THE IMPLEMENTATION OF CARBON TAX IN SINGAPORE AND ITS IMPACT

Abstract

Carbon tax is a mechanism to price carbon emissions and to create an economic disincentive to curb the amount of carbon emission to atmosphere. It has been newly implemented in Singapore in 2019 and the taxable facilities are required to make the first payment in 2020, according to the reckonable emissions for year 2019. Singapore is the first country in Southeast Asia to introduce carbon pricing initiative. Hence, it is worthwhile to study its impact and desired outcomes in terms of policy and incentive programmes.

In the present studies, the overall implementation of carbon tax in Singapore is reviewed in a holistic way, together with the reason as to why the Government has set the starting carbon tax rate of S$5/ tCO2e. The scope of carbon tax for few other jurisdictions that have adopted the similar carbon pricing mechanism is also reviewed and the carbon tax rate is compared. Based on World Bank data, there are approximately 10 jurisdictions out of total 64 jurisdictions with the published carbon rate lower than Singapore. Government has emphasized that we should not compare the carbon price directly with other jurisdictions due to the exemptions adopted in other country, they may end up require paying lower tax rate than the published rate. Hence, the comparison in this study is based on the published rate without the consideration on the exemptions. Denmark, Finland, Sweden, Columbia and United Kingdom are some examples of countries that have implemented carbon tax, and where such a tax has helped to reduce their carbon emission levels. The effectiveness of carbon tax in Singapore to reduce the carbon emissions might not be visible in such a short implementation period. One of the key findings of the present studies is that due to the careful planning and process of introducing carbon tax by the government in Singapore, the business community and the public have accepted it without registering strong protest or opposition. During the review of carbon tax rate by 2023, Government might consider if it would be necessary to increase the tax rate more ambitiously if the emissions by taxable firms continues to rise after the implementation of tax, without increase in base load factors. In order to achieve further carbon emissions reduction, Singapore should consider implementing the carbon tax to other sectors especially the transportation sector which is the second large GHG emitter. Government can also consider the adoption of ETS which can help to quantitatively limit the carbon emission growth if the emission continues to rise and carbon target is not achieved as per plan.

Regarding revenue recycling mechanism for carbon tax, it will help if government publishes data on how the revenue from the tax is used to encourage greater adoption of renewable energy such as solar energy in Singapore. Ultimately, regardless of the price of the carbon tax, it is important if Government can effectively integrate carbon tax with other strategic measures to go beyond 2030 climate goals and achieve greater success for the benefit of our future generation.