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Expect carbon tax to pass on to consumers

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The carbon tax announced in Monday's Budget will push up costs for power generators and translate into higher electricity prices for consumers, companies and economists say.

But some welcomed the move, saying it could spur the development of cleaner technologies in the long run.

The tax will be implemented from 2019 and will be levied on greenhouse gas emissions at between $10 and $20 per tonne.

It will be applied to power stations and other large direct emitters, rather than electricity users. There are 30 to 40 such large emitters, said the National Climate Change Secretariat (NCCS).

Revenue from the carbon tax will help fund measures by industries to reduce emissions, Finance Minister Heng Swee Keat said in his Budget speech.

But some increase to costs is likely inevitable.

Electricity here is mostly generated with natural gas, which results in fewer emissions than other sources like coal, said Mr James Allan, a director at consultancy Frontier Economics.

In addition, Singapore's land scarcity means power generators have limited scope to invest in zero-emission energy sources like wind or solar, he noted.

This means the carbon tax will push up costs for power generators, which will in turn pass these on to consumers.

Said Mr Allan: "Singapore enjoys a competitive wholesale electricity market. It is likely that the generators, facing similar increases in costs, would pass the carbon tax through to the market, retailers and ultimately consumers in the form of higher electricity prices."

The tax comes amid existing woes in the power generation sector, which is grappling with overcapacity and competition in the retail electricity market.

The tax will "add some hundreds of millions of dollars to the cost of producing electricity" every year, said Mr Paul Maguire, the president and chief executive of Senoko Energy.

"Such a large burden cannot be borne by a sector which today is struggling to be profitable. Our expectation is that like other regulatory costs, it will ultimately be passed to the end consumer, just like the Goods and Services Tax."

The carbon tax would translate into a rise in electricity prices of 0.43 to 0.86 cents per kilowatt hour (kwh), or a 2.1 to 4.3 per cent increase, according to estimates from NCCS.

The median household living in a four-room flat paying around $72 per month in electricity bills could see an increase of $1.70 to $3.30 monthly.

Grid operator Singapore Power said in response to queries that it is "building capabilities and developing solutions to help consumers save energy and improve quality of life".

"Some of the projects we are working on include the development of innovative sources of renewable energy and sustainable energy storage solutions," its spokesman added.

Another issue with carbon taxes is that they tend to impact low-income households proportionately more, said Professor Euston Quah, who heads the Nanyang Technological University's Department of Economics.

"(But) this can mitigated through subsidies and lump-sum transfers to the poor," he noted.

Dr Quah thinks the tax is a good move on the whole as it "could... motivate the development of new technologies which are less carbon intensive.

"The carbon tax also encourages our residents to understand that our... behaviour affects the environment."

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