Is China’s Tax Policy Hindering the Solarization of its Digital Economy?
- Jan 17, 2020 10:59 pm GMT
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For the last three decades, China has been on an economic and technological growth path unequaled in size and duration. The country’s government is playing an active role in shaping the global digital economy, serving as one of its biggest backers and building a world-class infrastructure to support digitalization, by acting as an investor, solar power-developer – both terrestrial and in space – and consumer.
With China taking the global climate change lead after the Trump administration formally began the year-long process of pulling out of the Paris Agreement, the country’s tax policies, which heavily subsidize the hydrocarbon industry, might need some rethinking. Image: ii7017/Pixabay
 China’s leadership role in the digital payment area is not surprising. It includes establishing the world’s first blockchain based central bank issued digital currency called DCEP; stablecoins; and a mobile payment system. After all, China pioneered the issuance of paper money during the Tang Dynasty (A.D. 618-907), which finally caught on in Europe and the United States during the 17th century. This still remains at the foundation of the modern economy.
World’s first central bank issued digital currency called DCEP
The Chairman of the China International Economic Exchange Center, Huang Qifan explained they have been working on DCEP for five to six years now and he is fully confident it can be introduced within the next few months by the People’s Bank of China (PBoC) first to seven institutions and then to the general public in 2020.
DCEP’s partial blockchain-based design will provide PBoC with unprecedented oversight over money flows, giving them a degree of control over the Chinese economy that most central banks do not have. DCEP will be pegged 1:1 to the Chinese National Currency – the RenMinBi (RMB) with the overall objective that it will eventually become a dominant global currency like the US Dollar. It will not be possible to mine or stake on the DCEP network.
Despite concerns from G-7 and G-20 regulators, Tether recently launched an offshore RenMinBi (RMB)-pegged stable-coin dubbed CNHT, after launching a U.S. dollar pegged stablecoin. Steven Mnuchin, secretary of the U.S. Treasury, supports the launch of stablecoins, including Facebook’s Libra – as long as U.S. financial rules are followed. EU finance ministers on the other hand, have banned the launch of stablecoins in the region until the bloc has a common approach to regulation. Users all over the world are able to earn stablecoins by mining.
Blockchain-based mobile payment system
Recently, Chinese President Xi Jinping called on the country’s tech community to accelerate efforts in blockchain adoption, and passed a cryptography law. So far, China dominates in global blockchain patents and according to a study conducted by the Central Committee of the Political Bureau of the Communist Party of China, there are over 700 blockchain companies in China. But according to the PBoC, the number of Chinese black-market blockchain companies are about 40 times higher – 28,000 with 25,000 of these companies issuing their own crypto-assets valued at over 110 billion yuan ($15 billion). Crypto assets can be earned by mining, even on cell phones.
For good and bad, mobile blockchain payment technology adoption seems unstoppable. Huawei – currently the only company in the world that can offer the fifth generation of cellular network technology (5G) – has boldly implemented the world’s first channel coding scheme (polar codes) pioneered by professor Erdal Arikan, and is collaborating with the PBoC on mobile blockchain payment projects.
China Telecom is actively developing blockchain-enabled 5G SIM cards to become one of the world’s leading platforms for mobile based cryptoasset transactions. At the end of October, Chinese telecom companies launched 5G services in more than 50 Chinese cities, creating one of the world’s largest 5G networks with as many as 110 million 5G users.
China’s Belt and Road Initiative (BRI), a massive free-trade plan involving over 130 other countries spread across Asia, Europe, Africa, and South America (See MAP) is creating the “digital silk road of the 21st century” and transforming China into a “cyber- superpower.”  Chinese tech behemoths Alibaba and Tencent have already lead the way in cross-border mobile digital payments by driving the shift away from cash, where they now collectively control 90 percent of the $17 trillion mobile payments market with 1.5 billion users. 
Inspired by its new focus on blockchain, China is committed to staying a global leader in cryptocurrency mining and keeping its massive mining farms in business. The specialized computers used for the cryptocurrency mining activity – which China manufactures most of in the world – consume large amounts of electricity, mostly fueled with coal that has been fundamental to China’s paralleled economic growth. China burns about half the coal used globally each year. Between 2000 and 2018, its annual carbon emissions nearly tripled, and it now accounts for about 30% of the world’s total. China emerged as the world’s top CO2 polluter country starting in 2017 when cryptocurrencies experienced an unprecedented global bubble and continues to maintain this ranking to date. 
China currently accounts for roughly 60% of global hashrate (down from a previously estimated high of 90% in 2017) of global bitcoin mining. Inner Mongolia home to the world’s largest “Ordos” solar power plant, together with Xinjiang and Sichuan, constitute the big three bitcoin mining bases in China. All three provinces also have the worst air quality.  Susanne Köhler and Massimo Pizzol at Aalborg University in Denmark found that coal-heavy Inner Mongolia accounted for 12.3% of bitcoin mining, but resulted in more than a quarter of the total CO2 emissions which has only increased since countries signed on to the Paris agreement according to the Emissions Gap Report by the UN Environment Program.
This is despite the fact that during the past 25 years, China went from having virtually no solar panels to leading the world by a margin of more than 100%. It surpassed Germany to become the world’s largest producer of photovoltaic power based on its 2011 five-year-plan for energy production in 2015 and in 2017 became the first country to surpass the 100 GW of installed capacity. Estimates from market intelligence business Wood Mackenzie sees China’s photovoltaic panel installations hit a cumulative total of 370 GWdc by 2024 – more than double the U.S.’s capacity at that point. During the past 10 years, China ranked number one in terms of the sums invested in renewable energy capacity by committing $758 billion between 2010 and the first half of 2019 with Chinese companies, emerging as technology leaders in green transport and energy, as well as digital infrastructure. Currently, China accounts for around 24% of global investments in renewables with investment in solar, and wind projects in BRI countries surging from 0.45GW to 12.6 GW during 2014 to 2019, according to environmental group Greenpeace.
According to an Energy Transitions Commission (ETC) report it is technically and economically feasible for China to become a fully decarbonized, decentralized, digitalized, green economy by reaching a net-zero carbon emissions by mid-century. Solar is expected to comprise 44% of all renewable capacity additions until 2040, according to the International Energy Agency’s (IEA) World Energy Outlook report. Because subsidy-free solar projects could be built not only in most Chinese cities at a significantly cheaper price than coal, hydropower, nuclear and other grid-fed generation-sources, according to a study led by researchers at Sweden’s Mälardalen University,  but also in the nations covered by BRI, according to a study from Tsinghua University and Harvard University.
However, the reality is wind and solar only accounted for 5.2% and 2.5% of China’s national power generation in 2018, respectively,  and during May, the Chinese National Energy Administration (NEA) announced it would stop providing subsidies for onshore renewable energy projects, which must now compete directly at auction with other forms of power generation. Solar energy has to further compete with the thick, grey Chinese air pollution, which dims sunlight by 13% for solar electricity generation, according to studies. Renewable energy investment in China has already dropped by 39% in the first half of 2019, when compared to a year earlier. And starting January 1, 2020, the pricing of electricity will undergo a seismic change, which may impact the competitiveness of renewable energy pricing by favoring coal.
China’s Space Power Satellites (SPS)
China is very serious about the idea of building solar-energy projects in space to beam the sun’s energy back to Earth to fundamentally reshape the way grids receive electricity. If scientists can overcome the formidable technical and economical challenges, SPS projects could represent a monumental leap in combating China’s addiction to coal power sources, which worsen air pollution and global warming. Pang Zhihao, a researcher from the China Academy of Space Technology Corporation, described it as “an inexhaustible source of clean energy for humans.”
China’s solar power station plans being contemplated include to launch small solar power stations in the stratosphere to generate electricity between 2021 and 2025, followed by a space-based solar power station that could generate at least a megawatt of electricity in 2030, and a commercial-scale solar power plant in space by 2050. A receiving station will be built in Xian – the regional space hub – to develop the world’s first SPS power farm.
The China National Space Agency (CNSA) has been collaborating with India Space Research Organization (ISRO) in fields like lunar and deep space exploration. On Jan 2, 2019, China made the historic first landing on the far side of the moon. The milestone marked a turning point for China’s space exploration, and may factor into China’s SPS ambitions.
China’s tax policies
China is the world’s most populous country, the world’s largest producer of solar power, the number one in CO2 emissions, and the highest coal consumer. It is number two in the consumption of oil products, and number three in natural gas consumption. It taxes 8% of CO2 emissions from energy use. According to the IMF, China ranks number one in subsidies to the hydrocarbon industry at $1.4 trillion and is third in the world in terms of total coal reserves behind the U.S. and Russia. Fossil subsidies are used as a tool to influence the energy mix and energy prices in China, as well as in coal fueled electricity plants across BRI countries it heavily lends and invests in.
It is undeniable that China, the world’s largest producer of solar energy, is taking the lead in providing the world with a new blockchain-based mobile payment system that is energy intensive and is being adopted globally via the BRI. With China taking the global climate change lead after the U.S. Trump administration formally began the year-long process of pulling out of the Paris Agreement, the country’s tax policies, which heavily subsidize the hydrocarbon industry, might need some rethinking.
The views and opinions expressed in this article are the author’s own.