Implementation of Environmental Taxes in China: Transition from Charges to Taxes
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1 Implementation of Environmental Taxes in China: Transition from Charges to Taxes Yazong Mai School of Environment & Natural Resources Renmin University of China 25 September, 2014 GCET15 in Copenhagen
2 Outline 1. Introduction of the pollution charge policy in China 2. Discussion of Polluter Pays Principle 3. Problems of the current pollution charge policy 4. Comparison between pollution charge and Environmental taxes 5. Conclusions
3 1. Introduction of the pollution charge policy in China The Pollution charge policy was first proposed to establish the pollution charge system in Environmental Protection Law of the People's Republic of China in By 2014, four categories of pollutants, including 61 kinds of water pollutants, 44 kinds of air pollutants, 6 kinds of solid waste and hazardous waste and noise were required to pay the pollution fees.
4 Water Environment Protection Laws, Regulations and Policies Environmental Protection Law 中 华 人 民 共 和 国 环 境 保 护 法 法 Laws 律 中 Water 华 Pollution 人 民 Prevention 共 和 国 and 水 Treatment 污 染 Law 防 治 法 Water Law 中 华 人 民 共 和 国 水 法 Regulations 法 规 Rules 规 章 标 准 Standards 中 华 人 民 共 和 国 排 水 条 例 Wastewater Discharge Regulation 排 Pollutant 污 Emission 费 征 Fee 收 Collection 使 Management 用 管 理 Regulation 条 例 Urban Water Supply Regulation 中 华 人 民 共 和 国 城 市 供 水 条 例 城 Urban 市 Water 供 Supply 水 Pricing 价 Rule 格 管 理 办 法 城 Discharge 镇 污 Standard 水 处 of 理 Pollutants 厂 污 for 染 Municipal 物 排 Wastewater 放 标 准 Treatment Plant 污 水 综 合 排 放 标 准 Integrated Wastewater Discharge Standard 行 Pollutant discharge 业 standards for industrial 标 sectors 准 Files 文 件 关 Notice 于 进 on 一 Further 步 推 进 Promote 城 市 Water 供 水 价 Supply 格 改 Price 革 工 Reform 作 的 通 知
5 unit: ten thousands tons unit: one billion yuan Sulfur dioxide emissions (Ten thousand tons) Dust emissions(ten thousand tons) COD emissions(ten thousand tons) NH3-N emissions(ten thousand tons) Pollutant discharge fee(one billion Yuan) Fig.1 Emissions of major pollutants and the pollutant discharge fees in China
6 2. Discussion of Polluter Pays Principle Proposed by OECD in 1972, known as no subsidy rules Polluters bear the full cost of the environment losses and pollution controls to internalize the external costs Polluter No Pay or Less Pay implies polluter benefits.
7 Pollutant Concentration Payments by Polluters E D Untreated Emission Emission Standard with environmental degradation Total Cost Institutional Dividends Environment al Capacity Dividends C B A Emission Standard without environmental degradation Legally Environmental Quality Standard Optimal Environmental Quality Standard O Figure 2 Environmental quality standards, emission standards and Polluter Pays Principle
8 3. Problems of the current Pollution charge policy a. Policy guideline is not clear The guiding ideology: PPP The current pollution charge policy s guiding principle in China is not definite, so it can not reflect the full costs based on the polluter pays principle and can not realize the full internalization of external costs.
9 600 50% % 30% 20% 10% Pollution charge fees (billion yuan) Investments of the industrial pollution control (billion yuan) Percentages of the pollution charge fees (%) 0% Figure 3 The pollution charge fees and the investments of industrial pollution control from 2003 to 2012 in China
10 3. Problems of the current Pollution charge policy b. Charge standard is far below the pollution control cost The pollution charge standard is lower than the treatment costs for a long time in China, the root cause is the thought to sacrifice the environment to ensure the economic development. If for-profit polluters use affordability as an excuse to escape from bearing the external costs of pollutant emissions, then this cost ultimately would be borne by society and the environment.
11 Table 1 Comparison between the governance cost of the pollutants in waste water and the current pollution charge standard Pollutant Governance cost (Yuan/ ton) Pollution charge standard (Yuan/ ton) Comment COD NH3 N industrial enterprise industrial enterprise
12 3. Problems of the current Pollution charge policy c. The "one-size fits-all" charge standard is baseless The pollution charge standards should not be a national unified one, because of the different levels of the economic development, environmental quality, and the pollution control cost in different regions. 4 government agencies: Price Finances Environmental Protection Economic and Trading
13 3. Problems of the current Pollution charge policy d. The collection rate of pollution charge is low Even under the low standards, the collection rate of pollution charge is still low, which together lead to the result that the actual income of the pollution charge is much lower than the amount of payable fees.
14 3. Problems of the current Pollution charge policy e. The design problems of the pollution charge policy The pollution charge system of the wastewater and waste gas in China has designed that once you discharge you should be charged, even if you have meet the emission standard. However, according to the polluter pays principle, only the polluter who caused environmental pollution should be charged for its pollution behavior, and fee levels relates to the degree of pollution.
15 the concentration of COD (mg/l) the Environmental Quality Standards for Surface Water the Pollutant Discharge Standards of Urban Sewage Treatment Plant class III water class IV water class V water Figure 4 China's environment quality standards for surface water and the pollutant discharge standard of urban sewage treatment plant
16 4. Comparison between pollution charges and environmental taxes a. Similar principles Pigouivain tax, which emphasized government intervention on solving the environmental issues. the core is to determine a rational negative price for external diseconomy by government and make ones who caused external diseconomy undertake all these external expense. b. Identical objective To protect the ecological environment only by basing on total cost pricing, will make the marginal private cost equal to the marginal social cost, and internalize the external costs.
17 4. Comparison between pollution charges and environmental taxes c. Analogical functions adjust polluter s behaviors raise funds on pollution control d. Similar on levy and administration the same target objects and levy scope both need certain administration powers, such as environmental monitoring and environmental supervision
18 4. Comparison between pollution charges and environmental taxes e. Advantages of environmental taxes more legal seriousness and authority Taxation s legal process is more systematic, rigorous and normative than charge fees, and it have more transparency. the long-term effectiveness produce continuous stimulatory effect on both producers and consumers pollution behaviors
19 5. Conclusion: What could Environmental Tax learn from Pollution Charge Policy? a. Define the guiding thought clearly The rapid economic development of China has lasted for more than 30 years and the average economic growth rate is close to 10%. However, the great economic achievement was benefit from the environmental dividends. the short-term false profitability of enterprise Under low standards of emission and tax, enterprise has no incentive to adopt advanced production and treatment technology
20 5. Conclusion: What could Environmental Tax learn from Pollution Charge Policy? b. Stick to PPP and Non-Degradation of Environment The efficiency of the current environmental policy and management is low. The central government enact the base line of the environmental quality which is based on the principle of non-degradation of environment, and the local governments individually set up their own environmental quality standards, which should be stricter than or equal to the national standards. Principle : Non-Degradation of Environment Environmental quality standards Emission standards Tax rates
21 5. Conclusion: What could Environmental Tax learn from Pollution Charge Policy? c. Make the tax standard and basis explicit The sole criterion of setting environment tax rates is full cost pricing. Setting the pollutant discharge standards and the tax rates shall not have other standards, such as economic or technological condition, the bearing capacity of enterprise.
22 5. Conclusion: What could Environmental Tax learn from Pollution Charge Policy? d. Strengthen the supervision of government If the supervision is lax, even high tax rate is impossible to give polluters a positive incentive to control their pollution behavior. Taking water for example, in 2012, China's industry drained about 15 billion tons of untreated water, which accounted for more than 40% of the whole industrial water discharge.
23 5. Conclusion: What could Environmental Tax learn from Pollution Charge Policy? e. Reform and implement step by step According to the "Twelfth Five-Year" Plan of China, the environmental tax reform is not to change all pollution charges at once to environmental taxes, but to reform step by step. Begin with the tax items whose prevention and control tasks are tough and technical standards are relatively mature to levy. Four main pollutants: chemical oxygen demand, ammonia nitrogen, sulfur dioxide, nitrogen oxides. When conditions permit, the scope of tax items can be expanded gradually.
24 Thank You!
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