Faced with a situation where only 40 business entities are responsible for 80% of Singapore’s greenhouse gas emissions. Given that there are a total of 140,000 business entities, what would you do to reduce emissions?
The rational course of action would be to enforce surgical measures on the targeted 40 entities, with a singular objective of reducing total emissions.
Call it by any other name, the Singapore Carbon Tax has the homing precision of a surgical strike, and the desired singular focus. But is there collateral damage? Or is the negativism contained within the 40 emitters, and the noise just echoes of their rhetoric?
Regardless, the Carbon Tax is an important milestone in Singapore’s Climate Action Plan. Expressed in tangible terms of “reducing emissions intensity by 36 percent from 2005 levels by 2030” .
Collectively the 40 large emitters will have to pay out about SGD 200-250 million a year in Carbon tax, which will result in significant profit cuts. The obvious behavioural change will start when some of the 40 large emitters seek to redress their plight by investing in emission reduction or even sequestering solutions with money that would have otherwise gone to the National Environment Agency (NEA) as Carbon Tax. Thus, many are planning to make structural fixes that reduce emissions permanently. Setting the price of Carbon at $5 per metric ton (MT), and with some projection of an increase to $10-15 per MT in 2023, allows the 40 emitters to make very objective Cost Benefit Analysis in investment in emission reduction programmes. This is a good thing on so many levels. Surely this must be one of the desired outcomes of the Carbon Tax.
Whilst its argued that NO nett reduction of CO2 is realised by the Carbon tax, this only for the short term. Here is why.
"Call it by any other name, the Singapore Carbon Tax has the homing precision of a surgical strike, and the desired singular focus"
Demand for Credits - Carbon Trading
The Carbon Tax jump starts the sudden creation of demand for Carbon Credit Offsets - About 50+ million tons of demand actually. This demand is normally satisfied by purchasing Carbon Credits which are supplied by owners of emission reduction projects that create these Carbon Credits. Through the sale of Carbon Credits, these investments in emission reduction projects can have a monetized payback. Hence the ready and hungry group of off-takers of Carbon Credits, presents an opportunity to build up the creation of Carbon Credits of Singaporean origin. With demand and supply in place, next comes the need to form some sort of a Carbon Exchange. A ready supply and demand also reduces the risk for the Carbon Exchange, because there will be potentially then, about SGD 200-250 million of Carbon to be traded locally.
In a very broad way, NEA by administering the Carbon Tax will fill the role of a very rudimentary exchange, as it shuffles revenue from the Carbon Tax to early adopters to supply Carbon Credits through grants and other financial incentives.
A major portion of the collected revenue must go into creation of Singaporean Carbon Credits through investments in energy efficiency, emissions reduction emission programmes, or Low-Carbon Technology by MNCs/SMEs on home soil. And while direct reduction remains the primary goal, a secondary and no less important goal is to generate home grown Carbon Credits.
A healthy supply of Carbon Credits and a Carbon exchange will be the 2 prerequisites to starting a National Carbon trading System, let alone an international one.
I hope to see, that in a few years from now, the large emitters would have first reduced their Carbon emissions, and offset any remaining emissions with locally generated Carbon Credits. All through a busy Carbon Exchange that is also supporting International trading.
Keeping it within Singapore
Any trading scheme started must have an absolute bias for locally generated Carbon Credits. For the simple economic reason of keeping the money flow within Singapore. Had it been allowed to offset the emissions of the 40 large emitters with trading options, then there would be this outflow of about $200-250 million a year, that would have been put to far better and focused use by NEA.
The need to keep the money flow, albeit selfishly, within Singapore for now, is the biggest reason why emitters should not be allowed to offset their emissions directly or even by proxy through NEA.
This argument holds only if NEA uses the Carbon Tax revenue prudently to grow a Carbon Ecosystem
The Carbon Ecosystem
Singapore needs to also also grow an entire ecosystem based on Carbon. Think of the measurement and verification required for the inaugural implementation on the 40 large emitters, a new breed of engineers will be needed. When Carbon trading does become mainstream, a new branch of financial & IT experts will be required. Think new job types, and you think training and new learning, and Carbon trickles into academia.
Once the basic structure of the Ecosystem forms, it's not difficult to have other sectors like transportation (another big emitter) redressed. The Carbon Tax is the seed to starting this Ecosystem.
Pace is the key. The narrative described will only make sense and significance if its unfolds over the next 5-10 year period. If the main stakeholders of policy makers, regulatory implementers, emitters, academia, economists, and industry experts move towards a common plan, or even just a common narrative. Carbon will provide a much needed 5th gear to the economy.
Amidst much criticism, I sight shoots of new growth.