SINGAPORE - All facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year will have to pay a carbon tax from 2020, Finance Minister Heng Swee Keat announced on Monday (Feb 19).

The carbon tax will initially be $5 per tonne of greenhouse gas emissions from 2019 to 2023.

However, the Government will review the carbon tax rate by 2023, with plans to increase it to between $10 and $15 per tonne of emissions by 2030.

"In doing so, we will take into account international climate change developments, the progress of our emissions mitigation efforts and our economic competitiveness," Mr Heng said.

The finance minister said the Government expects to collect a carbon tax revenue of nearly $1 billion over the first five years, and is prepared to spend more than this in the same period "to support worthwhile projects which deliver the necessary abatement in emissions".

He added that the carbon tax will apply uniformly to all sectors, calling it " the economically efficient way to maintain a transparent, fair and consistent carbon price across the economy to incentivise emissions reduction".

A carbon tax is a common tool used to control the amount of earth-warming greenhouse gases being released into the atmosphere. About 67 countries and jurisidictions, including China, the European Union and Japan, have implemented or announced plans to implement such a scheme. Its aim is to incentivise emitters to reduce their greenhouse gas emissions and improve energy efficiency.

Professor Euston Quah, head of the economics department at the Nanyang Technological University, said it was timely for Singapore to adopt a carbon tax.

He said: “It sends a signal to those whose activities cause damage to society, whether in the form of human health or environment, that they must be responsible for their actions.”

The carbon tax will be levied on 30 to 40 large emitters that contribute 80 per cent of Singapore’s greenhouse gas emissions.

They are mainly from the petroleum refining, chemicals and semiconductor sectors, with each emitter producing more than 25,000 tonnes of carbon dioxide equivalent of greenhouse gases a year. This is equivalent to the emissions produced by the annual electricity consumption of 12,500 four-room Housing Board flats.

Related Story What the Budget tells us about Singapore's economic transformations

Related Story Live Blog: Budget 2018

As for the remaining 20 per cent, Mr Heng said the Government "will study how to account for these emissions, and take action where necessary".

The first payment will be in 2020, based on emissions in 2019. The tax will be levied on each facility's total emissions.

For households, the impact of the carbon tax will be small, at "about 1 per cent of total electricity and gas expenses on average", Mr Heng said.

An additional U-Save rebate will be provided for three years to help HDB households.

Eligible HDB households will each receive $20 more per year, from 2019 to 2021.

This will cover the expected average increase in electricity and gas expenses arising from the carbon tax, Mr Heng said.

Two companies that will be affected by the new tax expressed reservations about it.

A spokesman for ExxonMobil Singapore said the petrochemical firm was committed to working with the Government to reduce the risks of climate change but added that “affordable energy” was important to support economic growth and ensure Singapore’s competitiveness.

A spokesman for oil company Shell expressed concern with the flat tax rate.

He said: “We should be incentivised to perform better and deploy best-in-class technologies – a flat carbon tax will not provide the appropriate incentives to do so.”

In a dialogue with the Government last month, companies that would be affected had asked if the carbon tax could be implemented via a differentiated approach.

But Mr Heng, noting the need for a uniform carbon tax, said on Monday: “This is the economically efficient way-to maintain a transparent, fair and consistent carbon price across the economy to incentivise emissions reduction.”

Meanwhile, petrol, diesel and compressed natural gas (CNG) already have excise duties which encourage the reduced use of such fuels, so they will not be affected by an additional carbon tax.

In 2012, Singapore's greenhouse gas emissions came up to a total of 49 million carbon dioxide-equivalent tonnes.

That year, the industry sector accounted for about 59 per cent of Singapore's total emissions, of which 41 per cent was from direct emissions and 18 per cent from electricity use.

As part of the Paris Agreement, Singapore has pledged to reduce its emissions intensity (emissions per dollar of GDP) by 36 per cent from 2005 levels by 2030, the same year it aims to have emissions reach a peak.

Mr Heng said that from 2019, he will set aside funds to give companies, including small and medium-sized enterprises and power generation companies, better support to improve their energy efficiency.

These include schemes such as the Productivity Grant (Energy Efficiency) and the Energy Efficiency Fund. Projects with greater reduction in emissions will receive more support.

Executive director for Singapore Green Building Council Yvonne Soh said such schemes could help companies overcome the cost barrier for energy efficiency initiatives.

“A number of such incentive funds or assistance schemes already exist, but more support is always welcomed as energy efficiency is usually not on the top of most companies’ minds," she said.