Policy recommendations for China's green tax system?

Regarding the tax base: Given the current difficulty in accurately measuring actual carbon emissions, China may draw on international practices and initially levy carbon taxes based on the carbon content of fossil fuels. Once a mature carbon emission accounting system is established, the tax base can be shifted to actual carbon emissions. Regarding preferential policies: Enterprises that achieve energy conservation and emission reduction should be granted tax reductions or exemptions. To avoid excessive negative impacts on exports, export tax rebates could be implemented for products exported to countries that do not impose carbon taxes or impose only low carbon taxes. (II) Greening Adjustments to Related Tax Categories Greening adjustments to the resource tax: — Adjust energy mineral tax rates rationally according to carbon emission levels. — Taking the 6% tax rate on crude oil as a benchmark, raise the minimum tax rate for coal to 6%–10%. — Natural gas, shale gas, and natural gas hydrates (flammable ice) have carbon emission coefficients approximately 0.76 times that of crude oil; their tax rate could therefore be reduced from 6% to 5%. — Additionally, an 'ecological resources tax' category could be added under the resource tax, bringing state-owned ecological resources—including forests, grasslands, tidal flats, and wetlands—within the tax scope to strengthen ecological resource protection. Greening adjustments to the environmental protection tax: — Existing research indicates substantial room for raising current environmental protection tax rates for air and water pollutants. Annual incremental increases in tax rates could be considered to enhance the pollution control and emission reduction effectiveness of this tax. Greening adjustments to the vehicle purchase tax: — Drawing on international experience, differentiated tax rates could be applied based on carbon emissions and weight of fuel-powered vehicles. Greening adjustments to the vehicle and vessel tax: — Tax rates for vehicles and vessels could be set according to their carbon emissions. Meanwhile, the tax exemption period for new-energy vehicles could be extended. Enhancing VAT incentives: — Greater VAT incentives could be provided for the production and consumption of green energy and low-carbon products. — The scope of VAT exemptions and reductions for clean energy could be expanded to include photovoltaic power generation, tidal energy, green hydrogen, and advanced bio-liquid fuels. — Products and services related to carbon capture and storage (CCS) technology R&D and application could be exempted from VAT. — Given China’s coal-dominated energy structure, VAT incentives could also support clean and efficient coal utilization. Strengthening income tax incentives: — Income tax credits could be granted for investment in equipment for new-energy projects. — The existing super-deduction policy for R&D expenses related to new-energy technologies, energy-saving technologies, and CCS technologies could be further enhanced by increasing the super-deduction ratio. — A new special additional deduction for low-carbon consumption could be introduced under the individual income tax system—providing tax credits at a certain percentage for individuals purchasing energy-efficient buildings, retrofitting buildings for energy savings, buying energy-efficient appliances, or using new-energy products. (III) Enhancing Policy Coordination Establishing synergies between green taxation and carbon emission trading: — Drawing on EU experience, a mechanism could be established allowing carbon emission allowances to offset carbon tax liabilities. Corporate income tax on carbon allowance trading could also be reduced or waived. — Enterprises subject to carbon taxation but not yet covered by the carbon emission trading scheme could be permitted to purchase allowances from the carbon market to offset their carbon tax obligations—thereby boosting market liquidity. — On the basis of establishing a robust domestic carbon tax framework and carbon emission accounting system, China should proactively engage in bilateral negotiations with the EU to secure fair and reasonable treatment for Chinese-exported goods entering the EU market.

U.S. biofuel policy stagnation leads to slower soybean purchases.

Due to uncertainty surrounding U.S. biofuel policy, agricultural giants including Cargill and Bunge Global SA are slowing their soybean purchases. In the absence of clear guidance on new clean fuel tax credit policies, biofuel producers have postponed their soybean oil procurement plans for early next year. According to informed sources, this has dampened demand for soybeans, prompting major agricultural commodity traders to likewise reduce their purchases. Soybean oil is one of the top feedstocks used to produce various renewable fuels, such as green diesel and sustainable aviation fuel. David Fialkov, Executive Vice President of Government Affairs at NATSO, stated that, as of mid-October, most fuel retailers had procured only about 10% of the biodiesel feedstock needed for the upcoming first quarter. By contrast, during the same period over the past decade, this figure typically exceeded 80%. "No one is producing, no one is buying, no one is blending," Fialkov said. The industry is awaiting guidance from the U.S. Department of the Treasury on the Clean Fuel Production Credit, scheduled to take effect in January next year. A contentious issue dividing the industry concerns whether the tax incentive known as Section 45Z applies to low-carbon fuels made from biofuel feedstocks sourced overseas—such as waste animal fats and used cooking oil—that compete with domestically grown crops like soybeans.

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