Monday, December 29, 2008

China's Gas Tax: Progress in Spite of the Press

I'm excited to see that ten professors from Tsinghua and Beijing University wrote to Premier Wen Jiabao proposing a further increase in the gas tax. This is on top of the recent announcement that, starting in 2009, China's gas tax will be raised from 0.2 yuan (3 cents) to one yuan (15 cents) per liter, a 5-fold increase already.

The new proposal from the professors argues that (in translation):

One yuan fuel tax can't at all send the resource shortage signal to society. This figure not only is lower than the EU countries (about 6 yuan per liter) but also our surrounding countries and areas. It is only close to the United States. We can't imitate the American life style. We don't have sufficient resources. As such we can't follow the US fuel tax example either.

We think the fuel tax of 3-4 yuan per liter conforms to China's situation. Right now is the best time to introduce this tax quota. Currently the international oil price has fallen hard. If we keep our retail gas price intact, while adjusting the price of processed oil close to international standards, we will be able to provide room for the 3-4 yuan per liter tax. A one-Yuan tax wastes such a room; only 3-4 Yuan can fully take advantage of this rare opportunity. The opportune time, once passed, will not return.

This is a bold proposal, which would increase China's gas tax 15-20 fold instead of 5 fold. However, it sounds to me like the right move. We have seen in the US that, with gas at $4 a gallon, people really started to change their behavior. There were fewer miles driven, and a noticeable movement away from gas guzzlers. SUVs became hard to sell. A substantial tax increase in China would certainly change people's behavior there as well. The current tendency to drive more and bigger cars more miles will certainly lead to an American-style consumption disaster.

Strangely, since Xinhua's report on China's gas tax increase on December 20, I've not seen any major US paper mention it. This is certainly not because the gas tax issue is not a major concern. NY Times, for example, had an excellent editorial a few days ago, on December 26, which argues eloquently the need to increase "The Gas Tax." However the editorial completely shies away from the fact that the Chinese are one step ahead of Americans in this. It is an uncomfortable truth after all.

Another possible reason that major US media outlets avoided reporting China's gas tax increase might be due to their politically oriented attitude in journalism.

A great op-ed columnist of the NY Times and a two-times Pulitzer winner, Thomas Friedman, has also been strongly advocating a gas tax hike. However, I was quite surprised, and all the more disappointed given my admiration of his writing, when I read one of his op-eds in August titled "Postcard from South China." That op-ed begins with a great point that Macau's gambling business largely cancels the power of Zhuhai's wind turbines, a poignant observation on human conduct. (IMO, both Las Vegas and Macau are contributing to mankind's self-destruction.) However Friedman ends his piece vacuously with a mocking postcard and, because of ideological differences, dismisses all attempts in China to develop a cleaner economy. A demonstration that even a great journalist can sometimes be fooled by his own strong attitude.

"The problem for the ruling Communist Party is this: China can’t have a greener society without empowering citizens to become watchdogs and allowing them to sue local businesses and governments that pollute," Friedman writes. While this sounds profound and indisputable, what is his point, really? Does it mean that the Chinese should stop their efforts to develop a greener society and instead engage in a revolution to overturn the government first? Does it mean that the right political solution is the absolute premise of any economic solution? If so, since America has the absolutely best political system in the world, shouldn't its economic and environmental problems be solved already? Unfortunately, that is not the case.

I can see why Friedman hates China's political system. I don't particularly like it either. However, the attitude that always ties non-political issues with politics does not help. America is the world’s largest energy consumer, China is second. China is the world’s largest greenhouse gas producer, America is second. Any effort in either country toward a greener economy should be encouraged rather than ridiculed. The two countries should learn from each other, and be willing to follow suit when a good idea emerges in either one.

I should mention that, a non-political American publication, Morningstar, did report on China's increased gas tax. "We believe the reform is a major step toward reducing the distortions in fuel pricing and making sure consumption taxes are proportional to actual usage," stock strategist Dan Su comments. Nice to see someone is paying attention, though his name does sound Chinese.


Charlie said...

First, let me say that I really enjoy your blog. I read it religiously. I should comment more often when I agree with you, but, alas, my first comment must express some contrary thoughts.

I suspect the reason China’s gas tax increase has not gotten significant press in the West is that the move is not all that significant. As the professors’ proposal notes, the increase brings China’s fuel tax to a level “close to the United States” which is low in comparison to many EU countries and, I suspect, Japan. In fact, China has significantly reduced its fuel prices within the past two weeks in a bid to reverse flagging auto sales and help fuel dependent industries weather the financial crisis. This move is perfectly understandable and justifiable, but it does not place China in the green vanguard.

I think the NYT’s reporting on China is frequently flawed, but the fact that an editorial on gas taxes fails to mention China’s efforts is not really surprising. You suggest that the editorial “shies away from the fact that the Chinese are one step ahead of Americans in this,” yet the professors you quote condemn China for not being one step ahead of the US.

The professor’s proposal may be bold, but professors everywhere, everyday are making bold proposals; newspapers can not be faulted if they fail to stay current with the latest press releases from academia.

To suggest that editors across the US are killing stories on China’s new gas tax “due to their politically oriented attitude in journalism,” attributes considerably more sophistication to the motives of American papers than in fact exists. I really do not think that they see geopolitical rivalry at play in gas tax hikes. In any event, a quick Google news search picks up pieces by both Reuters and Bloomberg on China’s fuel tax hike.

With respect to the Friedman quote, I share your confusion as to what his larger point is. His explicit suggestion, however, seems simply to advocate for the inclusion of “citizen suit” provisions in China’s environmental laws. I think that would be a good idea, and it would certainly not require regime change or even threaten the stability of the current order.

China is moving in the right direction in terms of fuel taxes, but it is not a world leader. There are plenty of areas where China is making progress on the environment. The progress is slow and the steps are incremental, but the skies are not always gray. There may be those in the West who wish to downplay China’s environmental improvements for political reasons, but I don’t think using reporting on the fuel tax hike as a litmus test to determine who these political opponents are will produce valid results.

Xujun Eberlein said...

Hi Charlie,

I always enjoy reading well-argued contrary opinions, and your comment is extremely well written. You make good points, but please allow me to clarify a couple of things:

When I say the Chinese are one step ahead of Americans, I simply mean the action of increasing gas tax, not the amount increased. Obviously we all agree the tax increase is far from enough, otherwise I wouldn't have felt excited by the professors' proposals. However, while Americans are still debating whether the gas tax should be hiked, and there is no sign that either Bush or Obama is considering it, China has taken a step, and that is one step ahead, albeit a small one. I believe this was also what encouraged, even inspired, the professors to propose an even bolder move. Given the background of economic, energy and environment crises, both are significant actions to me. Perhaps our main difference is that I view them more significant than you do.

As to Friedman's August op-ed, I have no quibble on his advocating the inclusion of “citizen suit” provisions, as I advocate the same thing. However if you read his entire piece you get the impression that any Chinese effort toward a greener economy is wasted unless the one-party political system is changed. As much as I want such change to take place, that argument itself is just foolish and illogical.

You may be right that China's gas tax increase is not newsworthy to major US papers, however as you pointed out, there are plenty of areas where China is making progress on the environment. I hardly see any report in the US on that, though I think James Fallows of the Atlantic Monthly is a notable exception. His new book, "Postcards from the Tomorrow Square," is well worth reading. His postcards send a much more sensible message than Friedman's.

Xujun Eberlein said...

BTW, Charlie, I've linked to your excellent blog, "China Environmental Law."

Anonymous said...

Is China still subsidizing gas prices?

Thought they were subsidizing them at least until a few months ago?

Xujun Eberlein said...

The government says after the gas tax increase they will continue to subsidize the agricultural population, low-income, unemployed, and non-profit organizations. So the subsidy is not general. However, because the gas price is government controlled, not market driven, when the market price is high you can view China's lower price as an indirect subsidy. In the summer for example, when the US gas price reached $4, China's was about half of that. But now people in China are complaining that gas costs twice as much as in the US .