China on the Path towards Putting a Price on Carbon

China is now one step closer to putting in place a carbon tax. According to several reports, the Energy Research Institute (ERI) of the powerful National Development and Reform Commission (NDRC) and the Ministry of Finance (MOF) announced on Tuesday that they have completed their study on the feasibility and necessity of establishing a carbon tax in China. In their report, ERI and MOF suggest that China should institute a carbon tax as early as 2012. This is a significant development given ERI and MOF’s influential role in setting Chinese policy. (Chinese only) 

The idea of a carbon tax has been raised for many years within China’s policymaking circles. The tax would put a price on the carbon pollution emitted in China that causes climate change, and would be one more tool in China’s arsenal to help the world’s most populous country transition towards a low-carbon economy. China has taken a number of aggressive measures already to reduce the growth of its carbon emissions (see here and here), but putting a price on carbon through a carbon tax would be one of the first market-based mechanisms used by China to achieve this goal. While some commentators have been skeptical that China would voluntarily take measures to put a price on carbon, this skepticism is starting to turn into optimism with the release of the joint ERI and MOF announcement, which stated that a carbon tax is likely to be rolled out during the 12th Five Year period (2011-2016). 

The report, entitled “China’s Carbon Tax System Framework Design,” has already been completed and NDRC has been communicating with the National People’s Congress about implementation. One NDRC official is quoted as saying, “We hope that a carbon tax will start to be levied during the 12th  Five Year Period.”  (Chinese only) 

According to reports, the taxes collected would be used to finance emissions reductions and environmentally-friendly industries and companies. In this China Daily article, Jiang Kejun, a senior researcher at ERI, is quoted as saying, “We can possibly surpass the United States between 2020 to 2025 in terms of research and development investment. If this comes true, we can start to dream of becoming a low-carbon technology leader in the world.” As I’ve blogged about before, during China’s annual legislative session, carbon taxes were discussed, and one member of the CPPCC (Chinese People’s Political Consultative Conference) specifically cited US climate legislation as one reason why China should consider implementing a carbon tax. 

Many questions remain about how the tax might be implemented, including questions about the tax rate and what activities would be subject to the tax. Some reports suggest that the tax could be set around 10 RMB per ton of carbon and could increase to 40 RMB per ton by 2020 (see here). Jiang Kejun emphasized that a gradually increasing tax rate is important to send a signal to industries. “We want to inform companies that they need to seize the opportunities of a low-carbon economy,” Jiang said, “which is an inexorable trend worldwide, as quickly as they can" (see here). 

There is still a long way to go before a carbon tax becomes a reality in China, but this week’s announcement from ERI and MOF signifies that one of the necessary, internal battles appears to have been won. The prospect of China putting a price on carbon is more likely now than it has ever been before, and we expect discussions to continue to gain momentum as the 11th Five Year period comes to a close at the end of this year.