The CGD Podcast: "China's Pollution Problem: Could a Carbon Tax Be the Answer?"

Guest: Jing Cao (Associate Professor, Tsinghua University; Non-resident Fellow, CGD)
Host: Lawrence MacDonald
Date: October 16, 2013

Episode Overview

In this episode, Lawrence MacDonald speaks with Dr. Jing Cao about China's mounting pollution crisis and the potential for a carbon tax to serve as a solution. Drawing from her extensive research and a major collaborative project between Harvard and Tsinghua University, Dr. Cao discusses the structure of China’s energy and tax systems, the impacts of a proposed carbon tax, and the political and practical realities of implementation. The episode highlights both the health and economic co-benefits of carbon taxation, comparing Chinese and international experiences and considering global ramifications.

Key Discussion Points and Insights

Jing Cao’s Personal and Academic Journey

• Background Motivation (00:35–04:56):
  • Jing describes her modest background, with parents who didn't attend college and an uncle who inspired her to pursue advanced studies.
  • Originally trained as a geologist: “In geology we learned a lot of biology, chemistry, physics, mathematics. So I think my math background are pretty strong.” (02:59)
  • A turning point came during a field trip: pollution visibly accumulated on her book in just minutes, highlighting the day-to-day severity of China’s pollution.
  • Later, travel to Singapore starkly contrasted the noticeable damage to Beijing’s buildings from acid rain: “You can see how the acid rain made damages... just by comparing the ordinary buildings in Beijing and the buildings in Singapore.” (05:09)

China’s Pollution Problem and Current Policies

• Ubiquity of Pollution (03:48–05:58):

  • Pollution in China goes beyond cities: “If you go on the street every day, you will feel the pollution is really bad.” (04:01)
  • The environmental field is small and often less prestigious compared to sectors like law or IT.

• Existing Attempts at Market Solutions:

  • China has an experimental cap-and-trade system.
  • Announced plans to move toward carbon taxation (00:35).

The Harvard-Tsinghua Research Project

• Integrated, Multi-Disciplinary Model (06:42–08:49):
  • Four years of collaboration led by Chris Nielsen, Dale Jorgensen, and others, combining economics, emissions inventories, atmospheric modeling, and public health impacts.
  • Supported by the Energy Foundation.
  • Results are compiled in the upcoming book “Clearer Skies Over China,” MIT Press, with a supplemental Chinese-language summary.

Key Recommendations: The Case for a Carbon Tax

• Cost-Effectiveness and Multi-Pollutant Strategy (10:20):

  • “Carbon tax will be a cost effective multi pollutant strategy on pollution control; it will have significant co benefits on public health and crop production.” (10:20)
  • “If we count the health benefits into the cost benefit, then the carbon tax is very likely to be a no regrets policy.” (10:57)

• China’s Current Taxation System (11:30–13:28):

  • Taxes are heavily skewed: High on value-added, very low on energy.
  • Example: Coal resource tax averages only $0.40 per ton.

• Proposed Carbon Tax Scenarios (13:46–15:45):

  • Scenarios start with a low tax level (e.g., 10 yuan/ton CO₂, ~US$1.60) to facilitate acceptance.
  • Gradual increase: “We recommend a gradually increase of the carbon tax to 2020… from 10 yuan per ton of carbon dioxide increase gradually increase to 50 yuan per ton.” (15:00–15:45)
  • Even these modest rates are below current (albeit low) EU ETS prices.

Economic and Social Impacts

• Minimal Economic Downside (16:45–17:38):

  • GDP impact is “about only minus 0.14%… more than tolerable… very small.” (17:25)

• Revenue Recycling and Social Equity (17:44–18:43):

  • “We recycle the tax and we give the rebates to the households… to compensate a little bit on these energy intensive and trade exposed sectors” (17:44–17:49)
  • Aim to avoid regressive outcomes as energy costs weigh more on the poor.

• Potential for Local Fiscal Reform (18:54–19:43):

  • Carbon tax revenue (about 3% of total revenue) could help alleviate chronic local government debt.

• Possibility for a “Virtuous Cycle” in Policy (19:43–20:27):

  • “Maybe even in some scenarios, positive… maybe the goose that lays the golden eggs… social consensus to raise the carbon taxes.” — Host (19:43)
  • Dr. Cao is optimistic that public concern over pollution creates an opportunity.

Health and Agricultural Co-Benefits

• Air Quality and Health Improvements (20:27–21:20):
  • “It can reduce carbon emissions by about 19 to 20%... will also reduce about avoid about almost like 19,000 acute mortalities.” (20:27)
• Agricultural Productivity Gains (21:20–21:57):
  • Cutting SO₂ and NOx (sulfur and nitrogen oxides) improves crop yields, benefiting staples like rice and wheat.

International and Policy Implications

• Global Relevance and Policy “Race to the Top” (21:57–23:28):

  • U.S. and China as leading emitters; progress in one can spur action in the other.
  • “Race to the top” metaphor: competition between the two giants for smarter policy.

• Consensus From Multiple Studies (23:28–24:39):

  • Another major Chinese CGE model study, affiliated with the military, recommended similar low initial tax levels, confirming minimal GDP impacts.
  • “The consensus of the modeling results were, you know, help the policymaker to make a decision quickly and then, you know, the quicker the better.” (23:42)

Notable Quotes & Memorable Moments

• “It all originated from my field trip... in five minutes I saw all the book pages are covered with dust. The pollution is actually pretty bad.”
  — Jing Cao (03:20)
• “If we count the health benefits into the cost benefit, then the carbon tax is very likely to be a no regrets policy.”
  — Jing Cao (10:57)
• “The impact on the GDP is tolerable. It’s about only minus 0.14% on the GDP.”
  — Jing Cao (17:25)
• “Maybe the goose that lays the golden eggs... social consensus to raise the carbon taxes maybe even faster once they got in place at a very low level.”
  — Lawrence MacDonald (19:43)
• “People usually hate taxes, but because of the very severe pollution problem, I think it might be a good niche for us to initiate a carbon tax right now.”
  — Jing Cao (20:27)
• “So obvious benefits on the crop production... the productivity will [increase].”
  — Jing Cao (21:45)
• “We know that policymakers would much rather hear the same thing from different studies. It makes it a lot easier for them to proceed.”
  — Lawrence MacDonald (24:39)

Segment Timestamps

• Jing Cao’s Background and Early Influences: 00:35–05:09
• China’s Pollution Problem First-hand and Overseas Comparison: 03:20–05:58
• About the Harvard-Tsinghua Project: 06:42–08:49
• Main Conclusions and ‘No Regrets’ Policy Framing: 10:20–10:57
• China’s Current Energy and Tax Situation: 11:30–13:28
• Carbon Tax Proposal Scenarios Explored: 13:46–15:45
• Economic Impacts and Revenue Use: 16:45–19:43
• Potential Policy Positive Feedbacks: 19:43–20:27
• Health and Agricultural Benefits: 20:27–21:57
• Policy Race and International Perspective: 21:57–23:28
• Confirmation From Other Research: 23:28–24:39

Conclusion

Dr. Jing Cao’s analysis, rooted in cross-disciplinary research and policy modeling, makes a compelling case for a modest, gradually rising carbon tax in China, with broad co-benefits for public health, agriculture, and fiscal stability. With related studies corroborating these findings and mounting public pressure over pollution, the episode suggests a window of opportunity for bold policy action—one with ramifications not only for China, but for global emissions and international policy momentum.