SINGAPORE — The recently announced sharp hike in carbon tax is due to global climate action accelerating and the likelihood of green technologies being available sooner, Minister of Sustainability and the Environment Grace Fu said on Sunday (Feb 20).

Therefore, the Government thinks that Singapore should also speed up its shift towards a low-carbon future, she added.

Speaking to reporters on the sidelines of a CNA Green Plan event held at Tampines West Community Club, she said: “I think we need to get our act together, signal a real seriousness in our shift, and also to paint the direction for businesses… The higher carbon tax is really as a signal to the businesses to be aware of the cost of carbon and make them opt for low carbon solutions.”

To this end, the Government is looking at “putting back” the carbon tax in terms of incentives to help companies adopt energy-efficient products, services and technologies, Ms Fu said.

Two days earlier, Finance Minister Lawrence Wong had announced that Singapore’s carbon tax will be raised to S$25 per tonne of greenhouse gas emissions in 2024, up from S$5 per tonne at present.

This is because the country is seeking to achieve net-zero emission by around the mid-century. The carbon tax will then be further increased progressively to S$45 per tonne in 2026, with a view to reach S$50 to S$80 per tonne by 2030.

Mr Wong said that the Government kept the initial carbon tax low when it was first introduced in 2019 in order to give businesses time to adjust.

But Ms Fu noted that since the 2021 United Nations Climate Change Conference that was held in November last year, there has been an “increased momentum in global climate action”.

“Not only are more countries pledging net-zero commitment, but also the attention to decarbonise has really increased. There are a lot more initiatives to move towards a low-carbon world, both on the business side as well as political side,” she said.

She noted that with the capital and attention being put into green technology today, Singapore foresees more technologies being available faster, with more at a cost-effective level sooner.

Ms Fu also added that there is now the option of carbon trading, which is the buying and selling of credits that permit a company to emit a certain amount of carbon dioxide.

“Singapore wants to be out there to be an important player, in green economy, in green products, in green financing,” she said.

“If you have two technologies — a conventional one and one renewable, for example — if we are able to tilt the price that make this parity, then I think more companies will be willing to shift and I think that's the purpose of a carbon price.”

WHAT EXPERTS SAY

Experts whom TODAY spoke to agreed with Ms Fu, noting that raising the price of carbon will discourage businesses and consumers from using more fossil fuels, and thus lower pollution from carbon emissions.

Professor Euston Quah, head of economics at Nanyang Technological University, said that the removal of subsidies for fossil fuels and the imposition of a carbon tax could lead to an increase in research to seek alternative fuels, such as renewable energies.

“The Government can lead the way like in the electric vehicles market, in facilitating the provision of infrastructure charging stations and in waste disposal of batteries,” he added.

Ms Melissa Low, a research fellow at the National University of Singapore’s Energy Studies Institute, agreed that the economics of a carbon tax would push companies — especially bigger ones — to choose to spend on technologies that improve their energy efficiency rather than fork out that amount on paying the Government a higher carbon tax.

Those most affected would be large crude oil refining or specialty chemicals companies, for example, that emit large amounts of carbon, Ms Low said.

Professor Vinod Thomas, visiting professor at the Lee Kuan Yew School of Public Policy, said that putting money into cleaner fuels using revenue from carbon tax “is the right thing to do”.

WILL CONSUMERS END UP PAYING MORE?

Finance Minister Wong had said that the carbon tax hike would lead to an increase of about S$4 per month in utility bills for an average household living in a four-room Housing and Development Board flat, though additional rebates in the form of GST Vouchers will be provided to cushion the impact.

Prof Quah said that eating out and leisure activities will be “more price-sensitive”. The impact will be higher by the time 2030 rolls around, he added, but several things could have happened by then — including new technologies capable of increasing further energy efficiency.

Ms Low and Prof Thomas said that it would force consumers to go greener as well. A small step would be switching from a vacuum cleaner with high energy consumption to a lower one, for example.

Prof Thomas suggested that carbon tax be “supplemented by a very strong drive in carbon trading, green bonds and all forms of financing for green investments”. He also said there could be education campaigns to change consumers’ behaviours, rather than tax things like plastics.

“Right now, the prices of renewable energy are becoming very competitive. But even if they weren’t, a certain degree of subsidy for clean fuels is socially desirable because it is trying to discourage a damaging act to the economy,” he said.

Prof Quah added: “If consumers, households and firms are in tandem with increasing green pay-offs, then this transition or trajectory towards a low carbon economy within a reasonable time will be a truly realistic one.”