Carbon tax in Hong Kong : policy compatibility and public’s willingness to pay

Abstract

Climate change is an imminent threat to human beings and Hong Kong is among the cities that are most prone to sea level rise. One of the obstacles to wide adoption of low-carbon goods and services is the externalised social and environmental cost of greenhouse gases emissions. Aiming to internalise these costs, carbon tax has been implemented in various countries. This paper examines the compatibility of carbon tax with the political, policy and tax regime of Hong Kong through literature review, and assesses the public willingness to pay for carbon tax by conducting questionnaires. Overall, carbon tax aligns with the “appropriately proactive” policy approach that is currently pursued by the government. When revenue recycling mechanism is properly designed, carbon tax does not necessarily undermine the advantage of simple and low taxation system of Hong Kong. Carbon tax can also fill in the gaps of the existing economic incentives to benefits all low-carbon goods and services. Considering the existing political system, securing buy-in from the business sector would be vital to a successful implementation of carbon tax. As Hong Kong proceeding towards universal suffrage, public support will gain more importance as well. The questionnaire result reveals that the mean public willingness to pay was at HK$4.525 per HK$100 spending. However, a significantly lower willingness to pay was found among the respondent groups that were parents of any children or aged 54 or above. A positive correlation was also identified between the level of environmental knowledge and willingness to pay. These findings suggest that while carbon tax is compatible with the policies of Hong Kong, business and public concerns should be addressed when the government devises the scope and revenue recycling mechanism of carbon tax. A regular review and monitoring mechanism is also crucial to assure the long term success of carbon tax.