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China to introduce carbon tax scheme when inflation falls

China’s postponed carbon tax scheme likely to be introduced in the 12th Five-Year Plan according to State Council source

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Can the introduction of carbon tax decrease inflation without gravely impacting growth? (Image by: Guy Gorek)

A councilor to the State Council has said that China is likely to introduce carbon tax during the 12th Five-Year Plan period.

Speaking at the International Forum on China’s Green Industry and Green Investment, Liu Huan, a senior fiscal study expert and councilor to the State Council, said policies on carbon tax had been drafted years ago and their introduction only awaited the appropriate moment.

“Carbon tax is the most feasible environmental taxation option we have at the moment. … the scheme would have been introduced in 2010 were it not for the high inflation in the latter half of that year,” Liu said, adding that the government was worried the introduction of carbon tax would push up the Consumer Price Index (CPI) figure then.

But if inflation falls during the 12th Five-Year Plan period, people could expect the introduction of the long-planned carbon tax scheme, Liu added.

Speculations about the introduction of China’s carbon tax scheme surfaced in February when the state news agency Xinhua reported that a senior official at the Ministry of Finance had said that China would proactively introduce a new set of taxation policies, including carbon tax, to preserve the environment.

However, in early March, Bloomberg reported that carbon tax would not happen in 2013 lest economic growth suffer. Jia Kang, head of research at the Ministry of Finance, said that carbon tax was “still in internal discussions” as there were “obvious oppositions.”

Though there are concerns that the introduction of a carbon tax scheme would push up prices and inflation while slowing growth, a 2009 study on carbon tax conducted by the Research Institute for Fiscal Science, the research unit of the finance ministry, projected that the introduction of carbon tax could decrease inflation without gravely impacting on growth.

According to the study, if China set the levy at 20 Yuan per tonne, it would only slow down the GDP growth by 0.4% but cut carbon emission by 36% over 10 years.

“The carbon tax is something that needs to be seriously considered and may work as a multi-pollutant policy ... making coal more expensive would encourage savings on coal usage,” Mun Ho, a researcher at the Harvard China Project, told chinadialogue.

As for the concerns over the impact of carbon tax impacts on CPI and poor people’s living standards, Dr Ho said the government should consider using subsidies or tax cuts to return money to the public.

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