Singapore is leading the push to have greenhouse gas emissions from business operations, manufacturing and services captured comprehensively in carbon pricing models, according to sustainability experts.
Neil Mascarenhas, Asia lead for the responsible investing and innovation platform at NN Investment Partners, told Regulatory Intelligence that regulators and businesses in the city state were working collaboratively to lead the world in Environmental, Social and Governance (ESG) regulation. Developing comprehensive and accurate models that place a realistic price on carbon emissions would be crucial to achieving Singapore’s ESG objectives.
“A cost should be allocated to those emissions to reflect the negative impact and real costs of that activity in different sectors of society. As this real pricing is implemented and understood by stakeholders, it will disincentivise investment in carbon-intensive sectors and incentivise financing of green sectors and emissions reduction, helping the country achieve its net zero goals through market economics of demand and supply,” Mascarenhas said.
The Monetary Authority of Singapore (MAS) is aiming to lead the region in sustainable finance and development. Considerable economic restructuring, significant technological breakthroughs and substantial financial investment will be required to achieve the transition from a fossil-fuelled economy to a net zero world, said Ravi Menon, managing director of the MAS, in a speech at the Economic Society of Singapore Annual Dinner 2022 last month.
The journey to net zero will likely entail the biggest economic and societal transformation since the Industrial Revolution, Menon said. Five transformative changes will be needed to achieve net zero — carbon pricing, a shift to cleaner energy, greening the economy, a pivot to transition finance and a move to a sustainable lifestyle, he said.
“Singapore is firmly committed to doing its part in the global effort to reduce greenhouse gas emissions,” he said, adding that the country’s green plan, launched last year, would set out a road map toward sustainable development, a green economy and net zero emissions.
Singapore’s aim is for carbon emissions to peak around 2030, and to achieve net zero by or around mid-century.
Carbon taxes need to be implemented equitably to prevent them from overly burdening low-income households and small and medium-sized enterprises (SMEs), the MAS official said.
Singapore does not intend to derive extra net revenue from the carbon tax; the revenue will instead be used to cushion the impact on lower-income households through U-Save rebates and incentives to switch to energy-efficient appliances. Carbon tax revenue will also be directed to SMEs to help boost their energy efficiency and decarbonisation efforts, Menon said.
U-Save rebates is a government scheme that helps offset utility bills in a bid to support low- and mid-income families in the city-state.
Green subsidies are useful complements to carbon pricing, but they are not substitutes, Menon said. Subsidies for clean technology and energy efficiency can help to accelerate the transition toward sustainability, but they often make economic sense only if combined with some form of carbon pricing, he said.
An international agreement on a single global carbon price is unlikely, but there are two ways in which global convergence in carbon pricing can come about, Menon said. The first is through carbon credits and markets and the second is through the carbon border adjustment mechanism, which is a tariff that prices the carbon content of imported goods in the same way as the carbon emitted in domestic production.
According to the International Energy Agency, the energy transition to achieve net zero is doable but difficult, Menon said. Even when the world achieves net zero emissions, fossil fuels will still be around.
Solar and wind power will need to be the largest energy source, he said. The cost of solar and wind energy has fallen dramatically in the past decade and the amount of power generated through these renewables is rapidly catching up with that generated by coal. Hydrogen will be an additional, and important, new hope for decarbonisation.
“In Singapore, our aim is to progressively decarbonise the power sector,” Menon said. The city-state is working to increase the carbon efficiency of natural gas, which today accounts for 95% of electricity generation. It is also accelerating solar deployment across the island and building viable energy storage systems, he said.
Greening the economy
Greening the existing economy is more important than growing new green sectors, Menon said. A green economy will rely much more on electricity. The cheapest and easiest way to decarbonise certain sectors of the economy is to electrify them and ensure that the electricity is generated from zero- or low-carbon sources, he said.
A green economy will need to be much more energy-efficient, and will need to find ways to decarbonise “hard-to-abate” sectors and activities, Menon said. The aviation and maritime industries lack good transition pathways, while it will be hard to decarbonise the production of some critical materials such as steel, cement, plastic and ammonia.
The sectoral composition of economies will change, and those areas with the highest greenhouse gas emissions — such as coal, oil and gas power and petroleum products — will be most heavily affected, Menon said. Activities supporting lower-emission products are likely to grow in importance, ranging from mining lithium for batteries to manufacturing solar panels and charging stations for electric vehicles.
The labour market will change; while jobs in the more traditional carbon-intensive sectors may be lost, new jobs will be created in carbon-neutral industries.
“In Singapore, a comprehensive strategy to green the economy is taking shape, with a focus on boosting energy and resource efficiency and creating good jobs,” Menon said.
Green finance needs to be complemented by transition finance, and governments must synergise public and private capital through blended finance for green and transition projects, Menon added.
The financial industry has made good progress with harnessing green finance, and particularly finance to support green projects such as renewable energy or clean technologies. Green and sustainable bond issuance reached $800 billion last year, a ten-fold increase from 2015.
Many sustainability projects in emerging markets pose financial and political risks that are incommensurate with their expected returns. Catalytic or concessionary capital from multilateral development banks, national authorities and philanthropic organisations can help to share the risk and improve project bankability, thereby attracting private sector capital, Menon said.
There is also scope to recycle capital by taking loans off the balance sheets of commercial banks and multilateral development banks and structuring them in a form that could be subscribed by institutional investors, insurance companies and sovereign wealth funds.
Singapore has been building a comprehensive ecosystem for green and transition finance to facilitate Asia’s net zero journey, Menon said.
“We are building capabilities in environmental risk management in the financial sector through climate stress tests,” he said. “We are providing grants to defray the costs of issuing green and sustainability-linked loans and bonds. We are also supporting industry efforts to build the infrastructure for a liquid and transparent voluntary carbon credit market in Asia.”
Singaporeans have become much more environmentally conscious, Menon said. A 2020 study by the Institute of Policy Studies found that 61% of Singaporeans felt that protecting the environment should be a priority even if it resulted in slower economic growth and some loss of jobs.
Individuals are becoming increasingly climate-friendly, motivated by a desire to preserve a liveable world for future generations.
“We can do energy audits of our homes to identify ways to be more energy-efficient,” Menon said. “We can reduce food and plastic waste. We can become a zero-waste nation and a circular economy, where we use less resources and re-cycle resources.”
The next decade will be the most critical one in terms of climate action, Mascarenhas said. If implemented well, the five transformative changes outlined by Menon will bring industry and society together to achieve positive, measurable outcomes, and will help to build a longer-term sustainable mindset within communities, he said.
“The [changes] will help direct private capital to productive sectors, create demand for better returns, nudge companies to deep dive into their operations and reduce negative externalities,” Mascarenhas said.