The impact of environmental protection tax on sectoral and spatial distribution of air pollution emissions in China

Environmental problems, associated with climate change and air pollution, have become increasingly serious for China in recent years, which have aroused great domestic and international concerns. To mitigate these problems with great efforts, the Chinese government has implemented the Environmental Protection Tax Law in the whole country since the beginning of 2018. Although the new tax law is perceived as an aggressive policy that tends to establish a taxation system for promoting air pollution control, evaluations of its effectiveness are insufficient and urgently needed for China. Using a multiregion multisector Computable General Equilibrium model, we, for the first time, quantify the impacts of this 'pollution tax' policy on modulating air pollutants emissions. Our analysis shows that current tax policy is generally able to reduce many short-lived air pollutants emissions (e.g. SO2, NOx, TSP, PM10, PM2.5, CO, VOCs, OC, NH3 and BC), but the significant effects only happen in regions with large economic scale (i.e. Guangdong, Shandong and Zhejiang provinces) and in sectors with high emission intensity (i.e. the electric power and nonmetal manufacturing sectors). However, at the national level, the overall effect of the current policy on air pollution mitigation is relatively small, less than 2% compared to a business-as-usual scenario. Large emission reduction potentials exist if the tax increases. Therefore, a more ambitious tax policy is urgently needed in order to achieve China's air pollution mitigation target of 2020. We also find that in China for implementing any pollution tax policies, the rate of decline in CO2 emissions is much larger than those of short-lived pollutants, which indicates a huge co-benefit on global climate change mitigation.