Concerns and Responses of Chinese Businesses to the Pricing of Carbon Emissions

Event: Singapore-China Energy Forum

The success of a climate policy largely depends on how individual companies concern and react to the policy. However, there exists scant research identifying the conditions for smooth introduction of climate policies from the business viewpoints, particularly in the developing economies like China. To certain degree, this presentation may close the gap using part findings from a project, namely ‘Market-based Instruments for Improving Company Carbon Performance in Northeast Asia’, which was carried out at Kansai Research Centre of IGES during April 2010 to March 2013.
The survey analysis confirms that the companies in China have been actively practicing energy saving activities and tend to adopt managerial rather than the technological and engineering measures. They seem sensitive to the performance of their business competitors and concern about the loss in comparative advantage. Meanwhile, positive attitudes alone does not lead to actual energy saving practices due to the internal capacity limitations, especially for the small and medium-sized businesses.
The Chinese companies well understand the economic incentive policies under implementation, i.e., financial subsidies and rewards, but have low awareness of carbon pricing policies like carbon taxation and greenhouse gases emissions trading scheme (GHG ETS). The sampled companies in China would not simply offload the policy burden onto their customers, confirming the effectiveness of carbon pricing policies for enhancing business efforts in carbon mitigation. The companies in China may accept a payback period less than 3 years for energy saving projects. This result reveals the necessity for the introduction of carbon pricing policies to improve the profitability of energy saving and carbon mitigation investments.
Applying the model of willingness-to-pay (WTP), it is estimated that a mean of 7.7% to 9.9% in energy cost increases due to carbon pricing policies would be acceptable for the surveyed energy-intensive industries in China. These ratios equal to a carbon price ranging at 40 to 80 Yuan/t-CO2 (About 6 to 12 USD/t-CO2). Therefore, carbon prices currently affordable for Chinese businesses are similar with carbon tax rates proposed by the experts and the trading prices under pilot GHG ETS at the localities in China.
The design of carbon pricing policies is crucial since Chinese companies worry about the policy distributional effects. Their policy acceptability would largely increase if the negative impacts on their business profitability could be minimized by certain appropriate treatments in policy design.
There remain important topics for further research. As examples, the business concerns should be discussed from a broader-scoped policy mix perspective. The effects of carbon pricing policies for the innovation and diffusion of low carbon technologies need to be evaluated for the industries concerned.