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The Impact of Tax Holidays on Renewable Energy Project Development in China: A cost benefit analysis

Journal of Chinese Tax and Policy

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Title The Impact of Tax Holidays on Renewable Energy Project Development in China: A cost benefit analysis
 
Creator EVA, HUANG
Nicholas, Underwood
 
Description In recent years the Chinese economy has moved away from a carbon intensiveeconomy towards an economy that relies increasingly on renewable energy. While thishas been most evident with respect to hydro development, it can also been seen inincreases in energy produced by solar and wind projects. This increase has beenlargely as a result of government intervention and through the offering of incentivesfrom 2005 through to the present.This article seeks to assess the influence of the government policy of allowing a 6 yeartax holiday for specified high technology renewable energy projects. It will firstlydiscuss how this tax holiday incentivizes investment when financial managersconsider project options before attempting to appreciate some of the wide rangingimplications of intervention and distortion in the market.This is done by analysing the methods of cost benefit analysis used in public financeand showing the impacts of tax holidays on this decision-making process. As a result,this paper shows that there are significant limitations in project evaluation undertakenin public finance due to the common practice of only weighing up prospects from thefirst five years of a project during its evaluation.This is problematic as a project may have negative cash flows associated withdecommissioning at a later date, which has been seen in early generation wind farmsand other renewable projects such as nuclear projects in particularThis paper concludes by discussing the intention of tax holidays and the distortionsthat occur in an economy as a result of their implementation; this analysis clearlyshows that this distortion may be exacerbated by limitations in public financevaluation.As a result, this paper shows that government intervention boosts investment;however, it distorts rational financial participants and can lead to over-investment iflimited financial analysis is undertaken.
 
Publisher Journal of Chinese Tax and Policy
 
Contributor —
 
Date 2018-05-22
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
—
 
Identifier https://openjournals.library.sydney.edu.au/index.php/JCTP/article/view/12730
 
Source Journal of Chinese Tax and Policy; Vol 3, No 2 (2013): Chinese Tax and Policy 5
1839-065X
2205-2550
 
Language EN
 
Rights Copyright (c) 2018 HUANG EVA, Underwood Nicholas