Chapter 12: Cap and trade versus carbon tax to mitigate climate change: a one-size-fits-all solution in China?
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Recent sources have reported that China will introduce a carbon tax in the near future. The Chinese Economic Information Daily quoted official sources in the Ministry of Finance saying that such a tax would start at 20 yuan per tonne of carbon dioxide, and would rise to 50 yuan per tonne by 2020. The tax would equate to 11 yuan per tonne of coal and 17 yuan per tonne of oil. China's biggest energy consuming companies are likely to face a direct tax on carbon dioxide emissions by 2015. This chapter will discuss the progress of imposing a carbon tax in China, bearing in mind that the Chinese government has already started piloting carbon trading domestically. This brings us to the discussion of the most suitable policy option for China to reduce emissions of greenhouse gases (GHG): carbon trading and/or a carbon tax. Firstly, a general introduction on carbon tax and cap and trade will be given to set the broader context, followed by analysis of benefits and costs of both plans from a policy and legal perspective in China. As a conclusion, this chapter recommends that the Chinese government put aside the proposal of imposing a carbon tax when domestic carbon trading pilot schemes have only just started. Market-based instruments are flexible strategies to mitigate climate change. A central feature of market based instruments is the simulation of a price signal for carbon and to drive the market toward finding acceptable alternatives.

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