Can Export Tax be Genuine Climate Policy? An Analysis on China’s Export Tax and Export VAT Refund Rebate Policies

Abstract

Export VAT refund rebate and export tax (EVRRET) measures have been adopted on energy intensive products in recent years in China. They are proclaimed to be climate policy, yet there is no explicit and unique carbon cost set on export - the implicit export carbon tax rates vary dramatically across sectors and over different periods. This paper provides a method of introducing an explicit and unique carbon cost into the current EVRRET. By setting a comparable carbon cost (2'9/tCO2 and 3'9/tCO2) for eight major energy-intensive sectors to which the EVRRET are massively applied, it derives the corresponding ad valorem average rate for each sector. This paper finds that the introduction of a carbon cost into export VAT refund rebate policy would not increase the current export VAT refund rebate rate (except for the chemical sector), but would simply define a ceiling, while the same introduction into the export tax policy would lead to an overall increase in sectoral export tax rates. This paper concludes by examining competitiveness and WTO concerns, suggesting that the better option for introducing a carbon cost into Chinese exports would be through reforming export VAT refund rebate policy.