New Approaches to Climate Action in China: China Considers Carbon Tax Proposals

The concept of a carbon tax is receiving more and more attention in China, and there are even some formal proposals floating around the government. It was discussed by Jiang Kejun of China’s Energy Research Institute at the recent China Green Enterprise Forum and our network expert Bo Shen of the Lawrence Berkeley National Labs alerted us that both the Chinese and English versions of a newspaper article on the subject have now appeared on the National Development and Reform Commission’s (NDRC) climate change website. The Chinese article gives more detail than the English article and quotes unnamed officials from the Ministry of Finance (MOF) and the State Tax Bureau as well.

This is hardly a done deal, but there is more interest in using economic tools to influence resource use. Some details of the proposals are as follows:

  • An initial tax on larger enterprises
  • Implementation would rely on experience with fuel taxes and use the same approach.
  • There are a couple of rate proposals, both of which look at gradually raising rates. MOF and NDRC propose beginning at 10 yuan/ton CO2 and increasing to 40 yuan/ton by 2020. A separate proposal from the Ministry of Environment (MEP) reportedly suggests a starting rate of 20 yuan/ton and increasing to 50 yuan/ton in 2020.
  • Experts suggest China has the capacity to implement a tax as early as 2012.
  • The proposals also suggest a tax reduction or exemption for companies implementing CCS.

While these tax rates are certainly modest – 10 yuan is equal to approximately $1.50 – there is reason to believe it might impact energy use in China for three reasons: Firstly, Chinese consumers and businesses have shown themselves to be highly price sensitive – and so a small price difference might encourage some reduction in use. Secondly, when companies know the rate will gradually increase overtime they take extra steps to avoid future costs. And finally, the proposals also suggest using much of the tax revenue to support clean technology and support local implementation, as well as also using some to support low income groups.

Photo by Matthew Stinson, courtesy of a Attribution-Noncommercial 2.0 Generic license.