Taiwan should accelerate setting up detailed regulations for carbon pricing and the creation of a carbon credit exchange to reduce carbon emissions and help local manufacturers cope with the imminent “carbon border tax” levied by the EU.
Taiwan has lagged behind developed countries in implementing policies to cut greenhouse gas emissions. According to a report published by the World Bank in May, 68 countries had carbon pricing initiatives, with 36 levying carbon taxes and 32 having emission trading systems.
Taiwan’s proposed climate change response act (氣候變遷因應法), which would provide key regulations related to reaching the government’s pledge to reduce net carbon emissions to zero by 2050, passed the first reading at the Legislative Yuan in May. The Environmental Protection Administration aims to push through the act during the last legislative session that began this month.
However, the bill lacks substantial content and detailed regulations on carbon pricing or penalties for violations. It stipulates that local companies emitting more than 25,000 tonnes of carbon per year would be required to pay a carbon fee, rather than the commonly adopted carbon tax. It does not clearly say how much those large emitters would have to pay, but fees could range from NT$100 to NT$300 (US$3.26 to US$9.77) per tonne of carbon emitted.
The carbon fee would also not adequately motivate local manufacturers to cut their carbon footprints. The charge is much lower than the carbon tax of more than NT$500 per tonne Singapore intends to levy from 2024. The city-state started collecting carbon taxes in 2019, and in February quadrupled the levy. Local businesses may choose to pay the relatively low carbon fee if there is any.
The carbon fee, to take effect as early as 2024, would initially cover about 287 companies from high-emitting industries such as the steelmaking, semiconductor, cement and petrochemical sectors. Industry leaders such as China Steel Corp, Taiwan Semiconductor Manufacturing Co and Formosa Plastics Group would be on the list.
The carbon fee is only a small part of carbon reduction measures implemented by some EU countries, the US, Japan, South Korea, China and Singapore. Other measures usually include carbon trading to help businesses compensate for carbon emissions by funding an equivalent saving of carbon dioxide elsewhere.
Taiwan should set up a carbon credit exchange or trading system to meet growing domestic demand. Local exporters are facing mounting pressure to reduce their carbon footprints to secure orders. Since carbon emissions are included in their customers’ carbon emission reports, businesses with less carbon emissions would have an advantage.
Local businesses need to gear up for the implementation of the carbon border adjustment mechanism by the EU — an import tax designed to corral other countries into tackling climate change.
The carbon border tax could take effect from 2026. About 212 categories worth NT$24.5 billion from Taiwan are expected to be affected by the EU levy.
Since Taiwan does not have a carbon market, businesses are looking overseas. Chimei Corp, which makes polymer materials, synthetic rubbers and specialty chemicals, said it joined Singapore’s global carbon exchange Climate Impact X (CIX) in April and became the first Taiwanese enterprise to complete a carbon credit transaction through the purchase of 10,000 tonnes of carbon credits from the CIX’s Project Marketplace.
As Taiwan’s economy is reliant on exports, government agencies should catch up with the world in setting up a comprehensive carbon emission reduction mechanism that includes carbon fees and carbon trading. This would help local businesses lower costs, secure orders and create new revenue sources by selling carbon savings.
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