Paying the price for emissions: Singapore’s carbon tax


Monday’s announcement that a carbon tax on direct emitters is to be introduced from 2019 shows that Singapore, Asia’s main oil trading hub, could be moving towards a longer-term future dominated by cleaner technology and resources.


What is the Singapore carbon tax?

The Singapore Carbon tax illustrates Asia’s move towards curbing greenhouse gas emissions. The uniform price of carbon will be applied consistently across the economy in an attempt to reduce emissions.

The new measure, which will be implemented in two years’ time, will apply to power stations and other large emitters. Announced by Singapore’s Finance Minister in a recent budget speech, the carbon tax will be set between S$10 (US$7) and S$20 per tonne of greenhouse gas emissions.


Putting a stop to global warming

The risk of climate change is clear and warrants action from leading oil and gas economies, as well as the companies that operate within them. Applying uniform price is a sensible approach to reducing emissions.  The proposed tax is the latest indication that countries in Asia – the world’s biggest oil market – are deploying regulation and legislation to curb greenhouse gas emissions.

China – the world’s biggest emitter of greenhouse gases – is preparing to introduce a national emissions trading system later this year. South Korea overcame strong industry opposition to launch an emissions trading scheme in 2015 and in Australia, a carbon tax was introduced and then repealed after industry and political opponents argued it would hurt the country’s competitiveness.


The industry effect

The tax will inevitably raise costs within an industry where margins have already been squeezed by a surge in diesel and gasoline exports from China.

Singapore’s tax incentives in the 1960s encouraged western oil companies to operate in the country. Singapore is now home to some of the world’s biggest refineries, with a total capacity of almost 1.5m barrels of crude oil per day. As a result of the carbon tax, the government estimates that operating costs for Singapore refiners could rise by US$3.50-US$7 per barrel.

The proposed threshold for the Singapore tax is 25,000 tonnes of carbon dioxide equivalent annually. There are up to 40 companies operating in Singapore that exceed this threshold, according to a government estimate. Shell’s Bukom operation, on an island about 5km south-west of Singapore, is the company’s largest refinery with a capacity of 500,000 barrels a day. ExxonMobil’s Singapore site has a capacity of nearly 600,000 barrels a day.

Putting a price on carbon is a significant effort by a government to reduce emissions. The true cost of climate change could not be addressed without a measure in place to account for the cost of carbon pollution.  However, the carbon tax could prove damaging for the Oil & Gas Industry as whole. A rapid increase in operational costs could prove disastrous for a company’s profits. Perhaps Singapore could consider developing an emissions trading system. Singapore – which is massively trade-exposed – has ample opportunity to become a hub for carbon trading as London has successfully done.

February 24, 2017 | News

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