The move is aimed at enabling the city state, a major Asian oil and petrochemical refining centre, to meet its net zero emissions target by or around 2050.

Singapore plans to increase the carbon tax further to S$45 in 2026 and 2027, and again to S$50 to S$80 per tonne by 2030, Wong said.

From 2024, businesses will also be allowed to buy international carbon credits to offset up to 5% of their taxable emissions, he added.

“This will moderate the impact for companies,” Wong said.

“It will also help to create local demand for high-quality carbon credits and catalyse the development of well-functioning and regulated carbon markets.”

Carbon credits are certified instruments to represent emission reductions at climate action projects and are traded by companies to offset emissions elsewhere.

Singapore was the first country in Southeast Asia to introduce a carbon pricing scheme, implementing its carbon tax in 2019.

The country’s carbon tax applies to all facilities producing 25,000 tonnes or more of greenhouse gas emissions annually, which include oil refineries and power plants.

A stronger price signal from the government would encourage investments in greenhouse gas reduction, said a spokesperson from ExxonMobil which operates its world’s largest refinery in Singapore.

“Carbon tax and supportive government policies can help to incentivize more industries and sectors to invest in research or technologies to reduce emissions,” she added.

“As Singapore has an export-oriented economy, it is also important that the designed carbon tax framework encourages greenhouse gas reductions, while safeguarding competitiveness of trade-exposed industries.”

($1 = 1.3439 Singapore dollars)

(Reporting by Aradhana Aravindan and Isabel Kua in SingaporeEditing by David Goodman and Kim Coghill)

By Isabel Kua and Aradhana Aravindan