Enhancing Green Tax Measures Concerning Energy Use

and Transport Sector in Hong Kong

Yuzhu LuCity University of Hong Kong

November 4th, 2010

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I. IntroductionEnvironmental Situation in HK

Climate Change

• High average temperature -- 0.28°C per decade during 1980 to 2009 • Continuous rising sea level -- 2.4 mm per year during 1954 to 2008

Air Pollution

• Two major air pollution sources: transportation and power generation• The combustion of energy for power generation makes up the largest source

of emissions

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I. IntroductionMotivations for Choice of the Topic

‒ Limited green tax measures currently in HK

‒ Filling a gap in the literature

‒ Limitations in HK’s taxation system• Taxes are imposed at low rates• The system is mainly territorially driven• It has a small tax base Salaries tax, property tax, profits tax, stamp duty, business registration fee, betting duty,

first registration tax on vehicles and excise duties on liquor, tobacco and motor fuel Tax revenue is 10% of the GDP Need for more stable sources of revenue

Objective: make proposals for improving the use of green taxes related to energy use and transportation in Hong Kong, make contribution to the improvement of both the air quality and taxation system

Major Conceptual Framework: Learn from the experiences of other countries through comparing their green tax measures

with those in Hong Kong

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I. IntroductionDefinition of Green Tax

Green TaxAny compulsory, unrequited payment to general government levied on

tax-bases deemed to be of particular environmental relevance (OECD, 1989)

Green Tax Measures• Taxes/charges/fees levied on pollutants or polluting-related behaviour• Tax incentive measures provided to encourage the environmentally-

friendly behaviour

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II. Green Tax Measures in HKTransport Sector

1. Green Tax Measures Concerning Transport Sector

• Green taxes on motor vehicles - First Registration Tax (FRT) - Vehicle License Fee (VLF)• Green taxes on motor fuels - Excise Duties on Motor Fuels (a) aircraft spirit HK$6.51 /L (b) light diesel oil HK$2.89 /L (c) leaded petrol HK$6.82 /L (d) unleaded petrol HK$6.06 /L• Tax incentive measures - Tax Incentives for Environmental-friendly Petrol Private Cars, Commercial Vehicles,

Electric Cars - Tax Deduction on Environmental-Friendly Vehicles (100% profits tax deduction)

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II. Green Tax Measures in HKEnergy Use

2. Green Tax Measures Concerning Energy Use

• No tax or charge levied on energy used by power plants

• Tax Deduction on environmental-friendly facilities (companies will receive 100% deduction of the cost)

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III. Recommendations to Enhance Green Tax Measures in Hong Kong

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• Recommendations for Green Tax Measures

• Recommendations for Revenue Use

• Political and Public Acceptance Building

Recommendations for Green Tax Measures Energy Use

• Extend Excise Duties to Fossil Fuels - Predominate energy sources: coal, fuel oil and natural gas - Differentiated tax rates according to the pollution intensity

• Carbon Tax - Upstream tax (levied on the importer) - Basing on the carbon emission from combustion of fuels - Fixed rate - Exempting the natural gas at first

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Recommendations for Green Tax Measures Transport Sector

Taxes levied on motor vehicles• Increase the level of FRT and VLF• Introduce the Electric Road Pricing (ERP) system - Possible to make fine adjustments in the rates to account for differences in usage

at different times and along different highways; - Possible to charge road usage for frequently used roads, making the user/polluter

pay

Taxes levied on motor fuels• Enhance the Excise Duties on Fuels

- Tax rates on petrol are suggested to be differentiated not only according to the lead content but also according to the sulphur content

- Extend the duties to the fuels used by ships

• Carbon Tax

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Recommendations for Revenue Use

• Provide Incentives for Development of Renewable Energy Sources

• Assist the Implementation of ERP System - The cost of ERP system is very high

• Enhance the Efficiency of the Public Transport System - Attracting citizens to choose public transport rather than private cars

• Further promote the Use of Electric Vehicles - Improve the assisted condition (e.g., building more recharging stations)

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Recommendations for Building Acceptance

Obstacles for imposing green tax measures• Increasing gap between rich and poor – making distributional effects worse• Hong Kong’s political structure

Recommended ways to build acceptance• Start with tax incentives• Gradual introduction of new taxes and increase in tax rates• Relief for low-income households • Consider adopting the environmental tax reform (ETR) in the future• Enhance government’s communication with the public

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The End

Thank you for your time!

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