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Friday, March 7, 2014, 10:17
Counting the costs
By KARL WILSON in Sydney / Asia Weekly

Counting the costs
A tourist at the Forbidden City in Beijing in February. Pollution in the capital recently reached eight times the levels recommended by the World Health Organization. (AFP)

With China’s toxic air pollution already having a serious impact on the economy, the country is moving toward implementing a tax on carbon emissions. But finding a solution to the problem of emissions will bring its own economic consequences.

Although a specific time frame has not been set, analysts expect a carbon tax will come into effect sometime between 2020 and 2025 and is likely to cost industry and consumers billions of dollars.

According to data from HSBC’s Global Research, the tax could cost industry as much as $14 billion to $74 billion a year, with the impact on consumers unknown.

Yet despite the costs, analysts believe China will still push ahead with the tax.

Says an analyst who does not want to be named: “China is in a perfect position to make it work, as the State owns most of the major polluters.”

In Australia, the introduction of a carbon tax in 2012 has not only been politically divisive, it has split communities and saw the Labor party thrown out of office at the elections last September.

This spurred the new Conservative government to make scrapping the carbon tax a key proposal in its election campaign.

Meanwhile, the government has estimated the controversial tax will cost the domestic economy in excess of A$9 billion ($8 billion) this year alone.

In China, a carbon tax will impact heavily on a number of key sectors, according to Chan Wai-shin, climate change strategist with HSBC in Hong Kong.

He said in a report that the cost to the fuel production sector could be nearly 40 billion yuan ($6.5 billion), manufacturing 32 billion yuan and the transport sector 8 billion yuan.

Chan said the Chinese government is dealing with the problem by “prioritizing clean air and safe drinking water, as well as dealing with environmental pollution with an iron fist”.

Philip Adams, an economics professor at Monash University in Melbourne, says curbing greenhouse emissions “will come at a price”.

“I think we should be perfectly clear about that,” he tells China Daily Asia Weekly.

“The question is: How much? Yes, polluters will pay, but it will also encourage the development of new, cleaner technologies … technologies the world will want.”

Vinod Thomas, director general of Independent Evaluation at the Asian Development Bank, believes global fossil fuel policies urgently need to be addressed.

“Yet the prospects of reaching an early global agreement to reduce emissions remains dim,” he says.

Thomas adds that pricing and taxing could play a significant role in reducing emissions.

Beijing’s air pollution recently reached eight times the World Health Organization-recommended levels, forcing 147 industrial companies in and around the capital to cut or suspend production.

The Chinese government has already implemented a National Climate Change Program which includes mandatory national targets for reducing energy intensity and the discharge of major pollutants, increasing forest coverage and increasing the share of renewable energy.

China’s 12th Five Year Plan (2011-2015) also sets to gradually see the implementation of a carbon trading market and the possibility of introducing a carbon tax.

Seven cities around the country — Beijing, Chongqing, Hubei, Guangdong, Shanghai, Shenzhen and Tianjin — have been targeted for pilot emission trading schemes.

Frank Jotzo, director of the Centre for Climate Economics and Policy at the Australian National University’s (ANU) Crawford School of Public Policy, says there is still some uncertainty about when China will introduce emissions trading and a carbon tax. “But it will happen,” he says.

A joint survey on carbon pricing and carbon markets by the ANU’s Centre for Climate Economics and Policy and the China Carbon Forum in Beijing said that China will go ahead with a national emission trading scheme “probably combined with a carbon tax”.

China has surveyed various carbon pricing programs from around the world, including the European Union, Australia and California, Jotzo says.

“Whatever scheme the government comes up with will probably include elements taken from the various Western models and incorporate them with their own model,” he says.

“At the levels of carbon prices suggested by our survey last year, the impact on industry overall would be small,” he says. “However, the impact on cost structures in activities in particular industries could be significant.”

Jotzo says introducing the carbon tax would make electricity production from coal in old, inefficient power plants become more expensive, while the cost of renewable or nuclear power would stay the same, with the cost from high-efficiency coal-fired plants going up by less than that from an inefficient plant.

A national emissions-trading program is likely to be part of a broad range of policies implemented to reduce pollution and move the economy to more modern, cleaner activities, he says.

The impact of implementing a carbon tax “will depend on the extent of ambition that the government infuses it with”.

“If a carbon tax is high or a trading scheme has a strong target, the effect will be strong. If not, then the effect could be relatively weak,” Jotzo adds.

Analysts say environmental issues in China have moved up the political agenda in recent years in response to growing public concern over the poor air quality in its cities.

China faces the problem of coal being still essential to the nation’s energy needs — over 60 percent — and also accounts for over 75 percent of its carbon dioxide (CO2) emissions.

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