On July 31, 2024, Wang Dongwei, vice minister at China’s Ministry of Finance, announced an important decision at a press conference held by the State Council Information Office that volatile organic compounds (VOCs) will be included in the scope of environmental protection tax. This decision not only signifies a further improvement in China’s tax system but also marks a significant leap in the process of ecological civilization construction.
Background of the Policy
As China’s economy has transitioned to a stage of high-quality development, environmental protection and ecological civilization construction have been increasingly emphasized. VOCs are precursors to fine particulate matter (PM2.5) and ozone (O3) among other secondary pollutants, posing a serious threat to air quality and human health. Therefore, the inclusion of VOCs in the tax scope has become inevitable for environmental governance and pollution control.
Looking back, China’s VOCs control has undergone a gradual deepening process from the formulation of laws to policy promotion. China’s new Air Pollution Prevention and Control Law, which took effect in 2016, first explicitly defined the legal responsibility for VOCs prevention and control. The subsequent introduction of governance measures such as the 13th Five-Year VOC Prevention and Control Work Plan and the Three-Year Action Plan to Win the Blue Sky Defense War, has continuously promoted VOC governance efforts. In January 2024, the Central Committee of the Communist Party of China and the State Council issued guidelines to comprehensively promote the development of a Beautiful China, which clearly stated the need to expedite the inclusion of VOCs in the tax scope, laying a solid foundation for the Ministry of Finance’s policy decision.
As a major source of VOCs, the polyurethane industry mainly generates them from reaction kettles, storage tanks, pipelines, finished product storage and some other production processes. The VOCs in polyurethane include unreacted isocyanates, polyols, solvents (such as DMF, DMAc, etc.), additives, and various by-products. These compounds not only easily form photochemical smog in the atmosphere, affecting air quality but may also pose health risks through respiratory pathways, skin contact, among others.
To further reduce VOC emissions in polyurethane, VOCs emission characteristics in each process have been preliminarily analyzed so as to implement targeted emission reduction measures. The methods include reducing by-products by optimizing reaction conditions, improving production processes to achieve solvent-free or low-solvent manufacturing, and perfecting waste gas collection and treatment systems.
The Impact of VOC Tax on the Polyurethane Industry
1. Deep Economic Impact and Restructuring
Reshaping Cost Structures: The introduction of tax on VOCs will compel polyurethane companies to revisit their cost structures. Apart from direct tax expenditures, businesses need to consider the indirect costs associated with upgrading, maintaining, and managing environmental protection facilities. These cost increases will have a profound impact on business strategies and financial status, prompting companies to seek more economically efficient solutions.
Rebuilding Market Competitiveness: The prices of polyurethane-related products may be adjusted accordingly with rising costs. This will change consumers’ perceptions of value, thus affecting market demand structures. Those who successfully achieve green transformation and reduce VOC emissions will become more competitive in the market.
2. Driving Forces and Challenges of Technological Innovation
Breakthroughs in Green Manufacturing: Businesses need to increase R&D investments in green manufacturing to address the challenges of VOC taxes, including exploring new catalysts, optimizing reaction routes, and developing recyclable or biodegradable materials. Breakthrough technologies will deliver significant environmental and economic benefits.
Upgrading Waste Gas Treatment Technologies: Existing waste gas treatment technologies may struggle to meet stricter environmental standards. Therefore, businesses need to focus on the latest developments in waste gas treatment technologies domestically and internationally, actively introducing and grasping advanced technologies. Furthermore, strengthening independent R&D capabilities and developing more efficient, cost-effective waste gas treatment technologies are crucial.
3. Far-reaching Changes and Opportunities in Industry Chain
Supply Chain Integration and Green Transformation: The introduction of VOC tax will prompt businesses in the polyurethane supply chain to enhance cooperation. Raw material suppliers need to provide more eco-friendly materials to support downstream manufacturers’ green transformation, while downstream manufacturers may demand higher environmental performance from products to improve their brand image and meet customer requirements. The supply chain integration will push the industry towards a green and sustainable future.
Enhancing Industry Standards and Aligning with International Standards: With increasingly stringent environmental policies and the implementation of environmental taxes, relevant standards and specifications in the polyurethane industry will be gradually enhanced, helping regulate market order, raising the industry level and promoting fair competition. Aligning with international environmental standards will also provide strong support for polyurethane businesses’ global expansion.
Strategies for the Polyurethane Industry
1. Strengthening Internal Management for Enhanced Environmental Performance
Building and improving environmental management systems, reinforcing the daily operation and meticulous maintenance of environmental facilities are crucial to support the high-quality development. Through fine-tuned management strategies, businesses can effectively control energy and material consumption, significantly reducing the emission of pollutants like VOCs, thereby contributing to environmental protection. Sustainability training for employees, integrating green concepts into each employee’s mindset to enhance their social responsibility and participation, is essential for paving the way for green roads. These measures not only showcase businesses’ environmental responsibility but also serve as key drivers for transitioning towards a better and more sustainable future.
2. Increasing R&D Investment to Promote Technological Innovation
Increasing R&D efforts in green manufacturing and air pollution control technologies, actively incorporating advanced technological achievements are strategic focuses. Beyond the industrial sphere, businesses can deepen collaborations with universities and research institutes to facilitate the conversion of research outcomes into practical applications, jointly advancing technological upgrades and industrial advancements.
3. Monitoring Policy Changes and Flexibly Adjusting Business Strategies
Businesses should closely monitor changes in national environmental and tax policies, stay informed about policy requirements and demand changes. Based on this information, flexibly adjusting business strategies and development directions ensures their sustained growth and market adaptability. For instance, adapting product structures, exploring emerging markets, or intensifying communication and collaboration with government entities based on policy trends.
4. Actively Engaging in Industry Self-Regulation and Cooperation
Polyurethane businesses should actively engage in self-regulation and enhance collaboration with industry peers. By jointly formulating industry standards and regulations, sharing technologies and experiences, they can promote industry transformation and sustainable development.
In conclusion, the impact of VOC tax on the polyurethane industry is diverse and far-reaching. Market participants need to adopt an open innovation approach to embrace challenges and opportunities actively. Green transformation and sustainable development can be achieved through initiatives such as strengthening internal management, promoting technological innovation, flexibly adjusting business strategies, and actively engaging in industry self-regulation and cooperation.
