How Will A Carbon Tax Affect Us?

In his budget speech on 19 February 2018, Singapore’s Finance Minister Heng Swee Keat made a few announcements, including a carbon tax of S$5 per ton of emissions from 2019. The carbon tax rate will be reviewed by 2023 for an increase of S$5 to S$10 per ton of emissions by 2030.

The carbon tax is a commonly used tool by governments across the globe to put emissions under control. According to the Straits Times report, more than 60 countries including China and Japan have implemented, or plan to implement a carbon tax or other carbon pricing strategies to equivalent effect. Take Japan for example. It implemented a carbon tax of 289 yen (equivalent to S$3.6) per ton of emissions in 2012. Students will be taught the various types of government interventions including tax by economics tutor in economics tuition. You can also read up the chapter on government intervention in the lecture notes provided by economics tutor Edmund Quek. Mr Quek runs an economics tuition centre in Bishan.

The presence of a carbon tax requires us to pay a price for releasing pollutants into the air. The question is, to what extent are we affected?

Annual Impact on Average Electricity and Gas Expenses

According to a table published by the Straits Times, the increase in the annual electricity and gas expenses for a typical household living in a 3-room, 4-room and 5-room flat is S$7.2, S$9.7 and S$11.2 respectively. There is a positive correlation between the increase in average electricity and gas expenses and the size of their house. Though the impact is marginal, the government has come up with measures to offset the impact on most households in Singapore. From 2019 to 2021, households living in HOB flats will be given an additional GST voucher worth S$20 per year.

It is not through the increased bill size of electricity and gas expenses that ordinary consumers like us will feel the pinch. Analysts interviewed by the Straits Times commented that the carbon tax would affect mainly large polluters. Some examples of such large polluters in Singapore include oil and gas companies like ExxonMobil and Shell. I beg to differ.

Consumers to be Affected to a Greater Extent as Compared with Firms

It is the large polluters like ExxonMobil and Shell who will experience first-hand the impact of a carbon tax. However, the cost of a carbon tax will be ultimately shared between consumers and firms. The proportion to be borne by consumers will depend on the price elasticity of demand for the product. The more price elastic the demand, the lower the proportion to be borne by consumers.

Your economics tutor will cover the concept of price elasticity of demand in economics tuition. A good economics tutor will also teach you how to apply this important economic concept to explain real world cases like this.

If you have read the notes by economics tutor Mr. Edmund Quek, you will know that demand for petrol is price inelastic due to its high level of necessity and lack of close substitutes. This means, consumers will be affected by the introduction of a carbon tax to a greater extent, as compared with firms.

Register with Economics Cafe Learning Centre for a trial economics tuition class by its Principal Economics Tutor Mr Edmund Quek today to learn about price elasticity in greater details.

In conclusion, the introduction of a carbon tax is in line with the government’s continuous efforts to reduce greenhouse gas emissions in Singapore. Revenues from the carbon tax will be used to fund green initiatives to further enhance our living environment.

Benjamin Tay

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