context: Schemes like the ecological protection compensation mechanism and carbon taxes will be used to address environmentally negative externalities of economic activity, but these could be politically and technically difficult to implement.
It was reported in August 2021 that Ministry of Finance (MoF) is in the process of drafting ‘Guiding opinions on financial support for carbon peaking and carbon neutrality work’, aimed at creating a fiscal and tax system to support emissions reduction.
By increasing financial support for emissions reductions, MoF hopes to attract and leverage more private investment. From 2016 to 2020, government funding for environmental protection totalled C¥4.42 tn, of which 43.7 percent was provided by the centre, and it grew at 8.2 percent annually.
According to Zhu Zhongming 朱忠明 MoF vice minister, MoF will focus on
- ecological protection compensation mechanisms
- coordinating ecological restoration
- increasing investment through existing channels
- increasing efficacy of investments
Currently, fiscal and tax policies aimed at environmental protection include
- the environmental protection tax
- tax discounts and exemptions for clean energy providers
- raising consumption tax rates for refined oil
- ecological protection compensation mechanisms for the Yangtze and Yellow Rivers
Problems with current ecological compensation mechanisms include
- limited coverage
- policies not focussed enough
- weak incentives
- difficult to coordinate
Carbon taxes may be levied in the future, comments Xu Wen 许文 Chinese Academy of Fiscal Sciences researcher. A carbon tax could be implemented by reforming existing taxes and building on the coal resources tax and refined oil consumption tax, he added. Any such tax must balance emissions reductions with the economic and social impacts of the tax, Xu said. In his view, a carbon price is the key to comprehensively controlling emissions. MoF and STA (State Taxation Administration) should consider implementing a carbon tax, agrees Song Xiangqing 宋向清 Beijing Normal University School of Government deputy director.