Download Discussion on the Fiscal Policy on Promoting Low-carbon Economy

Discussion on the Fiscal Policy on Promoting Low-carbon Economy
Development in China
WEN Hongyu, ZHANG Wei
University of Jinan, P.R.China, 250022
[email protected]
Abstract: Developing the low-carbon economy is the fundamental way to addressing the contradiction
between climate change and economic development. However, there exist being financial shortfalls,
although important, constraining the development of China’s low-carbon economy considering its
characteristics. For China, it should take measures to promote low-carbon development such as
increasing governmental financial input, improving governmental procurement structure, adjusting and
perfecting the existing tax policy, introducing carbon taxes, offering incentive policies, etc.
Keywords: Low-carbon economy, Fiscal policy, Fiscal constraints
1 Introduction
Global warming is one of concerns currently widespread around the world, and the issues of energy and
environment have been the obstacles restricting China’s rapid economic development and impacts on
the improvement of people’s life quality. According to 2008 State of the Environment, direct economic
losses caused by meteorological disasters in 2008 came up to 310 billion Yuan, exceeding the average
level of 90 20th century. Currently, emission amount of China accounting up to 50% of developing
countries, and 15% of global emission. How to co-ordinate between economic growth and
environmental resources is become a major problem. Low-carbon economy provides us a new
developing model. This paper discusses how to promote low-carbon economy and realize a harmony of
economy, society and environment from the perspective of governmental fiscal policy.
2 The necessity of fiscal support for low-carbon economy
Low-carbon economy first appeared in government documents in 2003 of UK energy white paper, our
energy future: creating a low carbon economy. Zhuang Guiyang, a domestic scholar, thought that the
essences of a low carbon economy are energy efficiency and clean energy structure, its core is energy
technology innovation and system innovation, and the goal is to mitigate climate change and promote
sustainable human development[1]. Xing Ji believed that, low-carbon economy is to minimize the
high-carbon energy sources such as coal and oil consumption in the economy, and construct an economy
based on low power consumption and low pollution, including low-carbon production and carbon
consumption two levels, aimed at building a healthy ecosystem for sustainable energy[2]. Summarized
previous researches on the concept of low carbon economy, the author believes that low-carbon
economy is economic form through energy restructuring, developing renewable energy and new energy
and using greenhouse gas emission reduction technology, to minimize CO2 emissions in production and
economic life .
Developing Low-carbon economy in need of financial support for the following reasons:
2.1 Low-carbon economy has significant positive externalities
The development of Low carbon economy can reduce CO2 emissions, effectively address the problem of
global warming, and largely improve the environment we live in. The environmental problems are social
problems worldwide. Environment is a particular kind of public goods that is non-competitive and
exclusive. The public wants to use it free of charge, But unwilling to provide. Improvement of the
environment benefits all, and has strong externalities, the market mechanism can not solve the supply
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problem, so the Government is needed to provide, to overcome and correct market deficiencies and
shortcomings, the Government provide financial support to low-carbon economy.
，
2.2 Raising the level of low-carbon technologies need the country's overall strength as a security
Widespread adoption of current national CO2 emissions reduction measures Such as adjusting the
energy structure and reduce coal’s proportion, CO2 capture and sequestration technologies in use;
Population control; publicity and education to enhance public opinion, etc., have made great
achievements. However, there is only the relative reduction. To get the true sense of the absolute
emission and reductions, ultimately depend on low-carbon technology research and development of a
substantive breakthrough in the promotion and application of large-scale. However, raising the level of
low-carbon technologies needed to protect the national comprehensive strength as the need to support
countries. Scientific research units, universities, enterprises conducting low-carbon technology research
and development, not only need money invested, but also bear the risk of failure. Thus they are not
willing to risk. Therefore, the government should offer findings to carry out low-carbon technology
research and development research for institutions, universities, enterprises with preferential policies.
For example, the establishment of low-carbon technology ventures capital, investment in risk.
2.3 Development of low-carbon economy is a strategic choice for sustainable development
China is in a rapid promotion period of industrialization and urbanization, so maintaining of sustained
economic growth is an objective need. China's energy structure with coal as the core is facing serious
challenges and it is difficult to change structurally for a long time in the future. Compared with oil and
natural gas, CO2 emission of per coal-firing is 36% and 61% higher than them respectively[3]. CO2
emission because of coal combustion is an important issue affecting the development of low-carbon
economy. In addition, after 30 years’ development of reforming and opening up, per capita car
ownership is increasing causing serious pollution. In the end of 2009, China's vehicle quantity has
reached 76,193,100, and the annual fuel consumption is close to 60% of the total national oil. Therefore
we must adopt advanced low-carbon technologies to reduce carbon emissions caused by coal and
vehicle exhaust significantly. Currently, both the scientific development guideline ,the creation of an
innovative nation and the construction of a f energy-saving environment-friendly society require us to
increase energy efficiency, reduce environmental damage which are consistent with the low carbon
economy objective. However China’s carbon emissions situation will be very grim in the coming
decades, the implementation of low-carbon economy is an inevitable way for China's sustainable
development strategy and is the only option considering China's current situation.
、
3 Fiscal constraints on low-carbon economy development of China
3.1 Deficiency of government fiscal input seriously constrain the development of a low carbon
economy
Funding is an important issue to be resolved for development of low-carbon economy and environment
protecting. According to figures released by Japan Cabinet Office in September 2008, among science
and technology related budget, independent environmental energy technologies costs reached close to
100 billion yen, including a budget of 3.5 billion yen for innovative solar technology [4]. The United
States invest the most for researching low-carbon economy in the world, the federal government
submitted its 2010 annual budget (implemented on October 1, 2009) which will provide a sum of 150
million funding clean coal technology to Congress country in February 2009. [5]. According to UK’s
fiscal budget of 2009, it will invest 1.4 billion pounds more for low-carbon economy, and mobilize
10.4 billion pounds within three years to accelerate the development of new industries and support
business of low-carbon growth field [6]. In recent years, the central government has increased financial
investment in energy conservation and emission reduction. In 2008, fund used to support energy
conservation and emission reduction reached 53.8 billion Yuan, but it is not enough given our serious
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energy conservation and emission reduction conditions. It is estimated that the market size of China's
energy conservation and emission reduction is about 4 trillion Yuan and the investing funding demand is
near to 800 billion Yuan, which is 16 times of the financial investment 2008.
3.2 Lack of effective fiscal incentives
Tax benefits are an important tool for tax regulation of the economy, and have correction and guidance
roles on externalities. While the development of low-carbon economy has a strong positive external
effects, its benefits for the community more than personal income, so the main low-carbon body
economy requires government’s compensate and motivate. The current preferential tax policies for
environmental protection in China are located in the consumption tax, corporate income tax, VAT, the
relevant provisions are more general and the form are relatively simple. China’s low-carbon economy is
still in the initial stage, and the positive incentives policies for promote the transformation which is from
traditional economic to low-carbon economy are clearly insufficient.
3.3 Some of China's current tax policies are not conducive to the development of low-carbon
economy
Represented by Arthur Pigou economists believe that through state intervention, use taxation and
subsidies and other methods to solve the external problems is a better way. For this reason, most
countries have government control on energy use, such as the introduction of carbon taxes, energy taxes,
and environmental taxes to reduce greenhouse gas emissions. So far, China has no real sense of
environmental protection tax, merely to levy indirect taxes related to environmental protection, such as
resource tax, land use tax, consumption tax. The existing pollution fee system is limiting the tax on
environmental pollution control efforts and weak the role of tax in environmental protection.
Developing a low carbon economy, China should collect taxes on energy use, for example, carbon taxes.
It can support funding for the low-carbon economic development and reduce greenhouse gas emissions.
4 Fiscal measures to promote China's low carbon economy development
4.1 Establish a stable government fiscal input mechanism
Developing low carbon technologies and low carbon products, and new energy and renewable energy,
will be the new theme of economic growth in the future. In the developing of "low-carbon technologies",
government should develop new energy sources and renewable energy. As the industry still in its initial
stage, require significant capital investments. The fields of financing are single, mainly rely on the
government's financial input.
First of all, a low carbon economy budget should be added to budget expenditure. On the one hand, the
low-carbon economic development into the state budget subjects, and which is in the form of legislative
to rule the support lines and its growth, thus, it can provide a stable funding guarantee for China's low
carbon economic development; On the other hand, the state investment in low carbon economy growth
rate should be slightly higher than the national economic growth rate. Only in the way that the state
investment in low carbon economy growth rate is slightly higher than the national economic growth rate
can substantially reduce the concentration of atmospheric CO2.
Second, the increase financial investment in the key points of low-carbon economy------solar power
technology’s R&D and popularization, through its spillover effect, government can pull production and
investment in private enterprises, so as to enhance market competitiveness of new energy industry and
create more jobs about low-carbon, enhance the wages of employees, and promote low-carbon economy.
4.2 Use of government low-carbon procurement policy to promote low-carbon economy
development
As in the low-carbon product development and production process, its taking environmental protection,
energy conservation, safety and other factors into account, so its cost is relatively high, its production
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and consumption need regulate and guide of government. Government have enormous amount of
procurement quantity and which is a wide range. If the government strengthens its procurement on the
low carbon products, it will play a significant role in regulating and guiding the development of
low-carbon economy. The use of government procurement means to promote low carbon economic
development. And use the buyer needs to stimulate the increased these products and services supply.
Government procurement of low carbon products to implement a system is important for establishing
governmental image and improving the environmental awareness of society.
4.3 Levying of carbon tax as soon as possible
Learn from international experience, introduction of a carbon tax. Introduction of a carbon tax benefit
for raise carbon fund for the low-carbon technology development, and provide financial support for the
country's low-carbon economic development. The design of the tax system is different from the charges.
Because of national mandatory, the introduction of a carbon tax’s specific provisions------taxpayer, taxed,
the tax rate or other factors should be clear. Taxpayers should be determined by the spirit of "Who
emissions pays" principle, the introduction of carbon taxes, sulfur dioxide tax, ecological compensation
tax, fuel tax and so on. Tax objects should be universal, where the behavior of carbon emissions are
imposed should be included in the scope and ranked according to the degree of release to determine the
scope of levy. In the carbon tax should be designed differential tax rate. Enterprises which adopt new
low-carbon technologies and introduce low-carbon equipment can give some concessions.
4.4 Formulate incentives for the development of a low carbon economy
Government implements tax policy relief on certain low-carbon products which will increase
low-carbon products demand as well as stimulate the increase of low-carbon products supply. Moreover
it also lead the development of low-carbon related industries, provide more low-carbon employment
opportunities and driving low-carbon economic growth. Accelerated depreciation allows early recovery
of low-carbon business capital. Low-carbon companies can promote the application and development of
new low carbon technologies. To enhance the competitive advantage of low-carbon products, Chinese
government can implement the fastest accelerated depreciation for low-carbon environmental protection
equipment. Allowing companies to purchase low-carbon environmental protection equipment, which is
been completely depreciated within two years, so companies recover the cost of equipment investment.
It can promote China's enterprises to speed up transition to a low carbon economy, and promote low
carbon economic growth.
5 Conclusion
The increasingly serious energy and environmental constraints, requiring China's economic transformed
to a low carbon economy in the future. China must develop low carbon economy, for completing
construct the resource-saving, environment-friendly society. Increasing government financial support to
low-carbon economy, it will accelerate a low carbon economy.
References
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Pacific Journal, 2005, (11):79-87(in Chinese)
[2]. Ji Yi. How to get the Chinese low-carbon? Environmental Economy, 2009(8):31-35(in Chinese)
[3]. Gao Guangsheng. The nature and coping strategies of climate change. China Territory Today,
2002(Z2):24-27 (in Chinese)
[4]. Xu Dongqing. The practice and experience of a low carbon economy in developed countries.
Forum of World Economics & Politics, 2009(6):112-116(in Chinese)
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[5]. Yang Mingqin. Relations between Economic Recovery/Sustainable Development and Applications
of Clean Energy/ Energy Saving Technologies in USA. Energy of China, 2009(4):16-20(in
Chinese)
[6]. Chen Lihong. Britain has introduced a “carbon budget”. Economic Vision, 2009(Z1):35-36(in
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