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Policy Progress of Carbon Taxation
to Mitigate Climate Change in
Northeast Asia
Dr. Xianbing LIU
Senior Policy Researcher
Kansai Research Centre
Institute for Global Environmental Strategies, Japan
Presentation Structure

Background;

A glance of the latest climate policies in China, Japan and
Korea;

Academic discussions of carbon tax policy with relevance;

Progress of carbon tax policy in the three countries;

A comparison of carbon tax proposals in the three countries;
Summary

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UNDP Seminar at GSSD Expo, Geneva, Switzerland
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Outline of IGES


Establishment: March 31, 1998
Personnel (As of Sep. 2009): Researchers: 81(32)*; Research Support and PR Staff: 38(20);
Administration Staff: 20(5); Inter-Governmental Programme: 32(8). *The figures in brackets show the
subtotal of visiting researcher and part-time staff.

Working Languages: Japanese and English
Issue cluster: Climate Change, Natural Resources Management and Sustainable Cons. & Prod. Groups;
Discipline cluster: Economy and Environment and Governance and Capacity Groups;
Stakeholder cluster: Kansai Research Centre; Kitakyushu Urban Centre; Bangkok and Beijing Offices
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UNDP Seminar at GSSD Expo, Geneva, Switzerland
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Research Focus at KRC/IGES
Established: June, 2001
Research Focus: “Business and the
Environment”
Ongoing projects:
- Market-based instruments for
improving firms’ carbon
performance in NE Asia (MBIs);
- Research partnership for the
application of low carbon
technology for sustainable
development (ALCT);
- Local business initiatives (LBI)
- Co-benefit technology (CT)
Information disclosure
strategy was focused in
the past three years
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Target Countries of MBIs Project (FY2010-12)
Japan
(2008)
14% 2%
45%
19%
20%
Transport
Commercial
Residential
Other
China
(2005)10% 5% 4%
14%
Industrial
10% 7%
17%
67%
Korea
(2007)
66%
Fuel combustion
Agriculture
Industrial
Industrial process
Transport
Evaporated as methane
Commercial/Residential
Other
Japan
China
Korea
India
U.S.
Items
CO2 emissions (Mill. tons)
Per capita CO2 emissions (tons)
1990
2006
1990
2006
1990
2006
1990
2006
1990
2006
1171.4
1292.5
2412.9
6099.1
241.5
474.9
690.1
1509.3
4861.4
5748.1
9.5
10.1
2.1
4.7
5.6
9.8
0.8
1.4
19.5
19.3
0.4
0.3
1.9
1
0.5
0.4
0.7
0.6
0.6
0.5
Per GDP CO2 emissions
(kg/2005 PPP $)
November 23, 2010
Stable, yearly
152.8% (yearly
96.7% (yearly
0.6%↑
5.1%)↑
4.2%)↑
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The Latest Climate Policies in the Three Countries
Japan
China
Korea
Target
 To reduce its 1990 emissions by
6% from 2008-2012
 To reduce emissions by 25%
from 1990 levels by 2020 (based on
the premise with the participation
of all major emitting countries)
 To reduce emissions by 80% from
1990 levels by 2050
 Improving energy efficiency at
least by 30% by 2030
 To reduce national energy
intensity by 20% by 2010 and to
increase renewable energy in the
national mix to 15% by 2020
 To cut CO2 emissions per unit of
GDP by 40-45% by 2020
compared with 2005 levels
※These are voluntary targets on its
own country conditions
 To reduce by 30% by
2020 compared with BAU
levels (It is said this equals to
a reduction of 4% compared
with 2005 level)
※It is a voluntary target on
its own country conditions
Countermeasures
(mainly
for
industries)
 Keidanren Voluntary Action Plan
on Environment
 Energy saving-related law
 GHG emissions Calculation,
Reporting and Disclosure System
 Energy-related tax
 Carbon offset scheme, carbon
financing scheme (voluntary)
 ETS is under trial, carbon tax is
being discussed
 (Energy supply side) All new
coal-fired power plants to be stateof-the-art commercially available
with better technologies
 (Energy demand side) Imposes a
significant portion of overall 20%
energy intensity improvement by
directly targeting around 1,000
largest state-owned enterprises
 Resource-related tax
 Adoption of a legal and
regulatory framework, GHG
and Energy Target
Management System, carbon
emission trading, the creation
of a national GHG inventory
reporting system by 2010
 Energy-related tax
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Research Discussions of Carbon Tax with Relevance
Japan:
Nakata and Lamont(2001) indicate that carbon tax does suppress the increase of CO2 emissions,
and suggest energy tax as a more stable approach for Japan.
Takeda (2007) confirms the strong double dividend does not arise from the reductions in labor and
consumption taxes but arises from the reduction in capital tax. Carbon tax policy would be possibly
introduced and implemented if it could be combined with reductions of capital tax.
China:
Liang et al. (2007) confirm that the negative impact of carbon tax on the economy could be
alleviated in case of relieving or subsidizing the production sectors. Under a preferable scheme with tax
completely exempted for Iron and steel, building materials, Chemicals, non-ferrous metals and paper
industry while being identical for all the other sectors, the tax rate is 163 Yuan/t-C (at 2002 price,
US$5.4/t-CO2) if the reduction target is set to be 5%. And the rate is 348 Yuan/t-C (about 11.5US$/tCO2) in the case of 10% reduction target.
Korea:
Kwon and Heo (2010) suggest that an upstream carbon tax equivalent to 36,545 Won/t-CO2 (about
31.0 US$/t- CO2) need to be imposed to meet the government’ medium-term reduction target. They also
finds that a carbon tax system without revenue-recycling is regressive. Whereas, recycling the revenue
enhances income redistribution, and a lump-sum transfer of the revenue would make the carbon tax
policy progressive.
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Progress of Carbon Tax Policy in Japan (1/2)
The existing energy taxes were estimated to contribute to
0.9% of carbon emission reduction (Kawase et al., 2004)
Unit: Yen / t-CO2
Japan
Existing energy tax
Carbon tax (2010 proposal)
Total
EU -Average
1
Temporary tariff rate
2
Gasoline
Diesel
Heavy oil
Coal
Natural gas
24,0521
(12,831)
13,034
753
291
400
8,531
1,0642
1,064
1,174
1,064
21,362
14,098
1,817
1,465
1,464
43,822
28,188
9,239
3,626
7,018
Under consideration
Carbon tax has been discussed since early 1990s in working groups of MOEJ:
◈ Two different tax rate streams: High tax rate (about 45,000 Yen/t-C), or low tax rate
(about 3,400 Yen/t-C) in combination with subsidies specific to anti-climate change activities.
◈ Tax system: A supplementary of existing energy-related taxes.
◈ The spots for taxation: At upstream like importers and exploitation enterprises of fossil
fuels, petroleum refinery companies, etc.
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Progress of Carbon Tax Policy in Japan (2/2)
◈ Tax revenue: Estimated by MOEJ, a total of 2.0 trillion Yen revenues may be
achieved by introducing the proposed carbon tax.
◈ Relief measures: Following items are considered to be exempted from taxation:
- Fossil fuel as raw material (Naphtha);
- Coal and cokes for iron and steel manufacturing;
- Coal for cement manufacturing;
- Bunker A for Agriculture, Forestry and Fisheries.
Expected effectiveness
If introduced since 2009
Final energy use in 2020
Final energy use in 2030
10,000 Yen/t-C
Reduction by 5.2%
Reduction by 5.7%
(2,727 Yen/t-CO2)
(Compared with the BAU levels)
(Compared with the BAU levels)
2,400 Yen/t-C※
Reduction by 1.3%
Reduction by 1.5%
(655 Yen/t-CO2)
(Compared with the BAU levels)
(Compared with the BAU levels)
※This is the same tax rate as the proposal of MOEJ in 2009.
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Progress of Carbon Tax Policy in China
Existing taxes concerning environment and resource issues
Name
Item
Tax rate
Note
Crude oil
8-30 Yuan/t
Except oil refined from bituminous shale
Natural gas
2-15 Yuan/1,000 m3
Except natural gas from coal mine
Coal
0.3-5 Yuan/t
Referring raw coal, ex. washed and separated coal
Gasoline
0.2 Yuan/l
Diesel
0.1 Yuan/t
Motorcycle
10%
Automobile
3-8%
Tax on vehicles and
Vessel
1.2-5.0 Yuan/t.a
Classified by the tonnage
vessels use
Vehicle
16-320 Yuan/a
Different by the use purpose and type
Vehicle purchase tax
Vehicle
10%
Resource tax
Consumption tax
In recent 2-3 years, the experts from research institutes under Ministry of Environmental Protection (MOEP),
Ministry of Finance (MOF) and State Administration of Taxation (SAT) strongly discussed how to develop
carbon tax policy in China.
China will face greater pressure to control its GHG emissions after 2012. To impose carbon tax around 2012 is
consistent with Chinese strategy of adding policies on controlling CO 2 emissions in a timely manner.
November 23, 2010
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Proposal of Carbon Tax Policy in China (1/2)
The targets and scope:
- Limited to fossil fuels including coal, oil and natural gas;
- Should not charge on electricity to avoid double taxation;
- Should not charge on the fuel use of households.
Discussions of taxation spots
Impose on the producers of fossil fuels
Impose on the wholesalers, retailers & users
-The price signal would decrease along the fuel
supply chain;
-As the number of the producers is much
smaller, the cost for tax collection would be low.
- The tax collection is very difficult (costly);
- Since the tax is charged directly from carbon
emitters, it is supposed to more effectively
encourage in reduction of energy use.
The spots for carbon taxation:
- Imposed at the source of energy exploitation or energy distribution hub;
- For coal, petroleum and natural gas, tax should be paid by the resource exploitation companies; for refined oils
like gasoline and diesel, etc., tax should be paid by the refinery companies.
November 23, 2010
UNDP Seminar at GSSD Expo, Geneva, Switzerland
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Proposal of Carbon Tax Policy in China (2/2)
Proposal of carbon tax rate (Su et al.(2009)
Tax rate
Items
From 2012
From 2020
10
40
Carbon tax of coal (Yuan/ton)
19.4
77.6
Carbon tax of oil (Yuan/ton)
30.3
121.2
Carbon tax of gasoline (Yuan/ton)
29.5
118
Carbon tax of kerosene (Yuan/ton)
31.3
125.2
Carbon tax of natural gas (Yuan/ 1,000 m3)
2.2
8.8
Carbon tax (Yuan/t-CO2)
Observations:
◈ A gradual process for tax setting;
◈ Differential tax rates are set
depending on energy type;
◈ Carbon tax rate on coal is relatively
low.
Tax relief measures:
- Appropriate tax exemption and return mechanism should be established for the energy-intensive
industries more likely to be affected by carbon tax policy;
- Tax refund is provided as incentives for the enterprises with significant emission reductions, or
increased investment in energy saving, improved energy efficiency by using advanced technologies;
- For low-income groups, tax return shall be offered to guarantee their basic living and maintain
social stability.
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Progress of Carbon Tax Policy in Korea
Existing energy-related tax:
- Increase the price of diesel and LPG up to
80% and 65% of gasoline price;
- For industrial fuel, increase the price of
Bunker C by 28% and keep LNG price
unchanged.
- Adjust import charges based on calorific
values
- A higher energy tax rate (74.8%) for gasoline
than Japan (56.2%) and the U.S. (31.0%);
Step-wise
- A lower tax rate (39.9%) for transport diesel than
reform
Japan (52.4%) and UK (72.1%);
- Generally supported industrial rather than
household fuel consumption.
The expected effect of the reform would be around 7.6% of reduction of CO 2 emissions (Lee,
2005).
Negative opinion
- Possibility of transferring tax burden from producers to
consumers, particularly when the product is price inelastic;
- May lead to production decrease and yield wage decrease and
unemployment;
- The worst victim compared with its main trading countries due
to the high reliance to energy imports.
Positive opinion
Possibility of enhancing the
competitiveness of industries by
investing in research and development.
◈ General attitude toward carbon tax in Korea is rather positive among the environmental scholars and specialists.
◈ Many Koreans think they have experienced the dependency on fossil fuel using productions and it is necessary to
develop energy efficient economy structure.
◈ Latest proposal of carbon tax rate by MoSF is 34-96 Won/l or Kg fuel (25 Euro/t-CO2), total revenue would be
8.5 Trill. Won/year.
23, 2010
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at GSSD
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◈November
This proposal
will be further discussed
expected
to be
introduced
from 2012.
A Comparison of Proposals in the Three Countries
Spots for taxation
◈ Considering the cost and difficulty of tax collection, all the proposals of carbon tax policy in the
three countries suggest levying the tax on the fuels containing carbon;
◈ The importers, producers, wholesalers and retailers of fossil fuels at most upstream or upstream
would be defined as the targets for the tax levy;
◈ A shortage of this choice is the relatively weak effect of the price signal from carbon tax as
energy producers are far away from the large number of end users.
Tax rate
Due to the concern of negative impacts of carbon tax on economic growth and industrial
competency in the international market, especially for those energy and carbon-intensive
industries, the proposed carbon tax rate is low.
Tax relief
All the discussions and proposals of carbon tax in the three countries considered tax relief
measures in order to reduce the negative impacts of this policy on economy and industries.
November 23, 2010
UNDP Seminar at GSSD Expo, Geneva, Switzerland
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Barriers for Carbon Tax Introduction
Japan:
- Strong resistance of industrial lobbies, such as Keidanren, is the most crucial factor blocking
the implementation of carbon tax;
- Highly multifaceted political issue like the environmental tax reform requires inter-ministerial
cooperation between competent ministries. However, it is very hard to harmonize their interests.
China:
- The attitudes of related ministries at national level are positive to the reform of environmental
taxes. However, as carbon tax is a new category of tax in China, the enterprises would be
reluctant at the beginning;
- It will take time for the public to recognize and well understand this new tax.
- Additional barriers include the decrease of product competency in international market, the
impacts on the people with different income levels.
Korea:
- Have to work out measures to absorb a possible shock to manufacturing industries for
businesses to shift to the low-carbon strategy.
- Carbon tax should not serve as a means to raise tax burdens on consumers. The government
must make efforts to build public consensus on the tax issue in particular.
November 23, 2010
UNDP Seminar at GSSD Expo, Geneva, Switzerland
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Findings of a Survey to Chinese SMEs (N=125)
YES
NO
Observations:
ESA15
ESA14
◈ Encouraging involvement of energysaving activities in overall;
◈ Good practices of simply managerial
activities for saving energy;
◈ Lower practices of technological
upgrading for energy efficiency;
◈ Weak in monitoring and statistics of
internal energy uses.
ESA13
ESA12
ESA11
Activity item
ESA10
ESA9
ESA8
ESA7
ESA6
ESA5
ESA4
ESA3
YES
co
gy
ns
au
er
di
va
t
tio
pr
oj
n
ec
pr
og
ts
ra
fo
m
re
ne
rg
y
sa
vi
ng
En
er
sc
he
m
e
tax
in
g
ey
nk
Te
To
p
10
00
en
er
gy
ho
us
eg
Gr
ee
n
Quite low understanding of MBIs,
particularly on carbon tax.
tra
d
100%
Ca
rb
on
90%
Ca
rb
on
80%
as
70%
su
bs
id
ies
60%
CD
M
50%
Participation ratio
gy
40%
En
er
30%
pr
ot
oc
ol
20%
FC
CC
10%
Ky
ot
o
0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
UN
ESA1
Frequency of the choice
ESA2
November 23, 2010
UNDP Seminar at GSSD Expo, Geneva, Switzerland
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NO
Brief Summary

The design of carbon tax scheme, including the scope, tax rate, collection
and utilization of the tax is important and need to adapt the actual
situations of each country, which thus requests more discussions for
convincing the decision-makers.

Our overview identifies the problems of target countries in implementing
carbon tax policy due to political resistance and energy structure
characteristics.

As the taxation of carbon may cause a shift from coal to other low carbon
energies, the existing energy tax with additional carbon tax as the
supplementary would be a more stable and acceptable approach for Japan
and Korea with high reliance on energy imports.

As the way forward, discussions of acceptability to carbon tax from the
perspective of individual companies are necessary to overcome the
resistance to this policy.
November 23, 2010
UNDP Seminar at GSSD Expo, Geneva, Switzerland
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Thank you for your attention!
Contacts:
Xianbing LIU
KRC/IGES
Tel: +81-78-262-6634
Fax: +81-78-262-6635
E-mal: [email protected]
URL: http://www.iges.or.jp
November 23, 2010
UNDP Seminar at GSSD Expo, Geneva, Switzerland
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