Carbon tax works by putting a price on pollution

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From next year, when Singapore rolls out a carbon tax scheme, large emitters will have to pay to pollute.

Facilities that produce more than 25,000 tonnes of greenhouse gas emissions or more in a year - the equivalent of emissions produced by the annual electricity consumption of 12,500 Housing Board four-room households - will have to pay this tax.

The tax rate has been set at an initial $5 per tonne of emissions, but will go up to between $10 and $15 per tonne of emissions by 2030.

This was announced by Finance Minister Heng Swee Keat in his Budget speech on Monday.

A carbon tax is a type of carbon pricing strategy used to control the amount of earth-warming greenhouse gases being released into the atmosphere.

A total of 67 countries and jurisdictions, including China and Japan, have implemented or announced plans to implement such carbon pricing strategies.

Essentially, these strategies give facilities the licence to pollute - for a price.

There are two main types of carbon pricing strategies: a carbon tax and an emissions trading scheme.

A carbon tax puts a price on pollution. In Singapore, the 30 to 40 large emitters - mainly from the petroleum refining, chemical and semiconductor sectors - will pay up to $15 per tonne of emissions by 2030.

The price of carbon under such a system varies across countries and jurisdictions.

In Japan, which implemented a carbon tax scheme in 2012, the carbon tax is 289 yen (S$3.60) per tonne of emissions.

Unlike a carbon tax, which puts a price on pollution, an emissions trading scheme puts a cap on the total level of greenhouse gas emissions.

This ensures that the required emission reductions will take place to keep total emissions within a pre-allocated carbon budget.

Market forces determine a price for greenhouse gas emissions under such a scheme.