On Nov. 9, Minister for Sustainability and the Environment Grace Fu proposed raising the carbon tax for greenhouse gas emissions progressively in phases.
This was part of changes suggested in the Carbon Pricing (Amendment) Bill, which was read for a second time in Parliament and later passed.
Fu shared that the carbon tax will be raised to S$25 per tonne in 2024 and 2025, then S$45 per tonne in 2026 and beyond, with the trajectory of the increase eventually reaching about S$50 to S$80 per tonne by 2030.
However, Workers' Party (WP) Member of Parliament Jamus Lim objected and proposed an alternative mechanism — a flexible and time-varying carbon tax.
This subsequently led to a heated exchange between the two politicians, resulting in Leader of the Opposition Pritam Singh stepping in to highlight parliamentary etiquette.
Time-varying carbon tax
In his speech earlier in the debate, Lim pointed out that such a sharp increase in carbon taxes, an increase that is one order of magnitude greater than the current S$5 per tonne, may seem "ill-timed" in light of the current economic situation.
Lim noted that the Singapore economy had recently exited the technical recession in 2020, and is still "struggling to manage global pressures" from rising inflation.
As such, he proposed a carbon tax that varies over time, and changes according to the current state of the economy. If the economy is in recession, the tax would be scaled back, and if the economy is expanding strongly, the tax would increase.
Although accurately assessing the state of the economy in real time would be challenging, Lim said this is possible for modern central banks, and that the Monetary Authority of Singapore would likely have its own in-house team capable of performing such exercises.
Clarifications from Lim
After Fu delivered her wrap-up speech on the bill, Lim posed two clarifications.
Firstly, whether the government is able to "distinguish between the appropriate level [of carbon tax]" , and how to get to that level, something he termed as the "glide path".
Secondly, Lim responded to Fu's previous point on how businesses cannot operate without certainty. This "befuddled" him, and he pointed out that the government routinely alters levers of policy, such as the interest rate, despite there being uncertainty on a year to year basis.
He then asked:
"So originally, the ministry telegraphed the S$25 a tonne [carbon tax] rate next year, and we enter into a recession. Would she believe that businesses would then be very upset if we said that we will scale this S$25 a tonne [carbon tax] back to something lower, to eventually raise it subsequently?"
In response, Fu asked how Lim would suggest for the government to position the carbon tax "in his way".
"What will be your target? Is it S$100? If it's long run, which year? Is it 2030 still?"
What followed was some back and forth about the range of carbon tax both parties had proposed.
Lim: "Just to be clear, the government has not also committed to a S$50 to S$80—"
Fu: "Oh, we have. S$50 to S$80 is our range. So what is your range?"
Lim: "It was well stated. S$58 to S$133 with the midpoint..."
Fu: "Ok, so that's your...your range is higher than the government, correct?"
Lim: "The lower bound is lower than the government's upper bound."
Fu: "S$50 to S$80 [for the government's range], yours is S$58 to S$133?"
Lim: "Yes, the lower bound that I gave you is lower than the government's upper bound."
Fu: "All right, okay. All right, okay. So can you please try to tell me if you are the Minister of Sustainability and Environment, how would you glide to this number? How would you glide? Okay, this is 2022, we are [at the] end of 2022, you're going to go out and say, company, this is the new glide path. How would you describe your glide path?"
Real world conditions
Lim responded that he suggested in his speech to raise the carbon tax incrementally, but have it adjusted upward or downward according to economic conditions.
Fu: "So are you then saying that we can go out to the world and say, sorry, I've made the 2030 NDC (Nationally Determined Contributions), on the basis of certain economic conditions. And now that economic conditions are bad, there's a war out there, there is high inflation and energy, my NDCs don't count, because I need to glide further out."
Lim: "I think I was clear that the adjustments upwards and downwards, so the same way that business cycles go upward and downward. So you would have it lower in a given year, because of economic conditions. But when things picked up, you would raise it back so that you met the original target."
Fu: "So you are suggesting a very variable carbon tax rate, [of] S$58 to S$133. But without knowing how it's going to get there, not even knowing what 2024 is going to be."
Lim: "I think you would set the target, but be able to adapt to economic conditions the same way the interest rates—"
Fu: "What's your target rate for 2024?"
Lim: "As I said, it's not complicated, you set the target—"
Fu: "What is that rate? What is the number?"
Lim: "We can go with the government's proposed number, so you start with S$25, as I said in the speech—"
Fu: "So in 2025, are you going to stay with S$25 as well?"
Lim: "We would have to look at economic conditions."
Singh then raised a point of order with the Speaker of Parliament that when a member asks a question, the other member is required to step away from the podium and sit down.
Fu then apologised, and asked Lim to describe his "carbon tax glide path" in numbers, as this would be necessary for businesses to know.
"Can you please tell me with some certainty, what is that variable portion? Even if you say S$25, S$25 for two years to come, S$45 I'm not too sure, but what will be the variation?"
Lim answered that he is not opposed to the original S$25 per tonne carbon tax, but reiterated that he was pushing for "the flexibility to adjust it upward or downward", to take into account of economic conditions, "the same way we alter interest rates".
Fu then said that the carbon tax is not a fiscal policy, but a policy to "change our energy mix", and emphasised that the change in carbon tax pricing is "a change that we all need to make".
Clarity for companies needed
She added that it was important for the government to send a signal to companies that "this is a path the government is going ahead [on]", and that she was receiving "slightly mixed messages" from Lim.
"The message is, we want want to fly the environmental flag, we want to be sustainable, we want to be able to address our constituents who want us to be as green as possible'.
But when it comes to the hard decision of making changes, of making companies change and invest in renewables, reduce efficiency, reduce utility, reduce water, circular economy, reduce waste, 'hang on I think there's an economic condition'".
Fu continued by asking rhetorically if the carbon tax was something that required some form of certainty, and if so, how the government should address conditions that are unforeseeable.
She shared that should there be an economic downturn such as a recession, the government would definitely consider ways to cushion its impact on business.
Fu concluded that at this point in time, businesses require clarity in direction and that climate action cannot be delayed.
Top photo from MCI Singapore / YouTube