Integer View from China January 2018 - Environment taxes in China: How influential will they be in 2018? - Integer
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Integer View from China January 2018 – Environment taxes in China: How influential will they be in 2018?

Posted On: 24-01-2018 By: Ali Asaadi

The Chinese government’s efforts to tackle pollution have become one of the most influential drivers of the country’s fertilizer sector in recent years. This will continue with new environment taxes being levied from January 1st, 2018 which will affect the nitrogen sector.

At present initial stage, the environment tax only includes air and water pollution. The total tax amount can be calculated according to the company’s entitled emission. The per tonne product tax can be calculated by total environment tax amount divided by the production.

The environment tax for urea production is in a broad range of between RMB 0.2- RMB 5.3 per tonne (US$0.03-0.82/tonne), depending on producers’ location. Although the environment tax per tonne is nominally a small amount, it is illustrative of the Chinese government’s direction of travel, forcing companies to take greater account of their environmental impact. It is also against a backdrop where the prices and availability of raw materials are additionally being managed with greater attention to environmental consequences, and the overall impact is to squeeze out the most polluting companies. With many Chinese urea producer operating on the thinnest margins in the sector, small additional costs can be the ‘straw that breaks the camel’s back’.

Under the new environment tax regime, there are three tax categories with different rates for air and water pollution – high, medium or low tax. We show these categories in the chart below. Nitrogen producers are scattered across the country but there is some concentration of capacity in North, Northwest and Southwest China. According to Integer’s calculation, about a quarter of urea capacity is in a high environment tax region, 50% in the medium tax region and a quarter in the low tax region.

Provinces like Beijing, Hebei, Tianjin, Henan and Jiangsu, which have been polluted seriously, will be charged with the highest environment tax rate in 2018. For example, in Jiangsu provinces, Jiangsu Huachang needs to pay about RMB5.3/t (US$0.82/tonne) of environment tax in 2018. In the same province, Linggu Chemical must pay about RMB 2/tonne (US$0.3/tonne). However, for urea producers in other provinces, such as Inner Mongolia and Xinjiang, the environment tax rates will be no more than RMB 1 per tonne (US$0.15/tonne).

Most urea producers’ environment expenditure will be increase compared to last year. For example, Hualu Hengsheng, a urea producer in Shandong province, will pay RMB 3.8/t (US$0.58/tonne) of environment tax, up 25% compared to its pollution charge in 2016. Jiangsu Huachang’s environment tax will be nearly double its charge in 2016.

Environment taxes are likely to continue to rise in the future. It has been confirmed that Yunnan Province will double its environment tax rate in 2019. Shuifu Yuntianhua, the gas based urea plant of Yuntianhua Group, needs to pay RMB 4.1/tonne (US$0.63/tonne) of environment tax in 2018. In 2019, the tax will increase to RMB 9.6 per tonne (US$1.5/tonne), about 134% higher than the environment tax in 2018.

However, some producers which have relatively good pollution control will be charged a comparatively small tax. Henan Xinlianxin will only pay about RMB 0.7 per tonne (US$0.1/tonne) even though the plant is located in a high tax region. Anyang Chemical, another urea producer in the same province (Henan Province), needs to pay about RMB 2.7/tonne (US$0.4/tonne) in 2018, almost four times higher.

As Integer mentioned in its previous newsletter, the equivalent legislation for the phosphate fertilizer sector will come later, because the environmental standards for the industry which were made 10 years ago need more time to update. By the end of 2017, only two phosphate producers, Yuntianhua Tian’an (located in Yunnan province, the subsidiary of Yuntianhua) and Wengfu Zijin (located in Fujian Province, the subsidiary of Wengfu), published pollution information. Both company’s environment tax rate will be RMB 1.5/tonne (US$0.23/tonne). For potash producers, Xinjiang Luobupo Potash, the biggest SOP producer in China, needs to pay about RMB 0.8 per tonne (US$0.12/tonne) of environment tax in 2018.

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