BY KAVICKUMAR MURUGANATHAN
Businesses , especially in the utilities and petrochemical sectors , can use the lead time to build their case for investments in low-carbon technologies and strategise their entry into carbon markets to reduce payable carbon tax .”
Hikes bring risks and opportunities alike for Singapore and Singaporeans
AS ANNOUNCED during Budget 2022 , Singapore will raise its carbon tax rates progressively from 2024 with a view of reaching S $ 50 to S $ 80 per tonne of emissions by 2030 . It aligns with Singapore ’ s new ambition to achieve net-zero emissions by or around mid-century .
The announcement has won plaudits . According to the World Bank Carbon Pricing Dashboard , the bold hikes put Singapore ahead of its regional counterparts such as Japan , China and South Korea while lagging behind European pacesetters such as Switzerland and Sweden for carbon taxes per tonne of emissions .
Implications of carbon tax
The carbon tax hike brings risks and opportunities alike for Singapore and Singaporeans . While being deemed aggressive by implicated industry members , the move provides businesses with a concrete , wellpaced , timebound pathway to plan their transition towards a low-carbon future .
Implementing the tax hike in 2024 will allow businesses ample time to map their carbon footprint and identify transitional risks associated with a low-carbon operational shift . It will be an opportune time to reinvent themselves and explore green growth solutions strategically .
Businesses , especially in the utilities and petrochemical sectors , can use the lead time to build their case for investments in low-carbon technologies and strategise their entry into carbon markets to reduce payable carbon tax .
The government will introduce a transition framework to give emissions-intensive trade-exposed ( EITE ) companies , such as those in the petrochemical and energy production sectors , additional time to shift to a low-carbon economy .
To maintain their business competitiveness in the short term and mitigate the risk of carbon leakage , -companies in EITE sectors will receive transitory allowances for part of their emissions based on efficiency standards and their decarbonisation goals .
Other vital stakeholders implicated by carbon tax hikes are electricity retailers and households .
Tax hikes will be passed on to households via increased electricity prices . While the government will be providing Goods and Services Tax vouchers and U-Save rebates to cushion the impact , households must also seek means where they can reduce their electricity consumption .
This would entail taking stock of their current household appliances and exploring more efficient ones for future purchases . Private households might even want to consider the installation of solar panels to offset electricity use , especially for air conditioning . After all , carbon taxes can spur behavioural change among taxpayers toward sustainable energy use .
Carbon services & capacity-building
The carbon tax hikes are expected to lead to a flurry of activities in the carbon services market . The carbon services market comprises firms providing consulting and verification services and brokers who facilitate the sale of carbon credits .
There are already about 30 firms here providing carbon consulting services . With Singapore being a regional hub for business and trade , we can expect a broader carbon services ecosystem to take flight here .
There will be a growing demand for carbon-related advisory services among corporations with taxable facilities under the Carbon Pricing Act . Corporates that do not have in-house solid carbon expertise will hunt for talent to drive their decarbonisation strategy and explore other strategic levers towards decarbonisation .
This would mean finding and developing talent proficient in low-carbon technological solutions and alternative energy solutions such as solar and carbon capture & storage .
For Singapore , it means building our carbon literacy among a more incredible pool of corporates and ordinary citizens in the carbon services space to future proof and build self-resiliency around its decarbonisation ambition . It will have to happen in all hierarchies of our society .
Education institutions at all levels will have to have subjects and modules around carbon emissions , measurement , verification and reporting .
Household education will also have to take place to get households socialised with the notion of carbon footprint and the ancillary aspects that come along with it .
This provides an opportunity for government agencies and , potentially , civil society to have greater stakeholder engagement with everyday Singaporeans and enable more household ownership over national decarbonisation efforts .
Voluntary carbon markets
As part of the carbon tax hikes , it was also announced that businesses would be able to use “ high-quality , international carbon credits ” to offset up to five per cent of taxable emissions instead of paying carbon tax .
Businesses can obtain carbon credits from brokers who facilitate transactions between sellers and buyers . Carbon credits are generated from activities that reduce carbon emissions from our atmosphere .
Every tonne of emissions reduced
results in the generation of one carbon credit . Organisations that generate these credits then sell it to companies looking to offset their carbon emissions via traders or brokers .
The carbon credits to be purchased would ideally be cheaper than the prevailing carbon tax level . While a nascent carbon marketplace took off in Singapore last year , the hike in carbon tax levels will spur greater local demand for carbon credits and strategic implementation of a well-functioning and regulated carbon trading scheme
While the definition of “ high-quality international credits ” remains unclear , the key is that carbon credits must be verified to ascertain their credibility and transparency .
It would require a regulatory standards framework to be established and defined for Singapore . The process to develop this framework should be consultative . Industry players with taxable facilities , carbon service providers , and other key stakeholders must be engaged to build a contextually relevant regulatory standards framework .
Mechanisms for recognition and verification must be established to create a wide-ranging pool of transboundary carbon credits for end buyers to choose from .
The carbon credits issued must also fulfil the other fundamental aspects of additionality , permanence , leakage avoidance and measurability . This means that carbon emissions removed cannot be reintroduced to the atmosphere or result in an increase in carbon emissions in another part of the world . The carbon emissions reduction must also be solely generated by the incentive provided by the carbon credits .
Numerous established carbon emissions trading schemes , such as those in Kazakhstan , New Zealand , and the European Union ( EU ), uphold these principles . Singapore can draw lessons from its drive towards net zero emissions by or around mid-century .
A common thread among these schemes is that they create incentives to reduce emissions cost-effectively . These schemes are also regularly reviewed to include more eligible industry sectors and ensure there are no supply-demand imbalances . — @ Green
Kavickumar Muruganathan is a sustainability professional & part-time lecturer at National University of Singapore on environmental economics and sustainable development