In the short span of just a few weeks, political leaders in France, China and Japan have all demonstrated to varying degrees that they are warming to the idea of a carbon tax of some sort as a tool for reducing greenhouse gas emissions. As time runs out for countries to position themselves politically for global climate talks this December in Copenhagen, Beijing and the new government in Tokyo are taking a harder look at a carbon tax, while France's stated intention is to implement such a tax by January. The momentum promises to reinvigorate debate on the pros and cons of carbon taxes versus the cap-and-trade structure widely accepted to date.
Both schemes would aid in gradually eroding the economics of carbon-intensive fuels and better positioning low- or no-emissions energy sources such as wind, solar, hydroelectricity and nuclear. But a carbon tax, proponents argue, would be more reliable and predictable for those held accountable for emissions, such as power generators, gas distributors and petrochemical companies. It wouldn't subject participants to the volatility of carbon prices, allowing them to better plan their operations, advocates stress.
In China, Vice Minister of the National Development and Reform Commission (NDRC) and National Energy Administration chief Zhang Guobao said last week that a carbon tax is under consideration by an independent group, not directly by the government -- but that a number of government bodies are involved, including the tax authority, environmental regulator and ministry of commerce. China may have several reasons for exploring a carbon tax, including the fact that a cap-and-trade scheme, which would require more administrative oversight and resources, could be difficult to implement in the country's large, high-growth economy. An upstream carbon tax might be easiest to implement, some suggest, since it would not require cooperation from manufacturers of all shapes and sizes. Also, Chinese climate change negotiators say that the sort of emission ceiling implied by a cap-and-trade scheme could stunt economic development (WGI Jun.17,p8). How a carbon tax would interact with price controls on fuels is unclear.
In any case, it might be challenging for China to determine a per-ton price that would effectively reduce emissions. If the tax is too low, producers and consumers might simply pay the fee rather than move toward alternative fuels or energy-efficient practices. If it's too high, it could stunt economic growth. Some independent Chinese researchers have suggested implementing a carbon tax on a trial basis in few provinces to help Beijing prepare a system of tracking carbon intensity per unit of economic output.
Japanese thinking on a carbon tax is still preliminary, too. The new administration of Democratic Party of Japan (DPJ) Prime Minister Yukio Hatoyama has pledged to cut carbon emissions by 25% by 2020 from 1990 levels. Although the Ministry of Economy, Trade and Industry (Meti) is still formulating a roadmap, government officials have discussed possibly introducing both a carbon tax and emissions trading. Whether they would be rolled out simultaneously or one at a time is unclear.
Discussion of a carbon tax is not new in Japan. The previous Liberal Democratic Party (LDP) government talked in 2005 about levying a 2,400 yen ($26.50) tax per metric ton of carbon as an average rate for all fossil fuels, but it was never implemented due to resistance from domestic business communities with strong leverage over the government. In contrast, the DPJ draws most of its support from labor unions and ordinary citizens, not business, making it potentially easier for the new government to introduce a carbon tax. Furthermore, revenue from a carbon tax could help offset the government's expected loss in income from its promised abolition next year of gasoline and diesel taxes.
France looks set to try its luck starting in January on a carbon tax structure proposed by President Nicolas Sarkozy. Although the plan must still be approved by Parliament and has generated some controversy, it is widely expected to pass easily. Sarkozy hopes the tax will help France serve as an environmental model for the rest of the world, but gas industry leaders have expressed concern that the structure outlined wouldn't recognize the importance of gas an interim fuel, particularly during peak demand periods (WGI Sep.23,p4).
The European Union's existing Emissions Trading Scheme and US legislative proposals both involve a cap-and-trade system in which emissions are capped at gradually lower levels and emission allowances are distributed by auction or other means, with some degree of flexibility for companies to trade and shift their allowances within a "carbon market." One advantage of cap-and-trade, proponents argue, is that market participants -- not governments -- would determine the price of carbon. Advocates also suggest it may reduce emissions more effectively since a clearer "cap" would be in place, although difficulties in determining a baseline for cuts have plagued the European effort.
Most policymakers in North America and Europe still favor cap-and-trade, and many have suggested that, in order to simplify international trade and provide a broad mechanism for funding carbon reduction measures in developing countries, signatories to the next climate change treaty should all adopt similar strategies for cutting emissions. Exxon Mobil and some other North American oil and gas companies advocate a carbon tax, touting its predictability, and some US legislators openly support a carbon tax. But their proposals have thus far fallen on deaf ears within the US House and Senate leadership.
Lauren O'Neil, Washington, with Clara Tan and Yen Ling Song in Singapore and Leslie Palti-Guzman in New York
