walter wang adjunct professor of law university of san diego school of law

WALTER WANGADJUNCT PROFESSOR OF LAW

UNIVERSITY OF SAN DIEGO SCHOOL OF LAW

GREENING THE DRAGON: ENERGY TAX POLICY IN CHINA – IS IT NATIONALISM OR PROTECTIONISM?

Direction• Facts & Figures

• Guiding Principles

• Moving the Transportation Sector Forward

• Energy Efficiency and Renewable Energy

• Nationalism or Protectionism?

2

Facts and Figures3

China is the world’s largest energy consumerCoal accounts for approximately 70% of total

energy consumptionOil consumption in June 2010 amounted to

8.98 million barrels per day (10% higher than in June 2009)

16 of the 20 most polluted cities in the world are in China

Guiding Principles4

Renewable Energies Law Goal: Promote the development and use of renewable

energy as a means to increasing energy supply, improving the energy structure, and ensure energy security.

Requires electricity grid enterprises to strengthen construction of grids

Purchase of power from renewable energy sources is guaranteed.

Establishment of “renewable energy development fund” Compensates the electricity grid provider if the fixed price

for renewable energy is greater than the cost for energy from conventional sources.

Fund renewable energy R&D, rural projects, and equipment manufacturing

Guiding Principles5

Renewable Energies Law Financial institutions authorized to issue discounted

loans State Council to develop tax incentives for projects

listed in renewable energy industry development guidance catalogue

Guiding Principles6

Circular Economy Promotions Law Reduce resource consumption and waste generation Increase recycling and resource recovery Government is to provide tax preferences for

industrial activities that promote the circular economy Tax policy to be used to encourage the importation of

technology, equipment, and products that further the circular economy

Typical projects include: Water conservation, energy efficiency, recycling of

industrial goods, waste treatment, and seawater desalinization

Guiding Principles7

Energy Conservation Law Promotes energy conservation in manufacturing,

building, consumer products, and transportation Government to enact tax policies to encourage energy

resource conservation and importation of energy conservation technologies and equipment

Guiding Principles8

What to take away from the Renewable Energies Law, Circular Economy Promotions Law, and Energy Conservation Law?

Moving the Transportation Sector Forward9

Economic Growth in the Auto Industry 2009 action plan to restructure the auto industry Reduction in Vehicle Purchase Tax

10% down to 5% for passenger cars with 1.6L displacement or lower

January 20, 2009 – December 31, 2009 After 2009, the vehicle purchase tax increased, but only

to 7.5% for passenger cars with 1.6L displacement or lower


Economic Growth in the Auto Industry Changes to consumption tax rates favor smaller

vehicles and penalizes larger vehicles

Engine Displacement Tax Rate1.5 L or Less 3%>1.5 L to 2.0 L 5%>2.0 L to 2.5 L 9%>2.5 L to 3.0 L 12%>3.0 L to 4.0 L 15%> than 4.0 L 20%

Consumption Tax on Passenger Vehicles (2006)

Engine Displacement Tax Rate1.0 L or Less 1%>1.0 L to 1.5L 3%>1.5 L to 2.0 L 5%>2.0 L to 2.5 L 9%>2.5 L to 3.0 L 12%>3.0 L to 4.0 L 25%> than 4.0 L 40%

Consumption Tax on Passenger Vehicles (2009)


Economic Growth in the Auto Industry Policy considerations on changes to tax structure in

the auto industry


Finally, a fuels tax! Initially proposed in 1994, finally effective January 1,

2009 Tax rate = 1 yuan/liter for gasoline and 0.8 yuan/liter for

diesel Replaces commodity tax on fuels Replaces certain tolls for road maintenance and

management Higher than the U.S. (18.4 cents/gallon), but lower than

the UK ($3.36/gallon) Policy challenge: Is the government trying to reduce

consumption or are they really replacing other taxes to make collection more efficient?


The Shanghai Methodology Need to control the number of cars on the road Monthly new plate quota and auction Cost at auction can be as high as $5,905 Perceived Success

Number of registered vehicles in Shanghai (720,000) Number of registered vehicle in Beijing (2.48 million) Fines in Shanghai are minimal (200 yuan)

Energy Efficiency & Renewable Energy14

Preferential Treatment under the Enterprise Income Tax EIT standard tax rate = 25% EIT Article 25 – Preferential treatment granted to

industries and projects which the government supports or whose development it encourages Environmental protection Energy and water conservation Technology transfers


Preferential Treatment under the Enterprise Income Tax The 3 + 50% Rule

Tax holiday for the first 3 years and 50% reduced tax rate for the following 3 years Enterprises engaged in the development and utilization

of energy conservation and emissions reducing technologies

Circular 166 (2009) – This treatment applies to ESCO’s Applies to revenue from energy performance contracts Revenue is also exempt from the Business tax and VAT Transfer of equipment to customers will not result in

deemed income to the ESCO.


Preferential Treatment under the Enterprise Income Tax EIT Article 34 – Enterprises who derive revenue from

the production and sale of certain energy efficiency equipment can exclude 10% of the revenue for purposes of determining EIT liability

Enterprises which purchase such equipment can claim a 10% credit for such purchases


Preferential Treatment under the Enterprise Income Tax High & New Technology Ventures

Preferential EIT rate of 15% Must satisfy certain requirements Includes enterprises engaged in new energy and energy

conservation technology ventures Anecdotal evidence of widespread fraud Shanghai supportive of new-energy automobile

companies and new energy enterprises in their efforts to qualify for preferential treatment


Preferential Treatment under the Enterprise Income Tax Project companies engaged in CDM projects

Benefits from the transfer of CER’s belong to both the government and the project company in varying amounts

2009 guidance provides that project companies may currently deduct the government’s share of the revenues

HFC, PFC, and N2O projects qualify for the 3 + 50% treatment

Will this spur additional CDM related projects?


Specific Measures Targeted at Wind Energy Reduced VAT on the sale of wind generated electricity

17% to 8.5% Refund on import duties and import VAT related on

certain key components and raw materials for developing and manufacturing wind turbines Must have capacity to manufacture wind turbines with a

minimum capacity of 1.2 MW No more import tax exemption on wind turbines with

a maximum power capacity of 2.5 MW Encourages domestic manufacturing Supports domestic content policies

Nationalism or Protectionism?20

Nationalism - “territorial ideology which is internally unifying and externally divisive” Guiding principles seek to galvanize the people

around economic growth in an environmentally aware state.

National focus on a goal Not inherently bad, but in the framework of global

competition, may be externally divisive.Protectionism – “economic policy of

restraining trade between states” Unequal treatment of imported wind turbines and

domestically manufactured wind turbines WTO, where are you?

walter wang adjunct professor of law university of san diego school of law

Documents

renewable energy sources

energy security

energy structure

energy supply

energy tax policy

energy resource conservation

fund renewable energy

renewable energynationalism