China considers ways of reducing emissions

Despite leading in some aspects of green technology, such as solar and wind power, China still faces a fight to reduce its level of emissions.

In November, Beijing expanded its resources tax across the nation after more than a year of trials and is considering a tax on carbon emissions. In doing so the government hopes to channel money and resources into green energy projects, including research and development. 

The resources tax not only covers the country's oil and gas giants, but will also be extended to include iron ore, coking coal and rare earth ores. Coal, which is widely used by the general public, has not been included in the tax. 

China hopes the tax will help local governments to offset some of the environmental damage caused by mining in the poorer and more remote corners of the country.

Resources taxes are seen as a way of addressing some of these discrepancies, according to Christopher Xing, a partner at the auditor KPMG in Hong Kong. "It's a local tax collected by local governments. They are the main beneficiaries," he said. "This could become a significant source of revenue for those governments."

While the government says the tax has not had an affect on downstream businesses or consumer prices, the profits of oil and gas companies are likely to be hit.

The tax has also replaced the royalties that were previously paid by foreign-invested onshore and offshore oil and gas fields, meaning that it will also affect global energy giants such as Shell, Chevron and BP and smaller independent companies, although to a lesser degree.

"The consumer will not face price hikes," said Xing, at least not right away. Eventually, however, higher costs are bound to make their way down the supply chain, he added.

China still needs to invest more if it is to reduce pollution levels, especially carbon emissions, said Lin Shi, a consultant with the World Bank. Shi said that China must introduce a carbon tax soon, whereby emitters such as power stations will be charged for each ton of carbon dioxide emitted

The government has yet to commit itself on a carbon tax, especially in light of the current economic climate.

Speaking at the World Resources Institute in Washington earlier this year, Su Wei, China's chief negotiator on climate change, said a tax on carbon was one of several policy options open to China to reduce emissions of greenhouse gases.

With China planning to launch a carbon-trading scheme, adding a tax on major emitters could complicate legislation, Su was reported to have said. "There may be some overlap between the two systems. Of course, the two systems are not mutually exclusive. We need to have a very careful consideration," said Su, according to media reports.

However, Shi believes the time is right for China to introduce a carbon tax.

"For a start, some estimates suggest levying a carbon tax could help encourage improvements in industrial energy efficiency of anywhere from 5 percent to 25 percent," Shi wrote in an article for Diplomat, an online foreign affairs website, adding that a carbon tax would help save energy by increasing the price of fossil fuels and will also reduce carbon emissions.

The question of a carbon tax has been the subject of serious study by governmental financial and environmental research institutes since 2007, according to Alvin Lin, China climate and energy policy director with the US-based Natural Resources Defense Council. He told China Daily any proposed tax on carbon "would likely start from a low rate somewhere around 10 yuan per ton of carbon dioxide".

"A carbon tax would be easier to administer than a carbon cap-and-trade program, since it would focus on upstream producers of fossil fuels rather than downstream consumers," he said. "Monitoring coal, oil and natural gas production and sales is easier than monitoring power plants, factories, vendors and other consumers of fossil fuels."

As for the impact on consumers, Lin doubted that there would be any. "The carbon tax, because it begins at a relatively low rate, would have a very small impact on industries and consumers on the Chinese mainland," he said. 

But Shi said a carbon tax would have a downside risk. "Carbon taxes are likely to be regressive, meaning the poor will ultimately be hit the hardest as they see prices rise," she said. "With this in mind then, the Chinese government would do well to consider combining a carbon tax with other measures."