December 17th, 2015 Bridge Cafe (Wudaokou)
Paolo D. FARAH – Professor of Public Administration, West Virginia University; Director of Research at gLAWcal – Global Law Initiative for Sustainable Development
DENG Haifeng, 邓海峰, Associate Professor, Tsinghua University, School of Law
China has long been dominating global energy markets as the world’s largest producer, consumer, and net importer of energy. Its fierce year-to-year economic growth relies on a voracious energy appetite; but China now faces the daunting task of maintaining staggeringly high levels of economic development while tackling issues of domestic and global environmental degradation. In light of its commitment to the global fight against climate change, China under Xi Jinping has vowed to play a more constructive role through the implementation of environmental law reforms.
The issuing of a draft Environmental Protection Tax Law in June 2015 drew much attention, as it leaves room for the future introduction of a nationwide carbon tax system in China. Beijing has pledged to reduce its carbon intensity by 17% between 2011 and 2015, compelling its most energy intensive industries to cut carbon produced per unit of output by over 20%. If a tax on carbon emissions was effectively introduced, it would be roughly equivalent to 10 RMB per tonne of CO2. The Draft Law in question is indicative of the Central Government’s commitment to the realization of previously issued environmental pledges. In spite of the growing optimism among those observing China’s carbon tax revolution, however, a series of challenges may still lie ahead of the CPC’s plans for China’s greener growth.
ThinkIN China hosted a discussion with Prof. Paolo D. Farah and Prof. Deng Haifeng, providing its audience with a unique opportunity to reflect on the issues that the PRC currently faces in the implementation of a nationwide carbon tax system.
First of all, panelists observed that adding a carbon tax to the current PRC environmental taxation system could harm the interests of average consumers. The upcoming introduction of a carbon tax may thus require the abolishment of other taxes, such as those already applied to fuel, oil, and transportation.
Secondly, panelists noted that a carbon tax system could only be made efficient through the successful merging of the Ministry of Finance, the Ministry of Environmental Protection, and the State Administration for Taxation. The taxation authority of the PRC is currently fragmented among these three organisms. Once combined, these governmental bodies will need to be tasked to coordinate the PRC’s taxation system together, integrating their various components in one overarching body. A number of government programs, however, may be kept running, such as the verification of greenhouse gas emissions (traditionally overseen by the Ministry of Environmental Protection).
Lastly, participants concluded that striking the right balance between the introduction of a carbon tax and the management of a nationwide cap-and-trade system (scheduled to be implemented from 2017 onwards) is one of the most daunting challenges that lie ahead for Central Authorities. As both systems have very different functions, failure to balance them might greatly harm the PRC’s industrial sector.
After having examined China’s most pressing challenges, Professor Farah elaborated on the concept of “fragmentation of authority”. He regards it as a phenomenon that doesn’t affect the Environmental Protection Law sector alone, instead characterizing a variety of other departments within the PRC. High fragmentation of authority generally calls for legal reform, and should be solved by merging separate governmental bodies entrusted with similar responsibilities.
As already mentioned, if the current carbon tax draft law was to come into effect, a similar reform scheme would be applied to the Ministry of Finance, the Ministry of Environmental Protection, and the State Administration for Taxation. The solution to most of the challenges currently faced by Central Authorities may thus lie in the transparent implementation of legal reform initiatives. These, Farah argued, have become all the more crucial with China’s accession to the WTO – an event which blurred the boundaries between Chinese domestic and foreign policy, and called for the PRC’s adoption of more transparent trade measures. Being granted access to the WTO means for China that its domestic policy decisions have the potential to affect international relations and international treaties, and not just the Chinese legal system.
Further, with the introduction of a carbon tax in China, issues of climate change will become more closely related to a trade dimension. In this scenario, even greater levels of transparency will be required to avoid the emergence of misunderstandings between China and its partners abroad. Foreign actors wishing to develop within China, for instance, will have to be treated by the same standards that are applied to Chinese companies.
The introduction of a carbon tax in China may negatively affect the lives of average consumers. If the costs of carbon emissions were transmitted down the prices of consumer goods, the carbon tax system would indirectly widen the divide between wealthier and poorer consumers within China, fostering a model of “unequal development”. Elaborating in more detail on the implications of the system for Chinese society, Prof. Farah highlighted the difficulties that countries worldwide face with regards to trying to foster more equal modes of development. “All countries, both developing and developed, have to address social inequality, which cannot be regarded as an issue of China alone”, Farah added. To address the issue in the short term, the introduction of a tax on carbon will need to be complemented with the elimination of already existing taxes, namely those applied to either oil, or fuel, or transportation. In the medium-to-long term, however, China will need to make concreted efforts towards diminishing overall energy demands, at the same time embracing a growth model that values “economic balance” over “ever-growing development”.
Panelists also agreed that the international community might be particularly enthusiastic about the recent publication of China’s draft law on carbon taxation; yet, the real challenge for China will concern the actual top-down implementation of the law itself, combined with a substantial decrease in the bottom-up demand for energy. Prof. Farah also noted: “the Central Government can’t achieve the goals it has set for itself without the participation of civil society and the involvement of middle institutions at the provincial and municipal level”.
written by Carlotta Clivio