China's Environmental Protection Tax and its Reforms impacts on Sectoral and Spatial Distribution of Air Pollution Emissions

China's Environmental Protection Tax (EPT) Law has been implemented 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, NO_X, TSP, PM₁₀, PM_2.5, 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.

In addition, the current EPT law indicates that the tax revenue is being to provincial government without recycle. However, tax revenues redistribution is the key to achieve a "double dividend" which defines as a result that could both benefit to environment and economy. Thus, we further explore the regional double divide under scenarios that the EPT revenue is used to 1) reduce individual income tax, 2) reduce enterprise income tax, and 3) subsidize renewable energy generation. We find that recycling the EPT revenue to reduce individual income tax could increase GDP and achieve double dividend in most provinces. Earmarking the EPT revenue to subsidize renewable energy could reduce larger air pollutants and CO2 emissions, but results in more serious economic damages. Combining these two policies could gain more efficiency.