China’s role and contribution in the global governance of climate change: institutional adjustments for carbon tax introduction, collection and management in China

Abstract

As global climate change and its adverse effects have caused serious consequences, the Chinese Government is speeding up on energy saving and emissions reductions, becoming much more active on the climate and environment front. According to the work schedule of the Ministry of Finance, construction of the environmental protection tax system is one essential part of the forthcoming green tax reform in China. On 10 June 2015, the Cabinet’s Legislative Affairs Office issued a Draft Environmental Protection Tax Law of the People’s Republic of China (hereinafter referred to as the ‘Draft EPT Law’) to solicit opinions and comments. This action received much attention and prompted discussion both at home and abroad. The Draft EPT Law shows the trend of transforming pollution charges into tax, and starts a green reform in administrative management by means of financial tools. Though the law does not include carbon dioxide with taxable pollutants, it leaves space for future carbon taxation. With the increase of green reform in the future, carbon tax will no doubt be put on the priority list of the Chinese Government, at which point the Government will face three major challenges. First, the current unsatisfactory tax system environment will jeopardize carbon tax. It is necessary to repeal the overlaps between the Draft EPT Law and carbon tax, other energy taxes and non-environmental taxes, and introduce carbon tax into the current tax system without throwing off the order of the overall tax structure. Secondly, in spite of the design of the new tax structure, the administrative organization of tax management remains a very critical problem. It will be necessary to establish an orderly interactive relationship horizontally between the environmental agency and tax agency, and vertically between the central and the local authorities. Thirdly, a new carbon tax will cause economic slowdown in the short term. In addition to offering tax rebates, reductions and subsidies, a system of penalties could offset negative effects and optimize positive outcomes of emission reduction.

1. Introduction

When environmental protection emerged as a significant policy concern in the 1970s, supporters of the environmental protection movement proposed two basic strategies. ¹ One strategy: first the system of direct ‘command-and-control’ regulation, which followed the familiar pattern of government regulation of other economic activities. ² The second fundamental strategy, ‘market-incentives’, was supported by economists who viewed pollution and other damage to the environment as an external cost of economic activities. ³ Though both strategies have strengths and weaknesses, the degree of their contributions to environmental protection has been proved by the experiences of countries around the world. As a market-based instrument, carbon tax has generally been imposed to reduce greenhouse gas emissions.

Currently, China is facing great pressure to meet its emissions reduction target by 2015; ⁴ but at the same time it is taking important steps towards a leading role and contribution in the global governance of climate change at both an international and domestic level. ⁵ This article will focus mainly on the domestic side of the Chinese Government’s action, but we will also take into account some of the effects that the measures adopted in the Chinese internal legal system may have at the international level.

Recently, the Ministry of Finance (MF), the State Administration of Taxation (SAT), the Ministry of Environmental Protection (MEP) and the Legislative Affairs Office of the State Council jointly established a leading group and several working teams, and drafted the Environmental Protection Law of the People’s Republic of China, which will adopt a carbon tax into China’s environmental taxes for the first time. ⁶ It puts coal and coal products, coke oven gas, crude oil, gasoline, diesel oil, fuel oil, liquefied petroleum gas, natural gas and other fossil fuels into the scope of taxation. ⁷

There is no doubt that carbon taxation will be an environmental policy option for China in the near future. However, the adoption of carbon taxation in China will give rise to three major considerations in the current tax system: compatibility of carbon tax with other existing taxes, conflicts between related governmental agencies and the regressive nature of carbon taxation. This article discusses these three issues and suggests possible solutions. ⁸

2. Coherency in the current tax system for carbon tax introduction

It has been more than 20 years since China started comprehensive tax reform in 1994, during which period a number of single taxes were imposed on a step-by-step basis, such as the resources tax, consumption tax and value-added tax. However, few of those taxes are designed to be environmentally-friendly. China does not yet have an independent environmental tax system. On 10 June 2015, the Cabinet’s Legislative Affairs Office issued the Draft Environmental Protection Tax Law of the People’s Republic of China (the Draft EPT Law) to solicit opinions and comments. The tax in this context is a set of pollution taxes rather than a tax regulated independently. ⁹ The Draft EPT Law does not include carbon dioxide among the taxable pollutants, probably for two reasons. The first and most important one is that carbon dioxide is not regarded internationally to be a pollutant, and it is China’s National Development and Reform Commission (NDRC) which is in charge of emission related issues. From this perspective, carbon tax is different from general environmental taxes and cannot simply follow the logic of converting the emission fee into a tax. Secondly, a measure such as a tax on carbon dioxide emissions is not only a domestic issue, but also a much more complex problem relating to international climate change negotiations ¹⁰ and international trade. ¹¹ These factors raise more difficulties and challenges relating to carbon taxation rather than to the forthcoming environmental protection taxation. Therefore, it is possible that carbon tax will be collected independently and will need coordination with other types of taxes, such as consumption tax, valued added tax and other related measures.

Consumption tax

Consumption tax in China is levied on five categories of products: products whose over-consumption is harmful to health, social order and the environment (such as tobacco, alcohol and fireworks); luxury goods and non-necessities (such as expensive jewellery and cosmetics); high-energy consumption and high-end products (such as cars and motorcycles); non-renewable and non-replaceable petroleum products (such as gasoline and diesel oil); and financially significant products (such as motor vehicle tyres). ¹² China’s consumption tax includes the amount of tax paid as a proportion of the after-tax value (tax-inclusive). All units and individuals engaged in the production, subcontracting for processing and importation of items referred to as ‘taxable consumer goods’ within the territory of the People’s Republic of China are payers of consumption tax. ¹³ In addition, consumption tax is part of the base upon which VAT is levied. ¹⁴

Consumption tax imposed on refined oil products, motors and cars is supposed to have some environmental protection effects. Because environmental pollution has become serious, the Chinese Government is paying much more attention to the environmental impact of consumption taxes. On three occasions in late 2014 and the beginning of 2015, the MF and SAT released notices on adjusting consumption taxes on refined oil. ¹⁵ As a result, the consumption tax on gasoline, naphtha, solvent oil and lubricants will rise from 1 yuan (0.16 US dollar) to 1.52 yuan per litre while that on diesel, aviation kerosene and fuel oil will rise from 0.8 yuan to 1.2 yuan per litre.

The reasons behind the recent reform of consumption taxes on refined oil products were two-fold. First, by late 2014, world oil supply was set to rise much higher than actual demand. ¹⁶ A lot of unused oil was simply being stockpiled for later. Therefore, in September, prices started falling sharply. ¹⁷ According to the Chinese oil price index, ¹⁸ retail prices of oil products in the domestic market have consequently fallen, which will reduce transport costs, lead to an increase in car use and delay investment in alternative ‘greener’ forms of energy, such as electric cars. ¹⁹ Therefore, increasing the refined oil consumption tax rate could offset the decline in the price of oil, curb oil demand and contribute to energy saving as well as emissions reduction. Second, China is always confronting high level but low efficiency oil use and serious waste problems. The increased income from the tax lift could be used to fund pollution control and the battle against climate change, as well as encourage purchase of new energy vehicles to promote energy saving. ²⁰ Accordingly, adjustments of the oil tax rate will drive the overall energy structure towards a more environmentally-friendly framework.

Consumption taxes imposed on motorcycles and cars are considered to have two important positive effects. First, they can encourage consumption of energy-efficient vehicles, improve automobile fuel consumption, and promote green and new-energy automobiles. Secondly, they can reduce fossil fuel burning, control air pollution from emissions, and achieve energy saving and sustainable use. It is reported that passenger vehicles are a major pollution contributor, producing significant amounts of nitrogen oxides, carbon monoxide and other air pollution. In 2013, transportation contributed to more than half of the carbon monoxide and nitrogen oxides, and almost a quarter of the hydrocarbons emitted into the air. ²¹

However, from the perspective of air pollution emissions reduction, consumption taxes on motorcycles and cars conflict with tax imposed on gasoline, diesel, aviation fuel and fuel oil products. If we want to reduce emissions, we should impose tax on fossil fuels or on the vehicles, rather than on both, for the reason that it is unfair and ineffective, regarding consumer motivation towards eco-friendly behaviour, to have a double simultaneous and cumulative tax on the same source. ²² It is more efficient to tax fossil fuels than vehicles for the sake of emissions reduction. Likewise, from the perspective of reducing vehicle fuel consumption, consumption taxes on motorcycles and cars have overlaps with the vehicle purchase tax and the latter having better advantages to favour a step forward in an environmentally sound consumption framework. This will be further explained in the following discussion of vehicle purchase tax.

As an energy tax, the carbon dioxide tax base is mainly the burning of fossil fuels. The consumption taxes imposed on gasoline, diesel, fuel oil and aviation fuel have the same environmental targets as carbon dioxide tax. Therefore, if China adopts carbon dioxide tax in the near future, the consumption taxes on parts of refined oil products must be repealed.

In sum, though China’s consumption tax is an important achievement in the Chinese environmentally-friendly process of reform and trend, the introduction of carbon tax in the current tax system requires further adjustments in the consumption taxes. Moreover, since coal is a fossil fuel and the consumption tax does not include coal, it is necessary to put coal consumption into consideration.

Vehicle purchase tax

The vehicle purchase tax is imposed on the entities and individuals who purchase taxable vehicles, such as cars, motorcycles, trams, trailers and agricultural transport vehicles. ²³ Consumers seldom consider environmental benefits when purchasing vehicles. Normally, consumers are more concerned about the price rather than the type of fuel the vehicle burns. Therefore, to levy a tax on purchase choice will stimulate consumers to opt for more energy-efficient vehicles and form a low-carbon consumption habit.

However, from this point of view, a vehicle purchase tax aiming at guiding purchasers to buy environmentally-friendly vehicles overlaps with motorcycle and car fuel consumption taxes, which also aim at improving vehicle fuel consumption. In essence, a buyer has to pay tax for the same car twice, first, upon purchase of the vehicle (a visible tax), and second for the fuel consumption tax (an invisible tax) which is indirectly imposed on the buyer. Because car vendors add the consumption tax into the sale price, it is the car buyer who is actually paying. Moreover, according to the calculation method of vehicle purchase tax, the taxable price of a vehicle as purchased by a taxpayer for his own use will be the total price that is paid by a taxpayer to a seller as well as any other expense not included in the aforesaid price in the purchase of a taxable vehicle. ²⁴ As a result, the repeated tax collection will increase the purchase cost to consumers in an unreasonable way. Considering the overlap of the motorcycle and car fuel consumption taxes and the refined oil tax mentioned above, it would be acceptable to abolish the fuel consumption tax on motorcycles and cars.

Apart from promoting green vehicle use, a vehicle purchase tax can also greatly contribute to emissions reductions in transportation. Carbon emissions from transportation account for a large part of the overall carbon emission sources. As carbon taxes in many countries are also mainly imposed on transportation, the combination of vehicle purchase tax and carbon tax will multiply the emissions reduction effects of tax in transportation. There will not be an overlap because the vehicle purchase tax is collected when a purchase takes place, while the carbon tax is collected when fossil fuels are burned. In terms of the combination mode of those two taxes, it is possible to adopt a carbon tax as an added tax to vehicle purchase tax. The advantages are the following: first, as we have suggested removing the fuel consumption tax on motorcycles and cars, an added carbon tax at a low tax rate would not increase the buyers’ burden by much, or cause disorder to the current tax system and the gross economy; secondly, to impose a carbon tax would send a strong signal to reduce carbon emissions, which would have a major positive impact on green vehicle purchase.

Resource tax

China started to collect resource tax on the exploitation of mineral products and production of salt within China in 1984. ²⁵ The tax payable for resource tax is computed in accordance with the assessable volume of the taxable products and the prescribed unit tax amount. ²⁶ Taxable items include crude oil, natural gas, coal, other non-metal ores, ferrous metal ores, non-ferrous metal ores, and salt. The resource tax has adopted the quantity-based tax calculation and collection method for a long time, which has given rise to increasing criticism from both academics and practitioners. There are three opposing views of quantity-based tax calculation and collection. First, the quantity-based resource tax is the addition to the coal marginal cost, negatively correlated with the price path. ²⁷ As price is the most critical factor in the market, if a resources tax cannot reflect price fluctuations, its impact on optimizing resource allocation and promoting resource exploitation efficiency is not served. Secondly, resource prices vary according to qualities of different energy types. The split between resource tax and price overlooks the different values of resources, and violates the basic principle of resource scarcity. ²⁸ Thirdly, the quantity-based resource tax is negatively correlated with the exploitation path, compared with a decreasing market price, to control excessive exploitation. ²⁹

The reform of resource tax was officially launched in 2011, starting with the adjustment of crude oil and natural gas tax. On 30 September 2011, the State Council changed the tax calculation and collection of crude oil and natural gas from the quantity-based method to the price-based method by multiplying the sales amount of taxable products by 5%. ³⁰ In October 2014, the MF reduced the rate of mineral resource compensation charges on crude oil and natural gas to zero, and increased the applicable resource tax rate from 5% to 6%. ³¹

There are also some preferential tax policies regarding resource tax reform. (i) The crude oil and natural gas used for heating in the process of transportation of heavy oil within the scope of oil fields are exempted from resource tax. (ii) Heavy oil, high pour-point oil and high sulphur natural gas are subject to a 40% reduction of resource tax. (iii) Tertiary oil recovery (TOR) is subject to a 30% reduction of resource tax. (iv) Low-abundance oil and gas fields are subject to a temporary reduction of 20% of resource tax. ³²

On 9 October 2014, the State Council approved a circular, jointly issued by the MF and SAT, announcing that the coal resource tax will begin the reform of price-based tax calculation and collection throughout the country starting on 1 December, that the price-based tax calculation and collection measure will be applied and it sets out the applicable tax rate. ³³ In the meantime, the overall clear-up of load funds was assigned. ³⁴

The recent reform of crude oil, natural gas and coal was treated as a starting point of the recent fiscal and tax reform, which is supposed to improve harmonious relations between resource taxes and variety resource fees, create a better regulated fiscal and taxation environment, optimize the pricing mechanism of natural resources, stop unauthorized charging practices, alleviate energy enterprise burdens and guide resource exploitation towards green use. ³⁵

The main purpose of a resource tax is to promote reasonable development and utilization of natural resources, while a carbon tax focuses on carbon emissions reduction at the consumption stage. ³⁶ Therefore, a carbon tax will not conflict with the resources tax.

Value Added Tax

Though value added tax (VAT) contributes to financial revenue but not to the protection of the environment, the advantages and assets of policies like VAT on resource products are still worth mentioning. In 2008, the MF and SAT released a notice adopting four exemptions to the VAT: (i) exempting sale of the several regulated self-produced goods from VAT; (ii) refunding immediately after payment of VAT on the sale of regulated self-produced goods, such as electric power or heat generated from garbage fuel; (iii) 50 per cent refunding immediately after payment of VAT on the sale of regulated self-produced goods, such as electric power and heat generated from coal slack, slime, stone-like coal and oil shale, and the electric power generated from wind power; (iv) refunding after payment of VAT on the sale of self-produced biodiesel oil generated by comprehensive utilization of abandoned animal fat and vegetable oil. ³⁷

In sum, the preferential policies on VAT are not correlated with carbon tax, but they still have a positive, indirect impact on carbon emissions reduction.

3. Institutional construction for carbon tax collection and management

In a horizontal organizational structure, a well-implemented carbon tax policy demands institutional coordination among different divisions of Government which are separately responsible for tax legislation and environmental policy. ³⁸ Moreover, in a vertical administrative structure, a well-implemented carbon tax policy requires balanced tax collection and a revenue allocation relationship between central and local tax authorities.

Cooperation between environmental authorities and tax authorities

Environmental taxes serve both environmental protection and tax adjustment purposes, and, therefore, the environmental protection management system and the tax management system should be combined together in a systematic administrative arrangement in order to solve environmental tax issues. Carbon tax is one type of environmental tax. The successful implementation of carbon taxation requires close collaboration between the environmental and tax authorities.

The current administrative structure

Generally, the MEP is responsible for the environmental protection related matters, ³⁹ the SAT and the MF are in charge of tax collection and management. ⁴⁰ These departments work independently and seldom communicate with one another or act cohesively, which would probably lead to institutional defects in achieving the green effects of a carbon tax policy and the fiscal benefits.

This situation has been changed by the Draft EPT Law issued on June 2015. Chapter V of the Draft EPT Law prescribes that taxation management will set an environmental tax collection method with three characteristics. First, the taxation authorities are entitled to collect environmental taxes. Secondly, the environmental protection authorities carry out the responsibility of monitoring, supervising, reviewing and confirming taxable pollutants, and do well on the work of collecting and managing environmental protection taxes in collaboration with taxation authorities. Thirdly, environmental and taxation authorities are required to share information with each other in order to achieve effective results.

Though the law identifies different responsibilities of the authorities, the implementation of the law will face several practical challenges: the cost of communication between the two authorities, and the possible reluctance of environmental authority to collaborate with the tax authority.

For the first point, prior communication experience between environmental and tax authorities is rare, making it necessary to build new channels to enable communication, which will increase administrative costs to some extent. Secondly, according to article 28 of the Draft EPT Law, those against whom an environmental protection tax is levied in accordance with this law will no longer be subject to an emissions fee. Consequently, most of the pollutants will be collected through the tax regime, instead of an emissions fee once this law is put into effect. Moreover, monitoring, supervising, reviewing and confirming taxable pollutants are major tasks when collecting pollution tax, and those are all put on the shoulder of environmental authorities. Due to the lack of regulation on the use of pollution tax, the environmental authorities’ responsibilities outweigh their entitlements, which will lead to resistance and reluctance of these authorities to enforce the law. To sum up, the taxation management and the collection method will certainly need improvement.

A theoretical model of cooperation structure

Learning from the experience of foreign countries will help China make better choices when distributing power among tax-related administrative departments. Most European countries have a long tradition with respect to environmental taxes. ⁴¹ It is reported that some developed countries like Norway, Denmark, Sweden and the Netherlands have had Green Tax Reform Commissions since the 1990s, which aim to manage overall issues with green taxes. ⁴² For example, the Netherlands established their Green Tax Commission in the second Congress Parliamentary of the National Environmental Policy Plan in March 1995. ⁴³ This Commission has wide powers and a huge group of members, consisting of experts with environmental and accounting backgrounds, governmental officials, chief executive officers from big enterprises and several former congress members. The goal of this Commission is to evaluate and develop all tax polices related to environmental quality and sustainable economic development, in order to adjust the existing tax policy to be more environmentally friendly. At the same time, the Commission’s aim is to develop new types of tax to protect the environment, such as a carbon tax for reducing CO ₂ emissions. ⁴⁴

By studying the practical experiences of European countries, China can try to establish a scientific administrative system of carbon tax management as follows.

First, a management committee responsible for dealing with complicated issues comprehensively, akin to the Green Tax Reform Commission in the Netherlands, should be established. This committee should consist of general officers from the four departments (including the NDRC, MEP, MF and SAT), managers from large enterprises, non-governmental organizations (NGOs), and representatives of the public, experts and scholars. The committee would work independently from the Government similarly to a research institution. ⁴⁵

Secondly, carbon taxation in China also depends on the coordination and integration of the four departments. The MEP would be responsible for calculating carbon emissions and supervising the implementation of green policies. The MF and SAT would design and collect taxes. The NDRC would be in charge of ensuring the consistency of the carbon tax policy with general economic development, and balancing power and benefits among the MEP, MF and SAT.

Finally, as transparency of information processing is critical to achieving democratic supervision and systematic efficiency, the establishment of a scientific database system is important. It works as the technical support platform on which the tax policy, climate change management and carbon emissions calculations are accomplished systematically. Such a database can decrease the administrative costs of carbon taxation. It is also useful for clearly distinguishing and demarcating obligations and liabilities of different departments. For example, if illegal behaviour is caused by poor calculations, then the MEP should take responsibility in addressing those problems. If the carbon tax design and collection are mistakenly imposed, then it is the MF and SAT who should be liable. To sum up, the database needs to be an open and clear system that protects the right to information and can deter corruption and other illegal behaviours, with civil society organizations, the citizens and the general public in the role of onlookers ready to act.

The relationship between the central and the local tax agencies

According to article 17 of the Draft EPT Law, taxpayers should declare and pay environmental protection taxes to the taxation authorities for the areas where taxable pollutants were discharged. We hold that carbon tax should also follow this rule. In this part, we will discuss the reasons behind this suggestion from the perspective of the relationship between the central government and the local authorities.

China has a multi-level government structure that shares national tax revenues through a system of tax sharing and transfers, and divides spending assignments and responsibilities. ⁴⁶ In 1994, China experienced a fundamental fiscal decentralization reform called the Tax Assignment System Reform. Revenue assignment was one of the main objectives of the reform. ⁴⁷ The principle of revenue assignment between the central and sub-national Governments means that the taxes concerning national interest or macroeconomic adjustment belong to the central Government, and those with regard to local economic development are under the jurisdiction of sub-national governments. ⁴⁸ Several factors need to be scrutinized before designing the allocation mode of environmental tax revenue between central Government and sub-national governments.

The local governments’ role in environmental protection

For a long time, there has existed a tension between central Government and local governments. The central Government emphasizes sustainability with the meaning of coordination between environmental protection and economic development, while the local authorities pursue maximization of economic development and spare little effort to protect natural resources and the environment. Chinese local governments are frequently blamed for negligent regulation on environmental pollution, predatory exploitation and serious waste of natural resources. To some extent, the capture theory of regulation can be used to explain the Government failure to regulate environmental pollution. Stigler, who is famous for the capture theory, assumes that the problem of regulation is the problem of discovering when and why an industry is able to use the Government for its purposes. ⁴⁹ Regulators face special interest pressure from large firms and may pass regulations for the benefit of interest groups. The outcome of Government regulation thus may depend on the relative strengths of the interest groups involved, rather than any concept of social welfare. ⁵⁰ It is always the interest groups who contribute most to the local economy, but they are also the most reluctant to protect the environment because the internalization of negative externalities may increase cost too much and may decrease their competitive capability. ⁵¹ Therefore, they are more likely to lobby the regulators to waive their environmental protection responsibility by a variety of means. ⁵²

Moreover, public officials, as stewards of public trust, are required to act in good faith and put the public’s interest before their own. ⁵³ This is essential to maintaining the support of the population, even when the reforms are necessary, but may affect the interests of many citizens. For this reason, public procedures and transparency principles need to be strongly integrated to assure a good level of governmental checks and balance in the system. However, impropriety occurs when an officeholder, faced with conflicting interests, puts his or her personal or financial interest ahead of the public interest. In brief, the official, who reaps a monetary or other reward from a decision made in his or her public capacity, ⁵⁴ breaches with this conduct any laws and regulations that require public officials to defend the interest of the Government, the country and the citizens according to the principles of confidentiality, impartiality and fair evaluation. ⁵⁵ Chinese performance appraisal mechanisms of local government officials make things even worse. To be specific, the promotion opportunities of local officials are closely linked with the local level of economic development, especially the gross domestic product level of a local area. Also, there is no regulation striking a proper balance between economic output and environmental quality, resulting in local governments tending to neglect environmental protection while pursuing economic growth. ⁵⁶ In order to compete for very limited promotion opportunities, local officials aggressively pursue local economic development by attracting large investments from enterprises, rather than adopting measures in favour of environmental protection. Especially in small cities, due to lack of improvement in the technology or talented workforce, the only attractive feature is the possibility of economic exploitation of natural resources. As a matter of fact, the enterprises which would like to invest in those small cities are all seriously polluting chemical industries or pharmaceutical manufacturers. As long as those companies contribute to the increase of tax revenue and the employment growth rate, the local government will want to reduce environmental barriers for them. Consequently, a strong alignment of interests is constructed, the so-called ‘government-enterprise cooperation’. The Fujian Zijin mining pollution accident is a typical case of this phenomenon. ⁵⁷

Correcting the local governments’ behaviour

Some Chinese scholars believe the imprecise definition and clear separation of competences of the Government environmental responsibility is a key reason of the deficiency of environmental protection in China. ⁵⁸ This theory is summarized as the Government Environmental Responsibility theory (referred to as the ‘Responsibility Theory’) and has been popular for quite a while in the academic field of Chinese Environmental Law. Recently, Dr Gong Gu, an Associate Professor in the School of Law at Zhejiang University, put forward the Government Incentive for Environmental Protection theory (referred to as ‘Incentive Theory’), which can be regarded as an improved version of the responsibility theory. The updated theory can perfectly illustrate how to correct local authorities’ behaviour in responding to the needs of environmental protection.

Based on Buchanan’s Public Choice Theory, Dr Gong believes that Governments are also rational self-interest maximizers who pursue their own interests, rather than the social benefit in real life. ⁵⁹ It is necessary to build up a set of incentives and related legal frameworks to make governments willing to conduct and apply environmental regulations in an efficient way. ⁶⁰ There are three types of incentives, which may help to reach this result.

The first is the statutory obligation, which refers to the need for clarity in the letter of the law to state and establish Government environmental responsibility and liability. The second is the profit incentives which can reward active responders and those who put in an extra effort. The third is a conditional guarantee which includes financial resources, technological support and organizational safeguards. ⁶¹ To sum up briefly, the incentive theory combines a compulsory measure with an incentive-based instrument, and the former element justifies legality of the Government’s responsibility for environmental protection, while the latter aims to offset the negative effects of the Government’s rational-legal authority and maximize the positive outcomes of the Government’s redistributive nature and of the social benefit system. The lesson is that it is necessary to put an ‘environmental stick’ over the Government’s head with one hand, and offer ‘carrots’ with the other, in order to have back clean air and blue sky.

As China’s air, water and soil pollution situation is now dire, the Government is taking positive measures to solve environmental pollution, even if the move will slow down China’s GDP growth. ⁶² In April 2014, the State Council established the annual evaluation and end-term evaluation of implementation of the Air Pollution Prevention and Control Action Plan by the governments of all provinces. ⁶³ Evaluation indicators include the completion of air quality improvement objectives and the completion of key tasks of air pollution prevention and control. ⁶⁴ According to this rule, it is the principal administrator of a local authority who is responsible for air pollution control work within a certain area. This move is helpful for breaking down the interest alignment between the local authority and the enterprises and for forcing the local authority to take serious action to control pollution. It also implies that the promotion mode of local officials will change to be connected with air quality performance in the near future.

Above all, the obligations imposed on local governments need to be equally balanced by rights. In the context of air pollution control, carbon tax revenue can be accounted as one type of those entitled rights.

4. Preferential policies and enforcement regime

The Draft EPT Law does not give clarification on the use of environmental tax revenue. Chinese legal scholars have different opinions on this issue. Some suggest environmental tax revenue should be treated as part of the general financial budget. Others insist environmental tax revenue should be used to fund environmental protection as the emissions fee has done. Since carbon tax is closely related to environmental tax, research on the use of carbon tax revenue sheds some light on the potential use of environmental tax revenue.

The abolition of carbon tax in Australia discourages the ‘green’ groups in the country and highlights challenges in implementing additional tax to reduce carbon emissions for other countries. ⁶⁵ As China relies on the most emission-intensive fuels to produce power and feed industry, the introduction of carbon tax requires an accompanying preferential tax regime.

In a broad sense, a preferential tax regime is a compound of tax exemptions and deduction measures with conditional requirements. Preferential tax measures can be divided into two categories. The first includes measures aiming to diminish negative effects of the new tax on the overall economy, ⁶⁶ such as those for the enterprises to offset the negative impacts caused by production cost increases and those for low-income households. The second category is mainly designed to achieve non-tax environmental benefits, such as the adoption and application of clean technology and renewable energy industry development. ⁶⁷

Tax preferential measures for energy intensive industry

As mentioned, in the preferential policy on VAT, preferential taxation is not constrained to the field of carbon tax. It also needs to be integrated harmoniously into the overall taxation system. For example, UK companies and any legal personality can get relief or be exempt from some taxes if: they use significant levels of energy because of the nature of their business; they are small businesses which do not use much energy; or they buy energy-efficient technology for their business. ⁶⁸

The coal industry is one of the top targets of China’s carbon tax. By granting preferential tax policies for the coal industry, carbon taxation will achieve much better emission reduction effects. To be specific, if a coal company takes part in a cap-and-trade system and is supposed to achieve emission targets, it is entitled to have tax reduction or tax relief. Likewise, if it can reduce carbon emission by using carbon capture and storage technology, it also deserves preferential tax.

Moreover, coal resource tax reform and the clearing of sustainable coal development funding pave the way for preferential taxation for coal industries.

The preferential tax measures for the renewable energy industry

Preferential tax policies on the renewable energy industry ⁶⁹ can be considered in two ways. First, the tax authority can grant preferential taxation status on non-environmental taxes, such as corporate tax. For example, fuels from renewable sources such as ethanol, methane, biofuels, peat and waste are exempted in Sweden. As a result, the tax has led to heavy expansion of the use of biomass for heating and industry. ⁷⁰ In 2007, the Chinese Government applied preferential taxes and other supportive policies to energy conservation technologies and products. ⁷¹ In 2008, it gave enterprises whose products fall in the catalogue of support initiatives for regulated goods and commodities, 10% off their income tax. ⁷² Later in the same year, it granted renewable enterprises a 50% refund immediately after payment of VAT on the sale of regulated self-produced goods (such as electric power and heat generated from coal slack, slime, stone-like coal and oil shale, and electric power generated from wind power), ⁷³ and refunding after payment of VAT on the sale of self-produced biodiesel oil generated by comprehensive utilization of abandoned animal fat and vegetable oil. ⁷⁴ However, those policies are too general to achieve the most favourable environmental effects. The tax preferential scope is limited to the wind power industry and other types of renewable energy industries are not included, such as biomass, solar and ocean energy. Therefore, both the tax authority and the green tax committee, if established in the future, need to make more detailed preferential policies for renewable energy industries.

Secondly, the tax authority can use the carbon tax revenue to refund the R&D innovative activities of clean technologies and subsidize renewable industries, such as wind power plants or the solar industry, with careful consideration in shaping these policies in compliance with WTO rules. In 2006, the Government released Interim Measures on the Administration of Funds of Renewable Energy Development, aiming to fund wind power, solar energy, biomass and ocean energy development. Comparatively, the special funds for renewable energy technology are less than direct subsidies for the renewable energy industry. The direct subsidies have drawbacks, such as lack of systematic management, overloading caused by unbalanced resource allocation, and the possibility of triggering international trade disputes. ⁷⁵ All the arguments mentioned above show that the Chinese government needs to put more effort into funding renewable energy technology innovation, which is also a relevant part of the Sustainable Development Goal agreed by UN Member States as part of the post-2015 development agenda and adopted at the Sustainable Development Summit on 25–27 September 2015 in New York.

Tax preferential measures for the automobile industry

Carbon emissions in transportation account for a large percentage of greenhouse gas emissions. For example, in 2012, greenhouse gas emissions from transportation accounted for about 28 per cent of total US greenhouse gas emissions, making it the second largest contributor of US greenhouse gas emissions after the Electricity sector. ⁷⁶ In Europe, transport is responsible for around a quarter of EU greenhouse gas emissions making it the second biggest greenhouse gas-emitting sector after energy. ⁷⁷ One way to reduce emissions in the transportation sector is to tax fossil fuels in order to reduce their use. Another way is to stimulate the use of new energy automobiles. ⁷⁸

China has already adopted several policies to encourage new energy vehicle consumption and reduce air pollutants emitted in transportation. In August 2014, the MF issued an announcement granting tax exemption from vehicle purchase tax for all new energy vehicles purchased from 1 September 2014 to 31 December 2017. ⁷⁹ In November 2014, the MF distributed a circular announcing a policy of rewarding construction of new energy vehicle charging facilities. The possible effects will be measured in the future. ⁸⁰

Chapter IV of the Draft EPT Law prescribes tax relief measures and excludes from the scope and provision of these measures those pollutants discharged by mobile pollution sources such as motor vehicles, railway locomotives, off-road mobile machinery, ships and aircrafts. We see this measure as a legal technical treatment rather than a real tax relief measure. In other words, emissions from mobile pollution sources are quite difficult to monitor and calculate due to the lack of technical devices, the large amount of unregistered polluters and inefficient and complex pollution information on those sources and there is possibly a high social cost to taxing them. Implementation will be quite complex if the law permits their taxation. For these reasons, the legislation excludes those pollutants, leaving open the possibility to improve this later in the legislative process. Given that mobile pollution sources account for a large part of carbon emissions, it is possible that mobile pollutants will be taxed along with carbon taxation in the future.

Tax preferential measures for low-income households

As is well known, the carbon tax in British Columbia (BC) is working soundly, proved by a drop in fuel consumption, unaffected economic growth, neutral revenue and a decline in greenhouse gas emissions. ⁸¹ This great success is due to systematic supportive measures, during which tax credit for low-income people contributes in a clear way. The local authorities established a low-income tax credit early in 2008. ⁸² The BC low-income climate action tax credit has helped offset the impact of the carbon taxes paid by low-income individuals and families. ⁸³ The way to calculate the credit amounts and climate credit is clearly regulated in Section 8.1 of the Income Tax Act and Low Income Climate Action Tax Credit Regulation. ⁸⁴

The Chinese Government balances the income gap mainly by giving income tax reduction or exemption for low-income taxpayers. As carbon tax will raise the price of commodities consumed by families and will impact particularly on low-income individuals and families, it will make a difference to establish preferential carbon tax policies to low-income social groups.

Enforcement

Depending on the level of violation, there are three main categories of administrative penalty in current Chinese tax law. The first is the disgrace punishment that aims to harm the reputation of an individual or business. ⁸⁵ The second is the financial penalty, involving the tax authority’s imposition of fines and impounding illegal income and property. ⁸⁶ The third is restraint of the capability to act as an enterprise, mainly involving a prescribed period of rectification order, a decision to discontinue production or business operations, or temporary or permanent revocation of the business licence.

There is no doubt that the violation penalties in current tax law can be used to enforce carbon tax. There are no substantial differences among these types of tax in terms of penalty rules. For example, Ireland’s carbon tax offences and penalties are similar with other types of tax items. ⁸⁷

To sum up, a key principle is that all revenue ⁸⁸ generated by the carbon tax must be recycled through tax reductions, in order to overcome the negative effects of carbon taxation. None of the carbon tax revenues should be used to increase spending. ⁸⁹ Moreover, the carbon tax revenue should follow the policy of a special fund for special use. ⁹⁰ The government should set up a special fund at a national level from carbon tax revenue, which should be used for the projects related to improving energy efficiency, research on energy-saving techniques, developing low carbon emission energies, supporting tree planting and strengthening international exchanges and cooperation in dealing with global climate change. ⁹¹

5. Conclusion

In November 2014, in Beijing, President Barack Obama and President Xi Jinping made a historic US–China Joint Announcement on Climate Change and affirmed their commitment to reaching a successful climate agreement in Paris. In September 2015, on the occasion of President Xi’s State Visit to Washington, the two Presidents confirmed their intention to implement domestic climate policies that may promote sustainable development and the transition to green, low-carbon, and climate-resilient economies. The introduction, collection and management of carbon tax in China are quite complex projects, but they are steps forward. For successful implementation of these policies, it will be important to combine carbon tax with other taxes to promote the current tax system towards green reforms. Moreover, it will be necessary to build up a coherent administrative structure for carbon tax collection and management.

The top priorities are the creation of a harmonized system of clear responsibilities, competences, collaboration and coordination between the tax authority and environmental agency, and between the central and sub-national tax authorities.

Finally, both preferential tax policies and the system of administrative penalty measures need to be improved to optimize the emission reduction effects of carbon taxation and its integration with other law and policies. These Chinese domestic reforms will improve the Chinese environmental protection system and compliance, but will also strengthen the role and contribution of China to the global governance of climate change.

¹ SE Gaines and RA Westin (eds), Taxation for Environmental Protection (Quorum Books 1991) 3.

² ibid.

³ WJ Baumol and WE Oates, The Theory of Environmental Policy (CUP 1944) 1.

⁴ CR Sunstein, ‘The World vs. the United States and China? The Complex Climate Change Incentives of the Leading Greenhouse Gas Emitters’ (2008) 55 UCLA L Rev 1676; AS Anand, ‘The Importance of Being Factual: The U.S., China, and the Future of the Kyoto Protocol’ (2013) 24 Duke Envtl L & Policy Forum 13–14; TK Liang, ‘From Kyoto to Post-2012: The Implications of Engaging China for Environmental Norms and Justice’ (2009) 17 University of Baltimore J Envtl L 36–41; PR McCubbin, ‘China and Climate Change: Domestic Environmental Needs, Differentiated International Responsibilities, and Rule of Law Weaknesses’ (2008) 3 Envtl & Energy L & Policy J 211–29; MP Vandenbergh, ‘Climate Change: The China Problem’ (2008) 81 Southern California L Rev 905. D Cohen-Tanugi, Putting it into Perspective: China’s Carbon Intensity Target (National Resource Defense Council White Paper, October 2010) < https://seors.unfccc.int/seors/attachments/get_attachment?code=9VH8IUPHKI1IUHISGILD456OE35QK1I > accessed on 1 December 2014; Z Kunmin, W Zongguo and P Liying, ‘Environmental Policies in China: Evolvement, Features and Evaluation’ (2007) 17 China Pop Res Environ 2 < http://www.contemporaneaugr.es/files/environmental%20policies%20in%20china.pdf > accessed 1 December 2014; United Nations Framework Convention on Climate Change, ‘Status of Ratification of the Convention’ (2014) < http://unfccc.int/essential_background/convention/status_of_ratification/items/2631.php > accessed 24 September 2014; J Watts, ‘Copenhagen Conference: Fears China May Downgrade Emissions Target’ Guardian (London, 25 November 2009) < http://www.theguardian.com/environment/2009/nov/25/copenhagen-china-carbon-targets > accessed 16 January 2015.

⁵ RV Percival, ‘China’s “Green Leap Forward” Toward Global Environmental Leadership’ (2011) 12 Vermont J Envtl L 633; D Zhang, ‘From Environment to Energy: China’s Reconceptualization of Climate Change’ (2009) 27 Wisconsin Intl L J 543; JB Eisen, ‘China’s Renewable Energy Law: A Platform for Green Leadership?’ (2010) 35 William & Mary Envtl L Policy Rev 1; D Abebe and JS Masur, ‘International Agreemens, Internal Heterogeneity, and Climate Change: The “Two Chinas”’ (2010) 50 Virginia J Intl L 325; JB Wiener, ‘ Climate Change Policy and Policy Change in China’ (2008) 55 UCLA L Rev 1805.

⁶ Environmental Protection Law of People’s Republic of China 2014.

⁷ J Liang, ‘Environmental Tax Adopts Carbon Tax for the First Time’ Economic Information Daily (Beijing, 24 May 2013) < http://jjckb.xinhuanet.com/2013-05/24/content_446671.htm > accessed 17 January 2015.

⁸ S Vermillion, ‘Lessons from China’s Carbon Markets for U.S. Climate Change Policy’ (2015) 39 William & Mary Envtl L Policy Rev 457; AL Wang, ‘Regulating Domestic Carbon Outsourcing: The Case of China and Climate Change’ (2014) 61 UCLA L Rev 2018; H Deng, ‘Improving the Legal Implementation Mechanisms for a Carbon Tax in China’ (2015) 32 Pace Envtl L Rev 665; M Jeffery and Y Shen, ‘The Likelihood of a Carbon Tax in China: Wishful Thinking or a Real Possibility?’ (2012) 25 Tulane Envtl L J 419; S Sewalk, ‘The EU-27, U.S., U.K., and China Should Dump Cap-and Trade as a Policy Option and Adopt a Carbon Tax with Reinvestment To Reduce Global Emissions’ (2014) 47 Suffolk University L Rev 525.

⁹ H Tao, ‘How to Make Environmental Protection Tax More Reasonable’ China Environment News (Beijing, 17 June 2015) < http://www.cenews.com.cn/fzxw/fzyw/201506/t20150617_793838.html > accessed 17 July 2015.

¹⁰ J Meltzer, ‘A Carbon Tax as a Driver of Green Technology Innovation and the Implications for International Trade’ (2014) 35 Energy L J 45; D Zang, ‘Green from Above: Climate Change, New Developmental Strategy, and Regulatory Choice in China’ (2009) 45 Texas Intl L J 201; DE Cooper, ‘The Kyoto Protocol and China: Global Warming’s Sleeping Giant’ (1999) 11 Georgetown Intl Envtl L Rev 401.

¹¹ S Sewalk, ‘A Carbon Tax with Reinvestment is WTO Compatible’ (2014) 25 Fordham Envtl L Rev 338; GE Metcalf and D Weisbach, ‘The Design of a Carbon Tax’ (2009) 33 Harv Envtl L Rev 499; CE McLure, ‘The GATT-Legality of Border Adjustments for Carbon Taxes and the Cost of Emissions Permits: A Riddle, Wrapped in a Mystery, Inside an Enigma’ (2011) 11 Fla Tax Rev 221; AJ Moser, ‘Pragmatism Not Dogmatism: The Inconvenient Need For Border Adjustment Tariffs Based on What Is Known About Climate Change, Trade, and China’ (2011) 12 Vermont J of Envtl L 675; AR Kerry, ‘Why We Need A Carbon Tax’ (2010) 34 Environ Envtl L & Pol’y J 69.

¹² Editorial ‘China Releases Announcement on Consumption Tax Policies’ China Briefing (4 December 2012) < http://www.china-briefing.com/news/2012/12/04/china-releases-announcement-on-consumption-tax-policies.html > accessed 2 February 2015.

¹³ See Provisional Regulations of the People's Republic of China on Consumption Tax 1993 s 1.

¹⁴China Briefing (n 12).

¹⁵ Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting Consumption Tax Policies 2014 No 93; Notice of the Ministry of Finance and the State Administration of Taxation on the Increase of Refined Oil Consumption Tax 2014 No 94; Notice of the Ministry of Finance and the State Administration of Taxation on Further Increasing Consumption Taxes on Refined Oil 2014 No 106.

¹⁶ B Plumer, ‘Why Oil Prices Keep Falling-and Throwing the World into Turmoil’ (23 January 2015) < http://www.vox.com/2014/12/16/7401705/oil-prices-falling > accessed 26 January 2015.

¹⁷ ibid.

¹⁸ See Notice of National Development and Reform Commission on Further Refined Oil Product Price Mechanism 2013 No 624. According to this notice, China adopted a new oil price mechanism which regulates that the prices of oil products are adjusted every 10 working days, cancels the 4% floating band for oil price changes, and adjusts the varieties of crude oil used to calculate the price changes for domestic oil products. Domestic prices will be kept unchanged if price changes in international oil markets are less than 50 yuan per tonne.

¹⁹ T Pettinger, ‘Impact of Falling Oil Prices’ (17 October 2014) < http://www.economicshelp.org/blog/11738/oil/impact-of-falling-oil-prices/ > accessed 12 January 2015.

²⁰ Ministry of Finance of the People’s Republic of China, ‘Adjustment of Partial Oil Products Consumption Tax’ (28 November 2014) Press Release < http://szs.mof.gov.cn/zhengwuxinxi/zhengcejiedu/201411/t20141128_1161143.html > accessed 2 December 2014.

²¹ Union of Concerned Scientists, ‘Vehicles, Air Pollution, and Human Health’ (2013) < http://www.ucsusa.org/our-work/clean-vehicles/vehicles-air-pollution-and-human-health#.VMbAJiwxiV8 > accessed 2 December 2014.

²² L Lokken and Y Kitamura, ‘Credit vs. Exemption: A Comparative Study of Double Tax Relief in the United States and Japan’ (2010) 30 NW J Int’l L & Bus 621.

²³ The State Council of the People’s Republic of China, ‘Interim Regulation of the People’s Republic of China on Vehicle Purchase Taxes’.

²⁴ ibid.

²⁵ Ministry of Commerce People’s Republic of China, ‘Draft Regulations of the People's Republic of China on Resource Tax’ (18 September 1984) < http://english.mofcom.gov.cn/article/lawsdata/chineselaw/200211/20021100053799.shtml > accessed 6 December 2014.

²⁶ See Ministry of Commerce People’s Republic of China, ‘Provisional Regulations of the People’s Republic of China on Resource Tax’ (13 December 1993) < http://english.mofcom.gov.cn/article/lawsdata/chineselaw/200211/20021100053799.shtml > accessed 8 December 2014.

²⁷ Z Guo and X Wei, ‘On the China Resource Tax Polices of Exhaustible Resources in the Inter-temporal Dynamic Optimization-Coal Industry as An Example’ in Qi Ershi, Shen Jiang and Dou Runliang (eds), Proceedings of 2013 4th International Asia Conference on Industrial Engineering and Management Innovation (IEMI 2014) 886.

²⁸ B Lin and others, ‘Resource Tax Reform: Resource Economic Analyze by Setting Coal as An Example’ (2012) 2 China Social Sci 58, 62.

²⁹ Guo and Wei (n 27).

³⁰ Ministry of Commerce People’s Republic of China, ‘Provisional Regulation of the People’s Republic of China on Resource Tax (Revised Version of 2011)’ (2011) < http://tax.mofcom.gov.cn/tax/taxfront/en/article.jsp?c=30113&tn=1&id=ea94fa8e5ef445ca96c442e8a955a878 > accessed 8 December 2014, art 4.

³¹ Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting the Relevant Policies for Resource Tax on Crude Oil and Natural Gas 2014 No 73.

³² ibid.

³³ Notice of the Ministry of Finance and the State Administration of Taxation on the Implementation of the Reform of Coal Resource Tax 2014 No 72.

³⁴ ibid.

³⁵ Editorial, ‘Price-Based Tax Calculation and Collection of Coal Resource Tax since December 1: “Clearing up Fees and Creating Taxes” Launches the Reform of Coal Resource Tax’ Economic Daily (12 October 2014) < http://www.chinatax.gov.cn/2013/n2925/n2953/c1447411/content.html > accessed 13 January 2015.

³⁶ Y Fan, X Wang and W Wang, ‘Analysis on Policy Effects of Carbon Collection on Different Stages’ [2012] Taxation Res 10, 53–56.

³⁷ Notice of the Ministry of Finance and the State Administration of Taxation about Policies regarding the Value Added Tax on Products Made through Comprehensive Utilization of Resources and Other Products 2008 No 156.

³⁸ Gaines and Westin (n 1) 12.

³⁹ Environmental Protection Law of the People’s Republic of China 2014. Art 10: ‘The competent department of environmental protection administration under the State Council shall conduct unified supervision and management of the environmental protection work throughout the country.’ The competent departments of environmental protection administration of the local people’s governments at or above the county level shall conduct unified supervision and management of the environmental protection work within areas under their jurisdiction.

⁴⁰ Law of the People’s Republic of China on the Administration of Tax Collection 2015. Art 5: ‘The competent tax departments under the State Council shall be in charge of the administration of tax collection for the whole country. All the national tax bureaus and local tax bureaus shall respectively administer the tax collection in accordance with the scopes of administration of tax collection stipulated by the State Council. The local people’s government at each level shall strengthen its leadership or coordination in the administration of tax collection within its jurisdiction, support the tax authorities in performance of the duties in accordance with the law, and in the computation of the tax amount by national tariff, and the collection of taxes in accordance with the law. The various departments and entities concerned shall support and assist the tax authorities in the performance of the duties in accordance with the law. No entities or individuals shall impede the tax authorities from performing duties in accordance with the law.’ < http://en.pkulaw.cn/display.aspx?cgid=252598&lib=law > accessed 17 July 2015.

⁴¹ See J Albrecht, ‘The Use of Consumption Taxes to Re-launch Green Tax Reforms’ (2006) Intl Rev L Economics 26.

⁴² JP Barde, ‘Green Tax Reforms in OECD Countries: An Overview’ [1999] J Bus Admin & Policy Analysis < http://business.highbeam.com/577/article-1G1-80128087/green-tax-reforms-oecd-countries-overview > accessed 1 March 2015.

⁴³ ibid.

⁴⁴ K Schlegelmilch (ed), Green Budget Reform in Europe: Countries at the Forefront (Springer 1999) 117–9.

⁴⁵ See The UK Green Fiscal Commission, ‘The Case for Green Fiscal Reform: Final Report’ (October 2009) < http://www.greenfiscalcommission.org.uk/images/uploads/GFC_FinalReport.pdf > accessed 31 March 2015, Annex 3.

⁴⁶ X Wang and R Herd, ‘The System of Revenue Sharing and Fiscal Transfers in China’ (2013) Economics Department Working Papers No 1030/2013 < http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=ECO/WKP (2013)22&docLanguage=En> accessed 7 February 2015.

⁴⁷ M Su and Q Zhao, ‘China’s Fiscal Decentralization Reform’ (2003) < http://www.econ.hit-u.ac.jp/∼kokyo/APPPsympo04/PDF-papers-nov/Zhao-China.pdf > accessed 6 February 2015.

⁴⁸ ibid.

⁴⁹ GJ Stigler, ‘The Theory of Economic Regulation’ (1971) 2 Bell J Economics Manage Sci 3 < http://www.jstor.org/discover/10.2307/3003160?sid=21105922544891&uid=4&uid=2134&uid=2&uid=70 > accessed 15 February 2015.

⁵⁰ B Dollery and JL Wallis, The Political Economy of Local Government (Edward Elgar Publishing 2001) 44.

⁵¹ MA. Susson, ‘Environments, Externalities and Ethics: Compulsory Multinational and Transnational Corporate Bonding to Promote Accountability for Externalization of Environmental Harm’ (2012–2013) 20 Buff Envtl L J 65; T Gonzalez and G Saarman, ‘Regulating Pollutants, Negative Externalities, and Good Neighbor Agreements: Who Bears the Burden of Protecting Communities?’ (2014) 41 Ecology L Q 37; B Sjafjell, ‘Transnational Corporate Responsibility for the 21st Century: Internalizing Externalities in E.U. Law: Why Neither Corporate Governance nor Corporate Social Responsibility Provides the Answers’ (2009) 40 Geo Wash Int'l L Rev 977.

⁵² Joseph E Stiglitz, ‘Regulating Multinational Corporations: Towards Principles of Cross-Border Legal Frameworks in a Globalized World Balancing Rights with Responsibilities’ (2008) 23 Am U Int'l L Rev 451; SJ Emedi, ‘Utilizing Existing Mechanisms of International Law to Implement Human Rights Standards: States and Multinational Corporations’ (2011) 28 Ariz J Int'l & Comp L 629.

⁵³ J Nadler and M Schulman, ‘Conflicts of Interest in Government’ (2006) < http://www.scu.edu/ethics/practicing/focusareas/government_ethics/introduction/conflicts-of-interest.html > accessed 20 March 2015; K Clark, ‘Ethics, Employees and Contractors: Financial Conflicts of Interest In and Out of Government’ (2011) 62 Ala L Rev 961; C Hill and R Painter, ‘Compromised Fiduciaries: Conflicts of Interest in Government and Business’ (2011) 95 Minn L Rev 1637.

⁵⁴ ibid.

⁵⁵ ibid.

⁵⁶ Z Guo and Z Zheng, ‘Local Government, Polluting Enterprise and Environmental Pollution: Based on MATLAB Software’ (2012) 7 J Software 2182, 2183 < http://fj.sina.com.cn/news/zt/zijin/ > accessed 2 January 2015

⁵⁷ ibid 2186.

⁵⁸ S Qian, ‘Governments Environmental Responsibility and the Modification of the Environmental Protection Law’ (2008) 2 J China University Geosci (Social Sciences Edition) 49; See also Y Chun-tao, ‘Reconstruction of Investigation System of Government Environmental Responsibility in Environmental Protection Law of PRC: With Reference to the Experience of American and Japan’ (2013) 3 J CUPL 112, 118.

⁵⁹ G Kong, ‘Modification of New Environmental Protection Law under the View of Government Incentives’ (2013) 1 Legal Sci Monthly 52, 56–57.

⁶⁰ ibid 57.

⁶¹ ibid.

⁶² A Jones, ‘China to Sacrifice GDP Growth for Environment’ (11 March 2014) < http://gbtimes.com/opinion/china-sacrifice-gdp-growth-environment > accessed 3 February 2015.

⁶³ Notice of the Measures for Evaluating the Implementation of the Air Pollution Prevention and Control Action Plan (for Trial Implementation) 2014 No 21, art 2.

⁶⁴ ibid art 3 .

⁶⁵ R Taylor and R Hoyle, ‘Australia Becomes First Developed Nation to Repeal Carbon Tax’ The Wall Street Journal (New York, 17 July 2014) < http://www.wsj.com/articles/australia-repeals-carbon-tax-1405560964 > accessed 16 February 2015.

⁶⁶ For a deeper analysis of economic aspects, see: G Pye, ‘Preferential Tax Treatment of Capital Gains, Optimal Dividend Policy, and Capital Budgeting’ (1972) 2 Quart J Economics 86, 226–42.

⁶⁷ On the other hand, concerns regarding unfair tax competition arise related to different preferential regimes. It is up to the particular country to deal with these, mainly through a clear and precise definition of the preference conditions, as well as the beneficiaries themselves. See: M Keen, ‘Preferential Regimes Can Make Tax Competition Less Harmful’ (2001) 4 National Tax J 54, 757–62.

⁶⁸ Government of the United Kingdom, ‘Environmental Taxes, Reliefs and Schemes for Business’ (30 June 2015) < https://www.gov.uk/green-taxes-and-reliefs > accessed 10 July 2015.

⁶⁹ JB Eisen, ‘China’s Renewable Energy Law: A Platform for Green Leadership?’ (2010) 35 William & Mary Envtl L Policy Rev 1.

⁷⁰ Carbon Tax Center, ‘Where Carbon Is Taxed?’ (17 July 2015) < http://www.carbontax.org/services/where-carbon-is-taxed/ > accessed 8 August 2015.

⁷¹ See Energy Conservation Law of the People’s Republic of China 2007 arts 61, 62, 63; Order of the President of the People’s Republic of China 2007 No 77.

⁷² Notice of the Ministry of Finance and the State Administration of Taxation on the Issues Concerning the Implementation of the Catalogue of Resources for Comprehensive Utilization Entitling Enterprises to Income Tax Preferences 2008 No 47.

⁷³ Notice of the Ministry of Finance (n 37) art 4.

⁷⁴ ibid .

⁷⁵ Y Wang, ‘Research on China’s Subsidies System on Renewable Energy Industry’ (Master Thesis, Xinan Politics and Law University 2009) 23, 24.

⁷⁶ US Environmental Protection Agency, ‘Sources of Greenhouse Gas Emissions’ (11 September 2015) < http://www.epa.gov/climatechange/ghgemissions/sources/transportation.html > accessed 13 September 2015.

⁷⁷ Commission (EC), ‘Climate Action, Reducing Emissions from Transport’ (24 September 2015) < http://ec.europa.eu/clima/policies/transport/index_en.htm > accessed 29 September 2015.

⁷⁸ For particular suggestions, see: H Fang and Y Hu, ‘An Analysis of the Tax Preferential Policy Effect for the Rapid Promotion of the New Energy Automobile’ [2009] Automobile Sci & Technol 3.

⁷⁹ Announcement of the Ministry of Finance, the State Administration of Taxation and the Ministry of Industry and Information Technology on the Exemption of Vehicle Purchase Tax on New Energy Vehicles 2014 No 53.

⁸⁰ The consequences of utmost importance regarding the sustainability of China’s economic development simultaneously with emissions reduction. See: X Yao and X Liu, ‘Optimal Carbon Tax in China with the Perspective of Economic Growth’ [2010] Economic Res J 11.

⁸¹ DG Duff, ‘The Reality of Carbon Taxes in The 21st Century: Carbon Taxation in British Columbia’ (2008) 10 Vt J Envtl L 87; Y Hussain, ‘4 Key Reasons Why BC’s Carbon Tax Is Working’ Financial Post (Toronto, 5 July 2012) < http://business.financialpost.com/2012/07/05/4-key-reasons-why-bcs-carbon-tax-is-working/?__lsa=1eb7-a9eb > accessed 20 February 2015.

⁸² Duff (n 81); Carbon Tax Center (n 70).

⁸³ British Columbia, ‘Low Income Climate Action Tax Credit’ < http://www2.gov.bc.ca/gov/topic.page?id=E9258ADE1AE3423080A1B2674F4EAABD > accessed 20 February 2015. See also Duff (n 81)

⁸⁴ ibid.

⁸⁵ See Law of the People’s Republic of China Concerning the Administration of Tax Collection 2013 art 37; Rules for the Implementation of the Law of the People’s Republic of China on the Administration of Tax Collection 2012 art 72.

⁸⁶ See Law of the People’s Republic of China Concerning the Administration of Tax Collection 2013 arts 60–74; Rules for the Implementation of the Law of the People’s Republic of China on the Administration of Tax Collection 2012 arts 90, 93.

⁸⁷ Irish Finance Act 2010.

⁸⁸ These revenues depend on the tax rate and the effectiveness of the enforcement system. They can become a significant budget income, but it should be taken into account that they might not necessarily be permanent. See: RN Cooper, ‘A Carbon Tax in China?’ (Harvard University Center for the Environment, August 2004) < http://www.environment.harvard.edu/docs/faculty_pubs/cooper_carbon.pdf > accessed 20 February 2015.

⁸⁹ Ministry of Finance British Columbia, ‘Budget and Fiscal Plan 2008/09 – 2010/11’ (19 February 2008) < http://www.bcbudget.gov.bc.ca/2008/bfp/2008_Budget_Fiscal_Plan.pdf > accessed 21 February 2015.

⁹⁰ J Wang and others, ‘The Design on China Carbon Tax to Mitigate Climate Change’ (2009) < http://www.caep.org.cn/english/paper/the-design-on-china-carbon-tax-to-mitigate-climate-change.pdf > accessed 22 March 2015.

⁹¹ ibid.

Author notes

This Special Issue is part of the results of the Research Team at gLAWcal - Global law Initiatives for Sustainable Development (United Kingdom) coordinated by Prof. Paolo Davide Farah, in the frame of the Project EPSEI. The research leading to these results has received funding from the People Programme (Marie Curie Actions) of the European Union’s Seventh Framework Programme (FP7/2007-2013) under REA grant agreement no 269327. Acronym of the Project: EPSEI (2011-2015) entitled ‘Evaluating Policies for Sustainable Energy Investments: Towards an Integrated Approach on National and International Stage’.