Singapore carbon tax set to squeeze oil groups

A carbon tax plan revealed this week by Singapore will cover refineries in the city-state, officials confirmed on Tuesday, adding to pressure on international oil groups in one of Asia’s biggest refining centres. 

The measure, which will be implemented from 2019 and apply to power stations and other large emitters, raises costs for an industry where margins have been squeezed by a surge in diesel and gasoline exports from China. 

Singapore lured western oil companies with tax incentives in the 1960s and is now home to some of the world’s biggest refineries, with total capacity of about 1.5m barrels of crude oil per day.

Singapore’s carbon tax, announced by the finance minister in his budget speech this week, will be set between S$10 (US$7) and S$20 per tonne of greenhouse gas emissions. 

Operating costs for Singapore refiners could rise by US$3.50-US$7 per barrel as a result of the tax, the government estimates. 

Sushant Gupta, research director for Asia refining and chemicals at Wood Mackenzie, the energy consultancy, said Singapore’s refiners were already facing headwinds. 

“There is cut-throat competition,” he said. “China has been eating into Singapore’s market share in its key markets of Southeast Asia and Australia.” 

Industry may lobby for tax relief on exports, the WoodMac analyst suggested, while becoming more energy efficient would also reduce their costs. 

The proposed threshold for the Singapore tax is 25,000 tonnes of carbon dioxide equivalent annually. There are up to 40 companies operating in Singapore that exceed this threshold, according to a government estimate. 

Shell’s Bukom operation, on an island about 5km south-west of Singapore, is the company’s largest refinery with a capacity of 500,000 barrels a day. ExxonMobil’s Singapore site has a capacity of nearly 600,000 barrels a day. 

Shell said in a statement that the company supported a government-led carbon price to tackle climate change. 

The design of the policy “must ensure companies can compete effectively with others in the region who are not subject to the same levels of CO2 costs”, Shell added. 

For its part, ExxonMobil said in a statement: “The risk of climate change is clear and warrants action . . . A uniform price of carbon applied consistently across the economy is a sensible approach to emissions reduction.” 

The proposed tax is the latest indication that countries in Asia, the world’s biggest oil market, are moving to curb greenhouse gas emissions. 

China, the world’s biggest emitter of greenhouse gases, is preparing to introduce a national emissions trading system later this year. 

South Korea launched an emissions trading scheme in 2015, overcoming strong industry opposition.

In Australia, a carbon tax was introduced and then repealed after industry and political opponents argued it would hurt the country’s competitiveness. 

Jeff Swartz, managing director of the International Emissions Trading Association, a lobby group for carbon markets, welcomed the move. 

“Putting a price on carbon is a significant effort for any government to do,” Mr Swartz said. “You cannot seriously address costs associated with climate change without putting in place some measure to account for the costs of carbon pollution.” 

However, Mr Swartz added: “I don’t think it’s the best choice. The alternative is to have an emissions trading system. Singapore which is massively trade-exposed has the opportunity to become a hub for carbon trading as London has done.”