China Plans Carbon Tax Ahead of Copenhagen

China Plans Carbon Tax Ahead of Copenhagen

There is no chance, none, that China will play along with any mandatory carbon dioxide reduction targets when world leaders meet in Copenhagen. Indeed, any substantive action in Copenhagen looks increasingly like Emission Impossible and not just because of the Chinese.

Last month, China’s top climate representative walked out of a meeting with Western leaders in Bangkok over the Kyoto Protocol. The Chinese are perfectly willing to be Gored (even without bothering to perform any independent scientific research of their own) and are ready to go along with slogans that the internal combustion engine and carbon emissions are the “biggest threat to humankind,” as long as whatever needs to be done is done by the “rich countries.”

China’s position is viewed with glee by a large swath of Americans and Europeans who view much of the carbon tax movement with skepticism, if not outright hostility. Their thinking: If China does not play along, the entire effort to cut carbon emissions is doomed.

That said, China, the world’s manufacturing behemoth and the ever careful superpower, does not want to take any chances. The threat of carbon tariffs proposed by countries such as France, Germany, and the US worries the Chinese enough that two major reports, one by the National Development and Reform Commission, the country’s highest authority, were released on how to cope with the situation. Both reports suggested that China may begin imposing a carbon tax in the next five years.

While on the surface such a tax may appear ludicrous, increasing the cost of energy and products in China itself is a masterstroke.

The logic, as outlined in the Chinese reports, is compelling. Since the recent global financial downturn, trading frictions are surfacing. Climate-change-related initiatives and carbon tariffs by Western countries are nothing more than trading protection schemes, using the pretext of climate change to put pressure on China, especially under the current economic situation. The clincher for the Chinese is this: Carbon tariffs not only violate the World Trade Organization (WTO) free trade, and most-favored-nation status principles, they also violate the Kyoto Protocol and the tenet of “different responsibility.” This kind of trading protection will have fatal effects on the economic future of developing countries, prominent among which is China.

Because carbon tariffs from the developed countries are to push the developing countries towards “promising” carbon emission reduction, saying “no” to the pressure of carbon tariffs is not a safe option. A proper measure has to be adopted, such as collecting carbon tax inside China before a carbon tariff is charged in a foreign country. The reports conclude that if China sets a national policy to collect carbon tax, it will be considered as a “promise” for carbon reductions by the international community.

After applying a carbon tax, carbon tariffs on the same product by Western countries would amount to double taxation, expressly not allowed by the WTO. Without a carbon tax in China, carbon tariffs might be permitted by WTO. This will put pressure on the US to reconsider any carbon tariff legislation. For the Chinese, passing these costs to foreign consumers and finding new tax revenues can look very good domestically by reducing other taxes.

The recent report by the NDRC suggests that China start with energy tax collection immediately, gradually transforming the energy tax to a carbon tax over the next five years or so. The actual action should be consistent with the international climate change legislations, such as the expiration of the Kyoto Protocol in 2012, and the upcoming Copenhagen pact, if any.

The message from China is clear: it is not eager to jump on climate related initiatives but it will not allow other countries to collect carbon tariffs on products made in China. Taxes can be collected and kept in-house, as an energy tax or a carbon tax, or whatever name one likes to call it.

Actually, China has been trying hard to reduce air pollution and emissions. Thousands of small, inefficient coal-fired power plants have been shut down and more will be eliminated in the coming years; new pollution-control equipment has been installed on about 60% of the coal-fired power plants in the country to scrub sulfur and remove particulates. Nuclear power capacity is expected to increase ten-fold over the next 10 years and a lot of money has been invested on wind power.

But China’s GDP per capita is still one of the lowest in the world, only $3,300 in 2008, about one fifteenth of the level in the US. To close the gap, China needs a lot of energy, especially cheap and abundant local coal, The country will simply not sacrifice its economic development for the sake of Western worries about “climate change” which, if real and anthropogenic, is not a concern for the Chinese. Pushing China towards a massive emission reduction will simply make China to play the name game from “energy tax” to “carbon tax.” And that tax will ultimately be paid largely by Western consumers. Call it Chinese climate jujitsu.


One Response to “China Plans Carbon Tax Ahead of Copenhagen”

  1. Tax Attorney Says:

    I’ve been interested in taxes for lengthier then I care to acknowledge, both on the individualized side (all my employed life-time!!) and from a legal standpoint since satisfying the bar and following tax law. I’ve offered a lot of advice and righted a lot of wrongs, and I must say that what you’ve put up makes perfect sense. Please persist in the good work – the more individuals know the better they’ll be armed to cope with the tax man, and that’s what it’s all about.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: