China proposes introducing a carbon tax

The developing world takes the lead in fighting climate change.

There have been growing murmurs from China that the country may be getting serious about tackling climate change, and yesterday Xinhua News Agency announced that:

 

 

The news follows on from the Chinese government's promise earlier this month to do "whatever it takes" to cap coal use in the country. The official — albeit non-binding — target is now for coal consumption to peak at 4 billion tonnes in 2015.

The full Xinhua report on the carbon tax is thin on details, but points to an earlier report from the Ministry of Finance which suggested "levying a carbon tax in 2012 at 10 yuan [£1.05] per tonne of carbon dioxide, as well as recommended increasing the tax to 50 yuan [£5.27] per tonne by 2020."

The New York Times' Vikas Bajaj notes that:

China’s plan will not make a serious dent in global warming, though the tax may still have some beneficial impact within the country, where air pollution is a serious problem. A paper from the Chinese Academy for Environmental Planning suggests that a small tax could still raise revenue and provide an incentive to reduce emissions, bolstering China’s renewable energy industry.

As much as many in the West have used the inaction of China as an excuse not to do anything about climate change ourselves, that logic has a corollary. China is such a massive nation that it is starting to be in its own interest to break the collective action problem which has plagued environmental causes forever. Its problems are compounded by the fact that not only is it heavily reliant on fossil fuels, but it uses those fuels in the most polluting manner possible. A glance at recent stories about smog in Beijing should reveal why the government is so concerned about reducing pollution.

The real choice the nation is faced with is whether to do that by following the Western path, of replacing polluting fossil fuels with cleaner ones, or skip that stage altogether and move straight to renewables. That move would be reminiscent of the way that many developing nations, particularly in Africa, have skipped wired communications infrastructure entirely and moved straight to mobile phones. It has its disadvantages, of course — primarily speed and cost — but also offers a huge prize at the end of the transition: if China can become a genuine world leader in renewable technology, it would likely have the 21st century sewn-up for good.

If that is the aim, this carbon tax will only be a stepping-stone on the journey. For it to truly offset the cost of pollution (and be an externality tax, rather than just a minor penalty for emitting carbon), it would have to be set in the order of £50-£100 a tonne. But if China starts to lead the way in fighting climate change, it will make it significantly harder for the developed world to carry on abdicating its responsibility.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR