China Moves Towards Environmental Taxation to Combat Pollution

Source：Marketing Department       Time：2016-09-03 11:00:07

        For many years, the most serious environmental challenges facing China are its severe air, water and soil pollution. Besides coal-fired power plants, agriculture and the transport sector, heavily polluting industrial enterprises are mainly responsible for China’s pollution crisis. Appropriate regulatory framework conditions need to be put in place in order to upgrade the environment and to support the industry transition to more efficient production methods and environmentally compliant technologies. 

In an effort to further curb industrial emissions, a draft on China’s first Environmental Tax Law has been submitted at the end of August to the National People’s Congress, the country’s top legislative body. After years of deliberation, the highly anticipated law proposes levies on pollutants in air, water, as well as solid waste and noise.

The draft law proposes levies on pollutants in air, water, as well as solid waste and noise The draft targets companies that directly discharge pollutants in key industries such as power, metal, cement, coal and mining, chemical engineering and pharmaceutical, as well as textiles. Meanwhile, the agricultural sector, except for large-scale animal husbandry, as well as mobile pollution producers such as motor vehicles, ships and aircrafts are exempt from the new tax. Treatment plants for urban sewage and household waste will also be excluded, if their discharge of waste does not exceed national standards. 

The draft law sets rates for a specified quantity of air and water pollutants as well as a range of five to 1,000 CNY (0.67-134 EUR) for each tonne of various types of solid waste. For example, companies will be charged 1.2 CNY (0.16 EUR) for 0.95 kilogram of sulfur dioxide emissions and 1.4 CNY (0.19 EUR) for discharging 100 grams of petroleum into the water. Regarding noise pollution, rates between 350 CNY (47 EUR) to 11,200 CNY (1,500 EUR) per month are suggested on a range of industrial noises, depending on the decibel level. Carbon dioxide emissions have not been included in the levying list, since they are already covered by China’s carbon market that will be launched on a national scale in 2017. 

The newly proposed tax will encourage investment in technological upgrades and cleaner solutions 

Enterprises that successfully decrease their pollutant emissions will be receiving tax benefits. For instance companies that manage to reduce air and water emissions to half of the national or regional standard may only pay half the taxes. In consideration of local economic conditions and pollution levels, provincial governments on the other hand may also be allowed to increase rates appropriately.

Already back in 1979, China set up a fee system for pollutant discharge that would be replaced by the new framework of environmental taxes. The standard environmental tax rates of the newly proposed law are the same or higher than the current pollutant discharge fees. During the existing system, China collected 17.3 billion CNY (2.3 billion EUR) in fees for pollutant discharge in 2015 from 280,000 companies and between the years 2003 and 2015 more than 211 billion CNY (28.1 billion EUR). 

However, the current system where local environmental watchdogs are tasked with charging enterprises for pollution is widely regarded as ineffective, as it features loopholes related to implementation and administration. Under the existing system, pollution fees remain uncollected on a wide scale by local authorities in order to help the local economy to grow. Under the new tax system, however, national entities are supposed to maintain more control through a centralized approach for enforcement and implementation.

Besides restructuring the current enforcement of fines for pollution and incentivizing compliance, the newly proposed tax is designed to change the behavior and operation of businesses and will encourage investment in technological upgrades and cleaner solutions. During recent years, China has already issued several new or updated laws and standards aimed at making industrial enterprises more accountable for their pollution, such as the comprehensively revised version of the Environmental Protection Law that entered into force in January 2015.

The draft on the Environmental Tax Law has been released for public consultation in June 2015 after a proposal was first submitted to the State Council in 2013 in a joint effort by the Ministry of Finance, the State Administration of Taxation and the Ministry of Environmental Protection. If the reviews following the first reading at the end of August go well, the draft could potentially become a law already by the end of this year.

(Source:　Econet Monitor，Green Markets & Climate Challenge，Sep 2016)