Singapore Proposes Carbon Tax
Energy Fact & Opinion
- On February 20, Singapore released its 2017 budget, which included a proposed carbon tax to begin in 2019. The budget awaits approval from Singapore’s parliament and final assent from the president. The government will consult with stakeholders before specifying details about the tax, though the budget document suggested the tax would fall between S$10 and S$20 (US$7 and $14) per metric ton of greenhouse gas (GHG) emissions.
- Six GHGs will likely be targeted by the tax: carbon dioxide (CO2), methane (CH4), nitrous dioxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
- The budget document states that “the tax will generally be applied upstream, for example, on power stations and other large direct emitters, rather than electricity users.”
- Singapore would be the first country in Southeast Asia to levy a carbon tax. Elsewhere in the region, Japan has a national carbon tax, while Kazakhstan, New Zealand, South Korea, and Taiwan have emissions trading schemes. China has experimented with regional cap-and-trade programs and is expected to launch the world’s largest national carbon market later this year.
- After the Paris climate agreement, Singapore pledged to reduce its GHG emissions intensity by 36 percent by 2030 from 2005 levels.
The decision to levy a carbon tax is an important gesture signifying that Singapore is committed to addressing climate change, although the country is a marginal emitter of GHGs, accounting for barely more than 0.1 percent of total global emissions. By shouldering a price on carbon, Singapore can assume a leadership role in a region whose GHG emissions are expected to nearly double by 2040.
Depending on how the carbon tax is implemented, however, Singapore’s refining, petrochemicals, and power sectors could be significantly affected as the city-state relies heavily on fossil fuels. Singapore is the world’s third-largest exporter of refined petroleum products and has a refining capacity of 1.51 million barrels per day (bpd). The petroleum refining and petrochemical industries account for approximately 40 percent of Singapore’s exports.
According to Singapore’s National Climate Change Secretariat, the taxation threshold may be set at 25,000 metric tons of carbon dioxide equivalent, which could affect 30 to 40 large, direct emitters. The Secretariat also estimated that the tax could increase operating costs for Singapore’s refiners by US$3.50 to $7.00 per barrel—a level prohibitively high if the Singaporean refinery industry is to remain competitive. Wood Mackenzie, alternatively, estimated the cost for refiners would be between US$0.40 and $0.70 per barrel.
Singapore’s share of exports to Australia and Vietnam are already falling due to stiffer competition from China, Malaysia, and South Korea. Moreover, countries around Southeast Asia are contributing to a more competitive regional market for refined petroleum products. This year, Vietnam is expected to bring 200,000 bpd of refining capacity online with its Nghi Son refinery. Malaysia is expected to complete its Refinery and Petrochemicals Industrial District (RAPID) refinery by 2019, possibly producing 300,000 bpd and 7.7 million tons of petrochemicals annually.
The ultimate effect of the tax on the competitiveness of Singapore’s refinery industry would depend on how Singapore chooses to implement it. The effect of carbon pricing on other regional refiners has thus far been mixed. For example, South Korea, which is among the top refiners in the world, has eased into its emissions trading scheme since 2015 and will charge for emissions permits until its second stage begins in 2018; even then, “energy-focused industries” may be exempted. Japan has had a carbon tax since 2012, but shrinking domestic demand and capacity expansion by regional competitors seem to be a much bigger challenge to its refining industry.
Singapore may try to counterbalance the increased costs for refining, petrochemicals, and generation. For instance, portions of the carbon tax revenue could be redirected to support energy efficiency improvements in the refining and petrochemicals sector. Alternatively, Singapore may divert revenues to fund solar power and energy storage development, although the city-state has limited renewable energy options. Currently, Singapore depends on natural gas for more than 95 percent of its electric generation capacity.
The proposed carbon tax underpins the country’s commitment to the Paris Agreement and signals its recognition that every country—large or small—has a role to play in addressing the global challenge. Meanwhile, the Singaporean experience with a carbon tax may also serve as an important test whether downstream development can accompany stricter environmental protections, such as reduced emissions.