Establishing a policy framework to support the development of rural biomass energy (Part 1)

Establishing a policy framework to support the development of rural biomass energy (Part 2) (III) International experiences: **Guidance and policy support for the development of biomass energy. 　　Biomass energy projects are of great significance for the sustainable development of society. However, compared to projects using traditional energy sources, biomass energy investment projects require high initial capital investment. The research and development as well as the application of relevant technologies often fail to bring immediate benefits to companies, and there are also high investment risks before a mature market of a certain scale is established. Financial institutions often regard biomass energy projects as “high-risk” projects and are thus cautious or reluctant to provide loans for them. These aforementioned characteristics limit the enthusiasm of investors who prioritize profits for biomass energy projects; to promote their development, **intervention is necessary (including appropriate support from public finances).** 　　Based on international experience, **policy intervention measures take various forms and often differ from country to country. However, the main approaches involve establishing tax incentives and price support mechanisms, as well as investment and financing support systems, that foster the long-term development of biomass energy. These measures ensure that investments in this sector are profitable and predictable, thereby gaining the favor of investors and consumers and creating a market for steady growth over the medium to long term. This, in turn, boosts investors’ confidence and makes it easier to obtain financing in capital markets. 　　It **plays an indispensable role** in the “market chain” that connects the business world, capital markets, and consumers. **Only by establishing an appropriate policy framework to address the issue of \"externalities\" can sustainable energy \"win the market\" – moving consumers who are willing to use it and pay for it, businesses willing to invest in it, and investors willing to finance it, from the \"periphery\" to the \"mainstream\". Specific practices abroad to promote investment and financing in biomass energy: 1. Guiding public awareness through laws, policies, and regulations. A review of the pathways taken by various countries in the development of biomass energy over recent years shows that **necessary intervention first manifests itself in the establishment of a public policy and legal framework conducive to the development of biomass energy. Through legislation, planning, and enhanced publicity, an atmosphere of public support can be created, thereby driving market demand and generating investment opportunities. For example, the United States enacted the Energy Policy Act in 1975 and another Energy Policy Act in 1979; by establishing a comprehensive legal framework, it regulated all aspects of energy development, investment, production, and consumption in accordance with the law. Since the Kyoto Conference in 1998, most **have placed greater emphasis on the development of biomass energy, considering its promotion as an important measure to address current global environmental problems; many **have set specific strategic goals for the development of sustainable energy. For example, Germany formulated plans in the early 1990s, setting a strategic goal to develop biomass energy technologies over a period of about 30 years in order to replace nuclear power technology. **Departments actively carry out relevant publicity, education, and training to raise public awareness, enabling the general public to accept \"green energy\" technologies that are beneficial to the environment; this also plays a very important role in helping the sustainable energy industry gradually take shape. Public acceptance and recognition are powerful drivers for the business community to develop sustainable energy technologies. The fact that the biomass energy technology industry has long been a high-performing sector in major international stock markets such as New York and London illustrates the importance of raising public awareness regarding energy conservation and environmental protection. 　　2. **Invest in research and development of key technologies, strengthen cooperation with the private sector, and promote the industrialization of biomass energy technologies.** The development of key technologies for biomass energy generally relies on initial investment by the public sector, with the industry and enterprises following up thereafter to facilitate the rapid industrialization and commercialization of such technologies. In this process, strengthening cooperation between the public and private sectors is key. By strengthening cooperation between research institutions in the public sector and private enterprises in Australia, the approach of \"sharing risks and benefits\" has effectively encouraged businesses to invest in research and development of technologies related to \"green industries\", thus accelerating the transformation of scientific achievements into practical applications in these fields. 　　3. Adopt various fiscal and tax incentives as well as market regulation measures to encourage market entities to invest in biomass energy. The public policy measures adopted by various countries to **encourage and guide the development of biomass energy all follow a \"market-based\" approach, relying primarily on market-oriented tools. That is, through various fiscal and tax incentives as well as market regulations, these measures aim to reduce the investment costs and entry barriers associated with biomass energy on the one hand, while increasing the investment costs and entry barriers for projects that are \"highly polluting\" and \"highly energy-intensive\". By altering the policy parameters of the market, such measures guide investors to shift from using technologies that are energy-intensive and generate high levels of carbon dioxide emissions to those that are low in energy consumption and environmentally friendly. In the early stages of development, biomass clean energy technologies often face market entry barriers such as a small market share, small production scales leading to high transaction costs, and high investment risks. As a result, various countries have implemented a range of financial incentives, including financial subsidies, tax reductions, investment grants, interest-free or subsidized loans, accelerated depreciation, and awards, to encourage businesses to adopt energy-saving technologies and use clean, sustainable energy sources. Furthermore, market regulatory measures such as the establishment of energy labels and energy consumption standards, as well as regulations setting limits on corporate emissions, along with institutional arrangements like emissions trading, also help to \"force the elimination\" of technologies and products that exceed standards in terms of energy consumption and pollution, thereby compelling companies to undertake technological upgrades in order to reduce their energy consumption and pollution levels. **Proper guidance through public policy can enable companies motivated by the pursuit of maximum profits to adopt the development of biomass clean energy technologies as their \"rational choice\". Countries in Europe have effectively controlled the increase in the number of cars and the resulting pollution problems by imposing high taxes on gasoline ； Through the Energy Star program, the United States encourages businesses to continuously develop advanced products in terms of energy efficiency – these are all examples of successful market intervention through appropriate public policy. 　　4. Leverage the **policy function of procurement to promote the development of the biomass energy products market. **The department’s advocacy for procurement support measures such as the use of clean energy facilities also plays a significant role in creating demand for biomass energy. Therefore, many countries**** (such as the United States, Japan, Germany, Australia, etc.) are actively implementing policies for purchasing **biomass clean energy**, with relevant departments playing a leading role in this area: by setting energy consumption targets for public institutions, specifying in procurement laws the certification standards and grades that the products purchased must meet, regularly publishing lists of clean energy sources available for purchase, developing procurement guidelines, and strengthening energy audits for public institutions. 　　5. Establish investment and financing mechanisms conducive to the development of biomass energy. Compared to traditional energy projects, biomass energy projects often find themselves at different stages of the product life cycle, involve different technologies, and operate in distinct markets. Therefore, from a financing perspective, they require financial instruments, risk management strategies, and new approaches to financing that are suited to their characteristics. Based on the experience of countries in Europe and the United States, to address the difficulty in financing biomass energy projects, it is most important to ensure that such projects are profitable, stable, and predictable from a market perspective, so as to build investors’ confidence in them. This often requires the **support of relevant departments**; by introducing appropriate investment and financing mechanisms (including support for initial project costs, investment subsidies, loan interest discounts, depreciation incentives, emission rights trading, market quotas, and voluntary agreement systems), it is possible to help investors reduce their investment costs and manage market risks. Moreover, insurance companies play a very important role in ensuring the successful financing of biomass energy investment projects. In particular, making full use of the investment leverage of funds intended for public welfare purposes has become an important policy measure for developed countries to support the development of biomass energy; examples include California’s Renewable Energy Development Fund in the United States, Vermont’s Energy Conservation Fund in the United States, and the UK’s Carbon Fund. 　　IV. Comprehensive establishment of a **policy framework to support the development of rural biomass energy (1) Principles for establishing a **policy framework to support the development of rural biomass energy. 　　1. Key principle – strive for comprehensiveness and systematicness while focusing on key areas of support. Developing biomass energy as a strategic measure to replace petroleum requires creating favorable conditions to promote it comprehensively. However, development should not be pursued blindly without considering resource constraints, leading to widespread expansion and chaotic exploitation of resources as well as massive waste. From a techno-economic perspective, the collection and transportation costs of biomass energy resources are high. A reasonable transportation distance and economic viability are prerequisites; therefore, when determining the production capacity of an individual project, it is not advisable to pursue excessively large capacities. With rising international oil prices and policy incentives, the internal driving force for the development of the bioenergy and biochemical industries continues to grow, leading to high enthusiasm among local entities to launch new projects, which indicates a tendency toward investment overheat. If not guided in a timely manner, it may damage bioenergy resources, resulting not only in wasted investment but also in environmental pollution and increased energy consumption. To this end, the development of bioenergy and biochemicals must adhere to planning first and pursue steady progress. The implementation of fiscal and tax incentives will be closely aligned with development plans. During the implementation of policies, it is also necessary to control the scope of support, define the target recipients, and determine the level of support, in order to guide the healthy and orderly development of the industry. 　　The development of bioenergy and biochemicals involves a wide range of aspects, and it must be pursued steadily. It is necessary to strictly limit the scope of fiscal and tax policy support, avoiding a situation where such efforts spread everywhere. First, priority support is given to bioenergy and biochemical industries that can directly replace petroleum, including biofuel ethanol and biodiesel. Second, adhere to fair competition. Experts conduct evaluations and assessments of the production technology conditions and financial asset status of the relevant enterprises. The relevant departments select enterprises with high efficiency and low subsidies as targets for support in accordance with the principles of openness, fairness, and impartiality. Third, concentrate funds to support a small number of competitive enterprises, rather than spreading them out, in order to achieve tangible results. 　　2. Principle of ensuring food security — The development of rural biomass energy must not conflict with food security. With a large population and limited land, food security is of paramount importance, and it has also been an important goal that our Party has strived to achieve over the past several decades. The development of bioenergy and bioprocessing must be advanced steadily on the basis of ensuring **food security. In this regard, our national conditions differ from those in the West: countries in Europe and America usually emphasize factors such as rising oil prices, global warming, and excessive reliance on Middle Eastern oil; therefore, the promotion of biofuels is often very attractive there ； In our country, there is a tight demand for farmland; recently, the prices of pork and grains have reached record levels. Moreover, corn can be produced at a rapid pace. Therefore, whether from an economic or environmental perspective, grains should not be used as a basis for producing fuel ethanol in China. According to statistics, China has 600 million tons of agricultural and forestry waste such as straw each year, along with nearly 2 billion mu of barren land suitable for agriculture or forestry that can be utilized for the development of energy agriculture and energy forestry; thus, there is great potential for the exploitation of non-grain biological resources. Therefore, our country needs to establish an effective system of incentives and constraints to achieve a \"win-win\" situation for food and energy. 　　First and foremost, it is necessary to uphold the system of protecting prime farmland; this is a \"red line\" that must not be crossed. Prime farmland must not be damaged or reduced in order to cultivate energy crops. Secondly, strong efforts should be made to encourage the cultivation of cassava, sweet sorghum, and woody oil crops on barren mountains, wasteland, and abandoned land, with a commitment to not competing for land with food crops. Once again, it is necessary to fully explore the potential for utilizing agricultural and forestry waste, turning waste into treasure. By taking the above measures to develop energy crops and increase farmers’ incomes, it is possible to enhance their ability to invest in agricultural production and boost food production. 　　3. Market principles — **Support should be based on market principles. As a secondary industry, biomass energy still needs to rely on the market as the primary mechanism for resource allocation in a socialist market economy. **Its primary responsibility is to establish systems that create mechanisms conducive to its development as well as a structured competitive environment. It is necessary to enforce strict market access rules, raise the technical and financial barriers to entering the market, ensure that product quality and production processes meet environmental standards, and prevent environmental pollution during the production process. Furthermore, in line with the principle of encouraging excellence, a bidding system is implemented among the enterprises that have gained market access; those with higher efficiency and lower subsidy requirements **are given support. Once the biomass energy industry has matured and become competitive, **funding should be withdrawn, and no direct financial support should be provided any longer; the relevant companies should operate independently in accordance with market principles. 　　4. Performance principle – it emphasizes the improvement of the policy framework as well as the implementation of policy measures. The investment and financing policy framework to support the development of biomass energy includes: **investment, subsidies, tax incentives, etc.** For policies to effectively play a facilitating role, they need to be complemented by other policy measures, such as price policies ； Credit policies, technology and industrial policies, etc. At present, it is necessary first to establish and improve the systems for grid-connected power generation from biomass energy and its full purchase, as well as the systems for differentiated grid connection tariffs and cost sharing for biomass energy. While emphasizing the improvement of policies, it is also necessary to stress the practical implementation of various policy measures. It should be noted that some of these policies aimed at supporting the development of bioenergy only establish policy frameworks; specific tax incentives (such as particular tax categories and incentive measures) have not yet been officially introduced. The implementation of policy measures requires proper handling of the relationship between the central government and local authorities, as well as clarifying their respective responsibilities. 　　5. Coordination principle — Link support for the development of rural biomass energy with the construction of a new socialist countryside. Rural biomass energy should become one of the key components of the construction of a new socialist countryside; therefore, its development must also be aligned and coordinated with the overall efforts to build such a countryside. The development of rural biomass energy in various regions should also be coordinated with the overall development of renewable energy, as well as rural and agricultural sectors, in order to create a collaborative effort among all relevant parties. Over the years, our country has accumulated many successful experiences in developing rural biomass energy. **Local authorities at all levels** should regard encouraging and supporting the development and utilization of biomass energy in rural areas as an important part of building a new socialist countryside. Local governments at the county level and above, together with relevant departments, shall formulate development plans for biomass energy in rural areas based on actual conditions such as local economic and social development, ecological protection, and comprehensive sanitation management. They should promote the use of technologies related to the conversion of biomass resources such as biogas, household solar energy, small-scale wind energy, and small-scale hydroenergy, in a manner that suits local conditions. (II) Comprehensive planning and coordinated development. 　　Our country must establish and implement the scientific outlook on development, change the traditional economic growth model characterized by high investment, high consumption, high pollution, and low efficiency, and shift economic growth to one that relies primarily on technological progress and the improvement of the quality of the workforce. In such a context, improving resource efficiency and labor productivity must become important sources of economic growth. 　　Biomass energy falls under the category of renewable energy and should be considered as part of the overall energy strategy. However, under the current system, biomass energy is further divided into several categories: rural biomass energy is planned and managed by the Ministry of Agriculture, forestry biomass energy is managed by the Ministry of Forestry, and urban biomass energy is handled by sanitation departments. This fragmented, multi-level management approach does not facilitate the reform and improvement of energy strategy management. Our country has become one of the world’s largest energy consumers. Facing such high levels of energy consumption, a massive energy system and a diversified energy structure, as well as complex economic and social relationships, it is necessary to carry out comprehensive planning and coordinated management of energy development, including that of biomass energy; otherwise, energy security and environmental goals cannot be achieved. 　　(III) Formulate investment policies conducive to the development of biomass energy. 　　The development of rural biomass energy relies on financial support. **Through necessary institutional arrangements, an investment and financing mechanism conducive to the development of biomass energy should be established, in order to increase the stability and predictability of profits for market participants’ investments. This will help create a market with stable growth in the medium to long term, which in turn will boost investors’ confidence and facilitate access to financing opportunities in capital markets. At present, our country has **limited financial resources, and there are high funding needs in various areas. Therefore, in formulating investment and financing policies to promote the development of biomass energy, it is still necessary to adhere to the overall orientation of market-oriented reforms, aiming to establish an investment and financing system based on the market as the main driver, with **supportive measures and legal constraints. 　　**Energy development should be guided in accordance with the needs of development across all sectors of society, with enhanced **macro-control and investment oversight, and by making comprehensive use of policies related to market access, industrial policy, fiscal and tax policies, etc. (relevant fiscal and tax policies are discussed in detail later on). It is necessary to further expand enterprises’ autonomy in investment, increase transparency in the management of energy projects and strengthen guidance for enterprises, improve and simplify the approval system for corporate investment projects, and appropriately streamline the currently complicated approval processes. On the basis of further relaxing restrictions on private capital’s participation in energy development activities, private capital is encouraged to enter the field of rural biomass energy, thereby enhancing the capabilities of various entities to develop energy resources independently. In addition, it is necessary to broaden funding channels and expand the scope and scale of foreign investment utilization; adopt methods such as franchising, equity participation, holding stakes, BOT, and BT in line with international practices to attract foreign investment, while also actively seeking support and cooperation from international energy organizations, international financial institutions, and foreign companies. 　　(IV) Price policy. 　　In a market economy, price is the most effective regulatory mechanism. In the development of biomass energy, electricity prices receive a great deal of attention. At present, **China has very comprehensive regulations regarding electricity prices. A reasonable electricity price policy plays a crucial role in changing the current situation of high energy consumption and high pollution in electricity production in China, as well as in promoting the development of biomass and other renewable energy sources. 　　A reasonable electricity price should reflect changes in power costs and demand in a timely manner, internalize external costs, and establish a customer electricity pricing structure that corresponds to the costs of power supply. It is also necessary to promote energy conservation, support the development of renewable energy sources, and achieve sustainability in energy consumption ； Of course, it must also contribute to ensuring the sustainability of our country’s economic competitiveness and help achieve the goal of reducing energy consumption per unit of GDP. Currently, **electricity price regulatory authorities are increasing their support for renewable energy. Renewable energy power fed into the public grid must be approved by the **price regulatory authority. Those connecting to the provincial power grid are approved by the **Development and Reform Commission** ； For those connected to the municipal (county)-level independent power grid, it is approved by the provincial **price regulation authority. The pricing method for the feed-in tariff of renewable energy is consistent with that of other conventional energy sources; it was previously known as the \"interest-and-amortization tariff\", while it is now called the \"operational period tariff\". To date, for renewable energy power generation projects approved by the **Development and Reform Commission, the on-grid electricity price has been determined using either the \"operating period price\" or the \"principal and interest repayment price\" method; as a result, such prices are on average **higher than those of conventional power sources. The Renewable Energy Law proposes support measures such as “mandatory quotas” for renewable energy power generation, “region-specific standards for grid connection prices,” and “the sharing of the cost difference between renewable and conventional energy across society,” but the specific methods and standards have not yet been established. 　　Given China’s vast territory, there should be reasonable price differences for renewable energy power generation in different regions and of different types, and such differences should be based on normal cost variations. In accordance with the requirements of the Renewable Energy Law, **the relevant authorities are considering setting benchmark prices for renewable energy power generation on a regional basis. Due to the small scale of individual renewable energy generation projects, they are mostly connected to independent local grids or low-voltage distribution networks. If the central authorities set fixed prices for renewable energy generation in various regions, it would lack informational support, involve excessive workload, and be inconsistent with the current system of tiered electricity pricing. Therefore, it is advisable for the central authorities to establish a unified standard for the price difference between biomass energy-based power generation and conventional energy-based power generation; local electricity pricing authorities can then set the specific prices for biomass energy-based power generation in their respective regions within the range determined by this unified standard. 　　(5) Financial policy. 　　The development of renewable energy sources such as biomass energy requires a favorable financing environment. Its inherent characteristics demand financial instruments, risk management methods, and innovative financing approaches that are suited to it, all of which necessitate the improvement of relevant financial policies. From international experience, to address the difficulties in financing such projects, it is crucial to ensure that these projects are profitable, stable, and predictable from a market perspective, thereby boosting investors’ confidence. This often requires the introduction of appropriate investment and financing support mechanisms (including upfront project investments, investment subsidies, loan interest discounts, depreciation incentives, emission rights trading, market quotas, and voluntary agreement mechanisms), to help investors reduce their investment costs and manage market risks. Furthermore, different risk-sharing mechanisms can be adopted based on various circumstances (such as different PPP financing methods), while making full use of the role of insurance companies. Particular attention should be paid to financing for small and medium-sized projects. In developed countries such as Europe and the United States, direct financing methods such as corporate bonds and stocks play an important role in meeting the medium- to long-term funding needs for corporate investment projects, accounting for over 30% of total corporate investments. In our country, the role of direct financing has long been relatively low. Compared to bank loans, equity financing helps improve a company’s capital structure and enhance its credit rating, while corporate bonds offer the advantage of lower costs; both are well-suited to meet the needs of biomass energy investment projects that involve high investment costs and long durations. Therefore, we should vigorously develop direct financing methods such as corporate debt, expand the scale and proportion of direct financing, and give priority to approving energy companies involved in renewable energy projects, including those using biomass energy, to issue stocks or corporate bonds. 　　In terms of policy-oriented finance, biomass energy, especially that in rural areas, involves significant investment risks, but it offers substantial social benefits and positive external effects, which are fully in line with the objectives of such financing. **Policy-oriented financial institutions such as development banks and agricultural development banks should increase loan support and provide preferential terms for renewable energy sources such as biomass energy. 　　(VI) Fiscal and tax policies. 　　Fiscal and tax policies related to supporting the development of rural biomass energy include budget allocation policies, government bond investment policies, financial subsidy policies, tax incentive policies, **procurement policies, financial guarantee policies, and** special funds. 　　(7) Coordination and complementarity of various policies. 　　The aforementioned investment policies, price policies, financial policies, and fiscal policies must be aligned with the laws, regulations, and standards in the energy sector, backed by legal frameworks, and must also complement the adjustments and reforms in the management systems of the energy sector ； There must be greater coherence and systematicity among various policies, to avoid focusing solely on policy formulation in the new era at the expense of their integrity and consistency, and particularly to prevent contradictions among existing policies. 　　V. Fiscal and tax policies to support the development of rural biomass energy (I) Existing fiscal and tax policies and an analysis of their effectiveness. 　　1. Existing fiscal, tax, and related policies. 　　(1) The central government has established a special fund for the development of renewable energy. Since 2006, our country has **established a special fund for the development of renewable energy. Special funds for development are allocated from the central government’s budget to support the development and utilization of renewable energy. In May 2006, the Ministry of Finance officially issued the Interim Measures for the Management of Special Funds for Renewable Energy Development. 　　Special funds for development are primarily used to support the following activities: scientific and technical research on the development and utilization of renewable energy, standard setting, and demonstration projects ； Renewable energy utilization projects for household energy use in rural and pastoral areas ； Construction of independent renewable energy power systems in remote areas and islands ； Resource exploration, evaluation of renewable energy sources, and development of related information systems ； Promote the local production of equipment for the development and utilization of renewable energy. 　　Special funds for development are focused on supporting the development and utilization of renewable energy sources with great potential and promising prospects, such as oil alternatives, heating for buildings, heating and cooling systems, as well as power generation. Specifically, this mainly includes the development and utilization of renewable energy sources as alternatives to oil, with a focus on promoting the use of bioethanol fuels, biodiesel, and similar products ； The development and utilization of renewable energy for heating, warming, and cooling buildings, with emphasis on promoting the use of solar energy, geothermal energy, and other such sources in buildings ； Support for renewable energy power generation focuses on the promotion and application of wind, solar, oceanic, and other forms of energy generation. 　　The department in charge of renewable energy under the State Council will, in accordance with the needs of national economic and social development as well as the national plan for the development and utilization of renewable energy, work together with the financial authorities to organize experts to formulate and issue annual guidelines for applying for special funds. There are two methods: grant funding and loan interest subsidies. The first method, grant funding, is mainly used for projects with low profitability but high public welfare value. Except for activities such as standard-setting that require **full funding**, the project sponsor or individual must provide additional own funds equal to or exceeding the amount of the grant funding. Second, the loan interest subsidy method is primarily used for renewable energy development projects that are included in the **guidance targets for the development of the renewable energy industry and meet the credit requirements. Subsidized funds can be allocated only after the bank loan is in place and the project owner or individual has paid the interest. The discount funds are determined based on the actual bank loans received, the interest rate stipulated in the contract, and the actual amount of interest paid. The discount period ranges from 1 to 3 years, with the annual discount rate not exceeding 3%. 　　(2) Support the development of bioenergy and biochemicals to promote oil substitution. To better support the development of bioenergy and biochemical industries and promote the substitution of petroleum in China, five ministries and commissions—the Ministry of Finance, the National Development and Reform Commission, the Ministry of Agriculture, the State Taxation Administration, and the State Forestry Administration—jointly issued the \"Implementation Opinions on Fiscal and Tax Incentives for the Development of Bioenergy and Biochemical Industries\" in November 2006. 　　**Fiscal and tax support policies for bioenergy and bioprocessing are primarily aimed at establishing a fiscal and tax policy framework in line with the requirements of market mechanisms, thereby creating a favorable environment for development. To address the current challenges in the development of bioenergy and biochemical industries, **the following specific measures will be taken to provide support: first, establish a risk fund system and implement flexible loss subsidies ； Second is the subsidy for raw material bases ； Third is demonstration subsidies ； Fourth is tax incentives. 　　(3) Relevant tax policies. As early as the beginning of the reform and opening-up period, China introduced preferential tax policies to attract foreign investment in the energy sector, with these policies mainly focusing on reductions and exemptions in income tax. Following the tax reform in 1994, the finance and taxation authorities have continuously adjusted relevant tax policies to better encourage the comprehensive use of energy and the development of new energy sources. For example, in 2001, the Ministry of Finance and the **State Taxation Administration issued the \"Notice on Issues Concerning Value-Added Tax Policies for Certain Products Derived from the Comprehensive Utilization of Resources\" (Caishui No. 198), which clarified the value-added tax incentives for such products. It stipulated that, starting from January 1, 2001, a policy of immediate refund of value-added tax would apply to certain goods, including electricity produced from urban waste. **In its Reply on the Issue of Imposing Consumption Tax on Biodiesel, the State Taxation Administration stated that biodiesel produced from animal and plant oils through processes such as extraction, refining, and synthesis falls outside the scope of consumption tax coverage. 　　2. Evaluation of current policies and major issues in the current investment and financing sector. 　　(1) Issues related to the diversification of investment entities. In recent years, investment in biomass energy has become an industry that is encouraged or even given priority for development. However, in the field of investments in biomass energy, the issue of a diversified range of investors has not yet been properly resolved, as evidenced by the following aspects: Private investors are, to some extent, marginalized by state-owned investors. For a long time, state-owned enterprises have held a monopolistic and dominant position in the field of energy investment in our country. Due to the varying degrees of natural monopoly and resource dependence in biomass energy projects, some energy projects such as oil and gas extraction and hydroelectric power construction fall into industries with a high degree of natural monopoly and resource dependence; as a result, their investment and development involve varying levels of exclusivity. State-owned enterprises, relying on their traditional \"parent-child relationship\" with various levels of government, spare no expense in terms of investment and energy product prices to seize energy resources and dominate the energy market, thereby continuously strengthening their monopolistic position in the field of energy investment. The private economy, whose main goal is to maximize profits, naturally faces exclusion from investment in the energy sector due to limitations in scale and other aspects. 　　——In some places, there are issues with the fulfillment of obligations regarding energy projects invested by foreign parties. To effectively alleviate the shortage of energy supplies such as electricity and to accelerate the utilization of power projects funded by foreign investors, many regions **have adopted favorable policy measures in terms of grid connection tariffs, electricity volume, land use, and taxes and fees, in order to meet the foreign investors’ demands for return on investment. In some cases, they even make \"illegal\" promises to foreign investors of higher fixed return on investment over a certain period of time. The preferential policies introduced by those regions **for foreign direct investment projects, although they were effective during periods of tight energy supply such as in the mid-to-late 1980s until the mid-1990s, undoubtedly came at a certain economic cost. Starting from the mid-to-late 1990s, as the national economic situation changed – particularly as the electricity supply situation shifted from a state of shortage to one of basic balance or even surplus – some regions were unable to continue with the preferential policies that had been promised for foreign-invested power projects. In some cases, these regions even violated the commitments made to foreign investors or relevant agreements, ceasing to provide guarantees regarding the electricity pricing for power plants owned by foreigners as well as other preferential measures. Local actions that violate commitments or even breach contracts regarding foreign investors – some of which represent a shift from illegal behavior to compliance with laws and regulations, while others are caused by adjustments in relevant central government policies and regulations – still have a significant impact on power projects funded by foreign investors. These actions directly affect or even completely change the underlying conditions for such investment decisions, reducing the expected financial returns for foreign investors in these power projects. As a result, some foreign investors withdraw from their shares in these projects, with some even leaving the Chinese power market altogether. 　　(2) Problems in the investment and financing management of biomass energy. It is clear that there is still a lack of actionable investment plans and supporting policies for biomass energy. Although it is widely acknowledged that sustainable energy holds a very important position in our country’s overall energy development strategy, **energy development strategies and plans also emphasize accelerating the development of sustainable energy sources such as hydroelectric and wind power as one of the key priorities in energy development. But for a long time, ； At the planning and policy level for the development of sustainable energy, there has been a lack of actionable policy measures, and those that do exist have not been effectively implemented. In particular, there is a shortage of funding for such projects, which prevents or makes it difficult to achieve the goals set for sustainable energy development. 　　Furthermore, the management system for energy investment projects is inadequate. Following the issuance of the State Council’s Decision on Reforming the Investment System in July 2004, **the management of energy investment projects was changed from an approval system to a approval-with-review system. The focus of such reviews was on aspects such as maintaining economic security, rational utilization of resources, protecting the ecological environment, optimizing overall planning, safeguarding public interests, and preventing monopolies; whereas factors such as the market prospects of energy projects, their economic benefits, sources of funding, and product technology solutions were no longer subject to review. However, based on the actual outcomes of the approval system for energy projects, particularly power generation projects, although the approval process has been simplified (from three steps – approval of project proposals, feasibility studies, and construction permits – to just one step: approval of the project application), the fact that this system is still in its initial stages of development, coupled with a lack of experience, has led to situations where qualified power projects are not approved or see delayed approvals. This, to some extent, undermines the investment decision-making autonomy of energy companies. 　　(3) Problems in financing the development of biomass energy. **Investment remains insufficient. Biomass energy projects offer significant social benefits but relatively modest economic returns. In particular, the development of biomass energy technologies requires large investments, has a long timeline, and involves high risks; as a result, companies focused on economic profitability generally are reluctant to invest in such projects. Looking at the development of various countries, in the initial stage they focused on **investing or** subsidizing corporate investments; it was only once the technology became mature and economic benefits became apparent that they **withdrew their investment in that sector**. As mentioned earlier, although our country has long been focused on the development of biomass energy technologies and has frequently organized efforts to address related technical challenges, overall, in order to tackle the energy shortage issue, it has placed more emphasis on the development of traditional energy sources. As a result, little investment has been made in biomass energy projects, which has slowed down the progress in this field and prevented any breakthroughs. The volume of biomass energy produced, as well as the proportion of investment in biomass energy within the total investment in energy production, are negligible; in fact, there are no relevant statistical data available. 　　Companies are not very enthusiastic about investing. Due to high risks and poor economic returns, companies rarely take the initiative to invest in biomass energy projects. **Mandatory requirements and financial subsidies for energy technology upgrades force enterprises to invest in such upgrades, but most of them take a step at a time; **without such mandates, enterprises generally do not voluntarily invest in energy-saving technology upgrades that could affect their economic efficiency when energy prices are relatively low. Regarding biomass energy, due to the low technical level in the country, which prevents the development of equipment for large-scale production, as well as the high cost of imported equipment, ordinary companies are not inclined to invest in such projects. The low market demand means that companies producing biomass energy equipment can only operate at a loss; as a result, these companies have no incentive to invest, and banks are also unwilling to provide funding for such enterprises. 　　There are few channels for investment and financing. Abroad, especially in some developed countries in Europe and the United States, direct financing methods such as corporate bonds (business bonds) and stocks play a very important role in meeting the medium- to long-term funding needs for corporate investment projects; these methods generally account for more than 30% of total corporate investment. However, the role of direct financing in China is still far behind that of developed countries. At present, **the issuance of stocks and bonds is controlled; the right to issue most stocks and bonds is granted only to enterprises with good economic performance. Investment projects in biomass energy production enterprises and equipment manufacturing companies, which have poor economic performance, hardly have any chance of raising funds directly from capital markets. 　　(II) Policy recommendations for the next step. 　　1. Local areas should formulate comprehensive plans for the development of biomass energy that suit their specific conditions. Take the promotion of biogas in rural areas as an example. At present, there are significant differences across various regions in our country in terms of economic development level and structure. In the suburbs of large cities or in rural areas where farmers have relatively higher incomes, the industrialization and intensification of the breeding industry are at a higher level, while family-based breeding by farmers is generally on the decline. And the foundation for the development of household biogas, as well as an important source of raw materials, is precisely the livestock farming carried out by farm households. Without this foundation, biogas loses its multiple benefits for agriculture, and biogas itself becomes useless. On the contrary, it is also very difficult to develop biogas projects in extremely poor areas, because if farmers can barely afford enough food for themselves, where would they get the money to buy pigs? Some experts also point out that using biogas requires farmers to be diligent and hardworking, and these factors all influence the effectiveness of biogas projects. 　　When it comes to energy crops, adhering to the principle that bioenergy should not compete with food crops, the focus should be on non-food crops. Due to differences in natural and soil conditions in various regions, the choice of energy crops also varies; northern areas focus on sweet sorghum, while southern areas prioritize cassava and rapeseed. In places such as Shandong, sweet potatoes can also be chosen, and so on. Therefore, development plans for rural biomass energy in various regions should fully take into account the differences and changes in resources, rural industrial structures, and production methods across different areas, respect reality, follow natural laws, and absolutely avoid making decisions based on arbitrary assumptions. 　　2. All levels of **should attach great importance to the sustainability of biomass energy development. 　　(1) Financial aspects. **When formulating policies and conducting feasibility analyses for projects, it is necessary to consider not only the construction costs but also the maintenance costs over the entire lifespan of the project. In some places, there is a tendency to strive for projects in order to secure large-scale one-time investments, while ignoring the maintenance costs that will have to be borne or taken into account at the local level in the future; this is highly detrimental to the sustainable development of biomass energy. 　　(2) Talent aspect. Taking the biomass power generation industry as an example, there is currently a lack in China of the design, manufacturing capabilities, and operational experience required for boilers designed to burn agricultural and forestry waste, and there is even a shortage of specialized technical personnel in this field. Some projects fail to operate properly after being established, and the lack of appropriate operators and technical personnel is one of the key reasons for this. Therefore, **at all levels, they should also actively support the training and education of relevant talents. 　　(3) Equipment aspect. Large-scale R&D facilities in the field of bioenergy require **necessary financial support; otherwise, it is difficult for private investors to make investments of such huge scale and with such high risks. **In addition to direct financial support and indirect incentive measures, it is also necessary to help enterprises broaden their financing channels and secure grants, concessional loans, and technical assistance from international institutions such as the World Bank, the Global Environment Facility (GEF), and the Clean Development Mechanism (CDM). Furthermore, agricultural machinery needed for the collection, storage, and transportation of raw materials is scarce, failing to meet the demands of biomass power generation. Equipment in this area also needs to be **supported**. 　　3. Specific fiscal and tax policy recommendations. 　　(1) Increase **budget allocations for the development of biomass energy. Firstly, it should be clear that the development of biomass energy is **one of the key areas supported by public budgets, as it is related to ensuring our country’s energy security in the future and promoting its long-term socioeconomic sustainability. **The budgetary allocations should cover research and development for biomass energy development, technical demonstration and dissemination, as well as education and training. Investments in government bonds should also increase focus on the biomass energy sector to improve investment outcomes. At the same time, reasonable reforms should be carried out in light of the current situation of separate management of budgetary allocations and government bond investments, so as to enable fiscal funds to work more effectively together and to fully leverage the advantage of concentrating financial resources for targeted investment. 　　Biomass energy technology requires significant initial investment, and **strong support in terms of research and development is needed, including for research institutions and companies with strong R&D capabilities, to help new technologies mature and be put into use as quickly as possible. Under the guidance of broader strategic planning, **several plans and demonstration projects for biomass energy R&D should be established, supported through mechanisms such as financial discounts, subsidies, and tax incentives. 　　(2) Diversification of the use of financial funds. To support the development of biomass energy, the finance sector can employ a variety of tools and combinations such as budgetary allocations, government bonds, financial discounts, subsidies, procurement measures, and financial guarantees. Financial funds can be directed toward project producers, product users, or even intermediary service providers; the targets of these funds can include people, equipment, and products. The finance department should make use of various incentive and disincentive mechanisms in a flexible manner to fully leverage the impact of financial funds and thus support the development of biomass energy. 　　(3) Adjust and improve relevant tax policies. 　　——Regarding income tax. At present, in our country, high-tech enterprises and enterprises that utilize resources comprehensively are given substantial incentives in terms of income tax, through direct benefits such as reduced tax rates or periodic exemptions. Most biomass energy enterprises also employ relatively advanced technologies; therefore, tax incentives for income tax should be provided to them, in line with the tax policies applicable to high-tech enterprises and those engaged in comprehensive resource utilization. Specific measures may include investment credits, such as a 30% credit on the cost of key equipment purchased by the enterprise, which can be deducted from the enterprise’s tax liability ； Direct discounts, such as a halved corporate income tax rate ； Accelerated depreciation benefits, such as appropriately shortening the depreciation period for key equipment, with a minimum of 3 years ； The additional deduction incentive allows enterprises to deduct or amortize their relevant R&D expenses before tax, depending on whether those expenses result in intangible assets ； Relevant expenses are deducted based on actual amounts incurred; for example, expenses related to business promotion can be deducted before tax according to the actual costs. 　　——Regarding value-added tax. Value-added tax is currently the largest tax category in our country. The shift from a production-oriented to a consumption-oriented value-added tax system is an inevitable trend; once this change takes place, the problem of double taxation will be completely resolved, further reflecting its characteristics as a neutral tax. At present, our country has not provided uniform VAT incentives for biomass energy; only certain biomass energy products are eligible for such incentives. For example, the VAT rate on artificial biogas is 13%, the VAT rate on small-scale hydropower is 6%, and the VAT rate on wind power generation is 8.5%. However, the overall preferential policies lack systematicness and completeness, and need to be adjusted to meet the needs of biomass energy development. 　　——Regarding tariffs. Under the current policies, domestic companies that use their own funds to import advanced foreign biomass energy equipment do not benefit from preferential tariff rates, whereas foreign-invested enterprises enjoy much more favorable treatment. This creates an unequal situation between domestic and foreign firms in the biomass energy industry, which can affect the healthy development of this sector. Therefore, **equipment for advanced biomass energy utilization abroad that uses domestic funds should be exempt from tariffs and value-added tax at the import stage, in order to promote the development of biomass energy. 　　(4) Coordinate with policy finance. 　　Since many rural biomass energy development projects are of small scale, expanding loan mechanisms and services for small enterprises is of great significance for establishing an investment and financing framework for the development of rural biomass energy. **Policy banks should draw on international microloan techniques to improve relevant systems, methods, and business processes related to the financing of small enterprises in the environmental protection sector, including loan management, cost allocation, separate evaluation, and risk management. They should also enhance the loan mechanisms for small enterprises and small projects to enable their steady and rapid development. The finance sector can encourage the development of regional guarantee agencies for small and medium-sized enterprises by providing certain incentives and subsidies for the amount of loan guarantees provided by these agencies as well as for any risk losses incurred ； Certain financial support is provided to relevant departments and intermediary agencies for activities such as credit registration, credit collection, credit assessment, and credit dissemination for small and medium-sized enterprises and their operators; furthermore, reserves held by guarantee institutions that support financing for such enterprises can be withdrawn before taxation. Authors: Fu Zhihua, Wang Xiangyang, Wang Guijuan, Institute of Fiscal Science, Ministry of Finance. Source: Economic Research Reference, Issue 07, 2008. This post was last edited by wmingen on 2008-3-13 08:25

Great stuff; it proves that **research on similar policies is underway. However, **’s policies are largely macro-level, while in terms of actual implementation, there is still a significant degree of complexity.

Great stuff; it proves that **research on similar policies is underway. However, **’s policies are largely macro-level, while in terms of actual implementation, there is still a significant degree of complexity.

If it saves time and money, and there are no policies required, then people will use it, and **they will support it