Singapore to use study on carbon pricing to shape future tax

Commissioned by climate change secretariat, study will look at its impact and effectiveness

Singapore will start pricing carbon at $5 per tonne of emissions from 2019 to 2023. PHOTO: ST FILE

An upcoming comprehensive study of carbon pricing will be used to shape how the carbon tax is implemented here in future, by delving into the impact of carbon pricing in other countries and its possible impact here, The Straits Times has learnt.

Set to be completed by August next year, the study will seek to quantify the costs that greenhouse gas-producing firms bear in different jurisdictions, as well as the effectiveness of various measures in reducing carbon emissions.

Consultants will look at direct costs from carbon taxes or emissions trading schemes and indirect costs from compliance, a spokesman for the National Climate Change Secretariat (NCCS) told The Straits Times.

To that end, the NCCS, which is part of the Strategy Group in the Prime Minister's Office, commissioned the study through a tender which closed last Wednesday.

Singapore will start pricing carbon at $5 per tonne of emissions from next year to 2023, Finance Minister Heng Swee Keat announced in this year's Budget. The rate will be reviewed by 2023, with the intention to raise it to between $10 and $15 per tonne by 2030.

The tax will be levied on firms with facilities that produce more than 25,000 tonnes of emissions in a year. This is likely to affect around 30 to 40 large emitters that are responsible for 80 per cent of Singapore's greenhouse gas emissions.

The NCCS said the upcoming study will not cover emitters that are responsible for the remaining 20 per cent.

Firms in the petrochemical industry - which is impacted the most by the carbon tax - have hailed it as being the most economically efficient policy to limit emissions.

Said BP Singapore's country president Terence Yuen: "It provides incentives for everyone - producers and consumers alike - to reduce their emissions and offers flexibility in how to do it."

The NCCS spokesman said Singapore's medium-term carbon tax rate is an estimate of the rate needed "to achieve an economically efficient level of emission reductions compared to other measures", to help Singapore meet its Paris Agreement obligations.

Singapore's carbon tax is lower than that of many countries. According to the World Bank, the global average is US$21.50 (S$29.50) per tonne of emissions. France charges US$33, while Nordic countries charge between US$25 (Denmark) and US$126 (Sweden).

Global carbon tax rates, including Singapore's, are too low to have a major impact, said asset management group Investec's Ms Therese Niklasson and Mr Graeme Baker.

Ms Niklasson, who heads her firm's environmental, social and governance arm, said carbon taxes need to rise to US$56 per tonne to capture the externalities created by greenhouse gases.

But some experts caution against raising the tax too quickly.

OCBC Bank's head of treasury research and strategy Selena Ling said that in deciding on the $5 rate, the Government weighed the impact on economic competitiveness, especially since Singapore is the first South-east Asian country to have such a tax.

A comprehensive study of carbon pricing here must look at a myriad of factors and trends, said Mr Chan Wai-Shin, who heads HSBC's Climate Change Centre of Excellence. These include potential economic disruption, lost income, future economic conditions and energy consumption forecasts.

"Finding the right price is incredibly difficult. The central idea is that a carbon price steers the economy away from high-carbon activities without adversely affecting long-term growth," added Mr Chan.

"If the presumed level of pricing does not provoke behavioural change, then a rethink is required."

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A version of this article appeared in the print edition of The Straits Times on August 13, 2018, with the headline Singapore to use study on carbon pricing to shape future tax. Subscribe