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More on the Chinese Carbon Tax

by Michael Levi
May 19, 2010

I wrote about the proposed Chinese carbon tax on Monday. Xinhua reports (h/t Weathervane — the link is to a two month old article that I hadn’t noticed) that it might be partly aimed at avoiding any U.S. or European carbon tariffs:

“Jia also pointed out that the levying of a carbon tax can reduce risks of being hurt in international trade friction, as some developed countries have mulled levying such a tax and will also likely impose carbon tariffs on imported products from other countries that do not have quotas for emissions reductions – like the American Clean Energy and Security Act passed by the U.S. House of Representatives last June. ‘But if we have already levied a carbon tax in China, the other countries would be suspected of double taxation by imposing carbon tariffs, which violates World Trade Organization agreements,’ he said.”

Set aside whether carbon tariffs are wise. (I’m skeptical in most cases.) This argument won’t fly if the Chinese tax is 10-40 RMB per ton of carbon dioxide, which is the range being floated. Those numbers are far lower than the floor price in Kerry-Lieberman, and also much lower than prevailing carbon prices in the European Union carbon market. If the Chinese want to use a domestic carbon tax as the sole basis for arguing against tariffs, they’d need to contend that their tax is imposing the same costs on their industries as the United States and Europe are imposing on their own. Instituting a carbon tax that’s a fraction of what businesses in the developed world face won’t do that.

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  • Posted by David Cohen-Tanugi

    It will be interesting to see how discussions about a carbon tax in China will interact with the prospects for border adjustment measures in the USA and Europe.

    Three points that strike me as worth thinking about:

    – at the rate things are going in the Senate, there is a possibility that China may adopt a price on carbon *before* the United States. So much for implementing a carbon tax in order to avoid US carbon tariffs.

    – in the USA, a possible border adjustment mechanism would only kick in starting in 2020. The fact that China is considering implementing a carbon tax starting in 2012 suggests that the central leadership has at least a number of other considerations in mind.

    – more importantly, the notion of the USA or Europe penalizing China for having a lower carbon price does bring up some serious moral questions. There is currently a strong sense in China that imposing carbon tariff on products from developing nations would go against the principle of common but differentiated responsibilities. Not only in China but especially in countries where purchasing power differences would make an EU-style carbon price absolutely unaffordable.

    My first two comments may be addressed by looking at the EU, to a certain extent (France’s aborted attempt at implementing a carbon tax last year would indeed have included a carbon tariff for countries like China), but the question of CBDR does leave us with a tough issue to grapple with.

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