A thoughtful and insightful overview of the proposed carbon/environmental tax by Harvard graduate student Ella Chou. Some excerpts follow.
The first thing I want to clarify is that calling it a “carbon tax” would be a gross misnomer, because for a long time to come, the majority of the tax collected from this would still be from what used to be called “pollution discharge fees”, not from taxing carbon emissions.
The tax on carbon would in fact be puny. The Xinhua report noted that previous MOF expert suggestion for the carbon tax was 10 yuan (US $1.5) per ton of carbon dioxide in 2012, with gradual increase to 50 yuan ($7.9) per ton by 2020.
…[T]he tax on coal in China is merely 2-3 yuan (US $0.4) per ton, and 8 yuan (US $1.27) per ton for charred coal, even though the price of coal has increased to several hundreds of yuan per ton.
The point of a carbon tax, be in China or elsewhere, is to set the price signal straight. We tax income; we tax property; we tax goods and services — all the things we want more of, so wouldn’t it be logic to actually tax the thing we want less of: pollution?
I should note that the proportion of environmental tax in the overall revenue of any level of government would be tiny, as is the pollution discharge fee portion of the revenue mix now. Local governments would continue to come up ways to give industries tax rebates and subsidies to attract them to their own jurisdictions, so the effect of the environmental tax or the carbon tax on the industries would be negligible. Standardizing fees into a tax is a step in the right direction. China can use a price on carbon, and environmental issues in general, as a starting point to address the price distortions that are stifling its long-term growth.