18 May 2010

China's Proposed Carbon Tax

Michael Levi has a nice overview of the carbon tax proposal of the Chinese government. He writes:
Barbara Finamore at NRDC has a nice rundown of internal Chinese discussions about imposing a carbon tax beginning in 2012. A Chinese carbon tax would be a positive development. But it’s important for observers to understand what it would do and what it wouldn’t. Based on the numbers being discussed, this looks like it’s more about raising money (albeit money that might be earmarked for green “research and development investment”) than about directly altering Chinese emissions: the tax being proposed would be equivalent to about $1.50 per ton of CO2 in 2012 and would rise to a bit less than six bucks by 2020. . .

The report that Barbara cites envisions a tax of 10 RMB per ton of carbon dioxide starting in 2012, rising to 40 RMB in 2020. Coal generates (PDF) about a kilogram of emissions for every kilowatt-hour of electricity produced. The hypothetical Chinese carbon tax would thus raise prices of coal-fired electricity by about 0.01 RMB/kWh in 2012 and 0.04 RMB/kWh in 2020. Put that in context: electricity prices (costs are obviously somewhat lower) in China range from about 0.5 to 0.8 RMB/kWh.

Here’s another way to look at it. A recent OECD study projects a 3 c/kWh cost for coal generation in China, a 3.6 c/kWh cost for gas, and a 3-3.6 c/kWh cost for nuclear, the cheapest non-emitting option (all assuming a 5% discount rate). A 0.01-0.05 RMB/kWh carbon tax adds 0.0015-0.006 c/kWh to the cost of coal generation, which simply does not change decisionmaking. (If one uses a 10% discount rate, coal comes in at 3.3 c/kWh, nuclear at 4.4-5.5, and gas at 3.9, making the gap even bigger.)

Levi suggests some irony in how the proposed tax is being received:
Praise from the environmental advocacy community for this step is thus more than a bit ironic: it’s pretty much in line with what The Breakthrough Institute, Roger Pielke Jr, and Bjorn Lomborg have called for.
As Rasheed Wallace once said in a philosophical moment, ball don't lie ;-)

5 comments:

  1. "Praise from the environmental advocacy community for this step is thus more than a bit ironic: it’s pretty much in line with what The Breakthrough Institute, Roger Pielke Jr, and Bjorn Lomborg have called for."


    I thought the Breakthrough Institute was an environmental advocacy organisation.

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  2. South Carolina is in a bit of a brouhaha over imposing a 'capital investment fee' on electricity consumers.

    Basically, a small monthly fee to go towards building new generating capacity.

    Nuclear plants cost a lot to build, financing costs are a significant factor. If one can make a big down payment then long term financing costs are lower making nuclear more attractive.

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  3. "the tax being proposed would be equivalent to about $1.50 per ton of CO2 in 2012 and would rise to a bit less than six bucks by 2020"

    Today's coal news
    http://news.alibaba.com/article/detail/energy/100304588-1-china-coal-prices-up-strong-demand.html

    "Prices of coal with calorific value of 5,800 kcal/kg (NAR) rose by 10 yuan from a week earlier to 785 yuan to 795 yuan ($115 - $116.4) a tonne, according to the Qinhuangdao Seaborne Coal Market "

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  4. "A recent OECD study projects a 3 c/kWh cost for coal generation in China"

    Just a nitpick.

    China has some of the same Geographic challenges as the US. I.E. The coal may not be co-located near the population that needs electricity thereby understating the cost of generation.

    I found these nice little statistics for Delivered Cost of coal in the US for 2008.
    http://www.eia.doe.gov/cneaf/coal/page/acr/table34.html

    $105/ton in New Jersey, $90/ton in New Hampshire, $79/ton in North Carolina, $71/ton in South Carolina all the way down to $17/ton in Montana.

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  5. To Dr Pielke

    Isn't this Barbara Finamore part of the same NRDC that is indirectly responsible for the AB 1890 fiasco?

    Aren't former members of a certain investment bank pulling strings on both sides to get the US to 'emulate Chinese green commitment' and China to break out of its 'BRIC embrace'?

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