SINGAPORE (July 8): On Jan 1 this year, the Carbon Pricing Act came into force in Singapore. Under the Act, any industrial facility that emits greenhouse gases (GHG) equal to or above 25,000 tonnes of CO2e, or carbon dioxide equivalent, will have to pay a carbon tax of $5 per tonne of GHG emissions. CO2e is calculated by multiplying the greenhouse gases’ emissions by their 100-year global warming potential.
The tax is expected to affect about 30 to 40 companies, mainly petroleum refineries on Jurong Island and power generators. However, $5 per tonne is miniscule when compared with how much other jurisdictions are imposing, and detractors say it would amount to just a slap on the wrist for the worst polluters.
The implementation of an extra tax may seem counterintuitive for a business-friendly, open economy such as Singapore. But the carbon tax could actually present new opportunities for investors. Market watchers tell The Edge Singapore that a carbon tax policy effectively sends out a strong signal that Singapore is cognisant of what matters — sustainability, and business and investments related to it.
Indeed, globally, investors are actively eliminating heavy polluters from their portfolios, among other factors. In a survey conducted among high-net-worth investors, Standard Chartered found that Singapore continues to have the highest number of HNW investors in Asia who are knowledgeable about sustainable investing. As such, asset managers are likely to be on the lookout for opportunities that fit their clients’ expectations of sustainability.
However, if the objective of the carbon tax is to change the behaviour of businesses and consumers towards creating a low-carbon economy, there is still some way to go. To be sure, the $5 rate will be raised. The government will review the rate by 2023, with plans to increase it to between $10 and $15 per tonne of GHG emissions by 2030. Even that, however, is considerably lower than the US$40 to US$80 per tonne tax that researchers estimate is needed to incentivise behaviour.
Still, as we report inside, more than 40 countries have imposed a price on carbon, whether through taxes on emissions or an emissions trading programme. Canada charges a tax on oil, coal and gas of US$15 per tonne, and will hike it to US$38 per tonne by 2022. The cost of energy for the population will rise, but the taxes collected will be refunded to them. Will that make people choose cleaner fuel options?
In the UK, greenhouse gas emissions have reportedly fallen to their lowest since 1980. That is largely attributed to a carbon tax of £16 per tonne of CO2e, imposed since 2013, and which will rise to £30 per tonne by next year. The tax spurred utility companies to switch from coal to gas as a fuel source.
Meanwhile, China, the world’s largest polluter, has become its largest carbon trading market.
For now, some of the smaller energy retailers our reporters spoke to say consumers are not yet affected by the tax. The government has said that the impact on households would amount to a rise in the cost of electricity and gas of about one percentage point, although lower-income households can expect to get help on their bills.
The carbon tax revenue, meanwhile, is expected to help fund further green projects here. That could spur some action, at least among innovators and entrepreneurs keen on the green dollar.
This story appears in The Edge Singapore (Issue 889, week of July 8) which is on sale now. Not a subscriber? Click here