PAP & WP MPs call on govt to manage impact of revised carbon tax on S'poreans & businesses

Many MPs called for a balanced approach to be taken.

Matthias Ang | Low Jia Ying | January 12, 2022, 08:34 PM

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Multiple MPs have called for a balanced approach to the upcoming implementation of a revised carbon tax, so that its social and economic costs are better handled by both consumers and businesses alike.

The call was made by PAP MPs Louis Ng, Saktiandi Supaat, Foo Mee Har, Derrick Goh, Mariam Jaafar and Workers' Party MP Dennis Tan in Parliament on Jan. 12.

What is this revised carbon tax about?

Earlier in October 2021, Finance Minister Lawrence Wong announced that the carbon tax will be reviewed during this year's Budget, and the revised carbon tax will kick in in 2024.

Subsequently on Jan. 8, a second parliamentary motion on climate change was filed by Deputy Chair of the Government Parliamentary Committee (GPC) for Sustainability and the Environment Poh Li San, and was supported by Ng, as GPC Chair, and GPC Members Nadia Ahmad Samdin, Don Wee, Gan Thiam Poh and Hany Soh.

The motion stated, "This House calls for the Government to enhance green financing, create more green jobs, and strengthen corporate accountability, in partnership with the private sector, civil society and community, to advance Singapore’s inclusive transition towards a low-carbon society."

Poh also shared that the second motion zooms in to a specific aspect of the green transition, "which is ensuring Singaporeans are not left behind".

The first motion was filed in Feb. 2021, and was a broader call for the government to deepen and accelerate efforts to mitigate and adapt to climate change.

Foo Mee Har: Give businesses ample lead time to adapt to carbon tax

The West Coast GRC MP said that while she "wholeheartedly agree[s]" that Singapore's carbon price of S$5 per tonne of emissions is too low, as compared to the recent IMF guidance of S$100 per tonne for advanced economies, she said there is a need to "carefully calibrate the increase and consider the trade-offs".

Foo said that setting the carbon price too high runs the risk of firms passing cost increases to consumers and end users, and may cause firms to move their business activities to other countries where the price of carbon is cheaper.

Setting carbon prices too low on the other hand, would fail to nudge firms in the right direction, she said.

Foo said that Singapore should "develop our own unique playbook to carbon pricing", adding that there are over 60 different carbon pricing initiatives worldwide, each adapted to each regime's specific goals and constraints.

She called on the government to provide "ample lead time" for businesses to adjust to the implementation of any new carbon tax rates, while "sending a strong but positive signal for companies to adapt and pivot".

She cited how Sweden took "phased implementations" over three decades to reach their current carbon pricing, and without "haemorrhaging economic developments".

Derrick Goh: Tiered carbon pricing as a balanced approach

The Nee Soon GRC MP called for a "balanced approach to carbon pricing" to mitigate the possible unintended effects the transition might have on society.

Specifically, Goh suggested that carbon pricing be tiered, such that households and businesses can make "rational transitions".

He said:

"While a higher carbon tax can drive reductions in carbon emitting activities, it is also important that carbon pricing be tiered to match against the greener alternatives available or abatement efforts."

During this transition, he also suggested that the government consider adding "carrots", such as green rewards or financing incentives, for households and businesses to "accelerate behavioural changes".

He also warned that carbon taxes may have regressive effects on the lower income in Singapore, who may spend a higher proportion of their income on basic services like electricity.

He asked that the government provide assurance that it will help cushion against the impact of higher carbon taxes in the same way it has done for GST increases.

Mariam Jaafar: Phased implementation of carbon tax

The Sembawang GRC MP also stressed the importance of a phased implementation of carbon pricing.

She said:

"If we are to achieve the objective of making it less expensive for companies to invest in decarbonising and low carbon technologies than to continue emitting carbon, the carbon tax needs to go up, no question. The question is how fast we ratchet it up and covering what scope."

Mariam said that such a phased transition should begin with the highest emitting sectors first, but with "explicit forward direction on price levels and ample time for companies to prepare and adjust".

She said that "Singapore should be bold and lead the way", and must move on the carbon tax, but with a phased implementation.

She also urged the government, the financial sector and scientific community to help companies make this transition.

Mariam called on companies to change their mindsets, and to see climate and the green economy as a big opportunity.

She ended her speech by saying that if Singapore takes the necessary actions, "Singapore could be for climate and sustainability what the Silicon Valley is for technology".

Dennis Tan: Carbon tax revenue should go to Just Transition measures

The WP MP of Hougang SMC said that his party did not object to today's motion about creating a low carbon society, but that he would like to "push further".

He urged the government to also throw its support behind a "Just Transition", which ensures that no Singaporean will be left behind as the country transitions towards a green economy.

Tan said that he hopes that the government will consider funding mechanisms to "properly channel carbon taxes towards the Just Transition measures", and cited how the European Union was able to do so via their Just Transition Mechanism.

While supporting the motion, Tan said:

"We have the opportunity here to hit two birds with one stone. Let us not waste it and seek a Just Transition for all Singaporean workers in the greener future we seek to achieve."

Louis Ng: More U-save rebate vouchers should be issued to help low-income Singaporeans cope with a significant carbon tax increase

The Nee Soon GRC MP called for a significant increase in the carbon tax, adding that there was "no question" that the tax served as the most powerful tool in slashing emissions as it had the highest potential to reshape incentives and motivate action.

Ng added that he agreed with Wong's statement, in Oct. 2021, that Singapore's current tax rate of S$5 per tonne is too low.

As to how high the tax should be raised to sufficiently slash emissions, Ng cited the following figures and institutions:

"One range from the High Commission on Carbon Prices, which is supported by the World Bank, proposed that US$50 to US$100 is needed by 2030.

The IMF similarly recommends a rate of U$100 by 2030. Even higher prices have been suggested by LSE’s Grantham Institute, which proposes US$145 and the OECD, which provides a central estimate of U$147."

The government should therefore look at the studies that have been done by these institutions, as well as the principles for they arrived at such prices, he added.

Ng also called for the coverage of the carbon tax to be increased, noting that it currently applied only to facilities that contributed at least 25 kilotonnes of CO2 per year, and therefore covered about 50 facilities that that contribute about 80 per cent of Singapore's total carbon emissions.

He highlighted:

"I understand that the Government set a high threshold to limit compliance costs by smaller emitters. But smaller emitters, those emitting at least two kilotonnes of CO2 equivalent, are already 'reportable facilities' and have to pay the costs of monitoring and measuring their emissions."

As such, given that any additional compliance costs would likely be minimal, it make sense for the carbon tax to cover all reportable facilities, he said.

In addition, given that an increase in carbon tax will also mean an increase in tax revenue, Ng voiced his hope that this will be used by the government to help subsidise decarbonisation projects in the private sectors, and limit the impact on low-income Singaporeans by issuing more U-Save rebates or vouchers under the Climate Friendly Households Programme.

Saktiandi Supaat: The carbon tax must offer a certain and transparent price pattern for businesses

The Bishan-Toa Payoh GRC MP called on the government to ensure that the carbon tax offers a "certain and transparent" price pattern for businesses to be able to project their potential expenses and plan accordingly.

He asked, "Instead of reviewing our carbon tax rate every three to four years, can we establish a fixed formula for the carbon tax rate to evolve over a longer period of time?"

In light of IMF economists suggesting that high-income economies should aim for a carbon price of US$50 to 75 (S$67 to 101) per tonne of CO2 by 2030, the government should also be careful with the pacing of any increase in Singapore's carbon tax so that businesses can adapt and will not be forced to leave, he noted.

A possibility for Singapore is to therefore first set the carbon tax level at least around US$8 to 9 (S$11 to 12) per tonne of CO2 to inject some "urgency" for emitters to accelerate their decarbonising plans.

In addition, as the carbon tax is increased in various ways, carbon pricing should be part of a "comprehensive mitigation strategy" while containing measures to enhance "effectiveness and adaptability", he said.

Saktiandi further referenced Tan's remarks on just transition measures and also voiced his agreement that these measures are needed to assist low-income household workers and vulnerable workers when the revised tax is introduced.

Saktiandi also asked if Singapore might explore a carbon border adjustment mechanism to equalise the carbon prices of Singapore products and imported products from outside the country, given that different countries have different climate change standards and measures.

The objective of such a measure is to prevent companies from transferring production to countries where climate change measures are looser than in Singapore and are "cheaper" to comply with, he said.

This measure can also help to promote greenhouse gas reduction efforts in other countries outside of Singapore and to spur them to take climate change measures seriously, he elaborated.

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