Can Singapore really transit to a post-oil economy?

Published by Straits Times (Singapore) on 10 January 2020

By Tilak Doshi and Euston Quah

Some commentators have called for more drastic action from Singapore’s policymakers to “mitigate”, or reduce, the effects of climate change.

One academic, for example, wrote pointedly: “We can continue to reject plastic straws, but to significantly reduce its greenhouse gas emissions and future-proof its economy, Singapore must adopt a strategy to shift its reliance on the petroleum and refinery industry.”

The latter, said Assistant Professor Angel Hsu of Yale-NUS College in a Dec 23 commentary on CNA online, accounts for half of Singapore’s greenhouse emissions.

However, it is important to clarify what Singapore policymakers can really do that is meaningful and efficient, given the impact of such measures on the lives of ordinary working Singaporeans.

Key questions of economic trade-offs (the costs and benefits of a higher carbon tax, reducing plastics, for example) and the distributional impacts across the population and time need to be subject to rational debate. Policies fashioned by green ideology will lead to Singapore collapsing economically first before it may drown in sea level rise.

According to Prof Hsu, Singapore must adopt a strategy to shift its reliance on the petroleum and refinery industry in favour of “clean energy” investments such as electric vehicles, battery storage and efficient energy appliances. Specific policy measures proposed include “a more aggressive solar energy road map”, a target for net-zero energy buildings by 2030 and a much higher carbon tax.

Should we all jump quickly onto the green bandwagon, or pause and carefully ascertain what requires action, and how much it would cost? It is not a question of whether we should be greener, but how green we want to be and at what pace.

Different countries are at different levels of development, growth and quality of life. National priorities will naturally be different as with the costs and benefits to their societies in adopting one set versus another.

WHITHER RENEWABLE ENERGY?

In the debate about green energy transitions, the fundamental realities of legacy, scale and inertia are front and centre in any reasonable discussion of climate change policies. Energy transitions are not sudden revolutionary advances. They have taken long periods of time, typically several generations to continuously unfold new processes that gradually change the composition of fuels used to generate light, heat and motion.

We live in a “fossil-fuel civilisation”, as well-known Canadian environmental science professor Vaclav Smil terms it.

In 2018, approximately 85 per cent of commercial primary energy was supplied by the trio of fossil fuels: coal, oil and natural gas. Renewable energy technologies such as solar, wind and modern biofuels (excluding hydro and nuclear) accounted for just 4 per cent.

It took 100 years of the 19th century for coal to account for 50 per cent of global energy production, replacing mankind’s earliest “poor man” fuels such as foraged wood, animal dung and agricultural waste.

And from its early beginnings in the 1870s, it took another 100 years for oil to come up to its current share of roughly a third of global primary energy consumed.

It also took almost a century for natural gas to account for about a fifth of global primary energy demand by the 1980s, from its beginnings in the early 20th century.

There is little evidence still of an accelerating energy transition, despite ambitious calls by European Union and United Nations leaders for halving global emissions by 2030 and achieving net-zero emissions by 2050, made at the recent inconclusive UN climate change summit in Madrid.

BP’s base case forecast sees renewable energy accounting for 15 per cent in 2040 and the fossil fuel trio (coal, oil and natural gas) delivering almost three quarters of global primary energy supply. This forecast is broadly in line with those of other authoritative sources, such as the International Energy Agency and the United States Department of Energy.

THE SINGAPORE CASE

Singapore played a century-long role as an oil storage centre (in Pulau Bukom) in colonial times before rapidly developing into Asia’s premier oil refining and trading centre by the 1970s.

The congealed investments in Singapore’s oil infrastructure are vast. With a refining capacity of over one million barrels a day, the millions of tons of steel, concrete, and mechanised and electronic process equipment, as cumulative value added which accompanied Singapore’s oil industry development, are not easily captured in national statistics.

In Singapore’s national accounts, the “chemical” industrial cluster (which includes petroleum refining, petrochemicals, speciality chemicals and others) contributed 9.3 per cent of value added to total manufacturing in 2018. The marine and offshore engineering segment (primarily drilling rigs and offshore oil and gas equipment) accounted for a further 11.3 per cent. Together, these two industries accounted for over a fifth of manufacturing gross domestic product.

Comparing the value-added contribution of these two industries against those of electric vehicles, battery storage, green buildings and solar power ignores the issues of legacy, scale and inertia.

The two sectors are incommensurate, differing in value added by orders of magnitude. It should be noted too that the two sectors would differ by their intensive backward and forward linkages, for example, activities generated by the oil storage, refining and trading sector with other sectors such as financial services (trade and project finance, commodity brokers, energy news reporters, risk management services, and others), upstream suppliers of steel, concrete and equipment, and the entertainment and service industries.

The key question for policymakers is how to make a viable transition to future technologies and businesses without destroying value in sectors of the economy that are “fit for purpose” for another half century or more.

Singapore’s policymakers need to decide whether they can so easily manage a transition to a “post-oil” future without disrupting the existing value added, jobs and the lives of ordinary Singaporeans, and do so while adding a purported equivalent number or more of so-called future green jobs yet to be realised.

Singaporeans cannot afford to be piqued into demonising fossil fuels – Singapore’s continuing role as an oil refining centre needs a clear-headed approach to measuring the costs and benefits of what could be an over-hasty transition to newer but less efficient technologies.

Regarding an often heard aggressive road map for solar power, the basic Economics 101 question has not been answered. If renewables including solar are so competitive, why do they often require huge subsidies? While statistics of the penetration rate of solar roofs in the Singapore landed private residential market are not available to the authors, common observation suggests they are not that widespread. “Why is that?” would be a typical economist’s question.

At the policymaker’s macro level, standard cost-benefit calculus of renewable energy relates to the technology’s specific characteristics of “intermittency”: there is power only when the sun shines or the wind blows.

There is well-established peer-reviewed literature on the examples of Germany, California in the US, and South Australia. These countries or states offer generous taxpayer-financed subsidies and regulatory mandates for encouraging solar and wind power adoption.

Empirical data suggests that once penetration rates for solar power and wind power (both intermittent, dependent on the weather) go much past 10 per cent to 15 per cent of the electricity grid, systemic costs of balancing the grid against contingent weather variables mount exponentially.

Who will pay for these higher costs? Which “stand-by” companies will have to step in to supply electricity when the weather determines erratically that solar or wind is no longer capable of providing power? And at what cost?

INTERNATIONAL COMPETITIVENESS

Should policymakers legislate fully “carbon-neutral” buildings if such measures compromise Singapore’s international competitiveness by raising rents and costs of buying commercial property? Will 100 per cent “carbon neutrality” cost us our ability to participate in international trade?

Likewise, early moves on carbon pricing in Asia are likely to remain limited. Singapore is the first on record to implement a nationwide carbon tax of just under US$4.00/tCO2e (ton of carbon dioxide equivalent, a measure of greenhouse gases emitted) on large industrial emitters from last year.

This constitutes a good start to pricing an external effect of harm on the environment by producers, and for all consumers as well to understand that their actions carry a price that needs to be accounted for. There is a follow-up plan to scale up the carbon tax eventually and it is important for society to adjust to this new tax in paying for the true costs in using resources.

Global warming is not an easy or straightforward problem to deal with. Solutions such as carbon pricing to reflect the full cost of economic activities are steps in the right direction, as is the requirement to price intangibles or externalities as they affect the environment. But countries should be allowed to go green at a pace desired by their citizens, and at a price they can afford.

It is vitally important that we choose policies that are based on a careful analysis of costs and benefits and informed decision-making such that rationality prevails.

Tilak Doshi is a Singapore-based energy consultant. Euston Quah is Albert Winsemius Chair Professor and head of economics at Nanyang Technological University. He is also president of the Economic Society of Singapore.

Published by Straits Times (Singapore) on 10 January 2020

https://www.straitstimes.com/opinion/can-spore-really-transit-to-a-post-oil-economy

47 thoughts on “Can Singapore really transit to a post-oil economy?

  1. Many thanks to the authors for a different perspective on our reliance on fossil fuels: the ramp-up time to the present levels of consumption.

    Well done.

    Thanks,
    Bob

  2. There is a follow-up plan to scale up the carbon tax eventually and it is important for society to adjust to this new tax in paying for the true costs in using resources.

    What il the tax be used for? Vehicle and fuel taxes are (supposed to be) used for maintaining existing and building new roads. What will a Carbon Tax ™ be used for?

      • Bingo ! you got it !
        Here in Quebec, it is called “Le Fond Vert” The Green Fund.
        Anytime anybody try to use it for some useful task, some green mafiosi will scream on MSN that
        it is not green enough. So the end result will be that it will be only spent on useless projects.

      • Don’t forget that ALGORE is a major investor in a company that will operate as an Exchange for carbon credits. You can buy or sell them through this exchange and Swamp Creatures like AL will become multi-billionaires trading on our government imposed misery.

        “Need credits? Buy them here” AL has already arranged for a monopoly on this process so there will actually be no need to advertise. Those dollars will go to line bureaucrats pockets.

    • Zig,
      Don’t be ridiculous, that tax money will be “redistributed” as politicians always do with taxes. And the more opaque it’s destination, the more potential they can see for it. Watch especially for the buzzwords “revenue neutral” which means simply that it will all be given to people who don’t need it, but that phase of the sales pitch only lasts one election term and then its found that people who vote for the winner need the money.

  3. Before anything is done, the first question to ask is “why are we doing this?” and the next is “what will the benefits be?” and lastly, “what will the costs be?”. If the answers are “we really don’t know and we all disagree”, “slight” and “very grave”, it is time for reflection and not action. Singapore is equipped with all the necessary intelligent residents to undertake this.

  4. “…..Some commentators have called for more drastic action from Singapore’s policymakers to “mitigate”, or reduce, the effects of climate change. One academic, for example, wrote pointedly: “We can continue to reject plastic straws, but to significantly reduce its greenhouse gas emissions and future-proof its economy, Singapore must adopt a strategy to shift its reliance on the petroleum and refinery industry.”……”

    ANYONE can CALL for ‘more drastic action’. Indeed, CALLING for this is an indicator of how woke you are, and how you should therefore not have grants taken away.

    If such action were to actually HAPPEN, however, all who called for it would be on the first plane out of Singapore.

  5. The key question for policymakers is how to make a viable transition to future technologies and businesses without destroying value in sectors of the economy that are “fit for purpose” for another half century or more.

    Having visited Singapore recently I was struck by the number of ships moored out in the Strait. All of them powered by oil. Hard to see how trade on this scale can continue without so called “fossil fuels”

    • The solution is for governments to stop telling people what to do and let those who actually understand the business and technology deal with it.

      But governments will never give up power once they have it.

    • The answer is obvious – convert all the ships in Singapore harbor to sail. See how that works out. Sailmakers, rope suppliers, barrel makers -etc, etc. If there are 300 ships in the harbor at Singapore then 100 times that, or 30,000 sailing vessels, should be able to do the same jobs. Side benefit – Many many more sailors to feed and ‘entertain’ downtown.

  6. Extraordinary claims of impending disaster require incontrovertible proofs, not in evidence from the climate change catastrophists. The parable ‘The Boy Who Cried Wolf!’ applies here.

    • J Mac, I did the field work for my Masters in Geology in the mountains of western Idaho called “the Seven Devils”, after an Indian boys tales as he tried to get out of sheep herding alone in the mountains. Now, here we go again, with (supposedly intelligent and professional) Professors crying wolf and Seven Devils. Seems like a human nature tendency.

    • I think that is on the book burning list and was ripped from all libraries. At least that’s where the evidence leads.

  7. Good observation but many countries already passed the tipping point for wind and solar adoption before the ramifications were figured out. Engineering 101 was ignored for political expedience. The next wave of costs for wind and solar will be wear replacement which will remain cyclical at unknown intervals but 20 years seems to be the guess. Wind turbine hardware may improve wear and tear but PV panel destruction by hail, tornadoes, wind debris and normal deterioration will remain. The build out cycle for wind and solar will become geometrically harder to achieve and they’ll never meet 100% without grid storage battery capability.

  8. So even Asia is planning to commit suicide for virtue-signalling?

    And Singapore is doing it over the utterly inconsequential amounts of fossil fuels it burns?

    Wow. I thought they were smarter than that.

    • They are smart! It’s just a good excuse to impose a tax. Notice there are no protests over the carbon tax, while a rise of 1 or 2 % of GST is met by a chorus of protests?

    • Singapore’s contribution of CO1 emission is 0.15 % of world total. Even if it achieves zero emission, it will not make one jot of difference!

    • Mark,
      It is part of the leftist agenda, making a rich person poor will enrichen everyone….did you miss this fundamental truth from your public education somehow? /s

  9. Popcorn anyone?
    I’m off to the wholesaler to buy a pallet lot.
    Every Singaporean we know just yearns to live in Australia.

  10. To drive a car in Singapore, you have to to buy a piece a paper that allows you to drive that car for 10 years. The value of that piece paper is market driven and generally varies from between $50K and $100K USD. You finance this piece of paper with your car, so the average Singapore citizen with a crapbox car is financing a $150K/ten year car payment. Everyone else (including 35 year old engineers with an advanced degree) is waiting for a bus in the rain.

    Across the river in Malaysia, things are much cheaper and Singapore will likely become just a place where “rich guys live” and play with other people’s money vs. a country that makes things and innovates. It’s too expensive for that.

      • All Cab’s and UBER drivers are financing a $50K/$100K note, too. SIN Cab driver are the most overworked/underpaid cabbies in the world and most have multiple other side hustles.

        I took a cab to Changi for a 6:00 AM flight and there were 3 crashed cab’s on the way to the airport. It hadn’t rained the night before so I asked my cabbie WTF? He said cabbies HAVE to be Singapore citizens, so to make ends meet and pay for their $750/square foot condos and their $200K cabs, they work 70 hours/week… fall asleep at the wheel and crash.

        There is no subway to Seletar – the aerospace mfg area of Singapore it spent billions developing through crony capitalism by subsidising aerospace corporations to build plants there. Too bad it’s now too expensive for people to work there. Its cheaper now to do the same work in the southern US.

  11. I’ve lived in Singapore in and off for 20 years. As a small country surrounded by less than friendly larger neighbors has made Singaporeans a very pragmatic people. They know the costs of bad decisions.

    That’s the problem with the west of course, where life has become so insulated from the costs of bad decisions that we continue to make so many of them.

    Germany can drop a trillion dollars on useless green energy and still re-elect Merkel. Canada can destroy its energy industry despite being one of the coldest countries in earth.

  12. Just as South Ausstralia is known as the Canery in the coal mine, Singapore is at th other end of the scale.

    Firstly as one who has spend most of my life in the tropics, the temperature hardly changes from day to day.

    True during the Monsoon it does get wetter and a little cooler, but overall one day is followed by another day of the same temperature.

    Which is probably why the Green movement does not do well in the tropics, no big swings to blame on Climate Change.

    So Singapore in having to stay economically competative in all aspects of commercial life, is the perfect opposite of the Canary in the coal mine. , To I think the despair of the CC mob.

    MJE VK5ELL

  13. I don’t believe Singapore has extensive enough unbuilt land area for all the solar & wind farms necessary to provide the energy it consumes. So that would mean Singapore needs nuclear power instead of fossil fuels & I don’t know the practiclity about siting a nuclear plant.

    • Singapore is installing solar panels on top of high rise buildings. One must visit Singapore to realise the vast extent of high rise buildings there!

  14. There is a massive solar farm being build somewhere in Australia that once online will provide power to Singapore.

    Madness!

    • In 2016 Singapore had neither import nor export of electricity (CIA FB).
      The Suncable from Northern Territory may, to my quick calculations, provide 2.5GW average. How will that replace the current (2016 CIA FB) consumption of 1.322 million bbl/day refined petroleum products?

      Singapore may provide some 18.7% (my quick calc.) of the electricity from the Suncable, but to what price? Both price and dependency on a foreign energy will increase. Is countries inter-dependency a step forward or backwards?

      President Trump aims to strengthen independence, which I personally see as an advantage, in particular regarding energy and food. – What is it they say about horses: “When the crypt is empty, they begin to fight.”

  15. Anybody been to Singapore. Look out to sea. The economy is based on sea borne trade, part of which includes a gigantic oil refinery. Then there is the huge airport.
    Get rid of fossil fuel, and bye bye Singapore.

  16. Singapore does not have to do anything except keep importing oil, gas and anything it needs and can afford.

  17. It might help the general public and hopefully, the media to remember that climate change is a current happening on this Earth. Please talk about CURRENT climate change or climate changes (plural).
    I think that most folk cannot relate to climate changes in their lifetimes because the human life span is so infinitesimal to that of climate changes. We

  18. When I think that the whole of life on this Earth is formed around carbon, to impose a tax under the guise of altering the current climate change is so sick and wicked. Blast all politicians who will not learn facts and act as responsible servants of the people they are supposed to represent.

    As for “scientists” trying for money to support their education through scare tactics.

    Thank our lucky stars for wuwt – but who with intelligence in the political swim reads it I wonder?

    How ever are we going to get back to honesty!

  19. When my father was a young man traveling the globe as a sailor, Singapore was a mosquito-infested city in the tropics. If one said that we went to Singapore he was looked at with admiration for his adventurousness. Today, Singapore is one of the most important commercial hubs of the world. It attained this by working hard and offering a stable legal system as well as a competitive attitude towards business. Places such as Singapore have made it to the great and good but that’s not a military decoration. If you don’t work tirelessly, it goes away. No advanced economy can run on outdated technology like windmills.

  20. How does Singapore go “Renewable? I do not see enough space for either Solar or Wind unless all are floating, and where will the energy storage system be? One or two new generation Nuclear reactors achieves the same emissions result at half the cost.

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