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The Relative Analysis on the Implementation of Carbon Tax in China
LIANG Wei, HAN Tao
Department of Economic Management, Henan Polytechnic University, 454000, P.R.China
Abstract: Emissions of green gases (GHGs) are seriously threatening the well-being of mankind, and
carbon dioxide (CO2) generated largely by the extensive use of fossil fuels is the principal culprit. CO2
emission is closely related to atmospheric carbon content and global warming issue. In this situation, the
implementation of a carbon tax is suggested as a means of government macro-control to provide
sufficient public good, adjust the CO2 emission behavior and achieve sustainable development in the
long run. The paper also analyses a variety of policy options available, however, their predicted effects,
efficiency and applicability must be taken into consideration before the final decision is made.
Key Words: CO2 emission; carbon tax; government policy; global warming
1. Instruction
From December 1 through 11, 1997, more than 160 nations met in Kyoto, Japan, to negotiate binding
limitations on greenhouse gases for the developed nations, pursuant to the objectives of the Framework
Convention on Climate Change of 1992. The outcome of the meeting was the Kyoto Protocol, in which
the developed nations agreed to limit their greenhouse gas emissions, relative to the levels emitted in
1990. The United States agreed to reduce emissions from 1990 levels by 7 percent during the period
2008 to 2012. The Kyoto Protocol is an international treaty designed to limit global greenhouse gas
emissions. Many Parties to the United Nations Framework Convention on Climate Change (UNFCCC)
have signed the Protocol since negotiations were concluded at the third session of the Conference of the
Parties to the UNFCCC (COP 3).
2. The present situation and some prediction for CO2 emission in case of China
China has recognized the necessity of climate change abatement action in response to UNFCCC,
which was ratified by China in 1992, although the Kyoto Protocol coming into effect on 16 February,
2005 has not set detail mitigation obligation for China, the environmental pressure confronting China is
growing. Table 1 gives statistics data and prediction for major industrial activities relating to CO2 during
the period from 1980 to 2030.
Table 1: Change of major industrial activity indicators to 2030 in China
1980
37
80
0.5
1.8
1.8
Steel production (million tons)
Cement production (million tons)
Ethylene production (million tons)
Vehicle ownership (million)
Vehicle diffusion rate to population (per thousand)
Source: Li (2003)
1999
124
573
4.4
14.5
11.5
2010
176
769
8.4
41.3
30.2
2020
208
961
15.0
93.6
64.3
2030
235
1105
24.4
187.9
125.3
Compared to that of traditional production industry, the threat from comprehensive appliance of
Vehicles seems much bigger, which has been and will increase at a fast pace. Currently, China, a
developing country, stands in the second place following the United States in terms of CO2 emission. As
a result, she palys a profound and critical role for future environment quality and welfare of all living
being.
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3. The quantitative relationship analysis btween CO2 emission, the atmospheric
carbon concentration and global average surface temperature
Gerlagh (2006) list an eqeuation to show the quantitative influence to carbon concentration in
atmosphere and ttemperature by CO2 emission activities.
Carbon dioxide emissions, Emt, are set equal to the use of carbon-energy:
Emt Et
Carbon emissions are linked to the atmospheric carbon concentration, which in turn determines the
global average surface temperature. The carbon cycle dynamics assumed in ourmodel are simple
and follow the approximations supposed in DICE (Nordhaus, 1994) and DEMETER (Gerlagh and
Van der Zwaan, 2003). The link between carbon emissions, atmospheric carbon concentration ATMt and
the global surface temperature, TEMPt, is a 1-box representation :
＝
“
”
ATM =(1−δ )(ATM −ATM )+ (1−δ )(Em + Ēm )
TEMP = (1−δ )TEMP +δ TEMP ln(ATM /ATM )/In(2)
where δ is the atmospheric CO2 depreciation rate, ATM is the pre-industrial atmospheric CO
concentration, 1−δ is the retention rate, Ēm are emissions not linked to energy production, δ
t+1
M
t+1
t
T
o
t
T
E
o
t
t
t
o
M
o
2
T is
the temperature adjustment rate resulting fromthe atmospheric warmth capacity, and TEMPo is the
long-run equilibrium temperature change associated with a doubling of the atmospheric CO2
concentration. The model version used for this paper does not specify a damage function, though
such an equation can simply be added. The reason is that damage estimates are subject to normative
debates on the valuation of environmental losses and intergenerational equity, and we attempt to keep
away from these discussions. Instead, we will run cost-effective analyses that assume a certain climate
change target.
E
t
4. Aims of carbon tax implementation in China
There are mainly two aim for government at all levels to implement a tax type. The first and most
important one is gathering enuogh revenue to finance pulic expenditure; the other one is adjusting
people’s behavior through externality remedy. We could comprehend the significance of carbon tax
implementation from these two perspectives respectively.
4.1 Public good provision
The environment is a typical one of public good, which indicates the supply of this product could be
insuffuficient or even zero with the prolem of free ride. The essence of free ride is that people never
pay or pay enough for ehat they get, and it is impossible to exclude them or the cost is surprisingly high.
This is clearly shown in practice by prevailing ignorance for environmnetal quality, especially the
developed countries, the largest contributor for CO2 content in atmosphere. Observing so, governments
usually levy a tax to guaranttee support the output of public good, such as strengtherning enforcement of
environmental protection laws and regulations, subsidizing CO2 treatment equipments and technology.
4.2 Behavior adjustment
Carbon tax implementation intends to enourage more environmental-friendly behaviors. For example,
unit carbon tax means tax cost is in proportion with the volume of CO2 emission of enterprises; the
vehicle owner has to pay a higher price for consuming the same quantity of fuel. In order to increase the
net income of enterprises and individuals after tax, they are forced to realize the damage done by CO2
emission for global warming and accordingly emphasize on the issue of environmental protection. The
conscious behavior of restraining CO2 emission is obviously belong to tax evasion, different from tax
evasion and tax avoidance, since it is strictly aligning with legal spirits of relative laws.
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4.3 Sustainable development
Actually, climate change is an important factor for designing future environmental development in the
framework of sustainable developmont, a long-term strategy set up by government. China is heavily
depend upon the fossil fuel, inclusing coal, oil and natural gas. Especially for coal reserve and
consumption, China is in the leading place worldwide. Coal is characterized by being unrenewable, low
effeciency and hanvy pollution. Therefore, the problems of environmental deterioration and energy
shortage in China could never be overestimated. In order to solve it, China is changing energy
consumption constitute. People are using coal gas or natural gas in civic life; China is exploiting clean
energy, including hydro power, nuclear power, solar power, wind power, etc.
5. An overview of policy options, instruments and applicability
Although there is a variety of government polices available to achieve the above goals, their
respective effects, efficiency and applicalibity in practice must be taken into consideration during the
foundation and implementation process. Before the carbon tax is finally enacted, we have to elaborately
design the tax system at the very begaining. For instance, how we could identify the taxpayers? How
about the tax rate structure? Is the tax system consistent with the principle of equity and effeciency?
How to supervise the tax collection process? Only after solving these problems, could the carbon tax be
really working as we planned.
Vuurena, Zhou, Vries, Jiang, Graveland, and Li (2003) distingushes the following components of
climate policies. The first one is climate change policies, which refers to any action which interferes
with the development path in the baseline scenario under discussion. The second one is measures
including all physical changes within the energy system (in fuel use, technology, reduction of energy
demand, emission control, etc.) which influence the GHG emission. The third and last one is policy
instruments means the political actions and mechanisms (such as subsidies, low-interest loan provision,
educational campaigns, etc.) that are instrumental in implementing and realizing the policy measures.
The set of policy instruments can be subdivided in several clusters, inclusing economic instruments,
regulations, technology support and so-called ‘social instruments’(e.g. information campaign).
Table 2: overview of policy options /measures, instruments and applicability
Applicability
Policy name
Possible policy
Implementation explored in
instrument
modelling experiment
A1b-C B2-C
(1) Incentives for
Taxes/subsidies
D
B
Reducing the gap in final energy
energyefficiency
intensity between Western Europe and
investments
China in 2050
Low/zero-interest loans
C
B
Appliance labels/
C
A
standards
Investment in public
C
B
transport systems
(2). Energy taxation
Tax on gasoline, as part
C
A
Adding an energy tax
inducing a series of
of greening tax
responses
policy
(3) Influencing market
Taxes/subsidies e.g. on
D
C
Reducing the use of coal in the
penetration of secondary
natural gas or biofuels
building sector to zero
energy carriers
Emission standards
C
A
B
B
(4) High-efficiency,
Technology and
In 2050, 15 20% of all electricity
gas-fired
emission
is generated by gas-fired
combined-cycle (CC) in
standards
combined cycle
central
electric power generation
Institutional reforms
B
B
(5) Advanced clean coal
RD&D projects
B
B
All new coal power plants from
(ACC)
2010 onwards are highly efficient.
‘
’
–
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(6) Reduce transmission
losses
Investments
(7) Increasing the share
of nuclear power
generation
(8) Increasing the share
of renewables
Technology and
emission standards
B
C
Portfolio
standards/renewable
energy obligation
institutional reforms
B
B
B
C
RD&D projects
C
A
(10) Accelerating the
penetration
of biomass-derived fuels
B
Tax
exemption/subsidies to
farmers
Low/zero-interest loans
Portfolio
standards/renewable
energy obligation
Carbon tax on fuel use
B
in all sectors
Source: Vuuren, Zhou, Vries, Jiang, Graveland, Li (2003)
B
Losses in distribution and
transmission of electricity are
reduced in 2050 to the level of OECD
countries (8%)
Use of nuclear power is increased
Use of new renewables in electric
power generation is increased.
In 2020, the required share is 10%
Use of hydropower is increased
from 68% to 90% of maximum
potential of 378 GW
Overrule market dynamics with
expansion targets; 10% market share
in oil/gas market 2020, 20% market
share in 2050
(11) Carbon taxation
inducing a
series of responses
B
Implementation of a US$30
carbon tax
The success of carbon tax implementation requires government coordination and cooperatios of other
instruments. From the above table, we could observe that zero/low interest loans should be supplied for
clean energy technology innovation and strict environmental rules should be incurred. A combined set of
complete and perfect policies including carbon tax is expect to trstrain CO2 emission and accordingly
ease the global warming crisis.
6. conclusion
The whole world is facing the threat of global warming from GHGs emissions. The equation
concerning the relationship of CO2 emission, atmospheric carbon content and global average surface
temperature is found and discussed. China is a leading country for fossil fuel rserve and consumption,
which brings great pressure and chanllege. The carbon tax is designed to raise enough revenue to
finance the production and provision of high-quality environment, one of public good, to adjust people’s
behavior towards being more environmental-friendly, and to provide powerful engin for the sustainable
in the long run. In reality, tax is a effective macro-control method, however, the foundation and
implementation is still very complex, and many elements need to be taken into consideration. Therefore,
we analyze and compare the applicabilty of tax and tax raletive policy instruments.
References
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scenarios for China in the 21st century exploration of baseline development and mitigation options. Energy Policy
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[2] Reyer Gerlagh. A climate-change policy induced shift from innovationsin carbon-energy production to
carbon-energy savings. Energy Economics, 2006, 5-6 (in English)
[3] Li ZhiDong. An econometric study on China’s economy, energy and environment to the year 2030. Energy
Policy 31 (2003) 1137 1150 (in English)
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[4] Nordhaus, W.D. Managing the Global Commons. MIT Press, Cambridge, Massachusetts. 1994. (in English)
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The author can be contacted from e-mail : [email protected]
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