Closing Speech by Masagos Zulkifli, Minister for the Environment and Water Resources, at the Second Reading of the Carbon Pricing Bill

Mr. Deputy Speaker, I would like to thank Members for their support and comments on the Carbon Pricing Bill.

Last week, The Business Times published an article entitled “A powerful, effective strategy to combat climate change” which featured the views of top executives of companies and professional associations on the carbon tax.

I was heartened by their strong support for the carbon tax. Many executives recognised that pursuing environmental sustainability and economic growth are not a matter of trade-offs, but a strategy to stay competitive; they can do good and do well at the same time.

Mr Paul Henaghan, Vice President from Dell DMC, noted, and I quote, “Industries need to look beyond the perceived economic loss from taxation and recognise that it ultimately contributes to the long-term prosperity of companies”. Mr Damien Dhellemmes, Country President of Schneider Electric Singapore said and I quote “Going green can in fact lead to greater economic growth in the longer term. We strongly believe that sustainability is the end game of any company in today’s world”.

This is why we are introducing the carbon tax. As our companies are nudged towards more carbon efficient and greener practices, they will strengthen their competitive edge and thrive in a low-carbon global future.

CARBON TAX RATE

Let me first address Members’ questions on the carbon tax framework.

Er Dr Lee Bee Wah asked whether our proposed carbon tax rate of S$ 5 per tonne of greenhouse gas (GHG) emissions will affect our ability to meet our goals.

I would like to assure the House that the carbon tax rate of S$ 5 per tonne of GHG emissions was decided very carefully, taking into account both economic competitiveness and environmental considerations. To Assistant Professor Madhev Mohan’s query, the carbon tax should not be viewed in isolation.

It works in tandem with the comprehensive mitigation measures that we have developed to reduce emissions and meet our obligations under the Paris Agreement. This package has been carefully designed, taking into consideration our international competitiveness as well as our pledge, and will be reviewed regularly.

Our initial carbon tax level of S$ 5 per tonne cannot be directly compared with that of other jurisdictions. While they may have higher headline carbon prices, they often give significant exemptions to particular sectors and companies. These effectively pay a lower carbon price than the published rate.

Rather than imposing differing tax levels on different sectors and companies, we have opted for a simple and transparent carbon tax with no exemptions. This maintains a fair and consistent price signal to incentivise emissions reduction across the entire economy.

I also want to assure the House that we are mindful of our international competitiveness when introducing this tax, given that we are an export-oriented economy as highlighted by Mr Henry Kwek and Ms K Thanaletchimi.

Together with the Ministry of Trade and Industry (MTI), the Economic Development Board (EDB), and the National Climate Change Secretariat (NCCS), my Ministry and the National Environment Agency (NEA) have consulted companies extensively over the past year on the design of our carbon tax framework. Whilst companies understood the need to price carbon, they asked for a transition period to adjust to the impact of the tax. This is why we are starting with S$ 5 per tonne for the first 5 years; companies will have time to adjust, for example, by upgrading to more energy-efficient equipment.

In response to Mr Gan Thiam Poh, the Minister for Finance has said that we will in fact review the carbon tax rate by 2023. We intend to increase the level to S$ 10 to S$ 15 per tonne of GHG emissions by 2030. Our review will take into account international climate change developments, our progress towards our climate pledge and our economic competitiveness.

MANAGING COMPLIANCE COSTS FOR COMPANIES

As highlighted by Mr Kwek and Ms Rahayu Mahzam, we are mindful of the need to manage compliance costs, which was also a key feedback from companies. We have done the following:

Firstly, we have built on existing measurement, reporting and verification (MRV) requirements set out in the Energy Conservation Act (ECA) which companies are already familiar with.

These requirements take reference from international standards like the ISO and GHG Protocols, which are used by many companies for corporate sustainability reporting. This approach streamlines requirements and aligns with international practices.

Second, we have identified a list of excluded emissions so that companies need not incur disproportionately high costs to measure and report these small emissions sources.

Third, NEA is actively growing the pool of third-party verifiers in Singapore to ensure that companies can access competitive offerings.

NEA has been organising briefings to familiarise companies with the new MRV requirements and carbon tax obligations, and will continue to help companies build up their capability. The detailed MRV requirements will be publicly available.

FIXED-PRICE CREDIT-BASED MECHANISM

Ms Rahayu also asked if there is a plan to move towards an emissions trading scheme (ETS) in the future. For a small domestic market like Singapore, a carbon tax could achieve the same objective as an ETS in a simpler way. It provides greater price certainty and stability.

Nonetheless, we recognise that there may be benefits in linking our market with other jurisdictions in the longer term. It is a complex endeavour as Ms Rahayu has pointed out and we are still studying the feasibility. We will need to build up key capabilities both in Government and companies. We therefore decided to introduce the Fixed-Price Credit-Based, or FPCB, system as this will put in place the key building blocks should we decide to link our market to other jurisdictions in the longer term. We will continue to monitor international developments, and consult companies.

Mr Louis Ng asked about the FPCB mechanism. Companies can buy credits from NEA at a fixed price throughout the year, but must surrender credits equivalent to their preceding year’s tax liability by 30 September.

There is no expiry date on the credits in this initial phase. Nevertheless, companies have told us that they are likely to buy the required credits only after they receive the notice of tax assessment, so as not to tie up their liquidity. Hence, the scenario whereby companies operate their plants in a less efficient manner in order to “use up unused credits”, is highly unlikely.

DATA CONFIDENTIALITY AND REPORTING OUTCOMES

Er Dr Lee and Mr Leon Perera also asked if the Government will share the data from the emissions reports, and Ms Thanaletchimi asked about the measures we have to ensure data security. As the emissions reports contain commercially-sensitive information, they will not be shared publicly. We have strict provisions in the Bill to ensure the confidentiality and security of the data reported.

That said, I note that the Members are concerned about tracking the effectiveness of our policies in lowering our energy consumption and emissions. I would like to clarify that we already track and publish the improvements in energy consumption per dollar GDP from 2005 levels in the Budget Book. We also regularly report our emissions to the United Nations Framework Convention on Climate Change and will continue to do so, and these are all publicly available.

IMPACT ON HOUSEHOLDS EXPECTED TO BE SMALL

Er Dr Lee and Mr Kwek spoke about the impact of the carbon tax on households. This is expected to be small, at about 1 per cent of total electricity and gas expenses on average.

As the Minister for Finance announced at Budget 2018, eligible HDB households will receive additional U-Save rebates of S$ 20 per year, from 2019 to 2021. On average, the additional U-Save rebates will cover the expected increase in electricity and gas expenses arising from the carbon tax. This will help HDB households adjust to the carbon tax, as they reduce their utilities consumption over time. We will assess the impact of the carbon tax at a later stage and review the need to extend these rebates.

More importantly, we want to encourage energy saving habits among households on a sustained basis. We are working with the community on a Lamp Replacement Programme to assist one- and two-room HDB households to replace their lamps with more energy efficient LED ones. NEA will also be organising an Energy Savings Challenge this year to raise awareness on energy conservation.

I would also like to assure Ms Thanaletchimi and Ms Rahayu that Government agencies will work closely with the Consumer Association of Singapore (CASE) and Competition Commission of Singapore to monitor the market for unfair pricing and coordinated price hikes which are anti-competitive. CASE will look into feedback on any alleged profiteering.

IMPROVING ENERGY EFFICIENCY IS KEY TO TRANSFORMATION

As Members have highlighted, a key reason for the carbon tax is to encourage our companies to transform and ready themselves for the low-carbon economy. To achieve this, I agree with Er Dr Lee that we must be more ambitious and bolder in improving energy efficiency or EE. Many developed countries are achieving an EE improvement rate of 1 to 2 per cent per annum. We must do just as well.

The industrial sector, which accounts for around 60 per cent of Singapore’s GHG emissions, has been a key focus of our efforts. Last year, we amended the ECA to enhance the frameworks and tools to support companies’ EE improvement. One new requirement is for new industrial facilities and major expansion projects to undergo reviews at the design phase to identify and incorporate EE opportunities at the start of the project; thereby avoiding more expensive retrofitting and operational disruption later on.

This year, we are moving the Carbon Pricing Bill to provide the added motivation, the motor fuel if you like, to spur companies to actively pursue emissions reduction.

The Government has been providing support to companies to improve EE and many have forged ahead. Let me share two success stories.

Globalfoundries, a semiconductor company, has been innovating and investing in new technologies to improve EE and reduce emissions. For example, it redesigned the combustion chamber in its thermal abatement units and reduced its Liquefied Petroleum Gas consumption by 31 per cent. This resulted in annual cost savings of about S$ 260,000 and an annual carbon abatement of about 640 tonnes.

With further support from the Government, Globalfoundries is working to replace a process chamber cleaning gas that has high global warming potential, with one that has no global warming potential. This will reduce their emissions significantly - by more than 400,000 tonnes when completed in 2019.

Another role model is Chevron Oronite Pte Ltd which has consistently achieved EE improvement rates above the industry average. To improve EE, it installed a boiler system to recover waste heat from its thermal-oxidiser for steam generation. It also installed a mechanical vapour recompression system to lower the energy use of its new manufacturing unit. These projects have resulted in energy savings of S$ 1.8 million and carbon abatement of 4,800 tonnes each year.

MORE SUPPORT FOR COMPANIES AND GROWING THE EE ECOSYSTEM

Members have asked what the Government is doing to support companies in this transition to a low-carbon future. The Government is prepared to spend more than the estimated S$ 1 billion in carbon tax revenue that will be collected in the first 5 years, on worthwhile carbon abatement projects.

Existing EE incentive schemes such as the Productivity Grant for Energy Efficiency, or PG (EE), and the Energy Efficiency Fund (E2F) will be enhanced.

This enhanced support will also extend to SMEs, to encourage them to improve their EE, including basic measures such as upgrading to more efficient lighting. More support will go to projects that achieve greater emissions abatement, beyond basic enhancements.

Mr Perera has asked whether part of the revenue from the carbon tax will be used to provide loans to companies. The EDB has been piloting an EE Financing Programme whereby companies that are not able to afford the upfront costs of EE projects can apply for loans through a third-party financier.

The potential benefits of such a programme are that industrial facilities will not have to pay for the upfront costs of these projects, but can still enjoy part of the energy savings. Part of the risk is transferred to the third-party financier.

Beyond financial support, the Government will also grow the wider industrial EE ecosystem in Singapore to develop greater expertise in the energy services sector. Initiatives include engaging Institutes of Higher Learning to train and up-skill energy services professionals, and working with professional bodies such as the Institution of Engineers Singapore to develop Chartered Engineer certification for EE professionals. At the same time, NEA officers have been and will continue to engage the companies to help them to identify areas for EE improvements.

INVESTING IN LOW-CARBON TECHNOLOGIES AND SOLUTIONS

Besides driving energy efficiency improvement, the carbon tax will help spur investment in and take-up of low-carbon solutions. Ms Thanaletchimi asked if the Government can provide incentives for companies to adopt renewable energy sources. The Government’s policy is to ensure that energy, regardless of source of generation, is correctly priced to fully reflect the cost of generation, and let the market work out the equilibrium. Instead of providing subsidies, what we have done is to invest in the research and development (R&D) of renewable, clean energy technologies.

We set up the Solar Energy Research Institute of Singapore, SERIS in short, in 2008 to conduct R&D on solar technologies. One of its projects is a collaboration with the REC Group to develop high-performance solar cells, which I understand is among the world’s highest-performing solar panels.

We are also studying the deployment of solar panels beyond our rooftops onto water bodies. In 2016, PUB launched the largest test-bed at Tengeh Reservoir.

Addressing intermittency issues and ensuring grid stability are important as we increase solar deployment. The Energy Market Authority and Singapore Power launched the Energy Storage System test-bed in 2016 to better understand the feasibility of deploying grid-level energy storage technologies locally.

Last October, EMA also awarded a S$ 6.2 million research grant to develop our solar forecasting capabilities.

I assure Mr Louis Ng that the Government will continue to support and invest in such R&D efforts.

Er Dr Lee asked about the impact to the refining sector in Singapore. In my interactions with our refinery companies, I have been impressed by their bold and transformational moves. Since 2000, ExxonMobil has spent about US$8 billion to develop low-carbon technologies and are a global leader in carbon capture and storage technology. In Singapore, I officiated the opening of their third co-generation plant which improved the refinery’s energy efficiency by 4 to 5 per cent and reduces their carbon emissions by 265,000 tonnes. Similarly, Shell has been reaching into the next energy frontier with renewables and hydrogen.

They intend to increase their spending in their new energies business arm to about US$1 to $2 billion per year until 2020. These oil giants are showing us the way – by taking destiny in their own hands, and transforming earlier, rather than later – to stay competitive and maintain their lead in the low-carbon global economy.

ENSURING SINGAPORE’S RESILIENCE TO CLIMATE CHANGE

Lastly, Mr Perera asked whether we regularly measure our climate change resilience. We do. To ensure that Singapore is well-prepared for climate change, we have set up an inter-agency Resilience Working Group (RWG) that is responsible for studying and monitoring Singapore’s vulnerabilities to the effects of climate change, such as sea level rise, and developing appropriate response measures.

Our climate scientists are also plugged into relevant global scientific forums that develop climate change projections. Our adaptation measures are reviewed whenever there are any new findings.

Asst Professor Mahdev also asked about our position in the development of the Paris Rulebook given the positions taken by the EU and China. As one would expect in a multilateral framework, negotiations are complex. Publicised positions may be transitional and do not reflect the landing points. Singapore participates actively in the negotiations to get countries to focus on a fair and consistent implementation of their Nationally Determined Contributions (NDCs) towards mitigating GHG emissions. At the end of the day, for the Paris Agreement to be successful, all countries must meet their commitments they had submitted. We will continue to participate actively to this end.

Indeed, Singapore’s active involvement in previous rounds allowed us to advocate the very concept of NDC and we worked with other like-minded countries to get it adopted by UNFCCC under the Paris Agreement. We must continue to be active and impactful because climate change is an existential issue for Singapore.

CONCLUSION

Mr. Deputy Speaker, the carbon tax has been deliberated carefully and extensively within the Government. We have also made a concerted effort to consult and engage the industry.

The Bill is an important step forward – not only in encouraging industry to do their part for the climate, but also in readying our economy and strengthening our competitiveness as the world transitions to a low-carbon future. Companies ignore these realities at their peril. Therefore, I call on Members of the House to give their support to this Bill. Thank you.

Source: Ministry of the Environment and Water Resources