Singapore's proposed plan to tax greenhouse gas emissions would likely hit oil refiners hard, ramping up costs in an industry that has been central to the city-state's rapid development over the last half-century.
Monday's announcement that a carbon tax on direct emitters is slated to be introduced from 2019 indicates that Singapore, Asia's main oil trading hub, could be moving towards a longer-term future dominated by cleaner technology and resources.
Countries around the world have been under increasing pressure to crack down on carbon emissions, with Singapore part of the historic Paris climate accord that came into force late last year.
In parts of Europe and countries like Australia, the introduction of carbon taxes or carbon trading schemes has often driven a decline in established refining industries and a parallel surge in investment in clean energy technology. "The proposed carbon tax on emitters would prove a significant drag on industry profit-margins," said Peter Lee, oil and gas analyst at BMI Research in Singapore.
The government said the carbon tax would probably cover 30 to 40 "large direct emitters" including power stations, petrochemical facilities and semiconductor makers.
But it is Singapore's three refineries, run by ExxonMobil , Royal Dutch Shell and Singapore Refining Company, that would likely need to brace for the hardest blow.
The tax proposal comes as those refineries, with a combined fuel generation capacity of around 1.38 million barrels per day (bpd), are grappling with rising competition from China, India and the Middle East.
Shell said in a statement that it supported a strong and stable government-led carbon price, but that any policy "must ensure companies can compete effectively with others in the region who are not subject to the same levels of carbon dioxide costs".
Exxon said that "effective policies are those that promote global participation (and) let market prices drive the selection of solutions".
Singapore Refining Company could not be reached for comment.
Looking at a carbon tax rate of S$10-20 per tonne, the government estimated that would add around $3.50 to $7 to the cost of processing a barrel of crude into fuels like diesel or gasoline.
Benchmark crude prices stood around $56 per barrel on Tuesday, translating to a daily surplus cost of $4.8 million to $9.7 million for the three Singapore refineries.
On the flip side, the tax would help fire growth in Singapore's nascent renewable energy industries. "Existing green projects such as solar will enjoy the much needed premium (as they are not taxed)," said Andrew Koscharsky, energy director at RCMA Group, which trades wholesale power and retail electricity in Singapore.
He added that it would be important to implement the law swiftly to encourage immediate investment in renewables.
Singapore's government will next month be inviting feedback on its proposals from industry and the public.