Debate resurfaces over China carbon tax plan

Senior finance official's call for new policy on emissions puts issue back on agenda, four years after it was stalled by global financial crisis

PUBLISHED : Friday, 08 March, 2013, 12:00am
UPDATED : Friday, 08 March, 2013, 7:02am


Calls for a tax on carbon emissions have resurfaced on the mainland in recent weeks, with a top policy official at the Ministry of Finance publicly highlighting the need to overhaul tax policies to improve environmental protection and energy conservation.

But analysts said that even if Beijing mustered the resolve to launch such a controversial tax, it could be many years before it was fully implemented and having the desired effect, given the likely opposition from affected large state enterprises whose bottom lines were at stake.

Jia Chen, the head of the ministry's tax policy division, wrote in an article published on the ministry's website that the central government should revamp its consumption tax regime to help meet goals on energy savings and emission controls.

"We should proactively push forward the reform of taxation related to the environment, such as replacing the existing pollution discharge fee by an environmental protection tax," Jia wrote. "Carbon dioxide emissions should be subject to this tax."

In its 12th five-year plan, Beijing set a target to cut carbon emissions per unit of economic output by an average annual rate of 17 per cent between 2011 and 2015. It also told coal-fired power plants to cut sulphur dioxide emissions per unit of output by an average 12.4 per cent and nitrogen oxides by 15.1 per cent.

Coal-fired power producers have been paying pollution discharge fees on their sulphur gas emissions for more than a decade, although Beijing has offered financial incentives to encourage them to install scrubbers for such gases. Carbon dioxide has so far not been subject to levies.

We should proactively push forward the reform of taxation related to the environment ... Carbon dioxide emissions should be subject to this tax

No timetable has been set for the carbon tax, although 2015 has been suggested as a possible target.

Early last year, Xinhua's Economic Information Daily quoted Su Ming, a deputy head of the ministry's Research Institute for Fiscal Science, saying the institute proposed a levy of 10 yuan (HK$12.46) per tonne of carbon dioxide by 2015.

In 2009, a Ministry of Finance think tank called for a carbon tax to be imposed by this year, but the global economic crisis stalled the plan.

Jia Kang, the ministry's head of research who was behind the proposal, was quoted by Bloomberg as saying on Wednesday that Beijing was likely to wait until after this year to introduce a tax on carbon, possibly at 5 yuan to 10 yuan per tonne.

China, the world's biggest carbon dioxide emitter, took a cautious stance in global climate change talks in December, and did not commit to binding carbon caps before 2020.

CLSA head of sustainable research Charles Yonts said two possible ways to impose a carbon tax were a straightforward tax on emissions, or a levy through a "cap-and-trade" scheme. A carbon tax was likely to come with tax credits for installing emission-reduction equipment to encourage polluters to find the most efficient way to cut emissions, he added.

A cap-and-trade system entails setting a base level of emissions and targets for reductions. Polluters exceeding this level would have to offset the excess by buying credits from firms whose emissions were below the level.

Yonts said the experience of Europe, which runs the world's largest carbon cap-and-trade scheme, offered Beijing lessons on the importance of setting the right emissions base.

In Europe, too many credits were "given away" because the base level of emissions was set too low. Part of the blame was on Europe's economic downturn, which meant pollution levels were lower than anticipated, resulting in a glut of credits and depressed credit prices.

More than half a dozen carbon trading exchanges are being established in China, and trading rules are being ironed out.

"A carbon levy may take many years to implement, as the establishment of regulations and trading infrastructure take time," Yonts said, adding that opposition from powerful state-owned power generators - the biggest carbon and sulphur emitters - could threaten Beijing's ambitions on emissions cuts.

While listed power producers, which tend to have the most lucrative assets of state-owned power generation groups, are profitable, he noted that many power plants owned by the parent firms were still losing money, since power prices had yet to fully reflect coal costs, especially in less-developed western regions.

Huaneng Power International, the listed unit of the nation's largest power generator China Huaneng Group, has not disclosed its carbon emission performance. It reported that sulphur dioxide per unit of output fell to 0.57 gram per kilowatt-hour in 2011 from 2.87gm in 2008 and 4.75gm in 2005.

Huaneng Power used 144 million tonnes of coal in 2011. In 2009, in its social responsibility report, it said it saved 1.03 million tonnes of coal by improving combustion efficiency, resulting in the reduction of 2.58 million tonnes of carbon dioxide.

Based on this coal usage-to-carbon emission ratio, the firm's carbon emissions could have amounted to 361 million tonnes in 2011. If a straightforward carbon tax was imposed at 10 yuan a tonne, the burden would amount to 3.6 billion yuan. That is more than half of the 6 billion yuan net profit the firm is forecast to post for last year. Net profit for this year is forecast at 8.2 billion yuan, according to the average estimate of 26 analysts polled by Thomson Reuters.