Taxing proposal

China is exploring the possibility of levying a carbon tax at a provincial level in order to help mitigate climate change, a recent report shows.

The China Environmental Culture Promotion Association (CECPA) and the China Institute of Development Strategy Studies compiled the report.

Niu Wenyuan, a researcher on sustainable development from the Chinese Academy of Sciences, led the report's team.

It proposes using carbon as a quantitative barometer in monitoring economic activities and promoting ecological compensation among the provinces.

Calculating carbon emissions in the provinces is based on measuring the difference between a carbon source and its sink (the carbon reservoir that is accumulated and stored after its release) as an index to measure the release and removal of greenhouse gases (GHG) in the atmosphere.

Provinces that have higher carbon emissions than carbon captures should pay for the excess based on a certain amount of local gross domestic products (GDP), thus setting up a carbon fund.

The fund, according to experts' calculations, could be set between 0.05 percent to 0.15 percent of provincial GDP, or about 13 billion yuan to 39 billion yuan for 2006 for instance.

Provinces with more carbon captures than emissions would be entitled to money from the central government based on the same ratio of local GDP to further encourage carbon neutral efforts.

According to the calculations, Shandong, Shanxi and Hebei provinces are the largest carbon emitters in China, while the Tibet autonomous region and provinces of Qinghai and Yunnan have the least GHG emissions.

The report also proposes establishing a special committee to manage the carbon fund to be used for promoting technological innovations for environmental protection, as well as projects like the Clean Development Mechanism.

Pan Yue, deputy director of the Ministry of Environmental Protection, says that a low carbon economy is a key to achieving China's ecological balance.

"The study shows a breakthrough in exploring a way of cutting GHG emissions in China, and showing the country's will to fulfill its international responsibility. Moreover, it also provides a feasible approach to promoting ecological compensation in China," Pan says.

However, the mechanism of levying carbon tax is challenged by some experts, who believed it could be improved.

Qi Ye, professor of Environmental Policy and Management, and Director of the Public Policy Institute at Tsinghua University, says: "different from the cap-and-trade system, which is an effective market instrument to control pollutant emissions, the mechanism designed in the report does not set a maximum of carbon emissions. I am afraid it would not be so effective in controlling the total amount of emissions."

Another expert who declined to be named says: "The mechanism still depends on command-and-control regulation. In this case, if there is not a strong and strict monitoring system, it would be highly possible to rig data about carbon emissions when it comes to fee and tax collections."

At the end of October, China issued a White Paper with policies and plans for addressing climate change. The paper outlined plans to decelerate climate change, including adjusting the economic structure to promote the optimizing and upgrading of the industrial structure; making great efforts to save energy and raise energy efficiency; developing renewable energy and optimizing the energy mix; developing a recycling economy to reduce greenhouse gas emissions; reducing greenhouse gas emissions in agriculture and the countryside; promoting forestation and strengthening the capacity of carbon sinks, and intensifying R&D efforts to deal with climate change scientifically.

The country also pledges to cut its energy intensity, energy consumption per unit of GDP, by 20 percent from 2005 to 2010. The move, which some experts say would require at least 97 billion yuan in investment, can help China save up to 600 million tons of coal equivalent and reduce CO2 emission by 1.4 billion tons, one-fourth of the current annual emissions.

(China Daily 11/17/2008 page5)