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China Looks to Adopt Carbon Tax

J. Mijin Cha

China's environmental tax policy is moving in an interesting direction. It was announced yesterday that a new set of tax polices focused on preservation, rather than use, will be introduced, including a tax on carbon dioxide emissions. While the specifics have not been released, the government intends to collect environmental protection taxes, instead of pollutant discharge fees. China is also looking at taxing energy-intensive products, such as batteries and private aircraft, and increasing coal taxes.

Shifting tax collection from pollutant discharge to environmental protection is an interesting idea but it is hard to see how it could be done correctly. If the environmental protection tax is set too low, than the result would be that pollution discharge is free and there is not adequate revenue for environmental protection. Assuming the overall goal is to decrease pollutant discharge, a more straight-forward way would be to increase the pollution discharge fee and provide incentives for environmental protection. However, if the tax is high enough, it could provide a substantial revenue source that could help implement large-scale resource preservation projects.

The real story is the carbon tax. China's carbon emissions have sharply increased in the past few years and its emissions per capita is significantly higher than the global average. In absolute terms, China has overtaken the U.S. and is the largest emitter of carbon dioxide in the world. Given these realities, a carbon tax is a bold and very forward thinking step. As we've highlighted before, a carbon tax would raise revenue, reduce carbon emissions, and shift the tax burden to the polluter.

A carbon tax has been proposed in the Senate by Bernie Sanders and Barbara Boxer. The bill proposes a $20/ton tax, which would not only curb our carbon dioxide emissions, it could raise enough revenue to cut the deficit in half. The bill has little hope of success, even though a carbon tax is a much more straight forward and effective policy than cap and trade.

China is not exactly a liberal bastion. If it can implement a carbon tax given its aggressive economic growth, what excuse can there be for us to not follow suit?