Singapore plans Southeast Asia’s first carbon tax from 2019

Singapore plans to implement Southeast Asia’s first carbon tax starting in 2019, a move that would raise energy costs in the island nation and require more than 30 big polluters such as power plants to pay the levy. 

The proposal would charge between SGD10 (USD7) and SGD20 a ton on emissions of carbon dioxide and five other greenhouse gases, Finance Minister Heng Swee Keat said in a speech outlining the government’s 2017 budget. The tax is equivalent to a USD3.50-to-$7-a-barrel increase in the cost of oil for combustion. It would raise electricity costs by 2 percent to 4 percent, according to a government report released after Heng’s speech.

“The most economically efficient and fair way to reduce greenhouse gas emissions is to set a carbon tax, so that emitters will take the necessary actions,” Heng said. “Singapore is vulnerable to rises in sea level due to climate change. Together with the international community, we have to play our part to protect our living environment.”

The revenue from the tax would help fund industry measures to reduce emissions, Heng said. The government has been consulting with industry leaders and plans to begin public meetings on the tax in March before deciding on a final tax and implementation schedule. The government also hopes the move will spur job creation in clean energy.

Singapore would be the first Southeast Asian nation to put a price on carbon. Japan has a national carbon tax along with some regional emissions trading markets, and South Korea and New Zealand have national emissions trading. China has several regional trading markets and is planning to launch the world’s largest national carbon market this year.

“Singapore looks to be taking a more aggressive course of action on reducing its greenhouse gas footprint than it agreed at the Paris climate talks,” Chris Graham, Wood Mackenzie Ltd.’s vice president for energy research, said by phone from Singapore. “These signal concrete plans to put a price on cleaner air.”

The biggest impacts would be felt on power generators and heavy industrial users, such as oil refineries, he said. Singapore uses natural gas, the cleanest burning fossil fuel, for the vast majority of its power generation. The tax may spur some investment in renewable energy, although Singapore doesn’t have much land for such developments, and increased energy efficiency by end-users, Graham said.

The government will have to work with industrial users to make sure the tax doesn’t raise the cost of business to a level that makes them unable to compete with similar firms in the region that don’t have to pay for emissions, Graham said.

The tax will be applied on direct emissions of petroleum burned in refineries, but not on the crude oil being processed into gasoline and diesel and other fuels, Singapore’s National Climate Change Secretariat said in a statement.

Royal Dutch Shell Plc, which operates one of three oil refineries in Singapore, said it supported in general government-led efforts to price carbon emissions, and would evaluate this particular proposal’s impact on its operations as more details emerge.

“We would emphasize the critical importance of a policy design which addresses strong economic growth and the competitiveness of Singapore companies in the international market place,” a Shell Singapore spokeswoman said in an e-mailed statement. “It must ensure companies can compete effectively with others in the region who are not subject to the same levels of CO2 costs.”

Exxon Mobil Corp., which operates another oil refinery in Singapore, said it’s committed to working with the Singapore government to balance the risks of greenhouse gas emissions with the need to maintain a strong economy. “A uniform price of carbon applied consistently across the economy is a sensible approach to emissions reduction,” spokesman Aaron Stryk said in an e-mailed statement. Dan Murtaugh, Bloomberg