Washington, Canada, and Austria all offered political parallels to the United States for national politics around carbon pricing. Singapore, a one-party island city-state, is an altogether different political environment, but it does hold lessons for the impacts of a carbon tax on business and manufacturing.
Singapore is a wealthy country with a free-market economy and high-tech manufacturing sector. Its low tax rates and excellent infrastructure attract many business headquarters. And it is an advanced manufacturing powerhouse – a big part of Singapore’s economic model consists of purchasing raw materials, refining them, and exporting the products, such as refined oil, chemicals, and electronics.
Singapore’s climate action
Singapore is the world’s 20th smallest country, but its ultra-industrialized and wealthy citizenry contributes a disproportionately high amount of carbon emissions. Thus, reducing its fossil fuel dependency will require substantial changes. After signing the Paris Climate Accords in 2016, Singapore launched a Climate Action Plan to achieve its goal of a 36 percent reduction from 2005 emissions levels by 2030. The plan includes improving energy efficiency, reducing carbon emissions from power generation, and developing cutting-edge low-carbon technologies.
To harness markets to find the cheapest ways to meet its low-carbon goals, Singapore enacted the Carbon Pricing Act in 2019. The original proposed price was $10-20 Singapore dollars ($7-15 USD) per ton. The power sector and others in industry pushed back, worried the price was too high. But environmentalists, joined by executives from Shell, the European oil giant with a hub in Singapore, criticized the proposed price as too low. Officials eventually agreed to start the price low, but ratchet it up within the decade. The tax is currently set at 5 Singapore dollars ($3.77 USD) per ton of carbon dioxide equivalent through 2023. In 2024 the rate will quintuple to $25 Singapore dollars, and in 2026 it will increase again to $45 (gray line in figure below). Officials have indicated they hope to raise the carbon tax to $50-80 Singapore dollars ($34-60 USD) by the end of the decade.
The tax applies to all facilities producing 25,000 tons or more of CO2 per year. There are only 50 such facilities in Singapore, but together they account for fully 80 percent of the country’s greenhouse gas emissions.
Singapore is developing a policy to assist emissions-intensive trade-exposed companies, with more details to be announced later in 2023. Starting in 2024, emitters will be able to offset up to 5 percent of their taxable emissions with carbon credits, verified by either Gold Standard or Verra.
The government is using some of the tax revenue to send rebates to households to help them with any increases in their energy bills.
Business and manufacturing
Members of Singapore’s business community had expressed concerns that a tax would reduce investment and decrease the city-state’s appeal as a site for economic development. In fact, the policy has not scared off traditional businesses and has helped attract new ones – major green tech companies have announced new headquarters there. For example, in early 2022, leading renewable energy company EDP Renewables announced plans to invest up to $10 billion Singapore dollars to establish its Asia-Pacific headquarters on the island, citing the country’s “ecosystem of clean energy.”
Per Singapore’s current Minister of Finance Lawrence Wong, “As we attract more of such green investments, we will also step up training efforts to equip Singaporeans with the right skills to take on these new green jobs … All of these moves will enhance Singapore’s position as a choice destination for new investments in the green economy, and ultimately create many more good jobs for Singaporeans.”
Singapore’s manufacturing sector has also continued to grow under the new tax. Manufacturing made up just 18 percent of the country’s GDP in 2013, but rose to 21 percent in 2020, and again to 22 percent in 2021. Singapore has attracted investment particularly in electronics and pharmaceutical manufacturing. The employment payoff may be muted, however: Singapore’s manufacturing is heavily automated as a result of its technological integration. Manufacturing jobs make up only 12 percent of employment and many who work in less-skilled roles are foreign-born immigrants.
Singapore is geographically, economically, and politically quite distinct from the United States. Nevertheless, some specific lessons can be derived from their implementation of a carbon tax. Here are two areas where American policymakers could learn from the island nation:
1). A business-friendly country can successfully implement a carbon tax.
Singapore is top notch when it comes to attracting business. Although it starts low, Singapore implemented a carbon tax and is ramping it up within the next three years. Not only is it retaining its reputation as a successful home for manufacturing, it is actually growing, becoming a hub not only for the likes of BMW, Facebook, and Apple, but now attracting green-tech headquarters too. Lawmakers in the U.S. allied with business could take note: A carbon tax signals a friendly approach to decarbonization.
2). Carbon taxes are not a threat to manufacturing
The European Union is implementing a carbon border-adjustment mechanism that will impact American exports of steel, aluminum, and other manufactured goods. The U.S. could use this as an opportunity to impose our own fee on those goods and recycle it back into our economy rather than handing it over to the EU. But concerns that a carbon fee would hurt American manufacturers have stymied legislation. Singapore shows such concerns are overly amplified. A carbon fee and border adjustment on certain sectors would allow us to stand with the EU against dirtier manufacturers abroad, keep revenue in the U.S., and allow our manufacturing sector to thrive.
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