“Green Tax”Dilemma

by+Jiao+Meng

Chinas “strictest-ever” en- vironmental protection law came into effect on January 1， 2015， according to which the country will replace “emission fees” with“environmental taxes.” In fact， a draft of the Environmental Taxation Law of the Peoples Republic of China was already submitted to the Legislative Affairs Office of the State Council for examination much earlier. Although the draft was supposed to see legislative procedures at the 2014 annual session of the National Peoples Congress （NPC）， experts doubt whether it will be submitted to the NPC for examination in the next couple years.

From Fees to Taxes

China has long adopted a policy of encouraging firms and households to reduce their emissions by charging fees for pollution they cause， with taxation and subsi- dies serving as supplementary measures. Chinas current taxation policies concerning resource taxes， consumption taxes and vehicle and vessel taxes all reflect the countrys preference for environmentally friendly behavior. According to the principle “those who pollute should pay，”polluters are charged emission fees based on the categories and volumes of pollutants， including sewage， exhaust， noise， solid waste， and hazardous waste.

In 2000， China charged a total of nearly 5.8 billion yuan in emission fees. In 2011， some 440，000 polluters around the country （except for the Tibet Autonomous Region） paid emission fees totaling 20.2 billion yuan. Many local governments have imposed steeper emission fees on polluters than the 2003 national standards， but the current standards remain insufficient. Under the current policy， those who pay the fees earn the right to pollute. Because the punishment for pollution is light， some enterprises pragmatically choose to pay emission fees rather than invest in cleaner methods. Moreover， the collection of emission fees is not compulsory by law， so environmental authorities face difficulties collecting. According to the Ministry of Finance and the State Administration of Taxation of China， an important purpose of the pending Environmental Taxation Law is “replacing emission fees with environmental taxes.”

“China is increasing standards of its emission fees to change the abnormal situation in which those who abide by the law pay more than those who break the law，”remarks Chang Jiwen， vice-director-general of the Research Institute of Resources and Environment Policies under the Development Research Center of the State Council and a professor in law at the Graduate School of the Chinese Academy of Social Sciences. “Firms will reduce pollution only when doing so is less costly than emission fees. According to Chinas new environmental protection law， emission fees will be abolished after the country begins collecting environmental taxes.”

Debate

Typically， two forms of taxes cover carbon dioxide （CO2） emissions. One is the carbon tax， which is levied on energy products such as oil and coal. The other is levied on CO2 emissions directly. Since volumes of CO2 emissions are hard to be measured， carbon taxes are usually levied based on the amount of fossil fuels consumed. Carbon taxes are imposed on fuel producers， and the costs arising from the taxes are passed onto wholesalers， then retailers and finally consumers.

According to the proposed Environmental Taxation Law， China will levy taxes on CO2 emissions at the rate of 10-100 yuan per CO2 equivalent. Authorities can gradually increase the tax rate. In addition， the country will establish a carbon market to allow less-polluting enterprises to trade their emission permits.

In the eyes of Professor Chang， the proposed Environmental Taxation Law just sets a framework. “The establishment of a carbon market is a huge project requiring formulation of specific and detailed emission calculation methods and trading rules，” he opines. “It is too early to discuss specific measures.”

Moreover， many debates remain on issues concerning environmental taxes. For instance， should polluting product taxes be levied on refrigerators using Freon or products powered by high-polluting batteries？ Should airline passengers be charged carbon taxes or emission fees？ Should operators of nature reserves and scenic resorts pay resource and ecological taxes？ Should investors in sewage treatment plants and other pollution abatement projects enjoy tax cuts in terms of environmental investment taxes and environmental service taxes？ In addition， taxes on international trade of environmental products have also evoked wide concern.

According to Professor Chang， the greatest controversy of the proposed Environmental Taxation Law is whether taxes should be levied on all environment-related sectors. If so， ecological compensation fees levied on coal and mining enterprises should be incorporated into environmental taxes. Meanwhile， the collection of environmental taxes involves multiple government departments， raising practical questions about how various departments cooperate. But if environmental taxes are merely levied on polluters who currently pay emission fees， why does China need to formulate and enact the Environmental Taxation Law？ There are also debates on how environmental taxes are collected and whether carbon taxes and CO2 emission taxes should be incorporated into the law.

Learning from Others

As early as the 1970s， some developed countries had already begun using taxation as a way to encourage environmental protection. All these countries imposed taxes according to the “polluter pays” principle to minimize air pollution and enhance water resources， the living environment， and the urban environment.

Germany began to impose water pollution taxes in 1981 and adopted a uniformed tax rate based on a unit equivalent to per capita annual water pollutant discharge. In the first year， the tax rate was 10 marks per unit. The rate has increased every year. It also stipulates that firms which invest in sewage treatment facilities are eligible for tax cuts. Collected water pollution taxes are all used to improve water quality.

To date， most developed countries have established a complete taxation system comprising energy taxes， traffic taxes， pollution taxes， and resource taxes. Such a taxation system has not only bolstered balanced development of economy and environment， but also played an important role in energy conservation and environmental protection. China can learn much from those countries in taxation system design and taxation administration.