Most Taiwanese companies used to prioritize labor costs when deciding where to set up new factories. With more countries launching carbon border taxes or collecting carbon fees in an effort to reduce greenhouse gas emissions, some local firms feel that those offering a low carbon emission environment might be a better choice for building new operations.
As it is a major challenge to significantly reduce carbon emissions overnight, manufacturers have to carefully calculate their cost structure as carbon tax, or carbon charges, could outweigh labor costs. Taiwanese exports to the EU are soon to be charged a carbon border tax, as the economic bloc in March backed a plan to levy carbon emission tariffs on imports that create greenhouse gases for a three-year transition period starting next year. The plan is expected to be fully approved by the fall.
Paying for carbon emissions, or carbon content, is an inexorable global trend. There are 68 direct carbon pricing instruments operating worldwide, including 36 carbon taxes and 32 emission trading systems, a report released last month by the World Bank said. In addition to cost considerations, it has become a key factor for local manufacturers when acquiring new supply contracts, as a growing number of multinational companies — including Apple Inc, Google parent company Alphabet Inc and Microsoft Corp — have pledged to achieve zero carbon emissions. As the greenhouse gas emissions from their supply chain partners would also count toward these companies’ emissions goals, sustainable suppliers would be their top choice. That means companies without plans to reduce their greenhouse gas emissions could soon risk losing orders.
GlobalWafers Co, the world’s third-largest silicon wafer supplier, said reducing wafer travel is an effective way to reduce carbon footprints and is a key factor when the company is choosing where to build a new factory worth US$2 billion. “As carbon tax becomes a cost in 2023 when the EU begins to levy carbon emissions ... proximity to our customers is very important,” GlobalWafers chairperson Doris Hsu (徐秀蘭) said last week.
With manufacturing sites worldwide, GlobalWafers said it has a competitive edge in managing its carbon emission costs. Power consumption is its major source of carbon emissions, but some of its factories, such as the one in Denmark, use 60 percent green energy, it said. The green energy adoption rate is low at its Taiwanese factories, it added.
Local companies have been urging the government to build low-carbon-emission infrastructure, such as by boosting green energy supply and building a carbon tax mechanism, as more businesses are gearing up to adopt green energy.
Green energy trading spiked at 600 million gigawatt-hours as of the end of October last year, about 11 times the amount consumed in 2020, a report released by PricewaterhouseCoopers Taiwan showed in January. However, offshore wind and solar energy installations were slowed by the COVID-19 pandemic, as engineers and exporters faced travel restrictions.
Taiwan is lagging behind the world’s major economies in putting forward a comprehensive carbon charging system and incentives to encourage local businesses to adopt low-carbon manufacturing equipment. The Environmental Protection Administration earlier this year said that it planned to collect carbon emission fees in 2024, rather than imposing a carbon emission cap with a carbon trading mechanism. The agency has suspended the Greenhouse Gas Reduction and Management Act (溫室氣體減量及管理法) for years, saying a few companies would bear the brunt of it.
With local firms being forced to align with their customers and become sustainable suppliers, Taiwan risks becoming less attractive to local and foreign companies wanting to build new operations if it does not accelerate the deployment of low-carbon-emission infrastructure.
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