Models and Policy System for Low-carbon Economic
Development in China
Prof. Xu Zhengzhong Chinese Academy of Governance
Secretary General, China Public Economic Association
Abstract: Low-carbon economy is a new economic development pattern featured by low energy
consumption, low pollution and low emission. Studies on models and policies in this field are
imperative. This paper reviews contents and implications of the low carbon economy and
identifies major challenges facing China’s present low-carbon endeavor. It attempts to explore and
categorize different types of low-carbon economic development models. A policy matrix is
proposed in this paper to illustrate China’s policy system for low-carbon economic development
with particular emphasis on fiscal tax and financial policies in the initial and growing stages of
low-carbon economic development.
Key words: Low-carbon economy, Development models; Policy system; China
I Challenges and Actions of Low-carbon Economic Development in China
Low-carbon economy is a concept and style of production and living. It involves all the
industrial and social sectors and give rise to such subconcepts as low-carbon society, low-carbon
production, low-carbon consumption, low-carbon living, low-carbon city, low-carbon community,
low-carbon family, low-carbon tourism, low-carbon culture, low-carbon philosophy, low-carbon
art, low-carbon music, low-carbon life, low-carbon survivalism.
“Low-carbon economy” emerges as a globally hot topic since mid-1990s, as an approach to
tackle global warming. Low-carbon means the efforts to minimize the emission of GHG (mainly
CO2) in the air through reducing CO2 emission and carbon source and increasing the carbon
sequestration and resilience of ecosystem. It involves the following three aspects. First, it is
different from the uncontrolled carbon-intensive way of production and energy consumption. The
key for the low-carbon economic development is to lower the carbon intensity through carbon
capture and storage, improving energy efficiency and controlling the rise of CO2 emission.
Second, unlike traditional fossil energy based economic development, it is associated closely with
new energy. Through developing alternative energy, low carbon and no-carbon energy, economic
growth can decouple from carbon emission of the energy consumption. At last, low-carbon
economy also implies changes the anthropogenic carbon flux. It can be regarded as a self-rescue
behavior of human beings after the break down of carbon balance in the ecosystem. Generally
speaking, low-carbon economic development indicates efforts to change the carbon-intensive
consumption, to cut down the fossil energy consumption, to reduce the carbon footprint and
pursue low-carbon lifestyle.
The nature of low-carbon economy is to realize carbon neutral or the dynamic equilibrium of
CO2 emission and absorbing in the production and consumption process. However, it is on the
global scale and therefore requires concerted international efforts. Low carbon economy aims to
reduce influence of economic development on the carbon circulation in the ecosystem. Realization
of this target depends largely on the development of low-carbon energy and CMD is also an
important part. Future energy should be cleaner, more diversified, and sustainable with higher
energy efficiency. International efforts to cope with climate change are generating new waves of
innovation in the energy sector. In the final analysis, the long-term GHG emission reduction and
sustainable economy development should rely on development of clean and low-carbon energy
technologies and adoption of appropriate low-carbon economic growth and social consumption
patterns in harmony with environment and climate.
1. China’s Energy Problems and Urgent Energy conservation Tasks
China is now embarking on a fast track of economic development, facing pressures from
tackling multiple tasks, for instance, to maintain the economic development, eliminate poverty and
reduce GHG emission, cope with climate change at the same time. Energy conservation and GHG
emission reduction are arduous tasks listed in the 11th five-year plan as environmental protection
priorities. Present challenges are as follows: (1) the goal of doubling of China’s GDP meets energy
constraint; (2) coal is the largest energy source in China’s energy mix; (3) and the energy mix is
hard to be changed.
It is estimated that the total demand for primary energy consumption will get to 2.947 billion
tons and 4.249 billion tons standard coal in 2020 and 2030 respectively. In the baseline scenario,
the demand for primary energy will get to 6.4 billion tons standard coal and CO2 emission will be
3.1 tons in 2050. That is to say China will surpass the USA to become the top CO2 emission
country. With implementation of policy measures, the energy demand will be 4.7 billion, a
reduction of 27% and the CO2 emission will be 39% lower over the baseline scenario in 2050.
China’s is going through the heavy chemical industry stage, transforming through labor intensive
to capital intensive development, which indicates GHG emission will continue to rise in the
following decades. Tasks of energy conservation and GHG (CO2, SO2, and COD) emission
reduction are extremely eminent in China.
Coal accounts for the largest share in the energy mix. In the primary energy consumption, the
share of coal is over 2/3, while in the world energy mix, petroleum and natural gas are major
energy sources. For this reason, China CO2 emission intensity is 30% higher than the world
average. In the short run, it is unlikely to get fundamental change in the energy mix and the energy
demand and consumption will keep on rising. China’s GHG emission will maintain a uprising
trend for a long period of time in the future.
China’s present economic development has obvious “high-carbon” feature. Accelerated pace
towards industrialization, urbanization, modernization causes rising demand for energy and is
accompanied by “development emission”. China’s natural resource endowment with rich coal,
scarce gas and oil and lack of high quality energy sources added difficulties to the energy
conservation tasks. In additional, the dominant role of second industry in the industry structure
also worsens this situation. There is unbalanced development among industries and industries with
high energy intensity and high pollution are still taking on a large share. Seeking solutions to
tackle these challenges forms the basic tasks in China’s “high-carbon” to “low carbon”
transformation.
2. China’s National Actions for Low-carbon Economic Development
As the largest developing country in the world, China has upgraded the low-carbon economic
development to the national strategic level and adopted series of state actions:
1990-2002 ： Began to attach importance to climate change and participate in
international efforts
Chinese government first sent delegation to the United Nations Framework Convention on
Climate Change (UNFCCC) in 1990, and signed UNFCCC in 1992. China signed Kyoto Protocol
in 1998 and ratified it in 2002. In the same year, China has integrated the climate issues into the
general strategy of constructing “harmonious society and harmonious world” in the 16th CPC
National Congress.
2006-2008: Promoting energy conservation and emission reduction. Low-carbon
development was first proposed.
In March of 2006, the mandatory target to reduce energy consumption per unit of GDP by 20
percent has been set in the 11th five-year plan. At the end of the same year, Ministry of Science
and Technology (MOST), China National Meteorological Administration, National Development
and Reform Commission, State Environmental Protection Administration jointed publicized
National Assessment Report on Climate Change for the first time.
In 2007, President Hu Jintao stated in APEC conference that China has decided to pursue the
low-carbon economic development. China is one of the earliest developing countries to adopt and
implement its own National Climate Chang Program. In this program, the mid-term GHG
emission reduction target was set. Through developing new energy, 620 million ton of standard
coal is estimated to be saved by the year 2012, equivalent to 1.5 billion ton of GHG emission
reduction. This program also proposes several countermeasures to tackle climate change,
including shifting economic growth pattern, adjusting economic structure and energy mix,
controlling population growth and developing new energy and energy conservation technologies.
In October of 2008, a white paper entitled China's Policies and Actions for Addressing
Climate Change was published, giving descriptions and introductions of impact of climate change
on China and policies, actions, institutional constructions to address climate change issues.
Since 2009: Coping with climate change was listed into the main strategic issues for
national socioeconomic development. China made official GHG emission reduction
commitment.
In 2009, 2.1 trillion yuan out of the 4-trillion yuan government stimulus investment was
devoted to energy conservation, emission reduction and environmental protection areas. To realize
the target of 20% reduction in energy consumption per unit of GDP, priorities were given to
nurturing low-carbon economic driving force and developing low-carbon industries, architecture
and transportation system.
In May of the same year, Chinese government issued official document to implement Bali
Roadmap, making clear China’s stance on this issue and its willingness and determination to push
forward positive outcomes in the Copenhagen conference.
In September 2009, President Hu Jintao illustrated China’s concrete measures to tackle
climate change in the United Nations Summit on Climate Change. First, conserve energy and
improve energy efficiency and endeavor to cut carbon dioxide emissions per unit of GDP by a
notable margin by 2020 from the 2005 level; second, vigorously develop renewable energy and
nuclear energy and endeavor to increase the share of non-fossil fuels in primary energy
consumption to around 15 percent by 2020; Third, energetically increase forest carbon sink and
endeavor to increase of forest coverage by 2020 by 40 million hectares and forest stock volume by
1.3 billion cubic meters by 2020 from the 2005 level; Fourth, step up efforts to develop green
economy, low-carbon economy and circular economy and enhance research, development and
dissemination of climate-friendly technologies.
On 25 November, 2009, Premier Wen Jiabao reiterated in the state council executive meeting
the countermeasures put forward by President Hu Jintao in the United Nations Summit on Climate
Change. Premier Wen also stated China’s commitment to cutting carbon dioxide emissions per
unit of GDP by a 40-45% by 2020 from the 2005 level. It was made clear that tackling climate
change should be a major strategy for national economic and social progress. To achieve that,
government should take series of measures including increasing input to low-carbon and
no-carbon R&D and industries including energy conservation, energy efficiency improvement,
clean coal, renewable energy, nuclear energy, carbon capture and restoration; encourage the
development of low-carbon industries, buildings and transportation system; formulate supporting
laws, regulations and standards improve fiscal, tax, pricing and financial policy measures;
improve governance, formulate appropriate regulatory and implementing mechanisms.
International cooperation should be strengthened to introduce, digest, and absorb advanced
low-carbon and climate-friendly technologies and to strengthen climate change adaptation
capacities. In addition, public awareness on climate change should be improved so as to nurture
greener life style and consumption models.
On 9 March, 2010, China ratified the unbinding “Copenhagen Accord” reached in the United
Nationals Climate Conference in December, 2009. The agreement calls for 100 billion aid funds a
year to developing countries to deal with climate change and sets targets to prevent Earth average
temperature from rising more than two degrees Celsius above pre-industrial levels.
Laws and regulations are adopted as important control measures to cope with climate change.
China has formulated and amended series of laws and regulations in this regard including Energy
Conservation Law, Renewable Energy Law, Laws on Promoting Circular Economy, Laws on
Promoting Clean Production, Forest Law, Grassland Law, Regulation of Civil Building Energy
Saving.
II Low-carbon Development Models in China
Low-carbon economic development model involves institutional arrangement, incentives,
regulations, development path and instruments. It should comply with production level and
regional development strategies. How to select and adopt models will decide China’s low-carbon
economic development.
1. Low-carbon Development Models based on Different Driving Forces
Based on different driving forces, low carbon development models in China can be
categorized as the following eight types:
Technology-led model T (Model T). In this model, energy-conservation and emission
reduction rely heavily on technological progress and innovation in industries (eg.petroleum,
chemistry, electricity, transportation, construction, metallurgy). Technological innovation can lead
to clean and efficient utilization of coal, enhancement of added-value of oil gas and coal bed gas,
development of renewable and new energies, upgrading of traditional technologies, realization of
CO2 capture and storage, etc. Progress of energy-conservation technologies, improvement of the
process route, optimization of alternative products, and development of CO2 utilization
technologies can provide driving force to low-carbon economy.
Project-led mode1 P (Model P). Due to many factors including economic performance,
switching costs and path dependence, low carbon economy is difficult to achieve large-scale
development in the short run. However, projects (eg. wind power project and waste treatment
project) with particular objectives, timetable, inputs, outputs and outcomes can serve as platforms
and carriers for low-carbon economic development.
Enterprise-led models (Model E) Enterprises are major players in the economic
development. Without their participation, low-carbon economic cannot take roots in China. In this
model, the leading enterprises in low-carbon economic development will lead to organizational
evolution of industries; stimulate dissimilation of low-carbon technologies among enterprises.
With good management and institutional innovation, low-carbon technologies can also spillover
within and outside industries and finally realize the overall development of low-carbon economy.
Non-governmental organizations-led model (Model N) Non-government organizations
refer to social organizations that exist between governments and markets, representing interests of
particular communities, classes and groups. They are playing more and more important roles in
promoting low-carbon economy.
Capital-driven model (model C) “Carbon trade” marked the global green trend in the
traditional way of production. It is based on the economic theory of Coase Theorem, that
treatment of GHG (represented by CO2) will cause differences in enterprise costs. Since exchange
of commodities can be regarded as trade for some (property) rights, the discharge right of GHG
can also be exchanged. Carbon trade is proved to be the most effective solution to pollution under
the market framework. Therefore, China should actively participate in the construction of global
carbon market. Meanwhile, it should also take good use of the financial market, giving full play to
capitals in the resource allocation, channeling funds and technologies to the low-carbon sectors.
Consume-guide model (Model C)
Without undermining the quality of life of people, there is still huge potential of
energy-conservation and emission reduction in the consumption sector. Take the energy-saving
building for example. Civil building energy consumption accounts for 20.71% of the total energy
consumptions of China. 10-15% of total output of coal is used for warming buildings and rural
living and 25-30% of electricity is used for construction and house living (cooking, lighting, home
electrical appliance). By the year of 2020, urban residence will get to 56% of the population and
110 x 108 square meters’ building will be constructed. The purpose for building and living energy
saving is to lower the consumption of fossil energy. Feasible measures including improving the
warming system of buildings, utilization of solar power, promoting the use of energy-saving bulbs,
etc.
Government-driven model (Model G) Government plays important roles in pushing the
development of low carbon economy. Experience of some developed countries has showed that
through enforcing powerful regulations and economic measures, low-carbon economy can realize
fast development in a short period of time and yield apparent social and economic benefits.
Legally-bound model (Model L) In this model, government may set minimum energy
permission standard and discharge permission standards through legislation and law enforcement
to promote the development of low carbon economy. This model is featured by authoritative, open
and stable practices. For example, minimum energy efficiency permission standards for vehicles
and most home electrical appliance have been set in the US and energy standards for building
materials and some high energy-consuming home appliances (eg. air-conditioner and refrigerator)
are becoming more and more rigid. British government has formulated sustainable house
standards. These standards are divided into six levels and prescribed the minimum energy
efficiency and water efficiency. All buildings for rent and sales have to get energy efficiency
certificates.
2. Low-carbon Economy Models Based on Different Targets
According to different targets, there are low-carbon city model, low-carbon industry model
and carbon sequestration model.
Low-carbon city model aims to maximally improve the utilization efficiency of resources and
energies and reduce the discharge of GHG emission through advancing low-carbon technology
and institutional innovation, cultivating low-carbon lifestyle on the city scale. This model will
give rise to resource-intensive, environmental-friendly and social harmonious socioeconomic
operation and health, thrifty, and low-carbon lifestyle and consumption. The final objective is to
achieve high-efficient, low-carbon and sustainable development of cities.
Low-carbon city model demonstrates the following three features. First, it seeks to change
the urban energy supply from source to transform the energy consumption from high-carbon to
low-carbon or no-carbon. Second, in terms of economic development, it gives emphasis to
low-carbon production, adjustment of industrial structure. Development of high-carbon industries
is strictly controlled and low-carbon lifestyle and consumption habits are advocated. This model
suits regions mainly composed by cities. For instance, Shanghai has set and is now moving
towards its eco-city target. It aims to become a modern eco-city with coordinated development of
economy and society and harmonious relationship between human and environment.
Low-carbon industry model functions mainly through low-carbon Industrial Parks. There are
two typical routes. The first is based on circular economy and clean production. It attempts to
build eco-industry parks that enable cycling and reuse of resources and wastes so as to reduce
carbon and energy consumption. Many industrial parks of this type have been constructed
throughout China, including Guigang National Eco-industrial Demonstration Park, Tianjing
Economic, Science and Technology National Eco-industry Demonstration Park, Nanhai National
Eco-industrial Park, Rizhao Eco-industrial Park in Shangdong Province, Baotou National
Eco-industrial Demonstration Park in Inner Mongalia, etc. picture 1 and picture 2 give illustrations
to the eco- industry chain and eco-economic system of MELICSEA High-tech Industrial Park. The
second route pursues coordinated development of second and tertiary industries. It attempts to
improve the share of tertiary industry in the economy and advocates development of low-carbon
industries (eg, tourism). For the second industry, it vigorously promotes high-tech industries and
transformation and upgrading of traditional labor-intensive and manufacturing enterprises. High
and new technologies, especially low-carbon technologies pillar the whole industrial system. New
material, new energy, new technologies should be given priorities to attract investments.
Moderately development of tourism, adjustment and optimization of industry structures are
important tasks in this route. Generally speaking, low-carbon economic development under this
model highlights improvement of energy efficiency and reduction of pollutant ( eg.CO2) through
R&D, product and process upgrading, adoption and application of advanced equipment and
technologies as well as integration of technologies, etc.
Figure 1 Low-Carbon Industrial Chain of MELICSEA
Aeolian
①
Kiln exhaust gas
CO2 degradable plastics
Limestone
④
Fly ash
②
Nano CaCO3
PVC profile
③
⑤
Gangue
Paint
Gangue Power
Coal
Hard coke
Kaolin
Fly ash
Calcium silicate slag
Limestone
⑥
① cement
④CO2
Figure 2
② Coal stove Sewage
⑤ Real estate
Low-carbon Economic System of MELICSEA
③ kiln exhaust gas
⑥ Alumina
Eco-system
Waste gas
Waste gas
Economic system
Electricity
Heating
Recycled
water
Waste
residue
Ash
Waste
Water
Gangue
Fly Ash
Sewage Treatment
Heat
MELICSEA
Thermal power stations
Inflammable
Waste
Electricit
Domestic
water
Aeolian
Low-carbon economic development should not only seek carbon emission reduction from the
source, but also try to improve carbon sequestration. Therefore, the carbon sequestration model
provides an effective approach. Unremitting Eco-construction, development of eco-agriculture,
reforestation efforts can contribute to higher storage of air GHG in the eco-carbon sink, which can
be absorbed and fixed by plants and soil . Practical measures under this model include
reforestation, grassland restoration, wetland and field protection, etc. However, this model is at the
influence of natural conditions. Forestry management, improving per unit yield and forestation are
at high costs. This model is suitable for areas with good agricultural and forest conditions.
3. Low-carbon Economy Models Based on Different Leading Agents
Based on different leading agents, low-carbon economic development models can be
categorized as top-down model and bottom-up model. The former is usually led by government
and pushed forward by establishing institutions and mechanisms that could create favorable
political, legal and market environment for the development of low-carbon economy.
Governments’ leading role in the model can improve the public awareness and encourage
low-carbon investment and consumption. This model features high efficiency and authoritative
credits. But sometimes there is gap between model and regional development. Therefore, it suits
the primary and developing stages of low carbon economy. The bottom-up model is usually led by
NGOs, combining efforts of enterprises, social communities and government. This model gives
consideration of the leading role of market and public opinions on environment and low-carbon
issues. Compared with the former model, this type is less efficient. It requires NGOs that has good
understanding of the low-carbon economy and can balance or even sacrifice their own interests for
the national long term interests.
III Policy Systems for Low-Carbon Economic Development in China
Low-carbon economy is a new economic development pattern based on low energy intensity,
low pollution and low emission. It integrates low-carbon industries, technologies and lifestyles.
The crux for its development is to develop new energy, improve energy-using efficiency and
establish green GDP. Technological innovation in the energy sector, institutional innovation and
shifts in the mode of thought are core issues. Low-carbon economy covers low-carbon production,
low-carbon circulation, low carbon distribution and low-carbon consumption. Based on China’s
practical condition and experience, the following part proposes a policy matrix for low-carbon
development (see picture 3).
1. Construction of Low-Carbon Economic Policy Chain
The low-carbon economic development policies can be divided vertically into overall
strategy, basic policies and implementing policies. Overall strategy refers to the macro-level
central plan and outlook for the low-carbon economic development. It sets tunes and guiding
principles. Basic policies refer to general policies within a particular sector. They give policy
guidance within the sector and sustain the implementing policies. For instance, the energy policy
is assembly of all the low-carbon policies within the energy sector. Implementing policies are
practical measures under the basic policy. For example, energy policy can be specified into new
energy policy, energy mix policy, energy conservation and emission reduction policy.
Implementing policies should be feasible enough to be implemented. Throughout the chain, fiscal
policy, tax policy and financial policy plays extremely important roles. Fiscal and tax policies give
impetus to start low-carbon economy and financial policies provide it with continuing momentum.
Basic policies are closely connected, shaping the first horizontal policy chain. The second
horizontal policy chain is composed of all the implementing policies. Institutional and cultural
factors are merged into the layers between basic and implementing policies and internalized as
core elements.
Low-carbon Economic Development Strategies
Policy Core
Low-carbon System
Low-carbon Culture
Horizontal Basic Policy Chain
Energy
Industry
Market
Consumption
Technology
Management
Policy
Policy
Policy
Policy
Policy
Policy
New energy
Emerging Industry
Market access
Consumption Guidance
New energy Technology
Energy structure
Industry structure
Carbon exchange
Consumption environment
Energy
Low-carbon agriculture
Low-carbon tax and finance
Consumption
emission reduction
Low-carbon incentives
Low-carbon industry policy
Eco-compensation
Green Consumption
Carbon absorption
Low-carbon control
Low-carbon service industry
Eco-financial Policy
Low-carbon lifestyle
Technical cooperation
Low-carbon pilot
High energy efficiency
Energy
conservation
Emission reduction
and
Demand
Low-carbon price
Low carbon energy
conservation
Energy Contract
and
Low-carbon evaluation
Technical Standard
Horizontal Implementing Policy Chain
Tax and fiscal policies provide the starting power
Policy Base
Financial innovation provides continuous momentum
Figure 3
Policy Chain of Low-carbon Economic Development in China
2. Fiscal Policy Infuse Power to Start Low-Carbon Economy
First, government should establish a green budget system and increase input for low-carbon
development. Theories and international experience show that efforts for energy-conservation,
carbon emission reduction, development and utilization of new and renewable energy are usually
non-profit and therefore should be priorities of government investment. Current budget system
should be adjusted and reformed to reflect this trend. Government present investment to the R&D
of energy conservation and emission reduction technologies, new and renewable energies are
unstable without independent and special program funding support. Industrial investments in these
areas are usually distributed to technical upgrading and high-tech innovation programs.
Government direct investments are only in the R&D and production (for technical upgrading)
sectors. There is investment vacuum in the dissemination, application, distribution, service,
recycling, information sharing of new energy and low-carbon products. One the one hand,
environmental expenditure items should be adjusted in the regular budget to over CO2 emission
reductions and those efforts related to energy conservation, new and renewable energies or
combine these items as the “environment and energy” expenditure. Budget should be allocated to
low-carbon technology R&D, dissemination and training. On the other hand, governments should
strengthen financial support for low-carbon development in their program budget to vigorously
advance R&D of new energy technologies including wind power, solar power, biomass, clean coal
utilization, nuclear power, intellectual electric grid, new energy car, etc. Input to fossil fuel
utilization so as to optimize energy mix. The low-carbon upgrading of traditional industry, for
example the technical improvement of fire power plant to build CO2 capture and storage
capacities should be intensified.
Secondly, tax reform should be introduced to formulate more preferential policies and
amplify tax functions in low-carbon economy development. In view of the urgent energy
conservation and emission reductions targets and unfavorable international environment,
green-transformation of tax regime can be approached by integrating current tax categories and
adjusting certain tax elements related to energy conservation, carbon emission reduction and
development of new and renewable energies to minimize the impact on tax payers in the short run
(see table 1). While in the long run, new taxes such as carbon tax, carbon tariff, environmental
protection tax and energy tax can be introduced after comprehensive consideration of economic
development and energy mix. Tax reduction is the major preferential policy for low-carbon
economic development in China. Others measures including investment tax credit, tax refund of
re-investment、accelerated depreciation, tax deferral etc., have not been applied yet. The strength
and coverage of preferential tax policies should be upgraded and more diversified measures
should be applied to encourage low-carbon investment, production, consumption, technology
extension, etc. These measures should pursue the progress of new technology and energym, while
protect the core competitiveness of enterprises.
Table 1 Tax Adjustment Schemes for Low-carbon Economic Development
Tax Category
Resource tax
Adjustment
（1）Enlarge taxation scope to cover to resources, such as land, sea, forest, geothermal resource,
etc.
（2）Appropriately Increase tax rates of some resource taxes, especially for these that are under
key protection and are prohibited in exploitation.
（3）Adjust current tax base. Eg. Output-based assessment should be replaced by recoverable
reserves to encourage resource recovering.
Consumption
tax
（1）Enlarge taxation scope to cover products that are with high energy consumption and high
carbon emissions and fail to meet energy conservation standards.
（2）Develop differentiated tax rate. Tax rate should be based on energy consumption and carbon
emission. Current tax level of some consumer goods need to be adjusted, Eg increase the tax rate
of high-emission cars, while lower that of low-emission cars and motorcycles
（3）Consider collecting oil consumption tax to improve public awareness on energy serving and
environmental protection.
Value-added
tax(VAT)
（1）Offer VAT deduction to key energy-saving equipment and products to remove their price
constraints within a given period of time.
（2）Remove tax reduction on toxic pesticide and agricultural plastic film.
business tax
(1)
Exempt business tax of institutes, organizations and individuals that get incomes from
technical transfer, consultation, and service in energy-saving, emission reduction, renewable
energies R&D to encourage the dissemination and utilization of energy-saving technologies.
income tax
（1） Increase the pre-tax deduction rate of R&D funds for energy-saving equipment and
products
（2） Apply the accelerated depreciation to some special equipment for producing energy-saving
products.
（3）
Deduct or exempt income taxes of enterprises that purchased and installed equipment for
producing energy saving products.
（4）Exempt or reduce income tax of institutes and individuals who receive income from
low-carbon oriented technical services including technical transfer, training, consultation, service,
and outsourcing.
tax on buying
(1) Give appropriate tax preference to clean energy or new energy vehicles.
vehicles
vehicle
vessel tax
tariff
and
(1) Adjust the base of vehicle and vessel tax. There should be different threshold for vehicle and
vessels with different energy consumption levels and gas emission.
（1）Impose tariff or environmental tariff on imported equipment with high energy consumption
and carbon emission.
(2) Impose tariff or environmental tariff on primary or semi-manufactured goods which consume
large amount of domestic natural resources and cause little or no pollution in
the destination
countries.
At last, we should integrate and coordinate relevant policies, intensify institutional innovation
to amplify the function of fiscal and tax policies. Low carbon economy is closely related to
economy, society, energy and environment. So low-carbon economic policy should be a
comprehensive system to include all these factors and there should be rigorous laws and powerful
policy measures to ensure its implementation. Firstly, in terms of government expenditure,
financial subsidies should play more important roles in technical upgrading and innovation,
energy-saving consumption and R&D of renewable energy. Current financial subsides are mainly
focus on direct financial support for program R&D and technical upgrading for energy
conservation and emission reduction. In the future, subsides should be extended to cover
producers, sellers and consumers. Secondly, we should establish a sound government procurement
system, giving considerations to energy saving and CO2 emission reduction. The purchased
products should get rigorous energy certification. Thirdly, we should set the agenda to establish a
special carbon fund, although time is still immature to implement it at present. Before carbon tax
is set in place, the major funding source is from the carbon emission trading. However, carbon tax
should be collected as the major funding source once the opportunity is mature. This fund should
be used to support the improvement of energy efficiency, technical innovations for energy
conservations, development of alternative energies and forestation, etc. At last, we should set up
carbon trading system and pricing mechanisms to effectively control the CO2 emission especially
in high-carbon emission sectors (coal, steel and nonferrous metals).
3. Financial policies provide continuing momentum for Low-carbon Economic Development
Financial industry should embrace innovations integrating climate change and low-carbon
elements to produce continuing momentum for low-carbon economy in China. China should full
play of its late-developing advantages, drawing on experiences from international carbon trading
market and catastrophe bond market. It should make strategic plans and push forward its own
financial innovation in line with the national economic progress and financial market reform.
Firstly, commercial banks in China should establish supporting system for the low carbon
economy as soon as possible. Prevailing norms and principles concerning sustainable development,
such as the equator principle should be set in place and observed. Commercial banks should
provide more “energy efficiency loans” to support low-carbon projects. Current priorities should
focus on energy-efficiency management in such sector as energy-conservation facilities of
architectures and transportation, then the renewable energy sectors, including biomass, wind
power, solar power, hydropower, and fuel battery. Commercial banks should actively promote
low-carbon investment products. Prevailing international practice is to set up carbon-neutral fund
to make investment in low-carbon project and participate in the exchange of financial derivatives
such as carbon credits and catastrophe bond. Chinese commercial banks could continue its efforts
to set up funds related to the performance of low-carbon and environmental friendly enterprises so
that investors can directly follow their performance in the market.
Second, a national carbon exchange management platform should be set up to integrate all
the carbon exchange markets. For recent years, CMD market, which is second largest in China’s
carbon exchange market, occupies the dominant position with a market share of 84%. Despite its
huge carbon reduction potential, China is still in the bottom of price chain in the global carbon
market. Therefore, the key for developing carbon exchange market is not to set environmental
exchanges throughout the county, but to set up a national level carbon exchange management
platform to provide supply-and-demand information, to link prices in local environmental
exchanges, and to collect information about the progress of annual target. Finally, a multi-layer
carbon exchange market consisting of national-level carbon exchange management platform and
local carbon exchange market should be set up.
Third, Chinese government should issue catastrophe bonds in the international market. In
face of more frequent natural disasters in China, insurance company, especially some re-insurance
companies are facing more heavy payment pressure due to large volume of direct economic losses.
Issuing catastrophe bonds is one of the most effective ways for risk transfer and sharing. However,
domestic market flow and market volume of these bonds in China are quite limited and relevant
regulating laws for their issuing and investment are not in place yet. Chinese government could
draw on experience from Mexican practices to issue catastrophe bond in the international market
in cooperation with sales agent like Swiss Reinsurance Company.
Forth, incentive mechanisms for low-carbon economic development should be installed in the
financial sector. There are two approaches to achieve that end. One is to stimulate innate
innovative initiatives of financial institutions by establishing innovation performance evaluation
system, double-ladder incentive system and so on. The other is to create sound policy supporting
system through legislation and talent development. Major incentive measures include
tariff reduction for CDM projects, appropriately extending tax exemption, giving preferential
income tax to financial institutions that support low-carbon innovation; offering interest subsidy to
commercial banks that fund low-carbon development; Intensifying regular trainings for employees
in financial sector to create good learning environment and cultivate more rational talent structure.
In addition, current human resource management system, performance evaluation system and
distribution system should be adjusted to create an favorable environment for nurturing,
discovering, attracting and retaining talents in the this industry.
Fifth, financial risk preventing mechanisms for low-carbon economy should be improved. On
the one hand, to prevent the potential risks in the path of innovation, financial institutions should
formulate risk preventing and controlling measures within their governance structure and
management system. Based on characteristics of their new products and business operation and
comprehensive analysis of potential risks and weak points, risk preventing and control measures
should be more targeted. On the other hand, regulators should make constant improvement in their
financial regulatory system, extending the regulatory scope and innovating regulatory instruments.
They should attach importance to risk preventing in business innovation of financial sector,
strengthen the information disclosure to create a favorable outer environment for preventing
financial risks. Meanwhile, macro-information sharing and pre-warning mechanisms should set in
place to avoid the regulatory vacuum and blind pot.
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