China to Unveil Environmental Tax on Major Polluters Next Month

After three decades of dirty growth, China will unveil an ambitious, five-year cleanup plan. But skeptics question if the new proposals will have teeth

Pollution in Beijing

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China is to impose an environmental tax on heavy polluters under an ambitious cleanup strategy being finalized in Beijing, according to experts familiar with the program.

The tax will be included alongside the world’s most ambitious renewable energy scheme and fresh efforts to fight smog when the government unveils the biggest, greenest five-year plan in China’s modern history next month.

After three decades of filthy growth, the measures are designed to pull the country from the environmental mire and make it a leader in the low-carbon economy. But skeptics question whether the policy will have any more success than previous failed efforts to overcome the nexus of corrupt officials and rule-dodging factory bosses.

The environmental tax – which will levy fees according to discharges of sulfur dioxide, sewage and other contaminants – is intended as a disincentive for polluting industries, many of which have flocked to China to take advantage of low costs and weak regulations. Officials and academics have been studying the options for several years, but government advisers have told the Guardian the policy is certain to be adopted.

“The environment tax is going to happen. This is evident in the proposals for the next five year plan,” said Ma Zhong, director of the School of Environment and National Resources at Renmin University in Beijing. “It is likely to be levied nationwide, but there is also a possibility that it will initially be introduced in selected regions.”

Jiangxi, a south-eastern province, has applied to host a pilot project. Domestic media predict the tax could come into force in 2013. “Our pollution situation is very serious. In order to deal with this, we need an environmental tax system. We will do it step by step,” said Zhang Jianping, a senior economist at the Institute for International Economic Research in the National Development and Reform Commission.

Carbon dioxide, a key concern given China’s status as the world’s biggest greenhouse gas emitter, may be included in the system at a later stage, though the issue is being debated. “Some want to put them together, but I think a carbon tax should be different and at a higher level and from the environmental tax,” said Zhang.

The revenues would go to the central government, prompting calls for them to fund the restoration of badly damaged ecosystems or to compensate victims of industrial contamination. But the main aim of the new system is act as a disincentive to polluters.

“In the early phase, the objective of this tax is to change behavior rather than to raise money,” Ma said. The main impact is likely to be felt by the energy sector as well as emission-intensive industries, such as steel, chemicals and cement.

China has pollution charges, but they are low and poorly enforced by weak environment bureaus. Tax officials are likely to be in a stronger position, though their impact depends on how high the rates are set and whether monitoring and accountability systems are improved.

The government has also announced plans to raise and widen resource and property taxes to discourage real estate speculation and excessive exploitation of energy, water and mineral supplies. A mandatory carbon trading system – on a regional or sectoral level – is also expected to be included in the next five-year plan, which will be announced in March.

The use of financial and market-based tools represents a departure for the communist government from previous five-year plans, which have tended to rely on top-down administrative orders.

Environmental groups welcomed the initiative, but said the government had to do more in terms of transparency, implementation and burden sharing.

“The launch of the environmental tax will mark China’s first real effort to use financial mechanisms to curb pollution,” said Wang Xiaojun of Greenpeace. “It’s a good sign that the ‘money talk’ has begun, but there is still a long way to go to really charge polluters what they owe the environment and the people who rely on it.”

Steps Towards a Greener China

It is too early to proclaim the emergence of the world’s first green superpower, but March’s five-year plan will outline several new steps in that direction:

• Energy efficiency and environmental services to be declared “priority industries” for first time.

• Three trillion yuan ($455 billion) to be spent on environmental protection over the period – double the amount from 2006-2010

• A carbon intensity target – the ratio of GHG emissions relative to GDP – to be set, likely at about 16%.

• A new environmental tax on heavy polluters to levy fees on discharges of sulfur dioxide, sewage and other contaminants.

More radical steps are also under discussion including:

• A cap on energy use.

• A shift from GDP-based performance evaluation.

Image: Catharine Robertson