Why It Matters

Carbon tax may fuel innovation

Along with the usual measures to support businesses and households, Budget 2017 included one new measure aimed specifically at addressing climate change - a carbon tax.

The tax, to be levied on large direct emitters of greenhouse gases such as power plants, will be implemented from 2019.

The Government is looking at a tax rate of $10 to $20 a tonne of greenhouse gas emissions - in the range of what other jurisdictions have implemented.

The move should not have come as a surprise. It follows the Paris Agreement on climate change, which Singapore ratified last year alongside more than 130 countries, reaffirming its commitment to addressing climate change and reducing emissions.

As Finance Minister Heng Swee Keat noted in his Budget speech, a carbon tax is the most economically efficient and the fairest way to cut greenhouse gas emissions, as it gives emitters and power users a financial incentive to reduce emissions.

This is necessary for the environment and could be a game-changer for Singapore.

In the short term, economists expect that the increased costs will be passed on to end-users. This would likely cause heavy energy users, especially corporations, to review their energy usage and, hopefully, make plans for reductions.

Over the longer term, the carbon tax could also spur the development of clean technologies.

Already, grid operator Singapore Power has said it is developing solutions to help consumers save energy, and is partnering companies to use innovative sources of renewable energy and sustainable energy-storage solutions.

Given the surge of tech start-ups here, it should only be a matter of time before more companies come up with innovative clean tech solutions.

Whether the carbon tax leads to a rethinking of energy usage or a total revolution in clean technology, it is an important step towards making Singapore's future a sustainable one.

A version of this article appeared in the print edition of The Straits Times on March 01, 2017, with the headline 'Carbon tax may fuel innovation'. Print Edition | Subscribe