As the first country in southeast Asia to introduce a carbon tax, industry and the wider region will be watching its next steps closely, writes Prethika Nair
Southeast Asian firms have gradually been gearing up for the energy transition, but the implementation of a significantly higher carbon tax in Singapore could impact the operations of refiners in the city-state sooner than expected.
Singapore last month announced plans to increase its carbon tax from 5 Singapore dollars/t ($3.70/t) currently to S$25/t in 2024-25 and S$45/t in 2026-27. The tax rate will be reviewed with a long-term view of raising it to S$50-80/t by 2030, finance minister Lawrence Wong says. This comes as part of the country's plan to bring forward its net zero carbon emissions target to around 2050 from the second half of this century, and signals a greater urgency for firms to decarbonise, in line with a global effort to reduce greenhouse gas (GHG) emissions.
The refining and petrochemical sector is a large source of carbon emissions in Singapore, with the industrial sector contributing about 45pc of total primary emissions, and the power sector contributing about 39pc, according to the National Climate Change Secretariat (NCCS) of Singapore. The carbon tax will impose a cost on the economy, but "we need to right-price carbon so that businesses will internalise the cost of carbon and invest in decarbonisation solutions", an NCCS spokesperson says.
The government aims to help companies with the transition by allocating part of the carbon tax revenue towards helping firms invest in low-carbon technologies. This step "is critical as the near-term competitiveness impact is real… [Singapore] has to compete with other exporter countries that either do not have a carbon price policy, or have sophisticated mechanisms to help their trade-exposed industries remain competitive, if they do", a Shell spokesperson says. "As Singapore has an open economy, it is also important that the designed carbon tax framework encourages GHG reductions, while safeguarding competitiveness of trade-exposed industries," ExxonMobil Asia-Pacific chairman Geraldine Chin says.
But refiners in Singapore appear ready to adapt. ExxonMobil has already undertaken initiatives to improve energy efficiency in its operations, such as operating three co-generation facilities that produce electricity and steam to support most of its plant operations. It is also looking into low-carbon solutions such as carbon capture and storage (CCS), often in collaboration with other firms in the region. Shell has reduced its crude processing capacity and production of traditional fuels by about half. The firm is studying biofuel investment and a regional CCS hub. Shell last month successfully delivered its first batch of sustainable aviation fuel in Singapore.
Credit problems
Singapore is the first country in southeast Asia to introduce a carbon tax, so its environmental outcome may set the tone for the rest of the region. Singapore's proposed taxof S$25/t ($18/t) is the highest in Asia — Japan's is equivalent to $2.65/t — but is still well below Sweden's $137/t, the highest in the world. Like Singapore, South Korea and China are also big exporters of refined products in Asia. China has seen rapid growth in refining capacity, although it has recently reduced exports. But China and South Korea have taken a different approach to reducing emissions, with the implementation of emissions trading schemes.
Carbon credits have been deemed potentially problematic as they allow the use of fossil fuels, and oil and gas firms' carbon offsets claims have been met with scepticism in the absence of industry-wide methodologies and certifications. But Singapore aims to "ensure that any credits procured are derived from genuine abatement, are internationally credible, aligned with global climate ambition, and in line with article 6 of the Paris agreement", the NCCS spokesperson says.
