Carbon taxes will be implemented in Singapore from 2019. These taxes will be levied on the largest direct emitters of greenhouse gases, such as power plants. A high carbon tax is seen as necessary to lower carbon emissions.
This measure to reduce carbon emissions is necessary in order to meet its carbon-reduction obligations under The Paris Agreement to curb fossil fuels that harm the planet.
While the carbon tax will only be imposed on large direct greenhouse gas-emitters, there will be ripple effects on the rest of the economy. For example, power plants might pass on some of these taxes in the form of higher electricity prices. This will affect all households and firms where their electricity bills will rise – for firms, this may mean that the prices for goods and services will be more expensive in order to cover overheads. Necessities, for which consumers have the lowest sensitivity to prices simply because they do not have the option of going without them, might also see some large increases.
The increase in necessities will hit the lowest-income households the hardest. According to the 2013 Household Expenditure Survey, households in the bottom income decile spent 9.9 per cent of their monthly income on food, while those in the top decile was just 4.2 per cent.
Carbon taxes may also result in the largest erosion of the purchasing power in the poorest households. In order to combat this, the revenue collected from carbon tax may be used to reduce other taxes.
In general, the carbon tax rate will rise over time. The optimal or ideal tax should be calculated based on the link between carbon content and damage to health, productivity and the economy. Studies will be needed to try and quantify this link between carbon content and societal damage. In that way, people can readily see the need for a carbon tax and the amount levied.
A carbon tax is definitely necessary and post-Paris is the best time to implement it as other countries’ implementation of their carbon-reducing measures would mean that Singapore’s carbon taxes would not reduce its relative international competitiveness.
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Source: The Straits Times, 12 May 2017