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Singapore's Prospective Carbon Taxes and Energy Efficiency Measures

by Dr. Maria Francesch-Huidobro

An Analysis of market-based tools

Two years after the Paris COP21 Conference, the scope, modes and monitoring mechanisms of how to finance a low-carbon transition are widely debated. As direct subsidisation of renewable energies has been more and more criticised due to distorting incentives and high fiscal burdens for the consumer, carbon taxation and market-oriented solutions like Emission Trade Systems (ETS) are now considered as the most effective instruments for the decarbonisation of energy systems. Against this background, KAS RECAP commissioned two studies on essential aspects of Singapore's energy transformation.

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The publication comprises two policy papers on the recently announced carbon tax policy in Singapore and its implications for energy efficiency development.

1. Singapore's Prospective Carbon Taxes - An Analysis of the Policy Context

Singapore’s power mix is dominated by gas (95.5%). The establishment of an LNG regasification plant in 2013 has expanded its access to global sources and, thus, increased energy security. Total dependence on piped gas is to end by 2030. Given geographical and geological constraints, the deployment of renewables and civil nuclear is limited. Currently, Solar PV and Waste-to-energy are the major sources of RE for electricity generation amounting to about 4%.

Energy Efficiency (EE) in industry, buildings, transport, household, water and waste is, thus, Singapore’s key strategy for reducing GHG emissions. Yet, a government regulatory approach to EE may incur high costs and unintended social consequences. The deployment of carbon taxes was announced in 2017 as ‘the most economically efficient and fair way to reduce greenhouse gas emissions so that emitters will take the necessary actions’. Pricing carbon through a carbon tax has now been placed at the foundation of the EE strategy.

It is anticipated that taxes will encourage changes in consumption, provide market incentives for the adoption of EE technologies, and stimulate the growth of green industries. Carbon taxes will be applied upstream, that is, to direct emitters (power stations, etc). Emitters can opt to improve energy efficiency and reduce emissions or pay taxes. Consumers can opt to use less electricity and save energy (but taxes will not apply downstream). Tax revenue will fund transitional costs as well as measures taken by industries to reduce emissions. Thus, it is expected that energy efficiency, low-carbon technology, and reduced emissions will in future ‘grow’ out of carbon taxes.

2. Energy Efficiency (EE) in a Non-Subsidies Energy Regime: Singapore's EE Measures and the Uptake of Carbon Taxes

Energy efficiency in industry is Singapore’s key strategy for reducing emissions. The EE strategy translates into the deployment of ‘command and control’ measures and, from 2017, also into market-based instruments, carbon taxes (to start 2019). Energy efficiency measures apply to supply side (by means of engineering and technology process) and to end-use demand side (by means of mandatory standards, labels, etc).

Singapore’s energy efficiency measures support the country’s goals of energy security, higher labour productivity, and enhanced economic development. The energy efficiency ‘gap’ should not be underestimated and the market barriers to the uptake of energy efficient investments should be identified. In a no-subsidies energy regime, energy efficiency is limited by the ‘true’ cost conditions. Under such conditions, there are no incentives to reduce energy use as doing so does not affect cost.

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