China may introduce a carbon tax as well as other levies aimed at protecting the environment. What will these changes mean for businesses inside – and outside – of China? In an interview with Erwann Michel-Kerjan, managing director of Wharton's Risk Management and Decision Processes Center, offered some analysis.
Q: The recent announcement about a possible carbon tax in China has gotten a lot of buzz. What does it mean?
A: I would rephrase the question as: How much is that tax?
Two years ago China had talked about a carbon tax – somewhere between US$1 and US$8 on the ton. Now, the price of a ton of coal, for instance, is about US$80. Therefore, we're not talking about massive tax, especially if it's US$1 per ton.
The second question would be, who's going to actually implement that? Right now, it's at the central government level. Most likely, they will need the provinces to help establish the scheme.
And then the question becomes, "Well, who's going to collect the money? And where is that money going to go?"
Then another question, to me, is: "Who's going to actually pay that carbon tax, at the end of the day?"
Q: Beijing's pollution has been in the news a lot lately, with these pictures of black skies and birds dying. What might the proposed tax mean for air quality in cities like Beijing?
A: The carbon tax is just one piece of a much bigger portfolio of activities that the new central government in China has been putting in place to enhance environmental sustainability.
If you talk to Chinese officials, privately or publicly, they're not naive. They know they will have to balance economic growth, fast economic growth, with quality growth. And quality growth means also taking care of the people.
The higher the carbon tax, the lower the pollution will be. So, hopefully the tax will be a big, big driver to reduce the pollution in major cities.
Q: Let's turn our attention for a moment to another environmental initiative that's gaining more ground in China and elsewhere – solar energy.
A: China has been doing much more in the environmental sustainability space recently. One big thing they have done is to invest massively in solar energy.
The price of solar has been going down considerably over the past few years. A lot of that is due to China entering the market.
Also, there's the fact that other countries- the US, obviously, but also Germany, the largest economy in Europe – have been investing heavily.
So, five or six years ago, we weren't sure where solar will be, because the cost was very high. But now, the cost has dropped literally 60 percent to 70 percent. And there have been projections saying that maybe the price could go as low as 50 US cents per watt.
So, as an alternative, solar has become much more interesting.