To address the urgent need for energy conservation, China's governmental bodies and research institutes are working on a taxation system to curb soaring energy consumption.

"We are currently doing research work for the taxation with the pertinent government departments and research institutes," Yang Fuqiang, vice-president of the Energy Foundation Beijing Office told China Daily in a telephone interview Wednesday.

"And a proposal is expected to be reached within a couple of years," said Yang, whose energy foundation renders financial support to researchers.

But the final say over when to implement the taxation system remains in the hands of the country's top policy-makers including the Administration of Taxation and the National Development and Reform Commission (NDRC), say industry experts.

NDRC sources said they have not participated in the environment taxation preparations, but are working on some incentive policies to promote energy-saving, which include several taxation measures.

"We are studying a host of measures to encourage the use of renewable energy sources in the industrial sectors and transportation, and the preparatory work is to be completed by the end of the year," said Yu Cong, director of the Energy Efficiency Centre under the NDRC's energy research institute.

The tax structure that Yang's foundation is working on will cover all sectors involved with energy use, from energy exploitation to daily energy consumption, according to researchers who are participating in the tax drafting process.

Details of the taxation rates are not available, as Yang said research has not yet progressed far enough.

"The rates are adjustable, depending on the country's GDP growth and the other economic indicators, such as the consuming pricing index," he added.

The tax levying will start with sectors that make lesser efforts to implement relevant policies, according to the insider.

"It is easier to impose the environment and energy consumption taxes upon products that have little impact on the nation's economy, say, refrigerators and motors," said Yang.

But speaking of the carbon tax which is to be slapped on sectors such as power and petrochemicals that emit carbon dioxide and has a far-reaching influence on the country's major economic drive, Yang said research and co-ordination work will take much longer, and will be much more complicated.

"It will take at least five years for the carbon tax to take effect," he predicted.

The tax measures are believed by insiders to be able to effectively enable the world's fastest-expanding economy to restrict its massive consumption of energy.

"Taxation is most powerful tool in a market economy in directing a consumer's buying habits, compared with government rules or orders," said Wang Fengchun, deputy-director-general of the research department under the National People's Congress Environmental Protection & Resources Conservation Committee.

But finalizing a complete taxation system, especially in China's energy sectors, will take a long time, Wang added.

He attributed the setbacks to the country's large population and huge economy, which mean balancing the interests of different groups of people and various industrial sectors is very difficult.

The world's second largest energy consumer after the United States vows to save as much as 400 million tons of coal equivalents by 2010, and aims to use 2.2 percent less energy annually during the period, according to the medium and long-term energy conservation plan hammered out by NDRC at the beginning of the year.

(China Daily April 21, 2005)