Budget 2023 wishlist: Carbon taxes are not enough for a net-zero 2050

Budget 2023 wishlist: Carbon taxes are not enough for a net-zero 2050

Deloitte’s sustainability expert says firms must also transform business models and not just rely on carbon taxes. 

In an effort to reduce its carbon footprint, Singapore has raised its carbon tax rate from $5 per tCO2e of emissions to a level comparable with tax rates in Ireland and Finland, two leaders in environmental policies. Whilst it is clear that the government aims to encourage businesses to take active steps towards reducing their carbon emissions, consultancy firm, Deloitte urged that the government identify what the milestones are before reaching the net-zero goal during the 2023 budget.

Singapore Business Review interviewed Yvonne Zhang, Deloitte Southeast Asia’s sustainability and climate director, to discuss where Singapore is now in its green goals and what more to do on electric vehicle adoption, green building infrastructure, and other sustainable initiatives.

What are your expectations with the upcoming budget announcement?

It is the third year that Singapore has had to balance the necessities of sustaining a healthy economy through turbulent economic, environmental, and social issues against our long and tumultuous pathway towards net zero. 

In the past few years, we have seen that the government did sponsor a lot of private enterprises, small and medium-sized entities, and private citizens in their choice of how to better access renewable energy and survive through the increased inflation. 

This year, we can look forward to the budget responding to more growth as the borders open and more collaboration because renewable energy importation outside of Singapore has already started to change the mix of the Singapore energy supply and resilience. 

We are very excited to see what’s next when we move out of the crisis mode into a sustained growth mode.

How will the carbon taxes increase affect the preparations of companies throughout the year considering that this will be the last year before it increases?

The carbon tax does not affect every single company directly. Only a select group of companies registered in Singapore are subject to the direct payment of carbon taxes. They tend to be concentrated in the power generation and heavy power consumption types of companies so many other parts of the economy will get impacted. 

But the flow impacts as we have seen in the last two years, looking at how much our electricity bill has jumped is not from carbon but from much more macro issues. 

Arguably, we have already seen the wars that have been happening. In the northern hemisphere, it has impacted more on energy security and cost the business, more than carbon tax at all. The carbon tax has been announced early, and we have seen those companies starting to plan on how they reduce their carbon footprint because again, the carbon tax in Singapore is not a tax on the entire footprint, but only a portion of it.

Also, companies have a serious cap on what’s the maximum they can use carbon credits to offset. At the end of the day, it’s also about doing what they can operationally to change so that their impact on the environment is lower. 

If you’re a power generator in Singapore, and as you change business, completely out of power generation, you’re still having the responsibility to pay carbon tax. 

If we’re looking for more general impacts of businesses, I think people should be driven more by the bigger picture of how to sustain and transition their business models in the next few years. Then, what is it that they need your knee-jerk reaction to respond to the carbon tax because one, they don’t pay directly most of the time even if they pay the proportionality of what the tax does versus what the macro environment does, is obviously completely out of balance.

Let’s hope we can push forward the message that companies need to be focused on bigger things than just changing their behaviour for carbon tax alone.

Do you think Singapore’s net zero 2050 plan is still possible and where is Singapore in terms of achieving this new goal?

Since the last budget, Singapore has formally stated our timeline for reaching zero, they have committed to 2050 and now, I would say the former commitment (2030 net zero emission) is welcomed, but the details are still outstanding.

We’re looking forward to this year’s budget to add more consideration of where the milestones are before you reach net zero, you have to hit peak capacity.

The government has already announced where they expect the peak emissions to hit, we can see that, with the importation of renewable energy coming from other Southeast Asia countries, the energy mix, which is a biggest contributor to the Singapore net zero impediments is starting to get solved. 

We also know that, given the current economic situation, and the downfall of Sun Cable, for example, large projects that require firm commitment in financing from not just Singapore, but also many other counterparts around the globe may face financial risks. 

Hence, why the Singapore government has started to consider boosting the creditworthiness of electricity retailers, and many other essential service providers in anticipation of energy transition—just on that topic alone, will be subject to challenges from the economic volatility that we’re going through right now. 

So how is the progress going? I think it is prudent. We see that some of the measures to boost the stability of our transition are being put into place. We anticipate the economy will go through a few ups and downs quickly. It’s not just about how fast we can run towards net zero, it’s about how to secure our pathway to net zero. 

That requires more than just climate science or financial planning, corporate governance and whatnot. There is going to be a challenging path ahead and I can see that there are already some changes in policy and some strengthening of governance. That’s going to get more and more to come to the foreground, as we see.

What should be included in the budget to improve electric vehicle adoption in Singapore?

Electric vehicles are not just comparable to internal combustion engine cars. The replacement of internal combustion engine cars with a very strong timeline that Singapore has articulated depends on a lot of availability of infrastructure, such as charging stations, and also a lot of the behavioural changes that we have to expect. 

We are grateful to see that the takeoff of the grants provided by the Singapore government to subsidise the setup of residential charging locations and non-landed property can continue until the end of this calendar year as charging stations become more available.

The next question is, are we seeing a shift in the mobility patterns of Singapore? The availability of electric trains, electric buses, and also increasingly electric taxis, and shared road vehicles help complete the loop. We have to think about it from that perspective. Is it cheaper in terms of fuel cost, and also the costs of running cars?

To think more holistically, we’re moving towards a shared infrastructure, low emission mobility system, and the system requires more takeoff of electric vehicles of all types, not just private passenger cars. 

We are looking forward to seeing the emphasis being how does the behaviour change support the sustainability goals rather than just making their decisions pegged to whether it’s cheaper, how much subsidy, and also what are the immediate upfront cash benefits of choosing one after the other. 

At the end of the day, we’re trying to see the budget as a catalyst for change, not an offset or an actual payout. For immediate responses, it has to be long-term.

What incentives are necessary to improve green building demand and supply in Singapore?

Green buildings are not just based on whether they satisfy Building and Construction Authority or any energy rating requirements. The charging infrastructure of residential-based access points for EVs are changing the characteristics of buildings in Singapore, 

We can see a lot of condos, HDB’s and other buildings, even though they have not gone through a whole rate retrofitting process. But the incremental inclusion of more sustainable or more energy efficient measures, plus charging infrastructure is already changing the profile of the building. 

We look at buildings, not just as a shell, but as what that habitat can do for us. That’s the benefit of a green building. 

The supply and demand of real estate in Singapore is red hot, just green buildings fundamentally enhanced the inflation that’s already hitting us because of the rising cost of living and also rising costs of financing. Reflected in the bubble, some may say, of the property boom, or that the green buildings have fundamentally different characteristics that yield more returns for their occupants, financiers, developers, and operators that have long-term responsibilities to it.

We want to see that whatever the budget yields it considers more than just the upfront initial construction but the operation on the long tail of the sustainability footprint of the real estate sector here. 

We can see that demand is not a problem, supply needs to be considered more carefully. Green buildings are not created, green buildings become green in their long evolution. 

The longer a building can be used for different purposes, the more it extends its green profile. And that’ll be interesting for us to look at how Singapore contributes to the circular economy of buildings rather than just in the outright construction.

What should be improved to help address the growing demand for green skills in real estate, IT, industrial, and engineering?

Greening the economy requires human input. Despite all the hype about AI, we can see there is an enormous amount of continued demand not just for the next few years but for the next few decades for more stem skill bases. 

A lot more engineers and a lot more people that have cross skills can contribute to IT, construction, property management, property modification, and vehicle servicing distribution. 

That whole cross-section of skills that need to be elevated, not just looking at who are the kids in school today, but also who can be reeducated and reskilled is the pressing concern. Today, we’ve seen that greening the financial services and professional services sector has been given a lot of sponsorship and a lot of attention. 

Now, the real focus now and a much more challenging aspect is how we uplift the capacity of STEM-based skill sets that need to do things in reality, and also tackle issues that don’t have obvious solutions today. In an environment where a lot of fundamental assumptions of climate conditions, resourcing energy and also broken supply chains need to be tackled on the ground in a very responsive and resourceful way. 

The greening of skills in the engineering, maintenance, property, and information technology sector depends on a lot of investment of on-the-job training on top of academic courses on top of education, and also on top of a lot of the industry partnerships that can grant employment opportunities for those that are in transition in terms of their skill base.

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