Time for a China Carbon Tax?

For The Diplomat, World Bank Group consultant Lin Shi writes that the time has come for China to implement a carbon tax and strengthen subsidies for renewable energy sources to make them more competitive with fossil fuels:

Why is a carbon tax a good idea? For a start, some estimates suggest levying a carbon tax could help encourage improvements in industrial energy efficiency of anywhere from 5 percent to 25 percent. And levying a carbon tax can also help save energy by increasing fossil fuel prices. In 2009, Beijing’s municipal government imposed a carbon tax on gasoline for the first time. Despite car numbers increasing by 40 percent, gasoline consumption increased by just a few percentage points, while diesel consumption fell.

Levying a carbon tax would also help reduce carbon emissions. China’s economy is expected to continue to be dominated by coal, which remains the cheapest and most readily available large-scale energy source in the country. A carbon tax would encourage both private and state-owned enterprises to reduce emissions.

There is a downside – carbon taxes are likely to be regressive, meaning the poor would ultimately likely be hit hardest as they saw prices rise. With this in mind, then, the Chinese government would do well to consider combining a carbon tax with other measures.

See also a McKinsey Group podcast in which several leaders of its China practices discuss, among other aspects, what government policy changes are needed to ensure that China consumes energy more efficiently as its share of global demand continues to grow.

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