Singapore plans to introduce a carbon tax on the emission of greenhouse gases from 2019, in a move to maintain a high-quality living environment and do its part in fighting climate change.
The Government is looking at a tax rate of between $10 and $20 per tonne of greenhouse gas emissions, a range that is within that adopted by other countries.
"The impact of the carbon tax on most businesses and households should be modest," Finance Minister Heng Swee Keat said when making the announcement.
The reason: The tax will generally be applied to power stations and other large direct emitters of greenhouse gases, not electricity users.
For businesses, the tax rate will be equivalent to a 6.4 per cent to 12.7 per cent rise in current crude oil prices, said the National Climate Change Secretariat (NCCS).
Tax rate per tonne of greenhouse gas emissions that the Government is looking at.
During oil price fluctuations from 2011 to last year, the prices rose by as much as 35 per cent.
As for households, there will be a 2.1 per cent to 4.3 per cent increase from current electricity tariffs, which means an extra $1.70 to $3.30 for an average family in a four-room flat with a $72 electricity bill, the NCCS said. Electricity prices have fluctuated up to 10 per cent between 2010 and last year.
But the final tax rate and exact implementation schedule will be decided after consultations with stakeholders and further studies.
Consultation with industries has started, while public consultation will begin next month, Mr Heng said.
The Government has studied the option of a carbon tax for several years and believe it is "the most economically efficient and fair way to reduce greenhouse gas emissions".
The tax will create an incentive for industries to cut their emissions, spur the growth of the clean energy sector and generate revenue to fund other measures to reduce greenhouse gas emissions.
It will also help Singapore achieve its commitments, under the Paris climate change pact, to curb its emissions "efficiently and at as low a cost to the economy as possible", he added.
The carbon tax is among measures announced in the Budget to protect the environment, including higher water prices and changes to schemes that encourage the use of cleaner vehicles.
Professor Euston Quah, head of the economics department at Nanyang Technological University, said a carbon tax is a good mechanism for controlling greenhouse gas emissions as it is straightforward and easy to understand.
"The more pollutants one produces, the more one pays. Most people can understand this," he said.
Another option would have been to set up an emissions trading scheme where companies can buy permits to emit greenhouse gases. But Singapore's market is too small to support that, he said.
Setting the right tax rate is key to the effectiveness of the tax.
He added: "The cost of reducing emissions should be lower than the tax a company has to pay. Otherwise, firms may simply conclude they are better off paying the tax."
Shell Singapore said it has long supported carbon pricing as it is essential to tackling climate change.
But policies must address the need for strong economic growth and must not undermine the competitiveness of Singapore companies, said its spokesman.
"It must ensure companies can compete effectively with others in the region which are not subject to the same levels of carbon costs," the spokesman added.