Now that Singapore will be implementing carbon pricing, the first question is whether it would be in the form of a carbon tax or a cap and trade system?
Carbon tax allows price certainty but uncertainty in emissions reduction. Easier to implement and price certainty is good for businesses. But usually tax increase is not favoured politically.
Cap and trade allows more certainty in emissions reduction but price can become volatile. Not easy to implement, need an agency to set up an emissions trading system.
I favour the straightforward carbon tax. Regardless of the type of carbon pricing – either carbon tax or cap and trade, what matters is that it is a well-designed system that can ensure that the necessary emissions reduction is achieved while providing certainty to businesses (in this economic downturn).
The second question is whether business and living costs would go up. I’m not too worried about this because the revenue from carbon pricing can be used to offset cost increases, in the form of reduced business tax, tax credits, household rebates, etc.
The third question is the scope and timeline for implementation of the carbon pricing. I think it would start with big emitters, likely those companies under the Energy Conservation Act, since they are already taking action to reduce emissions. I think carbon pricing would take at least 2 years or earliest 2020 before it kicks in, considering the need for legislation change, consultations, setting up the system, and considering the current economic downturn.
Just my preliminary thoughts, more details on the carbon pricing will be announced by the government soon.