China to tax dirty oil flows from next month

China will start taxing imports of dirty fuels used to make lucrative but lower quality products from next month, citing pollution concerns and the need to promote fairness in the refining sector.

Imports of products such as light-cycle oil—a low-quality fuel that’s blended into diesel or fuel oil—will be subject to the consumption tax from June 12, according to a statement from the Ministry of Finance. Other products that will incur the levy include mixed aromatics and diluted bitumen, the ministry said, and all will be taxed the same as shipments of naphtha or fuel oil.

Chinese regulators have been considering imposing a tax on imports of light-cycle oil as the central government increased scrutiny of high-emission fuels. LCO can be used to make inferior and highly pollutive products at lower prices, a loophole that’s driven a surge in volumes to China. Most flows come from South Korea, although Malaysia and Vietnam also have a stake in the trade.

“In recent years, a small number of companies have imported a large quantity of fuel that does not meet national standards, which flows to illegal business channels, endangers the fairness of the refined oil market, poses greater social security risks and causes environmental pollution,” the ministry said.

Imports of LCO and mixed aromatics will be taxed the same as naphtha at 1.52 yuan a liter, while diluted bitumen will see a levy of 1.2 yuan a liter, similar to fuel oil. Companies buying these products for the production of ethylene and aromatics petrochemicals will not incur an increase in costs, according to the statement.