Singapore will impose a carbon tax of between S$10 and S$20 on each tonne of greenhouse gas emitted by power generation plants and other large emitters from 2019.
Announcing this on Monday, Finance Minister Heng Swee Keat said that the final carbon tax and exact implementation schedule will be decided after industry and public consultations, as well as further studies.
"(A carbon tax) will help us to achieve our commitments to reduce emissions under the Paris Agreement, do so efficiently and at as low a cost to the economy as possible," he said.
"This may also spur the creation of new opportunities in green growth industries such as clean energy."
Revenue from the carbon tax will help to fund measures by industries to reduce emissions, Mr Heng added.
"The impact of the carbon tax on most businesses and households should be modest."
The tax will be applied on power stations and other large direct emitters which produce over 25,000 tonnes of carbon dioxide equivalent of greenhouse gases a year.
There are currently 30 to 40 of such large emitters, said the National Climate Change Secretariat (NCCS).
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The increase in operating cost from such a tax is equivalent to the impact of an increase in crude oil prices of US$3.50-US$7 (S$5-S$10) a barrel, according to NCCS.
The government will study how it can help businesses with the transition.
Companies will receive greater support for industrial energy efficiency, including improved awareness of energy efficiency improvement opportunities, enhanced existing energy efficiency incentives, and help to put in place better energy management systems, NCCS added.
For households, the impact of the carbon tax could result in a rise in electricity prices of 0.43 to 0.86 cent per kilowatt hour, or about S$1.70 to S$3.30 for the median household in a four-room flat which pays around S$72 a month in electricity bills, said NCCS.
Carbon pricing broadly takes two forms: a carbon tax, or a cap and trade.
In the former, the government sets the price to be paid for each unit of greenhouse gas emissions.
Under a cap-and-trade system, the government sets a cap on the total allowed greenhouse gas emissions by issuing an equivalent amount of permits, the price of which is determined by a trading market.
A carbon tax would be more practical to implement than a cap-and- trade for a small domestic market like Singapore, said NCCS.
"A carbon tax can provide greater price certainty and stability that will incentivise investments in energy efficiency and low-carbon solutions," it said.
"Notwithstanding (this), Singapore remains open to linking our carbon tax to external carbon markets where feasible."
Six greenhouse gases will be covered under the carbon tax: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexaflouride.
The government has started industry consultations on the carbon tax, and will begin public consultation in March, said Mr Heng, adding that the government will take into consideration lessons from other countries and prevailing economic conditions in Singapore in the implementation.
The announcement received mixed reactions; green advocates welcomed the carbon tax while industry players voiced concern over its impact on Singapore's competitiveness.
ExxonMobil, which has its largest refinery and petrochemical complex in the world in Singapore, noted that a carbon tax represents additional cost for the refining and petrochemical industry in the country.
It would also impact Singapore's competitiveness as an export manufacturing hub, it said.
"We are committed to working together with the government on this important matter in the consultation sessions ahead," said a spokesman, "to find the balance between providing affordable energy and products to support human progress, addressing the risks posed by greenhouse gas emissions and ensuring Singapore's long-term competitiveness."
Shell, too, said the design of the policy is important to ensure Singapore's competitiveness, even as it is committed to working with the government to contribute to reducing emissions intensity.
"We would emphasise the critical importance of a policy design which addresses strong economic growth and the competitiveness of Singapore companies in the international marketplace," said a spokesman.
"It must ensure companies can compete effectively with others in the region who are not subject to the same levels of carbon dioxide costs."
Both companies own the largest refining and petrochemical complexes in Singapore, and have spoken in support of a carbon price - in ExxonMobil's case, a carbon tax - globally in the past few years.
The petroleum refining, chemicals and semiconductor sectors are the biggest greenhouse gas emitters in the city-state.
Green advocates, meanwhile, are encouraged by the move.
Euston Quah, head of the Department of Economics and deputy chair of Sustainable Earth Office at Nanyang Technological University, said that Singapore's overall competitiveness should not be affected given the small quantum of the tax, and also because other jurisdictions are applying a form of carbon pricing too.
For Constant Van Aerschot, executive director of The Business Council for Sustainable Development Singapore, the proposed amount for the tax might not be sufficient to make a meaningful impact.
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"What is generally accepted as a game changer is a price on carbon between US$50 and US$100 (a tonne)," he said, adding that at this level it triggers new investment into low-carbon technologies.
Nevertheless, it represents a good start, he said, especially since Singapore is a first mover in the region.
- Carbon tax of S$10-S$20 per tonne of greenhouse gas from 2019
- To be applied to power generation plants and other large emitters
- ExxonMobil and Shell supportive but flag concern over impact on Singapore's competitiveness
- For more Budget 2017 stories visit bt.sg/budget17
This article was first published on February 21, 2017.
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