Associate Professor Jamus Lim’s proposal (Having a carbon tax rate that adapts to economic conditions may be less volatile, Nov 22) will result in greater uncertainty.

As Minister for Sustainability and the Environment Grace Fu explained in Parliament, announcing a clear trajectory for carbon tax rates in advance till 2030 gives businesses greater certainty and a predictable price signal on the costs of carbon emissions. Our feedback from businesses is that they would appreciate predictability, as this will encourage them to reduce their emissions by investing in decarbonisation solutions which have a multi-year horizon.

Prof Lim’s theoretical illustration of how a variable carbon tax rate could reduce profit volatility amid changing economic conditions is misguided. He also advocates an even higher carbon tax range of $58 to $133 per tonne by 2030 compared with the Government’s $50 to $80 per tonne. Taken together, a higher carbon tax rate which is variable and fluctuating from year to year would add greatly to the uncertainty for businesses when they make decarbonisation investment decisions.

Prof Lim’s illustration assesses the carbon tax as a percentage of the businesses’ profits. But the carbon tax should be assessed against carbon emissions and not profits. Company profits depend on many factors. A loss-making company may have high emissions, while a profitable company may have invested in low-carbon technologies.

Our intent of reducing emissions is better achieved if businesses’ carbon tax liability is based on their emissions. Carbon tax revenues will be channelled back to support decarbonisation efforts by businesses and households. In difficult economic times, the Government has implemented other appropriate measures to support businesses, for example, during the Covid-19 pandemic.

Minister of State for Trade and Industry Low Yen Ling has already responded in Parliament that the transition framework will not give a “free pass” to businesses. Allowances will be provided for only a portion of businesses’ emissions, and will be determined according to internationally recognised efficiency benchmarks or facilities’ decarbonisation plans.

This will help businesses maintain their export competitiveness during the transition. Furthermore, any allowance granted is inherently time-limited, as we have to meet our already announced 2030 carbon targets, and achieve net-zero emissions by 2050.

Amy Khor (Dr)

Senior Minister of State 

Ministry of Sustainability and the Environment