BOFIT Viikkokatsaus / BOFIT Weekly 2018/06

Official rhetoric on improving the environment in China has been backed up with deeds in recent months. In addition to a new environmental protection tax, the government has banned the import of problematic waste and announced the implementation of an emissions trading scheme. Defying expectations, tighter environmental regulation resulted in an improvement in Beijing's air quality last year. Greenpeace reports that air pollution values were down by over 30 % in the last quarter of 2017, which offset the poor air quality trend of the first three quarters. Progress nationwide, however, was not as impressive, with the least progress in improving air quality in years. Part of the problem was that industrial production growth appears to have accelerated from the low growth of previous years, even if it is difficult to discern any fluctuations in growth from official GDP figures.

The new environment protection tax, which entered into force at the beginning of January, replaces an arrangement in place since 1979, whereby polluters paid an emissions fee to the environmental regulators. The shifting of collection responsibilities to tax officials should make it more difficult to evade payment, a fairly common activity in the past. The tax rate varies according to pollutant and province. Local governments have been granted the authority to impose taxes as long as they are within the range set forth by the central government. Implementation of the environmental protection tax has been criticised for giving local governments too much freedom in setting rates. Many local governments have decided to set the rates close to the lower limits, even if they retain the taxes collected. For example, under the upper and lower limits set by the central government, an air pollutant tax could be set anywhere in the range of 1.2 to 12 yuan per 0.95 kilograms of nitrogen or sulphur dioxide emissions. China's biggest coal-producing region, Shanxi province, has imposed an air pollution tax of just 1.8 yuan. A similar move was taken by Guangdong province, a hub of high-tech production. Critics point out that it is not at all certain that officials are capable of gathering reliable data on the amount and nature of pollution generated by firms. There are also worries that companies will try to circumvent emission taxes.

An import ban on problematic waste was imposed in conjunction with the environmental protection tax. The ban applies to 24 types of problematic waste such as household plastics and unsorted paper. The ban has global implications. Many countries, particularly developed Western nations, send their waste abroad for processing. China has been the world's leading waste importer for decades. In 2017, for example, China imported about 40 million metric tons of plastic, paper and metal waste worth roughly $22 billion.

The government also announced at the end of December that a pilot emissions trading scheme was being rolled out nationwide. While only power plants are initially required to participate in the trading scheme, the goal is to eventually expand the programme to include other polluters.