China’s Fuel Taxation And Double Dividend

Energy finance has arisen from tackling energy and environmental risks. Especially in China, en-vironmental pollution caused by excessive energy consumption has been a growingly serious problem; meanwhile, economic growth has become slow in recent years. Thus, the topic about how to balance Chi-na’s economic growth and environmental protection is also of much concerns for policy makers. Actually, energy tax is a primary means of energy finance policies. In that fuel consumption of road transportation is one of the major anthropogenic emission sources in China, it is vitally important for fuel tax polices on dealing with the relationship between pollution and economy.This paper focuses on China’s fuel tax policy analysis from a new perspective of the detrimental effect of pollution on health and economy. By building an integrated assessment framework, this paper firstly evaluates the socio-economic costs of air pollution arisen from the energy consumption, thus indi-cating the urgency and importance of introducing energy finance policies. Then, this paper assesses the impacts of China’s current fuel tax policies on these socio-economic losses, judging its effect of double dividend. And then, this paper explores the validity of the so-called double dividend hypothesis in an overlapping-generations model with the pollution-related health damage. Lastly, based on the above the-oretical discussion, this paper attempts to optimize fuel tax policies in the view of different tax revenues recycling, tax payment stages and tax rates, thus achieving the effect of double dividend.Results are summarized as follows. (1) This paper finds China’s air pollution stemmed from energy consumption to be a staggering threat to human health, economy and residential welfare. (2) In this case, China’s current fuel tax policies would benefit improving the air quality and human health, achieving the first dividend. However, the production costs would be increased. Even with the effect of improved hu-man health on economy, it would lead to an decreased real GDP as well as residential welfare loss. Thus, this current fuel tax policy cannot achieve the’double dividend’. Therefore, China’s current fuel tax pol-icy needs urgently to be improved. (3) From the theoretical perspective, when taking the consideration of the effect of public health on economy, this paper finds the optimal allocations towards pollution abate-ment and labor income to maximize the steady-state lifetime welfare and per-worker output, respectively. Therefore, the’double dividend’exists. Moreover, a greater shift towards labor income might enhance steady-state welfare while reducing per-worker output. So the distribution share would be determined by the policy-makers’preference. In addition, this optimal allocation shares vary among the different socio-economic situations. (4) From the empirical perspective, the ’double dividend’ would be gained by optimizing China’s fuel tax policies. Specifically, when the fuel tax revenue is recycled towards la-bor income as well as pollution-mitigation activities, its effects on environmental protection and welfare improvement are more substantial than the returning towards labor income or refined-oil industry, but its effect on the economy is suboptimal; in the view of the tax payment stages, if taking principles of dou-ble dividend and other levying principles, compared with fuel tax levying in production stage (including import) and retail stage, levying in wholesale stages is optimal; in the view of tax rate, a further rise of fuel tax rate will increase real GDP loss, but residential welfare would be improved due to better public health.Based on the above conclusions, understanding the effects of public health on economy and welfare is crucial for optimizing the energy finance policies. This paper suggests the government to continue and reinforce efforts to provide a substantial shift of tax revenues towards abatement activity and a relatively small shift towards labor income in an open and transparent way, and the recycling share needs to be adjusted by the concrete fact. It also suggests levying in the wholesale stage and suitably increasing the fuel tax rate to secure a ’double dividend’, thus helping green development and the construction of beautiful China.