will be shared later this year.

While the authorities expect the impact of the carbon tax on households to be small, Housing and Development Board households will receive an extra S$20 in U-Save rebates annually between 2019 and 2021 to help them adjust.

The Ministry of Trade and Industry will work with the Consumers Association of Singapore and Competition Commission of Singapore to look out for any unfair pricing and coordinated price hikes that are anti-competitive.

For smaller emitters that account for the remaining 20 per cent of Singapore’s emissions, the Government will study how to account for these emissions and take action where necessary, said Mr Heng.

The carbon tax will not be imposed on petrol, diesel and compressed natural gas as excise duties already encourage the reduction of the use of these fuels.

For now, these excise duties will not be raised but the Government will continue to review and adjust them periodically, he added.