A senior official in China’s Ministry of Finance has announced that China intends to introduce a set of environmental taxes, including one on carbon dioxide, providing some more grist for China and carbon tax lectures in climate change courses. Details of the tax remain sketchy; however, it’s likely to be an extremely modest given a proposal by the Ministry in 2011 that would have initially set such a tax at at 10 yuan ($1.60) per ton of carbon, rising to only 50 yuan ($8) per ton by 2020. The proposal would initially add less than $1 to the price of a ton of coal, rising to about $4.40 by 2020. By contrast, coal in China currently trades for around $86.50 a ton.
Also, the Financial Ministry has raised the possibility of more modest taxes for specially affected industries, which as we have seen in the context of the European Union’s Emissions Trading Scheme, often results in excessive protection of industry that, in reality, faces little threat of carbon leakage. Moreover, Chinese provinces have a proclivity for obviating the bite of taxes and fees on industry to attract or keep them within their jurisdictions.
A recent study by the Chinese Academy for Environmental Planning projected that a carbon tax rate of 20 yuan per ton of carbon could reduce Chinese carbon emissions by 4.5% of the nation’s 2010 emissions. A 50 yuan per ton assessment could reduce emissions by a hefty 9.5% of 2010 emissions, or 18.6% below baseline in 2030. The study also indicated that economic impacts would be de minimis and would stimulate the development of new industries. Moreover, a 50 yuan tax would raise approximately 180 yuan in revenue that could be used for projects to reduce carbon emissions and develop innovative energy technologies.
It will be interesting to see if the Chinese have the will to enact a carbon tax high enough to send a price signal that incentivizes fuel switching and technological innovation. It will also be interesting to see how it stitches together a carbon tax with its pilot emissions trading system and other initiatives to reduce greenhouse gas emissions. Ultimately, success may portend more substantive commitments than those proffered under the Copenhagen Accord, but only time will tell.