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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. 1228 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. 1229 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. ‘ ’ – 1230 (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 [1] Detlef van Vuurena , Zhou Fengqi, Bert de Vries, Jiang Kejun, Cor Graveland, Li Yun. Energy and emission scenarios for China in the 21st century exploration of baseline development and mitigation options. Energy Policy 31 (2003) 369 387 (in English) [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) — – – 1231 [4] Nordhaus, W.D. Managing the Global Commons. MIT Press, Cambridge, Massachusetts. 1994. (in English) [5] Gerlagh, R., van der Zwaan, B.C.C.Gross world product and consumption in a global warming model with endogenous technological change. Resource and Energy Economics 25, 2003, 35 57. (in English) [6] Liang Qiao-Mei, Fan Ying, Wei Yi-Ming. Carbon taxation policy in China: How to protect energy-and trade-intensive sectors? Journal of Policy Modeling 29 (2007) 311–333. (in English) – The author can be contacted from e-mail : [email protected] 1232