September 24,2009

China Criticizes US Carbon Tariff "Protectionism," Considers Domestic Carbon Tax Policy

By CSC staff, Shanghai

While China publicly frets about what it is calling "protectionism" by the US in its moves to levy a carbon tax on imported products, it is itself considering introducing a carbon tax at home.


The version of the American Clean Energy and Security Act of 2009 which passed the House of Representatives in June and is now before the Senate states that the president has the right to impose a "carbon tariff" on imported products after 2012 if industrial greenhouse gas emissions in the country of origin of imported products is higher than that in the US.


Fan Gang, an economist and a member of the central bank's Monetary Policy Committee, says trade protectionism such as "carbon trade protectionism" and "carbon trade discrimination" is developing, and the US carbon tax will become a weapon against the trade of developing countries.


A research team led by Fan Gang put forward a suggestion that China should levy its own carbon tax immediately in line with the global carbon trading price if the US imposes one. According to WTO provisions, it is legal to collect a carbon tax, but WTO rules stipulate that double taxation is not allowed for the same product, so if China has already levied a carbon tax on the product in its domestic market, other countries are not allowed to impose yet more tax.

Researcher Jiang Kejun of the Energy Research Institute of National Development and Reform Commission has led a project known as 2050 China Energy and
CO2 Emissions Report. He says they are researching the effects and related factors of future carbon tax collection to provide basic research results for the introduction of such a tax. At present, the Development and Reform Commission, the Ministry of Finance, the Ministry of Environmental Protection, and the State Administration of Taxation are studying the carbon tax, but no clear timetable for the introduction of carbon tax has yet been set out.


Jiang says that the introduction of a tax on fuel is the first step, and then energy taxes on coal and other energy industries will pave the way for the carbon tax. Levying would happen first on production and then on consumption.


Any carbon tax would depend on the time of the introduction of energy tax. At the beginning, it may be mixed with an energy tax, becoming strictly a carbon tax in four or five years. Another approach is to levy carbon tax earlier at a relatively low rate, maybe 10-20 yuan/ton, and increase it to 300-400 yuan/ton to a level inhibiting CO2 emission.


A report published in January by Jiang Kejun and Wang Jinnan and other researchers of the Chinese Academy for Environmental Planning entitled The Study on China's Carbon Tax Policy to Mitigate Climate Change states that if the carbon tax in 2030 reaches 200 yuan/ton, energy-savings could reach up to 20% compared to a baseline scenario of non-collection, and the impact on GDP would be less than 0.3%. If the carbon tax in 2030 is 50 yuan/ton, China's carbon emissions would be reduced by 18.6%.


Industrial enterprises and consumers would have to consider the use of low-carbon technologies and energy if related reports are published three or four years before carbon tax is levied. Current reports suggest the tax be based on the CO2 emissions according to the carbon content in fossil fuels such as coal, natural gas, and refined oil.

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