China: Environmental Protection Through the Resources Tax Reform

Dec 16th, 2011 | By | Category: Environmental Management, Quick Reads

On November 1, 2011, the amended China Provisional Regulation of Resources Tax (资源税暂行条例)[1] came into force. The amended regulation imposes a five to ten percent tax rate on the sale of crude oil and natural gas. The tax rate for rare earth ores and coking coal also increased, while the tax rate for regular coal, ferrous metals, nonferrous metals, and salt remained the same. If this scheme achieves the government’s stated goals, it could have a dramatic impact on the environment in China and beyond.

 

Overview of the Resources Tax

The resources tax scheme was first introduced in China in 1993 as a major means of limiting the exploitation and use of certain kinds of natural resources and mineral products. The recent reform is the government’s latest effort to implement the national goal regarding natural resources conservation and emissions reduction. According to China’s “12th Five-Year Plan,”[2] the following reductions will be made by 2015 compared with the 2010 base year:

  • A 16 percent reduction in the energy consumption rate per unit of gross domestic product (GDP)
  • A 17 percent reduction in the carbon dioxide emissions per unit of GDP

 

Objectives

In a recent news conference on the amended regulation that was held by the State Council,[3] the government revealed two major goals of resources tax reform:

  • First, because higher tax rates on crude oil and natural gas will increase the cost of traditional energy sources, facilities will be encouraged to implement energy conservation measures and select alternate forms of energy such as wind, solar, and nuclear power, which not only cost less but also have reduced environmental impacts. In addition, because increasing energy costs will increase the sale price of products in the marketplace, consumers who choose less expensive products will also be purchasing products made with cleaner sources of energy.
  • Second, the resources tax results in local tax revenue, which can be used by local governments to remediate adverse environmental impacts or fund other public services that improve local living standards. The majority of China’s natural resource reserves are located in the western and central parts of the country, which are usually considered less developed than the regions along the east coast and often experience financial and technological difficulties in carrying out sustainability projects. With a new source of revenue from the resources tax, local governments might finally have the funding that they need to implement lasting environmental solutions.  

 

Concerns

Despite the upside potential of the reform, several concerns need to be addressed. For example, some consumers worry that resource developers will simply pass on their heavier tax burden to consumers without implementing environmental improvements or switching to cleaner sources of energy. In addition, local governments might not use the tax revenue for environmental improvements; given the lack of independent supervision and transparency surrounding government spending, some governmental authorities might choose to direct the resources tax revenue to other uses. National or local guidelines for spending the resources tax revenue and establishing formal expenditure oversight mechanisms would be welcome improvements in this area.

Although these concerns are valid, the resources tax rate reform is widely viewed as an environmentally friendly move by the government. The Xinjiang Uygur autonomous region in western China generated 2.67 billion yuan (approximately US$ 410 million) of revenue in the first six months of this year.[4] Observing how the Xinjiang government uses its funds, whether for environmental protection, sustainability projects, or other uses, should provide an early measure of the effectiveness of the resources tax reform.

 

About the Author

Sally Li is a lawyer and environmental, health, and safety (EHS) policy and regulatory expert in the Washington, D.C. office of Enhesa, a global EHS consultancy firm based in Brussels, Belgium. Ms. Li’s main focus is on monitoring new EHS regulatory and policy developments in the Greater China Region (GCR), developing regulatory compliance assurance tools for multinational companies with a GCR presence, and advising clients about their EHS compliance strategy in China. She also has experience at the U.S. Securities and Exchange Commission Division of Enforcement. Ms. Li is admitted to the New York Bar, and she speaks English, Mandarin, and Cantonese.

Photograph: Gas Access by Phillip Collier, Sydney, NSW, Australia.

 

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[3] http://www.mof.gov.cn/zhengwuxinxi/zhengcejiedu/2011zhengcejiedu/201110/t20111011_598582.html

[4] http://news.xinhuanet.com/english2010/china/2011-11/10/c_131239071.htm

 

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