Singapore firms will get time to adapt to higher carbon tax

Singapore's current carbon tax rate, which will be in place until 2023, is $5 per tonne of emissions. ST PHOTO: ONG WEE JIN

SINGAPORE - A higher carbon price will spur large emitters in Singapore to cut their carbon footprint, but adjustments to the country's carbon tax must be done carefully to give firms time to adapt and stay competitive, said two ministers on Wednesday (Jan 12).

Speaking during a parliamentary debate on Singapore's green transition, Trade and Industry Minister Gan Kim Yong said the correct carbon price will guide investment decisions and spur companies to decarbonise.

"But it will also come with higher costs for businesses and consumers. We should calibrate and pace the adjustment carefully, to give companies sufficient time to adapt and stay competitive," he added.

A higher carbon tax will also have an indirect impact on households, he noted.

"The Government will consider how we can help ease the cost increase, especially for lower-income households," said Mr Gan, citing past schemes such as the U-Save utilities rebates and a programme that provides eligible households with vouchers to offset the cost of energy-efficient appliances.

Singapore's current carbon tax rate, which will be in place until 2023, is $5 per tonne of emissions. The revised rate for 2024 will be announced during next month's Budget, which will also indicate what to expect up to 2030.

Nineteen MPs spoke during the roughly five-hour debate on the private members' motion, which was moved by six PAP MPs - Ms Poh Li San (Sembawang GRC), Mr Gan Thiam Poh (Ang Mo Kio GRC), Ms Nadia Samdin (Ang Mo Kio GRC), Mr Louis Ng (Nee Soon GRC), Ms Hany Soh (Marsiling-Yew Tee GRC) and Mr Don Wee (Chua Chu Kang).

The motion urges the Government to enhance green financing, create more green jobs, and strengthen corporate accountability. This, said the MPs, should be done "in partnership with the private sector, civil society and community, to advance Singapore's inclusive transition towards a low-carbon society".

MPs who spoke during the debate, including Mr Ng and Ms Foo Mee Har (West Coast GRC), said Singapore's carbon tax was too low.

Mr Ng, noting that a carbon tax has the "highest potential to reshape incentives and motivate action", suggested the coverage of the carbon tax be expanded to more firms.

Currently, Singapore's carbon tax applies to all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year, covering 30 to 40 large emitters that contribute 80 per cent of Singapore's greenhouse gas emissions.

"Smaller emitters, those emitting at least 2,000 tonnes of emissions... already have to pay the costs of monitoring and measuring their emissions. Given that any additional compliance costs would likely be minimal, it makes sense for the carbon tax to cover all reportable facilities," said Mr Ng. "This would, after all, be in the spirit of a whole-of-nation fight against climate change. Emitters, small and large, have a role to play."

In response, Minister for Sustainability and the Environment Grace Fu said the carbon tax currently covers about 80 per cent of Singapore's emissions.

"If we include the excise duties on vehicular fuel, more than 90 per cent of our emissions are subject to a carbon price. This coverage is one of the highest in the world," she said, adding that Singapore will continue to encourage small emitters to track their carbon footprint on a voluntary basis.

Greenhouse gases, including carbon dioxide and methane, are produced by human activity such as the burning of fossil fuels.

When these gases accumulate in the atmosphere, they trap heat on the planet, throwing earth's systems out of whack and causing climate change. The result: rising temperatures and sea levels, and more intense extreme weather events that can destroy lives and livelihoods.

A carbon tax is a means of assigning costs to the release of these planet-warming emissions.

Ms Fu noted that over the past few months, the Government has consulted businesses and engaged the public on the need for and the potential impact of a higher carbon tax, as part of the Government's review of the post-2023 carbon tax level and trajectory. "The Minister for Finance will announce the outcome of our review at Budget 2022," she said.

Ms Fu, who represented Singapore at the COP26 United Nations climate summit in the Scottish city of Glasgow last November, pointed out that a higher carbon price will keep Singapore's carbon tax trajectory in line with the broader international momentum on climate action. "This will support the review of our climate targets," she said.

At COP26, almost 200 nations agreed to revisit and strengthen their 2030 climate targets to align with the Paris Agreement temperature goal by the end of this year.

Under the Paris Agreement, countries should take steps to limit global warming to well below 2 deg C - preferably 1.5 deg C - above pre-industrial levels. Climate scientists have shown this threshold will help the world avoid harsher climate impacts, which become more severe with every degree of warming.

Singapore's current target is for its emissions to continue to increase until 2030, when they reach their peak, before they start to decline.

But the United Nations has recommended that for the world to have a better chance at limiting warming to the 1.5 deg C target, emissions must be nearly halved by 2030 from 2010 levels, and reach net-zero by 2050.

Ms Fu said Singapore will prioritise domestic efforts to cut its emissions but noted that low-carbon technologies - such as using clean-burning hydrogen as a fuel - are not yet immediately deployable.

"There is significant uncertainty associated with these options at the moment, given that their commercial success hinges on factors such as technological maturity and transboundary cooperation, which are not entirely within our control," she noted.

Thus having access to international carbon markets - which allows the country to buy carbon credits from projects elsewhere that either prevent the release of emissions (renewable energy projects) or absorb them (forest conservation projects) - will complement Singapore's toolkit for meeting its climate commitments, added the minister.

The latest motion follows the first one that was debated in February last year, which saw the House agreeing that climate change was a global emergency and the Government should accelerate efforts to mitigate its impact.

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Ms Poh said the green sector is developing rapidly in response to the climate emergency.

"There are many new and exciting opportunities in the green economy, particularly in green financing, and many new job roles in the sustainability sector," added the deputy chairman of the Government Parliamentary Committee for Sustainability and the Environment.

"Central to our transition to a green economy, our priority is to ensure Singaporeans are not left behind as the world progresses towards a sustainable future and economy," Ms Poh said.

"We need to create fulfilling opportunities in a region with a growing sustainability sector and equip Singaporeans with the relevant skill sets and experience. We need to help our businesses get ahead of the curve in sustainability."

In a Facebook post on Wednesday evening, Prime Minister Lee Hsien Loong said that as with all transitions, trade-offs such as temporary cost increases and disruptions are unavoidable. 

“But not going green is not an option,” he said. “Tackling climate change takes a whole-of-nation effort. We have to act now to avoid paying a much higher price later.” 

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