FocusChina eyes cuts in fossil fuels use; new environment taxes

07 March 2011 07:27  [Source: ICIS news]

By Fanny Zhang

GUANGZHOU (ICIS)--China’s drive to cut its greenhouse gas emissions in the next five years may mean introduction of new environment taxes, and a stronger push for energy companies to spend more on new technology, industry sources said on Monday.

“The government talks about emission control every year. What we [are] concerned [about] is what new polices it would implement to achieve that,” said an official from China International United Petroleum & Chemical Co (UNIPEC), a Sinopec subsidiary.

At the start of the fourth session of the National People’s Congress (NPC) on Saturday, China Premier Wen Jiabao presented a report stating that the share of non-fossil fuels in the country’s overall energy consumption must increase to 11.4% over the next five years from the present 8.3%.

This target was in line with the aim to cut China’s per-GDP energy consumption by 16% and its greenhouse gas emission by 17%, under its new five-year plan to be implemented through 2015.

The Chinese government sets out its economic and social master plan every five years.

The new five-year plan (2011-2015) is undergoing deliberations at the NPC and is expected to be finalised soon. NPC will be in session until 14 March.

An existing resource tax calculated on the basis of output volumes - applicable on utilisation of natural sources - may be replaced by a value-based one nationwide, while new environment taxes - on emissions and pollutions - may also be introduced in the 12th five-year plan.

Currently, energy firms pay yuan (CNY) 14-30/tonne ($2-5/tonne) resource tax on crude and CNY7-15/cubic metre on natural gas depending on the output volumes.  

The country piloted a reform on resource tax in Xinjiang on 1 June 2010 by levying a 5% resources tax based on the prices of crude and natural gas exploited in the region. There were suggestions that the Xinjiang model should be applied all across the country as soon as possible.

“GDP growth has been lowered to 7% for the 12th five-year [plan], so we can expect more regulation changes aiming at adjusting economic structure to be introduced in the next one to two years,” said Qiu Ziyuan, an analyst at Shenzhen-based brokerage, China Merchants Securities (CMS).

China had adjusted down its annual GDP growth target for 2011-2015 by 50 basis points to 7% while GDP growth target for 2011 remains 8% with inflation target at 4%.

An environment tax on enterprises would force businesses to upgrade their technological capabilities and speed up China’s pace towards achieving its emissions targets, said the UNIPEC source.

Investing more in technology is a key to survival, said a source from an independent refinery in China.

On the flip side, introducing a new tax could further create strong inflationary pressures, which the Chinese authorities hope to quash, said Qiu of CMS.

China has been grappling with high inflation rate since July 2010 following its adoption of a very aggressive lending policy in 2009. 

Lending curbs were introduced last year, aided by monetary measures, to keep a lid on inflation. China is cutting on new loans for the second year in 2011.

($1 = CNY6.57)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Fanny Zhang
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