About That Chinese Carbon Tax

By James Fallows

Guomao.jpg-jpgI mentioned yesterday that while the Chinese hacking story was, deservedly, getting headlines, the Chinese government's decision to impose a kind of carbon tax could be the more important long-term news.

There's a very good assessment by former Atlantic guest blogger Ella Chou at Dance to the Revolution of what this new policy will and will not mean for China and everyone else. Here are your talking points for the next time this topic comes up at a dinner party:

  • Environmental carnage of all sorts is a truly major emergency in China, both in the short term [Beijing at right] and as a potential limit on the country's development;

  • Chinese emissions are a problem not just for its own people but also for the world. It has now overtaken the U.S. as the biggest carbon emitter; most of the coal that is burned anywhere on Earth is burned in China.

  • Contrary to what you might think, China's economy is relatively less efficient, and more polluting, than those of rich countries. It takes more energy to heat and cool the standard Chinese building than one in Europe or the US; Chinese farmers use more water, fertilizer, and pesticide per unit of output than is typical even with mechanized farming in the US; Chinese factories put out more air and water pollution per dollar of production than rich-country counterparts. On a per capita basis, the Chinese economy uses less energy than America's. On a per dollar (or per RMB) basis, it uses more. Simplest way to remember this point: China's economy is nowhere near as large as America's now, but it puts out more emissions.

  • China's pollution problems are a subset of the larger structural challenge for the Chinese economy -- in a way that is well explained at Dance to the Revolution. For more than thirty years price controls have been set to speed/subsidize the growth of huge export-manufacturing industries, and to increase farm output. Thus all these things have been kept artificially cheap: coal and gasoline; fertilizer, pesticide, water; plus financing itself, and use of the environment as a free good. Because they're cheap, companies and farmers have of course used these things freely and often wastefully.

  • Everyone in the Chinese economic world knows that the country is not going to move out of cheap-workhouse status, toward the realm of "real" rich-country corporate power and prosperity, unless (among other changes) it begins removing these price distortions. So that's the significance of a modest carbon tax, beyond its limited immediate environmental effect. It's part of the effort to "rebalance" the Chinese economy by removing some of its most distorting factors. 

Bonus diplomatic-leverage point: Chinese officials have long used U.S. inaction on climate and carbon-tax issues as a rationalization for not taking steps of their own. On average, we're still quite a poor country, the spokesmen would say. If the rich U.S. can't "afford" to deal with emissions, how could we? Now the country is taking this carbon-tax step for reasons of its own reasons -- as a way to deal with pollution and as another step in un-distorting the economy. But as a bonus it gets talking points to prod the US to do its part.

This article available online at:

http://www.theatlantic.com/international/archive/2013/02/about-that-chinese-carbon-tax/273365/