'Unique playbook' needed for S'pore's low carbon strategy to avoid hurting competitiveness as investment location

Minister Grace Fu said that for the first five years, Singapore is prepared to spend more than what the country collects to incentivise the adoption of energy-efficient processes.

Faris Alfiq | January 12, 2022, 11:08 PM

Follow us on Telegram for the latest updates: https://t.me/mothershipsg

Singapore needs to develop its own unique playbook on carbon pricing and ensure that any change is paced carefully to avoid dislocating Singapore's industries or losing its attractiveness as an investment location, Member of Parliament for West Coast GRC, Foo Mee Har said on Jan. 12.

Foo said that in her speech in Parliament during the motion on climate change and the green economy.

Several Members called for the Government to enhance green financing, create more green jobs, and strengthen corporate accountability in partnership with the private sector, civil society and the community.

The motion aimed to advance Singapore's inclusive transition towards a low-carbon society.

Some members who spoke touched on equalising carbon tax treatment between Singapore-based businesses and foreign businesses importing to Singapore.

Need to consider trade-offs in raising carbon tax

Foo noted that she "wholeheartedly agree(d)" when Finance Minister Lawrence Wong indicated that Singapore's carbon price is too low.

She said that Singapore's current carbon pricing at the rate of S$5 per tonne of emissions pales in comparison to other jurisdictions, falling far short of the International Monetary Fund's guidance of US$75 (S$100) per tonne of emissions for advanced economies.

Even as raising the carbon tax is "imminent", Foo highlighted that Singapore needs to carefully calibrate the increase and consider the trade-offs.

"Too low, and we fall short of our commitments in making a viable impact to nudge firms in the right direction. Too high, we risk firms passing cost increase to consumers and end-users or moving business activities to countries with lower sustainability requirements and carbon pricing," she said.

Carbon tax does not apply to imports

Furthermore, she added that Singapore's carbon tax does not apply to imports, and it puts local Small Medium Enterprises (SMEs) in a disadvantaged position.

As Singapore embraces more advanced integration of sustainable practices, at an increase in operating costs, it would affect SMEs' cost competitiveness relative to their peers in the region.

As such, Foo asked for the Government to consider channelling part of the carbon tax revenue to subsidise the increase in costs for a specific transition period, as well as provide subsidies to adopt green technologies to spur companies towards green practices and reduce the use of energy.

According to Foo, there are more than 60 different carbon pricing initiatives worldwide as each regime adapts different strategies based on its goals and constraints.

Any increase in carbon tax will likely result in an increase in operating cost, hitting directly the largest upstream emitters and indirectly all downstream users from an increase in electricity production cost, that will likely be passed on.

Suggest to explore carbon border adjustment

Bishan-Toa Payoh MP Saktiandi Supaat suggested for Singapore to explore a carbon border adjustment mechanism to equalise the carbon prices of Singapore products and imported products from outside its borders.

Saktiandi said that the mechanism is similar to the one introduced in the European Union to prevent "carbon leakage".

This prevents companies from transferring production to countries where climate change measures are "looser than in Singapore" and are "cheaper" to comply with.

In addition to that, he said that the other main way countries use to bring down carbon emissions is by establishing a cap-and-trade system.

The system caps the total level of greenhouse gas emissions and allows companies with low emissions to sell their extra carbon credits or offsets to larger emitters.

Carbon markets allow companies to buy and sell these tradable carbon credits that represent the reduction, avoidance or removal of a certain amount of emissions from the atmosphere.

Businesses in Singapore may face tougher competition

As a small country with an open, export-oriented economy, Bukit Panjang MP Liang Eng Hwa said with the implementation of carbon tax, Singapore may face competition as a place to invest and conduct business with competitors who have fewer sustainability requirements or are less strict in their implementation.

"We recognise that having carbon tax sends a clear signal that we are serious about decarbonising our industries and to become more energy-efficient, and therefore spur the necessary industry transformation," he said.

Liang added that on the other hand, "the impact to our businesses would be that the companies may be disadvantaged when competing with jurisdictions that do not impose such tax, or provide exemptions for some more carbon-intensive export-oriented sectors".

As a result, he opined that the short-term impact on business competitiveness and compressed margins may be inevitable, and businesses would need to rely on, or strengthen their other competitive propositions such as quality and reliability to defend or grow their market share.

Businesses and the public consulted

Rounding up the motion, Minister for Sustainability and the Environment, Grace Fu, said that over the past months, the Government has consulted businesses and engaged the public on the need for and the potential impact of a higher carbon tax.

The consultation was done as part of the Government's review of the post-2023 carbon tax level and trajectory.

The Minister for Finance will announce the outcome of the review during Budget 2022 on Feb. 18.

Nonetheless, Fu said that for the first five years, Singapore was prepared to spend more than what the country collected to incentivise the adoption of energy-efficient processes.

Some of the incentives include the enhanced Resource Efficiency Grant for Energy (REG(E)) and the Energy Efficiency Fund (E2F).

Fu added that some of the carbon tax revenue is also used to manage the impact of the tax on households.

Follow and listen to our podcast here

Top images screenshot via MCI Singapore/YouTube