The Green Equilibrium: Carbon tax - boon or bane?

THE Paris agreement on climate change adopted by 196 parties on Dec 12, 2015 laid the path for developed economies to pledge funding for developing and poor economies to achieve a more sustainable global economy.

Since then we have seen many technologies aligning to be carbon neutral, environmentally friendly, circular economy and now towards net zero. One thing we can be sure, the jargons will keep coming.

Electricity supply is an operative system that is regulated by government and it is connected to domestic, commercial and industries. When more environmentally friendly initiatives are introduced via a tender system that is approved by government, the cost to the operative system is aggregated and a rate is also approved by government as electricity tariff. Thus, it is imperative that the environmental benefits are shared among all consumers.

Should some richer businesses be allowed to take these environmental benefits away from others, just by paying a premium price?

Malaysia implemented the Green Electricity Tariff (GET) by charging a premium price for buyers that are willing to pay. In this process, the environmental benefits from renewable energy (RE) will be passed to these buyers via a certificate. This means the balance of electricity supply sold in Peninsular Malaysia will have a higher carbon footprint for every kilowatt-hour as double counting of environmental benefit is not allowed.

When the manufacturing sector uses this electricity without utilising GET, their products now by default will have higher carbon footprint per unit product due to GET implementation. The higher GET utilisation, the higher carbon footprint increase for the rest. When the government imposes a carbon tax mechanism in future, how do we equate this GET mismatch to the non-premium price paying consumers?

On top of that, if premium markets like the European Union tighten the environmental requirements for products, Malaysia’s manufacturers that do not utilise GET will be severely affected as GET implementation has increased Scope 3 emission impact per unit product by default.

How will carbon tax make Malaysia more sustainable when our policies do not target sustainability properly?

The mismatch between what is written in Malaysia Plans and final outcomes at the end of these plans is always devastating. Carbon tax will only be a “drug-like” approach and prevent actual economy of scale and cost efficiency to be reached. This also will cause unnecessary overall cost escalation during a transition period.

The Association of Water and Energy Research Malaysia (Awer) supports RE development but these RE solutions must suit Malaysia’s condition with transparent and holistic implementation. Now, there are claims of grid parity and cheaper per kWh cost made by RE proponents.

Our electricity generation reliability is disrupted by intermittency of RE and the fossil fuel power plants are backing up the RE intermittency situation in Malaysia. Looking at this example, is there a measurable target to be achieved by imposing a new ‘green’ tax which increases cost of doing business or are we just dancing to the tune of rich nations?

The government needs to have policies and instruments to shift businesses to more sustainable operations. The government must also protect businesses so that products from Malaysia do not face trade barriers using environmental parameters like what happened to the palm oil sector. There are many instances where policies do not move Malaysian industries to become value-added sectors that give more revenue to the nation. Malaysia being a manufacturing hub, water, energy and resources-intensive industries are of major concern.

We need to take stock of our own industries’ operations and see how we can lay a path for transition.

The “level playing field” that some are propagating to achieve the net zero target faster using a carbon tax-like mechanism may backfire in a very undesirable manner. The government must build the path for businesses to plug in to net zero easily compared to imposing monetary barriers where the cost will be quickly passed on to consumers and impose impacts on cost of living.

“If people are good only because they fear punishment, and hope for reward, then we are a sorry lot indeed.” - Albert Einstein

This article is contributed by Piarapakaran S, president of Awer, a non-government organisation involved in research and development in the fields of water, energy and environment.

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