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Market News

 May 12, 2010
Reports: China to impose carbon tax from 2012

 China will impose a carbon tax on industry from 2012 to curb carbon dioxide emissions, a business newspaper reported late yesterday.

The Chinese language Economic Information Daily quoted official sources in the Ministry of Finance as saying the tax would start at 20 yuan (£1.95) per tonne of carbon dioxide, and rise to 50 yuan a tonne by 2020.

The tax would equate to 11 yuan per tonne of coal and 17 yuan per tonne of oil.

"The next step will be stepping up the pace in resource tax reform, and after these reforms, in 2012 or 2013, we will introduce a carbon tax, but one with a low starting point," an unnamed source told the paper.

The decision came after a recent survey conducted by officials in the Ministry concluded that a tax was the most efficient method of reducing carbon emissions from industry.

The Ministry of Finance study also said the tax reforms may include concessions for industries that would be heavily affected by the levy, provided that the businesses agree to work towards reducing energy consumption and emissions.

Revenue from the tax would be used to fund energy-saving and environmentally friendly industries, the newspaper reported. It also said that the central government would allow local governments to distribute up to a third of the tax revenue to regional schemes.

China is the world's biggest emitter of greenhouse gases from human activity and has been facing international pressure to curb greenhouse emissions. The country has significantly increased investment in low-carbon technologies and recently secured the top spot as the world's largest clean tech investor. However, until now few policy or tax measures have been introduced to cut emissions.

The government has vowed to cut "carbon intensity" -- the amount of carbon dioxide emitted to create each unit of economic value -- by 40 to 45 per cent by 2020, compared with 2005 levels, as part of the international Copenhagen Accord agreement.

But improved economic activity since the recession has made those targets harder to reach and Chinese premier Wen Jiabao warned last week that he is willing to use an "iron hand" to close down the most carbon-intensive factories to ensure the targets are met.

Wen laid out new targets to shut down 10GW of outdated small coal-fired plants, reduce capacity at the worst-performing iron smelting plants by 25 million tonnes, cut steel production at older facilities by six million tonnes, and similarly scale back cement production by 50 million tonnes.

Some city-wide and regional carbon trading schemes are also in place, but have failed as yet to establish a strong price on carbon.