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Fuel tax reform an energy milestone
By Fu Jing (China Daily)
Updated: 2008-12-29 07:49
Fuel tax reform an energy milestone
 
You pay as you fill up the tank. In other words, the more you drive, the more it costs you - and the planet.
 
This is a simple market rule but it has taken nearly two decades for the government to pick a "proper time" to implement it amid the sharp fluctuation of global oil prices. The Chinese government has finally decided to start a fuel tax plan beginning January 1.

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According to the plan, the gasoline tax will increase from 0.2 yuan to 1 yuan per liter, and go from 0.1 yuan to 0.8 yuan per liter for diesel. And six categories of tolls for road maintenance and management will be scrapped.

Taking the taxes and global oil price declines into account, the National Development and Reform Commission announced domestic fuel price cuts in mid-December. The current fuel prices in the country are based on $83.5 per barrel of crude. But the price in the international market has fallen drastically in the past few months from the record high of $147 a barrel to a four-and-a-half-year low recently of $36 a barrel.

It means the Chinese government could announce further fuel price cuts in 2009, as the goal of its fuel price reform is to let the market have its say.

In looking back at 2008, the price and tax reforms should be listed as a significant energy-related event in China.

A widespread argument is that the changes are likely to encourage car buying and rejuvenate the auto industry, which has been hit hard by the global financial crisis. And that's also good in order to maintain higher economic growth as the government has signaled its intention to prop up the sluggish auto and real estate sectors to shore up prosperity.

But please be cautious.

These policies have been rolled out under the context of low-price fuels and economic recession. But they are very likely to mislead auto buyers to use low rate loans to purchase vehicles to drive at cheaper fuel rates in a slumping economy. But when the growth picks up, they have no choice but to park the cars at home because of rising fuel bills.

When considering China's auto policy and economic stimulus plans, environmental and energy implications should also be carefully thought out. Otherwise, car owners will suffer if they want to drive and the environment will also suffer.

There are two likely reasons for these scenarios.

Clean-fuel vehicles are still far away and China is a country with a population of 1.3 billion where many are dreaming of owning a car with few, if any, environmental considerations.

Energy security

Energy supply security is a precondition of a stable economy and China's leadership knows this well.

To ensure that, National People's Congress approved the establishment of the National Energy Administration in March. The administration's head Zhang Guobao announced that China would explore more renewable energy and nuclear power options to enlarge its energy structure.

Meanwhile, it is using overseas resources to meet its manufacturing demands.

Recently, the administration said China plans to raise its total installed nuclear power generating capacity to 70 million kilowatts by 2020, 75 percent higher than the target the set in 2006.

This is an effort to raise the proportion of China's nuclear power to 5 percent of the total installed electricity generating capacity by 2020, up 1 percent from the goal set in 2006. The current installed capacity of nuclear power is only about 9 million kilowatts, or 1.3 percent of the total installed electrical generating capacity.

The installed capacity of thermal power stations already accounts for 76 percent of China's total installed generating capacity. Contributing to about 84 percent of the overall power supply, coal-based power has become a major source of carbon dioxide emissions. In 2007, China's primary energy output was estimated at 2.4 billion tons of standard coal while its consumption was about 2.7 billion tons, ranking second in the world.

In recent years, the government has rolled out a host of fiscal and tax incentives to boost the development of the alternative energy sector, including a 50-percent cut in the value-added tax for wind power plants.

The installed capacity of wind power in the nation is expected to exceed 10 million kW by the end of 2008, compared with 4.03 million kW in 2007. The increase came as the government promoted the use of renewable energy in the face of rising oil prices.

In 2007, wind power, biomass and hydropower accounted for 8.5 percent of the nation's total energy use. That figure is set to increase to 10 percent in 2010 and 15 percent in 2020.

It is laudable that China hasn't shaken its determination to explore alternative energy sources even though oil and coal prices have already plummeted recently.

Meanwhile, Chinese energy investors have been encouraged to "become bold" in acquiring stakes in overseas enterprises. That's the message from Zheng Xinli, vice-director of the Policy Research Office of the Central Committee of Communist Party of China. He suggested recently that China should use its 2-trillion-dollar foreign exchange reserves to encourage overseas mergers and acquisitions (M&As), especially in those in the energy and resources sector.

He says the foreign exchange reserve should be invested in removing the energy and resource bottlenecks that have hindered the country's development for so long. Zheng says the Chinese government should cooperate with investors, if necessary, by offering preferential loans to improve the infrastructure of the destination countries.

As an advisor directly serving China's highest leadership, Zheng's suggestions are very likely to become the central government's policy to boost overseas investment and the priorities should be exploring overseas oil, gas and other mineral resources.

Amid a world recession, many resource-exporting countries have pinned their hopes on the manufacturing-led countries. This is a mutually beneficial solution for China and the rest of the world.


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