Why we risk overinterpreting China’s carbon tax statements

§ The news

China plans to include a carbon tax as part of a suite of environmental protection taxes including water, the Xinhua news agency reported this week. It quotes Jia Chen, head of the Ministry of Finance (MoF) tax department, who made the announcement on Tuesday.

There’s no mention of when the plans would be implemented, but Chen says local government tax authorities would be in charge of the new levy.

The possibility of a carbon tax has been on the books for some time. In 2010, the ministry suggested introducing a tax of 10 yuan (around £1) per tonne of carbon dioxide, increasing to 50 yuan (£5) per tonne by 2020.

This would make the tax fairly modest – for comparison, the current price of carbon on the struggling EU emissions trading scheme carbon market is around â?¬4, or £3.46 – a level that means carbon permits are so cheap that the market is flooded.

Bloomberg notes that the announcement may mark a change in government policy. Last year, it says, the Economic Information Daily reported that the government planned not to include carbon in its environmental tax package.

But it might be unwise to overstate the significance of the announcement. Terry Townshend, deputy secretary general of policy development at the Global Legislators’ Organisation (Globe International) says he is unaware of any official announcement, although discussions about the possibility of a carbon tax have been going on for several years. He says:

“The ministry has simply stated it needs to reform reform the tax system to promote better environmental protection (among other things) and has suggested the possibility of including carbon emissions into a broader environmental tax.”

§ Wishful thinking? 

For those who want to promote action against carbon emissions nationally and internationally, the news is potentially an important sign that the Chinese government is following through on its avowed plan to reduce carbon intensity by 40 to 45 per cent by 2020, in comparison to 2005 levels.

China has become a symbolic figure in the debate over climate change policy. The country last year caught up with the US as the biggest emitter of greenhouse gases per capita and it’s been blamed – fairly or unfairly – for hampering international agreement on global carbon emissions targets. Opponents of international action have cited China’s growth path as a reason not to impose climate targets.

So does the carbon regulation discussion in China throw up a challenge to this view?

BusinessGreen says the prospect of a tax “could help neutralise some of the criticism aimed at proposed carbon taxes in the US and more ambitious climate action in the EU, which has argued against such measures on the grounds China is not taking similar steps.”

And environmental blog Grist also suggests the discussion over carbon taxing in China is a “blow” to Republican rhetoric on carbon policy measures.

But although the announcement may cheer those in favour of international action on carbon emissions, it’s clear China’s policy is no great shakes yet.

According to the New York Times, China’s carbon tax would have to increase dramatically to 500 yuan per tonne to reach the level at which experts say it’s possible to stabilise climate change.

The Wall Street Journal has already claimed the proposal is little more than “political theatre” designed to give it “wiggle room” in international negotiations while it continues on its high carbon growth trajectory.

China is under pressure to change its emissions profile, however, and not just because of carbon dioxide. Beijing has been experiencing  cripplingly poor air quality due in part to the country’s reliance on coal, hampering normal life and leading to health problems for thousands.

§ Cap and trade 

Carbon taxing isn’t the only carbon-cutting measure China is entertaining. The country has also seen several local trials of a cap and trade system to help reduce the country’s emissions. Carbon trading was listed as a key policy initiative in the country’s 12th five-year economic plan, which covers 2011-2015.

According to an article the journal Nature, six regional pilot schemes are expected to be rolled out in 2013. The article points out that a carbon market isn’t the natural choice for such a tightly-controlled economy. But it notes:

“China’s political system could let a carbon market grow faster than anywhere else. Once Chinese leaders have accepted a concept, opposition is steamrollered and changes are implemented much more quickly and broadly than is possible in societies in which policy-making is based on a balance of the interests from different stakeholders.”

Unlike the carbon tax, which comes under the MoF’s purview, China’s National Development and Reform Committee (NDRC) – the body dedicated to restructuring the country’s economy – is overseeing the rollout of carbon trading schemes.

§ What’s going on?

It’s worth pointing out that it’s pretty much impossible to know what discussions on climate policies are happening in Chinese government – so while different sides of the debate may seize on announcements by officials, they may not really represent the tenor of policy formation. Says Townshend:

“As with most things in China, the debate is pretty opaque and played out largely behind closed doors, so it’s not always easy to know exactly what’s going on.”

The emergence of two possible carbon regulation schemes may also represent some competition between the MoF and NDRC over who would control the revenue from a carbon tax or cap and trade. Townshend says it’s likely that the government would run a pilot tax scheme, just as it is currently for carbon trading, before making a decision about a national tax.