Taiwan's carbon fee exemption sparks debate as government, industry, academia urge fair competition


A forum titled “Carbon Levy and Sustainable Governance” took place on Feb. 20 in Taipei to facilitate exchanges among industry, government, academia, and research institutes on the topic of carbon pricing.

The event was co-organized by the Risk Society and Policy Research Center (RSPRC) at National Taiwan University (NTU) and the Taiwan Industry-Academia Technology Alliance for Energy Digital Transformation (TAEDT) prior to the government’s announcement of carbon fees expected this year.

Carbon fee rate to be announced in Q1 with preferential offer for voluntary reductions

Major carbon pricing mechanisms implemented worldwide currently include carbon taxes, carbon fees, and cap-and-trade, with carbon prices varying greatly depending on the calculation methods used by countries.

Taiwan's Ministry of the Environment (MOE) is in the process of drafting a mechanism related to carbon pricing and is expected to announce a carbon fee charging scheme in the first quarter of this year.

Tsai Ling-yi (蔡玲儀), director of Climate Change Administration, said that the Legislative Yuan proposed a draft energy tax as early as 2006. After lengthy discussions, the Executive Yuan approved the "Energy Transition White Paper" in 2020, covering policy implications and supplementary measures, but it has yet to be implemented as no consensus has been reached.

In terms of cap-and-trade, MOE enacted the Greenhouse Gas Reduction and Management Act in 2015 with reference to the EU, which was amended to the Climate Change Response Act in 2023, adding a carbon pricing mechanism.

It is urgent for Taiwan to align with international carbon pricing strategies, and the government will continuously implement carbon fees while also planning medium to long-term strategies, she said, adding that the purpose of imposing carbon fees is not for charging but for carbon reduction.

The Climate Change Response Act also allows for "voluntary reduction," where companies can enjoy preferential rates once specified reduction targets are met, whether through using renewable energy or improving their manufacturing processes, provided that the targets must be clearly defined and in line with the national carbon reduction pathway. 

The exact rate will be discussed by the review committee, referring to international practice, and will be approved by the MOE.

NTU organized a forum on carbon pricing policy, engaging industry, government, and academia in face-to-face communication. (Photo: Nana Chen)

Scholar urges to include power sector and switch to upstream taxation

Regarding the under planning carbon fee, Hsiao Tai-chi (蕭代基), adjunct researcher at the Institute of Economics of Academia Sinica, said that measures such as charging downstream rather than at the source, and not taxing major emitters such as upstream power producers, transport, residential, and commercial sectors would increase transaction and implementation costs to the detriment of decarbonization of the power sector.

In response to the controversy sparked by the preliminary planning of the carbon fee announced on Jan. 3, which deducts emissions by 25,000 metric tonnes before calculation, Hsiao said that the combination of low carbon fees and free quotas may lead to the loss of carbon reduction incentives for the industry, as well as unfairness when applied to carbon-intensive industries.

He suggested Taiwan impose a carbon tax instead of a carbon fee, adding that Taiwan could also introduce its own Carbon Border Adjustment Mechanism (CBAM), taxing the upstream segment and targeting emissions from manufacturing processes of carbon-intensive industries. The revenue from the carbon tax could be returned to the people or used to establish a fair transition fund to address income inequality.

The global carbon budget is estimated to cover only eight years, and any additional emissions thereafter would be "carbon debt," which may be even harder to repay if decarbonization is not achieved as soon as possible, he said.

Taiwan is set to introduce a carbon fee, targeting major emitters such as the steel industry in the first phase. (Photo: iStock)

Major emitters advocate fair competition

Carbon fee will be phased in, initially targeting companies with annual emissions exceeding 25,000 tonnes of carbon dioxide equivalent (CO2e), including semiconductor, cement, and steel industries.

Taiwan Cement's (TCC) senior associate Chiu Yu-wen (邱鈺文), on behalf of the Taiwan Cement Manufacturers' Association, called on the government to also levy charges on imported cement clinker, not only to ensure fair competition but also to prevent carbon leakage.

He pointed out that Taiwan consumes about 12 to 13 million tons of cement annually, with imported cement clinker accounting for 25%.

China Steel's director Wu Yi-min (吳一民), on behalf of the Taiwan Iron and Steel Industries Association, said that the carbon fee rate should align with major countries to ensure a level playing field.

The global steel industry is striving to reduce carbon emissions, he said. While Japan has announced a 30% carbon reduction target for 2030, it is focusing on production reduction as a strategy, which could increase carbon leakage risks as China's exports will replace Japan's energy-efficient ones.

Carbon fee should be based on protecting domestic industries

As Taiwan is export-oriented, the government hopes to assist domestic manufacturers to adapt to the CBAM trend through carbon pricing.

Chuang Ming-chi (莊銘池), director of the Department of General Planning at the Ministry of Economic Affairs (MOEA), said that carbon pricing needs to take into account the cost burden and its industry coverage of competing countries.

For example, the carbon price in South Korea is equivalent to NT$ 250 per tonne, along with 90% of free allowances, translating to a carbon cost of only NT$ 22 per tonne. Therefore, it is crucial to collect a carbon fee while protecting domestic industries.

He said that the carbon fee is not intended to punish enterprises for their emissions, but to effectively guide industries to reduce carbon emissions, taking into account financial predictability and reducing the uncertainty of carbon costs.

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