Table of Contents

Market Instruments and the Protection of Natural Resources

Market Instruments and the Protection of Natural Resources

Critical Issues in Environmental Taxation series

Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor

Only through a concerted global effort can we protect our natural resources, save our precious natural environment, and indeed our future. But pressures on natural resources come from many directions such as overuse, mismanagement and contamination. This much-needed book reviews and evaluates the use of market and fiscal instruments in protecting our natural resources, from rural to marine environments. Market instruments that are designed to protect the global atmosphere are evaluated, along with carbon instruments and environmental tax incentives. Meanwhile, consideration is given to shifting the tax burden to achieve environmentally responsible outcomes, balancing sustainable use and natural resource protection, and protecting water resources.

Chapter 10: Carbon trading or carbon tax: Which is the more feasible solution to climate change from the perspective of China?

Mingde Cao

Subjects: environment, environmental economics, environmental law, environmental politics and policy, law - academic, energy law, environmental law, tax law and fiscal policy, politics and public policy, environmental politics and policy


Anthropogenic greenhouse gas (GHG) emissions since the Industrial Revolution in the late 18th century have triggered global temperature increases and disrupted the climate system, an important global commons. As a result, huge adverse impacts have been imposed upon humanity and the ecosystem. From an economic perspective, global warming caused by GHG emissions elicits a disproportionate burden on vulnerable countries and groups. Therefore, internalizing the externality of GHG emissions is necessary from the perspectives of climate change justice. Solutions for internalizing the social costs of carbon are many. Traditional methods still work; command and control will continue to be effective in many areas, for example, energy efficiency standards, emission permits, carbon emission caps, carbon budgets, carbon labeling, and so forth. Meanwhile, market-based approaches will give regulated entities more flexibility, promote low-carbon technologies and reduce the social costs of carbon emission reductions—as has been demonstrated by the Acid Rain Program under the Clean Air Act. Globally, a carbon tax and carbon trading are the main market-based solutions for countries to combat climate disruptions to date. However, the two methods obviously each have their own advantages, and would be compatible, complementing each other in facing the challenge of climate change. Given the fledgling market in China, and especially the present lack of national legislation related to carbon emissions trading, the transparency of information, accuracy of carbon emissions data and other defects related to the carbon emissions trading approach, a carbon scheme would be a more feasible economic incentive for China to cope with climate change. This article will explore how to price carbon through market-based approaches in China, with a focus on comparing the two methods from the perspective of China. Section I will compare the advantages and defects of carbon trading and carbon tax in general. Section II will introduce the pilot programs of carbon trading in seven regions in China and comment on the existing challenges. Section III will analyze the feasibility of a carbon tax in China. Section IV provides a brief conclusion. Market-based approaches have been adopted pursuant to the Kyoto Protocol as solutions to climate change issues because of their advantages in dealing with environmental problems. Many developed nations are using or plan to use environmental taxation or carbon trading mechanisms to reduce greenhouse gas emissions in order to implement the Kyoto Protocol. Market-based approaches may be the best solutions to cope with the climate change issues on the global scale.

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