China Study Eyes Carbon Tax

Climate curbs have minimal impact on GDP, report says.
An analysis by Michael Lelyveld
2011-09-19
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china-climate-carbon-305.gif Heavy smoke spews out from a factory in Jilin, northeast China's Jilin province, Dec. 3, 2010.
AFP/ChinaXtra

China could cut its greenhouse gas emissions substantially without sacrificing economic growth, a joint U.S.-China study says.

The question of curbing carbon dioxide (CO2) has been a challenge for fast-growing China, which has become the world's leading source of global warming gases, according to the International Energy Agency.

Until now, the government has resisted absolute limits on emissions in treaty talks to replace the Kyoto Protocol, arguing against any restrictions on China's economic development.

Instead, China has set a proportional goal, pledging to reduce carbon emissions per unit of GDP by 40-45 percent from
2005 levels in 2020.

The problem with that, says the study by Harvard and Tsinghua Universities, is the economy is growing so fast that China's emissions could climb 75-90 percent by then.

But Harvard economist Dale Jorgenson said in an interview that more effective climate change measures are possible with policies that the government has already laid out in its 12th Five-Year Plan.

In addition to the proportional cuts in "energy intensity," the government's blueprint calls for some sort of environmental tax that could limit emissions like sulfur dioxide, nitrous oxides and particulates, or soot.

Pollution taxes will have economic impacts that could correspond closely with more direct climate change measures like cap-and-trade schemes or a carbon tax, said Jorgenson, who co-authored the study.

"They have the luxury, if you like, of being able to choose any mixture of the two and get rather similar effects," he said.

The result could have climate benefits that go beyond the commitments that China was willing to make at the U.N.- sponsored Copenhagen conference in 2009.

Minor effect

One reason for hope is the study's finding that even a direct climate change approach with a tax on fuels related to carbon emissions would have only a minor effect on GDP.

"Our idea is that you can design a policy like this in such a way that it's relatively neutral with regard to the effect on economic growth, and therefore, you can concentrate on the environmental benefits," Jorgenson said.

Based on data from the last five-year period ending in 2010, the study found that a carbon tax would trim GDP growth by as little as 0.1 percent. At the same time, it would reduce coal consumption, energy use and CO2 by double-digit rates, according to a commentary by the study's authors in the official English-language China Daily.

The economic benefits from lives saved and lower health care costs with reduced pollution more than make up for the slight GDP loss.

"The benefits definitely outweigh the costs," Jorgenson said.

The analysis suggests that China does not have to choose between climate and the economy. Findings of the study, which will be published in book form, were presented in July at Tsinghua University in Beijing.

The results are reminiscent of a widely-cited World Bank report in 2001 that found the estimated damage from China's pollution was equivalent to between 8 and 12 percent of GDP.

At that rate, the environmental costs more than offset the country's conventional economic growth.

Premature deaths

In 2003, an unpublished study by the Chinese Academy on Environmental Planning found that poor air quality causes over 400,000 premature deaths in the country per year. In 2007, the World Bank estimated a similar number of fatalities from outdoor air pollution.

China has been considering energy and environmental measures that go beyond proportional targets related to GDP growth for several months. In July, for example, the State Council approved a new target "in principle" that would cap total energy use at 4.1 billion tons of coal equivalent in 2015.

But critics say the limit, equal to about 5-percent annual growth in consumption, would only accomplish the same thing as the proportional energy intensity goal.

Jorgenson said the analysis of alternative measures like the carbon tax could encourage the government to take tougher steps on climate change.

"We're not trying to tell the Chinese what their targets ought to be, but there is concern out there that the targets aren't ambitious enough," he said.

"The question is do you want to have something that achieves climate goals? Do you want to have something that achieves conventional air quality improvements? Well, it turns out you can get two for one," Jorgenson said.



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