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Policy Progress of Carbon Taxation to Mitigate Climate Change in Northeast Asia


Policy Progress of Carbon Taxation to Mitigate Climate Change in Northeast Asia Dr. Xianbing LIU Senior Policy Researcher Kansai Research Centre – PowerPoint PPT presentation

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Title: Policy Progress of Carbon Taxation to Mitigate Climate Change in Northeast Asia

Policy Progress of Carbon Taxation to Mitigate
Climate Change in Northeast Asia
  • Dr. Xianbing LIU
  • Senior Policy Researcher
  • Kansai Research Centre
  • Institute for Global Environmental Strategies,

Presentation Structure
  • Background
  • A glance of the latest climate policies in China,
    Japan and Korea
  • Academic discussions of carbon tax policy with
  • Progress of carbon tax policy in the three
  • A comparison of carbon tax proposals in the three
  • Summary

Outline of IGES
  • Establishment March 31, 1998
  • Personnel (As of Sep. 2009) Researchers
    81(32) Research Support and PR Staff 38(20)
    Administration Staff 20(5) Inter-Governmental
    Programme 32(8). The figures in brackets show
    the subtotal of visiting researcher and
    part-time staff.
  • Working Languages Japanese and English

Issue cluster Climate Change, Natural Resources
Management and Sustainable Cons. Prod.
Groups Discipline cluster Economy and
Environment and Governance and Capacity
Groups Stakeholder cluster Kansai Research
Centre Kitakyushu Urban Centre Bangkok and
Beijing Offices
Research Focus at KRC/IGES
  • Established June, 2001
  • Research Focus Business and the Environment
  • Ongoing projects
  • - Market-based instruments for improving firms
    carbon performance in NE Asia (MBIs)
  • - Research partnership for the application of low
    carbon technology for sustainable development
  • - Local business initiatives (LBI)
  • - Co-benefit technology (CT)

Information disclosure strategy was focused in
the past three years
Target Countries of MBIs Project (FY2010-12)
Japan (2008)
China (2005)
Korea (2007)
152.8 (yearly 5.1)?
96.7 (yearly 4.2)?
Stable, yearly 0.6?
The Latest Climate Policies in the Three Countries
Japan China Korea
Target To reduce its 1990 emissions by 6 from 2008-2012 To reduce emissions by 25 from 1990 levels by 2020 (based on the premise with the participation of all major emitting countries) To reduce emissions by 80 from 1990 levels by 2050 Improving energy efficiency at least by 30 by 2030 To reduce national energy intensity by 20 by 2010 and to increase renewable energy in the national mix to 15 by 2020 To cut CO2 emissions per unit of GDP by 40-45 by 2020 compared with 2005 levels ?These are voluntary targets on its own country conditions To reduce by 30 by 2020 compared with BAU levels (It is said this equals to a reduction of 4 compared with 2005 level) ?It is a voluntary target on its own country conditions
Counter-measures (mainly for industries) Keidanren Voluntary Action Plan on Environment Energy saving-related law GHG emissions Calculation, Reporting and Disclosure System Energy-related tax Carbon offset scheme, carbon financing scheme (voluntary) ETS is under trial, carbon tax is being discussed (Energy supply side) All new coal-fired power plants to be state-of-the-art commercially available with better technologies (Energy demand side) Imposes a significant portion of overall 20 energy intensity improvement by directly targeting around 1,000 largest state-owned enterprises Resource-related tax Adoption of a legal and regulatory framework, GHG and Energy Target Management System, carbon emission trading, the creation of a national GHG inventory reporting system by 2010 Energy-related tax
Research Discussions of Carbon Tax with Relevance
Japan Nakata and Lamont(2001) indicate that
carbon tax does suppress the increase of CO2
emissions, and suggest energy tax as a more
stable approach for Japan. Takeda (2007) confirms
the strong double dividend does not arise from
the reductions in labor and consumption taxes but
arises from the reduction in capital tax. Carbon
tax policy would be possibly introduced and
implemented if it could be combined with
reductions of capital tax.
China Liang et al. (2007) confirm that the
negative impact of carbon tax on the economy
could be alleviated in case of relieving or
subsidizing the production sectors. Under a
preferable scheme with tax completely exempted
for Iron and steel, building materials,
Chemicals, non-ferrous metals and paper industry
while being identical for all the other sectors,
the tax rate is 163 Yuan/t-C (at 2002 price,
US5.4/t-CO2) if the reduction target is set to
be 5. And the rate is 348 Yuan/t-C (about
11.5US/t-CO2) in the case of 10 reduction
Korea Kwon and Heo (2010) suggest that an
upstream carbon tax equivalent to 36,545
Won/t-CO2 (about 31.0 US/t- CO2) need to be
imposed to meet the government medium-term
reduction target. They also finds that a carbon
tax system without revenue-recycling is
regressive. Whereas, recycling the revenue
enhances income redistribution, and a lump-sum
transfer of the revenue would make the carbon tax
policy progressive.
Progress of Carbon Tax Policy in Japan (1/2)
The existing energy taxes were estimated to
contribute to 0.9 of carbon emission reduction
(Kawase et al., 2004)
Unit Yen / t-CO2 Unit Yen / t-CO2 Gasoline Diesel Heavy oil Coal Natural gas
Japan Existing energy tax 24,0521 (12,831) 13,034 753 291 400
Carbon tax (2010 proposal) 8,531 1,0642 1,064 1,174 1,064
Total 21,362 14,098 1,817 1,465 1,464
EU -Average 43,822 28,188 9,239 3,626 7,018
1 Temporary tariff rate 2 Under consideration
Carbon tax has been discussed since early 1990s
in working groups of MOEJ ? Two different tax
rate streams High tax rate (about 45,000
Yen/t-C), or low tax rate (about 3,400 Yen/t-C)
in combination with subsidies specific to
anti-climate change activities. ? Tax system A
supplementary of existing energy-related taxes. ?
The spots for taxation At upstream like
importers and exploitation enterprises of fossil
fuels, petroleum refinery companies, etc.
Progress of Carbon Tax Policy in Japan (2/2)
  • ? Tax revenue Estimated by MOEJ, a total of 2.0
    trillion Yen revenues may be achieved by
    introducing the proposed carbon tax.
  • ? Relief measures Following items are considered
    to be exempted from taxation
  • - Fossil fuel as raw material (Naphtha)
  • - Coal and cokes for iron and steel
  • - Coal for cement manufacturing
  • - Bunker A for Agriculture, Forestry and

Expected effectiveness
If introduced since 2009
Final energy use in 2020
Final energy use in 2030
10,000 Yen/t-C (2,727 Yen/t-CO2)
Reduction by 5.2 (Compared with the BAU levels)
Reduction by 5.7 (Compared with the BAU levels)
2,400 Yen/t-C? (655 Yen/t-CO2)
Reduction by 1.3 (Compared with the BAU levels)
Reduction by 1.5 (Compared with the BAU levels)
?This is the same tax rate as the proposal of
MOEJ in 2009.
Progress of Carbon Tax Policy in China
Existing taxes concerning environment and
resource issues
In recent 2-3 years, the experts from research
institutes under Ministry of Environmental
Protection (MOEP), Ministry of Finance (MOF) and
State Administration of Taxation (SAT) strongly
discussed how to develop carbon tax policy in
China. China will face greater pressure to
control its GHG emissions after 2012. To impose
carbon tax around 2012 is consistent with Chinese
strategy of adding policies on controlling CO2
emissions in a timely manner.
Proposal of Carbon Tax Policy in China (1/2)
  • The targets and scope
  • - Limited to fossil fuels including coal, oil and
    natural gas
  • Should not charge on electricity to avoid double
  • Should not charge on the fuel use of households.

Discussions of taxation spots
Impose on the producers of fossil fuels
Impose on the wholesalers, retailers users
-The price signal would decrease along the fuel
supply chain -As the number of the producers is
much smaller, the cost for tax collection would
be low.
- The tax collection is very difficult
(costly) - Since the tax is charged directly
from carbon emitters, it is supposed to more
effectively encourage in reduction of energy use.
The spots for carbon taxation - Imposed at the
source of energy exploitation or energy
distribution hub - For coal, petroleum and
natural gas, tax should be paid by the resource
exploitation companies for refined oils like
gasoline and diesel, etc., tax should be paid by
the refinery companies.
Proposal of Carbon Tax Policy in China (2/2)
Proposal of carbon tax rate (Su et al.(2009)
Observations ? A gradual process for tax
setting ? Differential tax rates are set
depending on energy type ? Carbon tax rate on
coal is relatively low.
Tax relief measures - Appropriate tax exemption
and return mechanism should be established for
the energy-intensive industries more likely to be
affected by carbon tax policy - Tax refund is
provided as incentives for the enterprises with
significant emission reductions, or increased
investment in energy saving, improved energy
efficiency by using advanced technologies - For
low-income groups, tax return shall be offered to
guarantee their basic living and maintain social
Progress of Carbon Tax Policy in Korea
Existing energy-related tax - A higher energy
tax rate (74.8) for gasoline than Japan (56.2)
and the U.S. (31.0) - A lower tax rate (39.9)
for transport diesel than Japan (52.4) and UK
(72.1) - Generally supported industrial rather
than household fuel consumption.
  • Increase the price of diesel and LPG up to 80
    and 65 of gasoline price
  • For industrial fuel, increase the price of
    Bunker C by 28 and keep LNG price unchanged.
  • Adjust import charges based on calorific values

Step-wise reform
The expected effect of the reform would be around
7.6 of reduction of CO2 emissions (Lee, 2005).
Negative opinion
Positive opinion
  • - Possibility of transferring tax burden from
    producers to consumers, particularly when the
    product is price inelastic
  • - May lead to production decrease and yield wage
    decrease and unemployment
  • - The worst victim compared with its main trading
    countries due to the high reliance to energy

Possibility of enhancing the competitiveness of
industries by investing in research and
? General attitude toward carbon tax in Korea is
rather positive among the environmental scholars
and specialists. ? Many Koreans think they have
experienced the dependency on fossil fuel using
productions and it is necessary to develop energy
efficient economy structure. ? Latest proposal of
carbon tax rate by MoSF is 34-96 Won/l or Kg fuel
(25 Euro/t-CO2), total revenue would be 8.5
Trill. Won/year. ? This proposal will be further
discussed and expected to be introduced from 2012.
A Comparison of Proposals in the Three Countries
Spots for taxation
? Considering the cost and difficulty of tax
collection, all the proposals of carbon tax
policy in the three countries suggest levying the
tax on the fuels containing carbon ? The
importers, producers, wholesalers and retailers
of fossil fuels at most upstream or upstream
would be defined as the targets for the tax levy
? A shortage of this choice is the relatively
weak effect of the price signal from carbon tax
as energy producers are far away from the large
number of end users.
Tax rate
Due to the concern of negative impacts of carbon
tax on economic growth and industrial competency
in the international market, especially for those
energy and carbon-intensive industries, the
proposed carbon tax rate is low.
Tax relief
All the discussions and proposals of carbon tax
in the three countries considered tax relief
measures in order to reduce the negative impacts
of this policy on economy and industries.
Barriers for Carbon Tax Introduction
  • Japan
  • - Strong resistance of industrial lobbies, such
    as Keidanren, is the most crucial factor blocking
    the implementation of carbon tax
  • - Highly multifaceted political issue like the
    environmental tax reform requires
    inter-ministerial cooperation between competent
    ministries. However, it is very hard to harmonize
    their interests.
  • China
  • - The attitudes of related ministries at national
    level are positive to the reform of environmental
    taxes. However, as carbon tax is a new category
    of tax in China, the enterprises would be
    reluctant at the beginning
  • - It will take time for the public to recognize
    and well understand this new tax.
  • - Additional barriers include the decrease of
    product competency in international market, the
    impacts on the people with different income
  • Korea
  • - Have to work out measures to absorb a possible
    shock to manufacturing industries for businesses
    to shift to the low-carbon strategy.
  • - Carbon tax should not serve as a means to raise
    tax burdens on consumers. The government must
    make efforts to build public consensus on the tax
    issue in particular.

Findings of a Survey to Chinese SMEs (N125)
Observations ? Encouraging involvement of
energy-saving activities in overall ? Good
practices of simply managerial activities for
saving energy ? Lower practices of
technological upgrading for energy efficiency ?
Weak in monitoring and statistics of internal
energy uses.
Quite low understanding of MBIs, particularly on
carbon tax.
Brief Summary
  • The design of carbon tax scheme, including the
    scope, tax rate, collection and utilization of
    the tax is important and need to adapt the actual
    situations of each country, which thus requests
    more discussions for convincing the
  • Our overview identifies the problems of target
    countries in implementing carbon tax policy due
    to political resistance and energy structure
  • As the taxation of carbon may cause a shift from
    coal to other low carbon energies, the existing
    energy tax with additional carbon tax as the
    supplementary would be a more stable and
    acceptable approach for Japan and Korea with high
    reliance on energy imports.
  • As the way forward, discussions of acceptability
    to carbon tax from the perspective of individual
    companies are necessary to overcome the
    resistance to this policy.

Thank you for your attention!
Contacts Xianbing LIU KRC/IGES Tel
81-78-262-6634 Fax 81-78-262-6635 E-mal
liu_at_iges.or.jp URL http//www.iges.or.jp
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