Taiwan’s Ministry of Environment plans to pilot a dual-track system in 2026, combining carbon fees with total emissions caps and an emission trading system. (Image: iStock)
Taiwan launched its carbon fee regime this year, with formal collection scheduled to begin in 2026. As part of the Ministry of Environment’s roadmap, a dual-track mechanism combining a carbon fee and an emissions trading system (ETS) is set to be piloted next year.
In an interview with RECCESSARY, Minister of Environment Peng Chi-ming (彭啓明) acknowledged that a carbon fee of TWD 300 per ton is insufficient to trigger large-scale corporate decarbonization or stimulate green finance. Only a market-based carbon pricing mechanism, he said, will unlock green finance.
Yet, translating this dual-track policy into practice presents challenges. Experts have identified three key hurdles the government must address. China Steel Corporation (CSC), a member of the Ministry’s “Green Pioneer Alliance,” also offered recommendations for both the pilot phase and eventual rollout of the dual-track mechanism.
Dual-track carbon pricing aims to strengthen financial leverage for corporate decarbonization
To complete Taiwan’s ETS framework, Minister Peng led a delegation of corporate representatives to Germany in June to observe its EU ETS operations. The Ministry plans to launch the pilot phase of ETS next year, with full implement of both carbon fees and ETS expected by 2027 or 2028.
Meanwhile, Taiwan Carbon Exchange has signed a Memorandum of Understanding with the European Energy Exchange (EEX), leveraging EEX’s experience operating the EU ETS.
Minister Peng explained that the move toward a dual-track mechanism that combines carbon fees and ETS was driven by the varying levels of awareness and capacity among businesses. “Some companies have set their internal carbon prices as high as USD 300, while others already see TWD 300 as too steep,” he said.
A fixed carbon fee could be seen as an inadequate approach, Minister Peng said, emphasizing that the purpose of an ETS is to unlock greater emissions reduction potential through market dynamics. “The goal is to encourage companies to invest in decarbonization through ETS and generate green finance and incentives,” he said.
From a policy design perspective, RECCESSARY’s carbon market analyst Sherry Hu noted that a dual-track approach helps compensate the limitations of relying on a single mechanism. Carbon fees offer policy stability and a steady source of public revenue, which supports infrastructure development and long-term decarbonization investment. ETS, on the other hand, brings price flexibility and market-driven structure, encouraging businesses to pursue the most cost-effective pathways for cutting emissions.
“Carbon fees alone can no longer effectively drive large-scale corporate decarbonization— many companies have moved ahead,” said Minister Peng. He noted that some pioneering firms are now absorbing internal mitigation costs of TWD 3,000 to 30,000 per ton, far exceeding the TWD 300 carbon fee. Companies are willing to incur such high costs not merely due to fee obligations, but because of strong pressures to reduce emissions, Peng added.
According to Minister Peng, carbon fees alone can no longer drive large-scale corporate decarbonization— many companies have moved ahead. (Photo: Daisy Chuang)
ETS seen as investment catalyst, yet faces three key challenges
The dual-track system is expected to enhance both corporate cooperation in decarbonization and overall market activity. For instance, Germany’s national emissions trading (nEHS) offers a useful model, said Hu. During its pilot phase from 2021 to 2025, Germany implemented a fixed carbon price that increased gradually each year. Starting from 2026, the system will transition to an auction-based model, with prices projected to range between EUR 55 and EUR 65 per ton. Establishing clear price trajectory strengthens business confidence in long-term carbonization planning, as illustrated in the chart below.
Germany’s nEHS (Compiled by RECCESSARY)
The Ministry of Environment seeks to accelerate Taiwan’s decarbonization using the dual-track system, discouraging businesses from simply paying fees rather than reducing emissions and helping ignite a new wave of green finance. Hu identified three key institutional challenges in implementing the system:
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Complex system integration: Carbon fees are administratively priced, while ETS relies on market mechanisms. Without clear boundaries or coordinated design, the overlap may confuse businesses and increase cost uncertainty.
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Insufficient monitoring and reporting capacity: A functioning ETS depends on robust emissions inventories and real-time monitoring. Some sectors still lack solid data infrastructure, which could undermine quota allocation and market credibility.
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Low awareness and limited readiness among businesses: Some companies have limited understanding of ETS. Without adequate training and technical support, they may miss out on strategic advantages or face unnecessary cost pressures. For instance, misjudging the timing or volume of quota purchases.
Minister Peng described the dual-track system as a transitional phase, clarifying that all businesses will be required to participate in the ETS immediately, but only those with sufficient capacity will be invited to join first. Currently, the Ministry is inviting and evaluating these companies’ decarbonization plans as part of the eligibility assessment.
CSC calls for longer trial period and reasonable emission limits
The Ministry has invited 30 to 50 companies from the technology and carbon- intensive sectors, including TSMC, Delta Electronics, Taipower, Formosa Plastics Group, AUO, CSC, ASUS, Taiwan Cement, and Tung Ho Steel Enterprise Corporation.
CSC told RECESSARY that it has submitted a voluntary carbon reduction plan and joined the Ministry’s Green Growth Alliance, through which it will provide practical industry insights to enhance the feasibility of the system.
Regarding Taiwan’s evolving ETS design, CSC offers recommendations for both the pilot and full implementation phases. The company emphasized that during the pilot phase, the dual-track system must avoid redundant regulation on the same company, and the effective carbon cost should not exceed the flat carbon fee.
Recognizing that both the carbon fee and voluntary reduction plan mechanism are still new, CSC suggests extending the pilot period to provide greater flexibility and stronger incentives, encouraging broader corporate participation.
For the full rollout phase, CSC urges the Ministry to strike a balance between industrial competitiveness and the promotion of low-carbon supply chains. This includes setting a reasonable cap and allocation methodology, ensuring market liquidity and transparency in trading mechanism, and maintaining flexibility in allowance management. CSC also advocates for further alignment with international carbon markets.
CSC also recommends that businesses begin by assessing the financial impact of carbon costs and formulating reduction plans accordingly. To prepare for future cap-and-trade requirements, companies are encouraged to establish cross-departmental collaboration mechanisms early on and invest in building internal capacity and workforce readiness.
Some frontrunner companies bear a decarbonization cost of over TWD 3,000 and even up to TWD 30,000 per ton of carbon reduced, observed Minister Peng. (Photo: CSC)
Forging a unified carbon market in Asia-Pacific requires strategic coordination
In the long run, the Ministry envisions Taiwan’s carbon market integrating with regional carbon systems across Asia. Minister Peng disclosed that negotiations are underway to develop a regional carbon market. “This is our goal, not wishful thinking, but it will depend on rules under the Paris Agreement,” he said, drawing a parallel with carbon border adjustment mechanism. “I believe the world is gradually moving toward a unified carbon market.”
Japan and South Korea, both highly dependent on imported energy and advancing rapidly in decarbonization, are key partners the Ministry hopes to align with. As Japan ramps up bilateral carbon trading initiatives with Southeast Asian countries, Minister Peng said that Taiwan will proceed with caution to avoid the risk of double counting.
Hu warns that before pursuing alignment, Taiwan must clarify its top priorities—whether to fully align with existing systems or retain policy flexibility and autonomy. A prime example to study is the decade-long negotiations between the EU and Switzerland to link their respective ETS frameworks.
Carbon markets differ significantly across countries in pricing mechanisms, regulatory independence, and the independency of emissions data, Hu said, adding that integrating into a regional market inevitably limits policy autonomy. Once systems are linked, one or both parties may need to revise rules on exemptions or allowance allocation, reducing overall policy flexibility.
The dual-track system of carbon fees and ETS may bring new momentum into corporate decarbonization in Taiwan. Yet, Hu emphasized that the success of this approach will hinge on how well policies are coordinated, institutional transparency is enhanced, and effective support mechanisms are put in place.
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