Taxing the Way to Cancun?

 The Financial Times: UN wants taxes to fund climate change fight

At the Singapore International Energy Week, Prime Minister Lee Hsien Loong announced the country's willingness to implement a carbon tax, a forward step for the prosperous nation as the world anticipates the global climate talks soon to occur at Cancun, Mexico at the end of this month.

Fiona Harvey (an eminent journalist from the Financial Times I had the honor to meet at the International Energy Week) noted that some of the measures set up by the international panel led by Jens Stoltenberg and Meles Zenawi to get rich countries to help poor countries to cut emissions are "controversial". This is understandably so, since none of the rich countries will voluntarily handicap their economies to aid a developing country with the potential of becoming a future competitor. With the US and China, the two largest economies in the world, unwilling to participate in a global carbon market, carbon taxes and carbon trading will have little meaning or positive impact on climate change.

With the Republicans regaining political control in the United States, the climate outlook seems pretty bleak. Obama's push for the development of locally-situated clean energy industries has been hamstrung, and China continues to power theirs on with enormous subsidies. In addition to that, the surge in support for the Tea Party (both financially and numerically) came significantly from two very powerful groups of people: coal miners whose jobs are being threatened, and factories owners who are only too happy to pick the cheaper option of coal power. Behind such a sociopolitical backdrop, policy makers are turning their gaze towards China to set a positive example and lead in the set up of a global carbon market.

But can China do it? Depending on what perspective one takes to view the country, China is not ready to implement a country-wide carbon tax on its industries. Given that carbon taxes are borne by consumers, implementing such a regulation might lead to the total collapse of the already-crumbling mini-economies that pervade the rural countryside. Many of the laborers, most significantly the rural migrants who come to the cities in search of a livelihood, do not have the financial capacity to feed themselves, much less pay the levies as a result of carbon taxes.

However, China is a huge country, and with time, it might be possible to levy carbon taxes on the products sold in certain areas, especially in the rapidly urbanizing cities. A carefully calculated move will propel industries to consider moving to specially demarcated "carbon tax-free zones", and populate the areas currently seen as "ghost towns" where large capital was spent on infrastructure but were never populated by industries. This will also redirect migration flows, lower urban crime rates, develop specific areas, and decentralize the political leadership.

By considering the potential of these possibilities, China has much more to gain than it realizes through the readjustment of its economy. It is also likely that the moment the Chinese juggernaut shows a firm desire to lead the rest of the world towards a global implementation of a carbon tax, the other rich countries will have little choice but to follow along. Thus, two things remain in the way: The overpowering desire for greater profits and the entrenched mindset that carbon taxes must be implemented nationally without considering their relative geographical and economic situations.