Carbon tax 'likely to have greater impact on large businesses'

An oil refinery on Pulau Bukom. The added burden from the carbon tax will reduce refineries' competitiveness in the region, said one expert.
An oil refinery on Pulau Bukom. The added burden from the carbon tax will reduce refineries' competitiveness in the region, said one expert.ST PHOTO: MARK CHEONG

The carbon tax that will be implemented from 2019 is likely to hit large businesses harder than households and small firms.

A tax of $10 to $20 per tonne of carbon dioxide-equivalent greenhouse gas emissions could increase business operating costs equivalent to a 6.4 per cent to 12.7 per cent increase in current oil prices, according to a government paper released yesterday as part of the public consultation process on the levy.

The tax will be applied upstream on power stations and other large direct emitters. According to current data based on the proposed threshold of emissions, only about 30 to 40 companies will have to pay.

These are likely to include power- generating companies, as well as waste incinerators, recycling firms and the semi-conductor industry, said Professor Euston Quah, head of economics at Nanyang Technological University.

While some of these companies may pass on the increased costs to consumers, households will feel less of an impact compared with the large emitters, with the tax estimated to increase electricity prices by 2.1 per cent to 4.3 per cent, according to the paper.

Mr Gautam Jindal, a research associate at the Energy Studies Institute, said the proposal seems to be targeted mainly at companies, to make them "start considering the business case for energy efficiency". "You need to give companies a business case for energy efficiency. It internalises this cost for companies, and they are able to plan accordingly," he added.

In contrast, Mr Jindal said, the increase in electricity prices for consumers will be "marginal", so consumer behavioural change is likely also to be "marginal".

The verdict was split on the impact of the tax on businesses.

Mr Sunny Koh, deputy president of the Singapore Manufacturing Federation, said the expected increase in electricity prices because of the tax is "not so significant".

"For a food-manufacturing SME (small and medium-sized enterprise), utility bills are a few thousand dollars. A 2 per cent to 4 per cent increase would be a few hundred, which can be easily saved through more efficiency and productivity," he said. "SMEs will try to improve energy efficiency, but it is not so significant as to make them think twice about energy efficiency."

However, the refining sector is expected to take a bigger hit.

Mr Sushant Gupta, research director of Asia refining at energy consultancy Wood Mackenzie, said the profit margins of the refining sector here could be impacted by between 10 per cent and 15 per cent.

"The additional burden from the carbon tax will reduce refineries' competitiveness in the region as passing on these costs to products will be tough, as those prices are set by the international market," he said. "Other export refineries in the region such as in China, India, South Korea and new Middle Eastern export refineries are more competitive than Singapore."

Prof Quah said more than 40 jurisdictions have already implemented their carbon taxes, and the likelihood of others joining will increase. "It is perhaps better to implement our carbon tax earlier so that we can refine our implementation when needed and gain experience in levying such a tax. It also encourages our residents to understand that our market economic behaviour affects the environment," he said.

The last day for submissions for the public consultation is April 20.

A version of this article appeared in the print edition of The Straits Times on March 21, 2017, with the headline 'Carbon tax 'likely to have greater impact on large businesses''. Print Edition | Subscribe