Commentary: Impact of petrol duty hike goes beyond immediate effect on cost of living
The petrol duty hike’s larger intent of nudging Singaporeans to make conscious lifestyle choices is in line with the country’s green goal of a more sustainable transport sector, says Dr Sanjay C Kuttan.
SINGAPORE: One of the most talked about announcements from Budget 2021 delivered by Deputy Prime Minister and Finance Minister Heng Swee Keat on Tuesday (Feb 16) was the hike in petrol duties.
Most drivers are concerned with how much this could push up costs of driving.
After all, yesterday’s mark-up mean petrol duties will hit a high this year at 79 cents for premium fuel and 66 for intermediate grade fuel.
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MARGINAL IMPACT ON COST OF LIVING IN IMMEDIATE TERM
True, drivers would be impacted but the effect may be varied.
For large privately owned vehicles (say 2.4 litres or more), the increase would mean about S$100 to S$150 extra a month (assuming 1,000 litres a month consumption).
If you drive for lifestyle rather than for your livelihood, this increase may be negligible compared to the price of the car, its annual depreciation and where most season parking fees are in that range or more.
And thankfully, taxis, private hirer drivers and motorcyclists (who make a bulk of food deliverers) who use their vehicles for work will get rebates.
But the greater impact is the consequent decrease in vehicular emissions catalysed by this move.
Drivers who feel the pinch may drive less if they have strong public transport options. Drivers may also change their fuel choices.
The fact is premium fuel (which has higher octane component) produces more pollutants and should be discouraged.
The shift from a market share of almost 55 per cent in 2005 to about 25 per cent in 2017, in part due to education about fuel quality and in part due to the lower costs of intermediate-grade fuel, has already had a positive impact on the environment and human health.
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This effect was further enhanced with the zero COE growth policy since 2018.
Raising 15 cents per litre on premium fuel will further penalise the use of a more polluting fuel versus 10 cents on intermediate fuels.
The price differential at the pump between the two types remains steady at about 50 to 60 cents per litre, which could shift drivers currently using premium to intermediate to buffer the impact.
LIMITED IMPACT ON PETROL INDUSTRY
Petrol companies will likely pass the increase in petrol duty in its entirety to the consumer instead of absorbing the tax hike to use this pricing difference to gain market share, since the fight for market share has only short-term benefits, for example, in relieving storage constraints at the refineries.
They are more likely to focus on enhancing brand loyalty with related discounts and promotions to maintain a long-term market share stability.
Our oil industry will not be affected significantly. Only 20 per cent of our local refinery production of petrol and diesel is for domestic use. Growing regional demand for these fuels where car growth is not restricted will most likely soak up the displaced volume.
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LIMITED INCREASE TO NATIONAL COFFERS
When DPM Heng said in his budget speech: “Usage-based tax has helped shape consumer behaviour towards a more efficient use of fuel or environmentally friendly alternatives,” I wondered if the petrol tax hike was an application of the nudge theory, an idea grounded in behavioural science.
After all, positive reinforcement and indirect suggestions can influence people’s decisions and actions without them even realising it.
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The motivation for such an increase in petrol duty must be the greater potential impact on emission reduction than revenue collection since most of the collected revenue will be channelled to the consumer in terms of rebates to ease the transition for those relying on their vehicles for their livelihoods.
Petrol and diesel pump sales have ballooned to 1,300 million litres per year on average over the last decade.
Assuming 80 per cent of that volume to be petrol, then we are looking at approximately an additional S$115 million each year in recurring duties, which disappears quite quickly with the S$113 million worth of rebates also announced on Tuesday.
In short, the rise in petrol duties will barely make a dent on national coffers, at least in the short term while there are still rebates.
(With new green targets announced by the Singapore Government, when will we be seeing more electric vehicles on our roads? And will town council and condominium committees get involved? The author and a business professor weigh in on CNA's Heart of the Matter:)
NUDGING MORE SUSTAINABLE LIFESTYLE CHOICES
A secondary intent may be in promoting the transition to electric vehicles with charging infrastructure development, if public transportation is less of a suitable substitute.
In prodding Singaporeans to adopt more conscious lifestyle choices aligned to our national vision of a Green Singapore, other behavioural changes that should be encouraged include avoiding peak hour jams (which burns at least two to three times more fuel), reducing average driving speed, less aggressive driving, and timely car maintenance.
An efficient public transport system will also be a key enabler.
Consumer behaviour is an important lever in our fight against climate change. If consumers are not focussed on sustainability, the environmental benefits from investments in new green technologies and progressive green policies will never be fully realised.
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MAKING ELECTRIC VEHICLES MORE ATTRACTIVE
As Singapore marches towards the 2040 goal of phasing out of petrol vehicles, there will be less petrol duty collected albeit with a positive impact to the environment.
The question on everyone’s mind then may be how the government would supplement the diminished recurring revenue from petrol duty. Would this be through an increase in carbon taxes?
The increase in petrol duty also makes driving electric vehicles more attractive, where the cost of electrons can range from approximately 17 to 24 cents per kWh when charging at home to 55 cents per kWh when charging at public outlets provided by Shell Greenlots, or even lower at SP Group and eventually future Charge+.
That means S$35 at 55 cents per kWh for a full electric car battery of 64kWh for a travel distance of 350 to 400km depending on your driving style and use of air-conditioners.
This is good news when extensive lifecycle analysis have shown that EVs contribute a third of the greenhouse gases a comparable vehicle with an internal combustion engine does. This figure improves with a greener electricity grid.
Even in Singapore, with 95 per cent of our electrical grid on natural gas, EVs will still help to reduce our greenhouse gas emissions.
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For these reasons, I am also hearted by the announced S$30 million fund to develop Singapore’s EV charging infrastructure development efforts.
In Singapore’s shift towards a greener economy, we will need to keep our eye on juggling various sustainability balls to deliver impact.
We will need more behavioural nudges to reduce emissions by the transport sector which, for the record, has already started its bold transformational journey.
Dr Sanjay C Kuttan is council member at the Sustainable Energy Association of Singapore and Chair of the Sustainable Infrastructure Committee.