Finance minister Heng Swee Keat said the tax would be imposed on any organisation producing more than 25,000 tonnes of carbon per year.
The firms affected reportedly account for about 80 per cent of Singapore’s emissions.
The tax of S$5 (US$3.79) per tonne of greenhouse gas emissions from next year to 2023 could be raised to S$10 or S$15 per tonne by 2030 after a review.
The planned Singapore tax is still well below the S€30 (US$37) per tonne climate scientists and economists believe is necessary to cover the environmental costs of emissions.
Oil multinationals Shell and ExxonMobil welcomed the carbon tax with some reservations.
Singapore hosts the biggest global integrated refinery and petrochemical operations of both Shell and ExxonMobil.
Shell chief economist Steven Fries told the media: “International experience has shown a good way to deliver on both objectives is for governments to set an appropriate carbon ‘price’ on emissions which exceed an acceptable industry performance.
“This allows the government to set a carbon price high enough to incentivise companies to be more efficient, while safeguarding competitiveness by keeping the average carbon tax low,” he added.
The 197-nation 2015 Paris Agreement called for limiting global warming to “well under” 2°C and “pursuing efforts” to limit warming to 1.5°C.
The tax will probably be imposed on between 30 and 40 firms, mainly from the oil refining, chemical and semiconductor sectors, according to the Straits Times.
“Singapore produces [lower] carbon emissions per dollar of GDP than most countries,” Heng said during his 2018-19 budget speech.
“We intend to further reduce our emissions intensity to make a bigger effort to combat climate change.”
An OECD report last week argued that global carbon taxes were far too low to deliver environmental benefits or bring profound emissions cuts, despite increasing political interest in pollution measures.
Singapore came 26th out of 142 countries on a scale measuring emissions per capita, according to the International Energy Agency.
Heng said the carbon tax would encourage employers to take measures to cut emissions, making them more competitive if limits were imposed by more countries when international regulations were enforced.
The financial chief said he expected Singapore to collect carbon-tax revenue of nearly S$1 billion in the next five years, although the authorities would spend more than that to help companies.
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