Tax Reliefs and Incentives for a Carbon-Neutral Economy
Parliamentary Speech, Economic Expansion Incentives (Relief from Income Tax) Amendment Bill, 26 March 2020
Introduction
Mr. Speaker, since our independence, the Economic Expansion Incentives Act or EEIA has helped to incentivise the investments and innovation that brought us good jobs and economic prosperity.
However, we are entering a new era of increasing volatility and disruption. We are in the throes of the Covid-19 pandemic as we speak but I fear the climate crisis will unleash chaos and food supply disruptions that dwarf what we have seen.
Yet there exists enormous growth opportunities for technologies that the world needs to exit the climate crisis and enter a world of peace and stability.
Is the EEIA able to attract the kind of investments and innovation that will allow Singapore to demonstrate climate leadership and ride on the low-carbon wave? There are two parts to this question that I hope the Minister can address.
Ensure tax relief does not encourage increased carbon emissions
EEIA provides tax relief for pioneering economic activities as well as a wide range of capital investments. My first point, Mr. Speaker, relates to whether the EEIA extends incentives to high-carbon activities so that the tax relief may end up as a subsidy to the fossil fuel industry.
Senior Minister Teo Chee Hean recently announced Singapore’s goal of achieving net-zero emissions “as soon as viable in the second half of the century”. SM Teo himself admitted that this goal is “very challenging”. Yet even this goal falls short of the target of net zero by 2050 that IPCC estimates would limit warming to 1.5C and avert the worst impacts of climate change.
To have even the slightest hope of meeting this target, we have to stop incentivising investments that will lock in decades of high carbon emissions.
Prime Minister Lee Hsien Loong in his National Day Rally last year announced we would probably need $100 billion to protect ourselves against rising sea levels. This year’s budget has already allocated $5 billion to the Coastal and Flood Protection Fund. It would be unthinkable if we gave out tax relief to the same activities that will force us to spend more on coastal and flood protection. I’d imagine this would give DPM Heng a headache trying to balance the budget.
Could the Minister clarify whether the qualifying criteria for tax relief under the EEIA considers the long-term impacts on Singapore? In particular, is there consideration for whether the activity would lead to an increase in carbon emissions?
EDB has published its assessment criteria for pioneer certificate incentives under the EEIA, which includes employment created and spin-off to the economy. For high-carbon sectors, even such economic benefits are not assured. In 2015, when oil prices fell below US$50 per barrel, the oil and gas sector cut an estimated 15,000 jobs. With oil prices bottoming out again this year, ExxonMobil has said it will make significant cuts to spending.
As climate action accelerates across the world, demand for fossil fuel products may reduce sharply. For example, with countries around the world, including Singapore, moving towards full electrification of their land transport system, demand for diesel and petrol is expected to drop. Researchers from Columbia University forecasted that passenger vehicle oil demand would decline beyond 2025. For the lowest low-carbon scenario in their 2019 study, oil demand in this sector would decline from about 25 million barrels per day today to 10 million barrels per day in 2040.
Investments in fossil fuel assets which underestimate the downside risk of disruptions from low-carbon technology, energy efficiency and climate policy could lead to stranded assets. A study published in 2018 estimated that globally, US$12 trillion of fossil fuel assets might be stranded by 2035.
Could the Minister clarify whether the economic benefits under the assessment criteria for EEIA tax relief includes consideration for the downside risk from future disruptions, such as decarbonisation?
Tax relief for innovations and investments that aid the transition to carbon-neutrality
On the other hand, the global transition to low-carbon opens up a host of new opportunities.
My second point, Mr. Speaker, therefore relates to incentives for innovations and investments that are aligned with a carbon-neutral economy.
Section 67 of the EEIA currently lists activities eligible for investment allowances. These include reducing consumption of water and improving energy efficiency. Unfortunately, this leaves out a wide range of capital expenditure investments that contribute to Singapore’s long-term sustainability, such as renewable energy, active mobility, as well as waste reduction.
While there are grants available for some of these activities, such as the 3R fund for waste recycling and reduction, this should not preclude the option to use investment allowances as an additional incentive.
Could the Minister clarify whether the list of activities eligible for investment allowances can include a category for capital expenditure that reduce greenhouse gas emissions either directly or indirectly?
For pioneering economic activities, aligning our tax incentives with a carbon-neutral economy would help us get a foothold into a host of emerging industries that support a climate-friendly future. These industries include carbon capture and storage, renewable energy, circular manufacturing, bioplastics, energy storage, electric vehicles, alternative meat, climate-resilient agriculture and green building technology.
A 2018 report by the Global Commission on the Economy and Climate estimated that over 65 million new low-carbon jobs could be generated globally in 2030.
Clean energy alone is expected to generate 2.2 million jobs in ASEAN. We are building one of the world’s largest floating solar farms in Tengah reservoir. The expertise we develop would position Singapore as a key exporter of this technology. An undersea cable to transmit solar power from Australia could also be in the pipeline
The alternative meat market is expected to grow to US$470 billion by 2040, equivalent to a 17 times expansion in the next 20 years. Alternative meat start-ups Beyond Meat and Impossible Foods have already taken the world by storm. I’m proud to see local start-up Shiok Meats entering the arena.
I urge the Minister to align our tax incentives with a carbon-neutral economy, so that we can attract and grow more of such champions.
Could the Minister share whether the qualifying criteria for tax relief under the EEIA can include consideration for the potential of the activity to reduce greenhouse gas emissions either directly or indirectly?
Conclusion
Mr. Speaker, the Covid-19 pandemic has highlighted the importance of having foresight and courage to prepare now for the possible crises of tomorrow.
A recent headline in TODAY read: “Singapore has been buttressing its food security for decades. Now, people realise why”. Indeed, it was because of decades of effort to diversify our food sources that allowed Minister Chan Chun Sing to welcome the 300,000 airflown eggs to Singapore from Thailand when the risk arose that supply of eggs from Malaysia could be affected by the overnight lockdown.
In that same spirit, let us have the foresight and courage to prepare our economy for the risks and opportunities that emerge from a carbon-constrained future. Every tool in our policy toolbox needs to be on the table.
I look forward to the Minister’s response to my clarifications above. I support the Bill.
Thank you.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Anthea Ong is a Nominated Member of Parliament. (A Nominated Member of Parliament (NMP) is a Member of the Parliament of Singapore who is appointed by the President. They are not affiliated to any political party and do not represent any constituency. There are currently nine NMPs in Parliament.)
The multi-sector perspective that comes from her ground immersion of 12 years in different capacities helps her translate single-sector issues and ideas across boundaries without alienating any particular community/group. As an entrepreneur and with many years in business leadership, it is innate in her to discuss social issues with the intent of finding solutions, or at least of exploring possibilities. She champions mental health, diversity and inclusion — and climate change in Parliament.
She is also an impact entrepreneur/investor and a passionate mental health advocate, especially in workplace wellbeing. She started WorkWell Leaders Workgroup in May 2018 to bring together top leaders (CXOs, Heads of HR/CSR/D&I) of top employers in Singapore (both public and private) to share, discuss and co-create inclusive practices to promote workplace wellbeing. Anthea is also the founder of Hush TeaBar, Singapore’s 1st silent teabar and a social movement that aims to bring silence, self care and social inclusion into every workplace, every community — with a cup of tea. The Hush Experience is completely led by lovingly-trained Deaf facilitators, supported by a team of Persons with Mental Health Issues (PMHIs).
Follow Anthea Ong on her public page at www.facebook.com/antheaonglaytheng