Rick Lu (呂威逸) June 25, 2021
As part of the international trading system and a critical supplier of the IC industry supply chain, Taiwan has been looking into implementing carbon pricing initiatives to correspond to the world’s trend of carbon pricing.
World Bank released the latest report on global carbon pricing status, World Bank State and Trends of Carbon Pricing 2021, in May, in which it mentioned Taiwan with few updates.
The country has just entered the early stage of its carbon pricing planning, let alone the ambiguous political status hindering the exchange of information on carbon pricing trends.
With little knowledge of Taiwan, world trade activities would be affected, and there would be fluctuations in the price level in certain industries.
World Bank: ETS/carbon tax under consideration, domestic crediting mechanism implemented but lacks data
In the report, Taiwan was classified as “ETS or carbon tax under consideration” and “have implemented GHG Offset Management System”, a domestic crediting mechanism. An additional remark on the former was made in the report that, Taiwanese government “has announced its intention to work towards the implementation of a carbon pricing initiative and this has been formally confirmed by official government sources”.
Further explanation in the annex “Mechanisms Created by Regional, National, or Subnational Governments” mentioned Taiwan’s GHG Offset Management Program:
“The plan aims to encourage voluntary emission reduction for entities through implementing GHG offset projects that use methodologies developed either by the CDM Executive Board or the Taiwan Environmental Protection Agency (EPA), depending on the type of project. Registration and crediting processes are similar to CDM. The committee will work with Taiwan’s EPA to coordinate project registration, methodology application, and credit issuance”, the report wrote.
It is known that Taiwan has confirmed to implement a carbon pricing initiative and has implemented a domestic crediting mechanism. However, data for “Taiwan GHG Offset Management program was insufficient to present annual changes to credits issued and registered activities.” Thus, Taiwan’s crediting mechanism was omitted from the figure.
Three challenges facing Taiwanese carbon pricing mechanism
With the world consensus of “Net Zero by 2050”, every country is working on implementing ETS, and even carbon tax to eliminate products made from large emitters. As a nation heavily dependent on international trade, Taiwan’s government, industries and suppliers are in increasingly pressing needs to implement carbon pricing to stay competitive in the global market.
Although Taiwan has not officially promised to reach Net Zero by 2050, the country has been looking into the implementation of a national carbon pricing mechanism for a while. The legislation department announced “GHGs Emission Reduction and Management Act” in 2015, and has proposed an amendment in 2020 to revise the name and to stress the importance of focusing on not only GHG but the comprehensive climate change situation.
The new act’s goal is to strengthen GHG emission control tools and to help Taiwan get on track of the international carbon pricing mechanisms, which is a unanimous objective. To achieve this, the government has planned to implement ETS(cap-and-trade) and carbon tax. While the amendment process is still ongoing, the Taiwanese government has met several problems:
Firstly, the carbon price is set too low to make the mechanism effective. According to the proposal, the price is originally reported to be set at NT$110/tCO2e (US$3.94), which is far below the bottom range of 2020 prices recommended to be Paris compliant, US$40/tCO2e. The price has not been finalized, though there have already been environmental groups questioning whether the mechanism is effective in reducing GHG emissions thus further help Taiwan reach net zero by 2050.
In 2020, The London School of Economics and Political Science provided the Environmental Protection Administration of Taiwan a report, Carbon pricing options for Taiwan, recommending carbon price level applicable to Taiwan’s market. According to the report, the suggested price is set to start from US$10/tCO2e (NT$284) and gradually rise to US$98/tCO2e (NT$2786) by 2030. The price suggested by the Taiwan government (NT$110/tCO2e) is then being criticized by environmental groups for not only unable to meet the bottom range to be Paris compliant, but also far below the suggested price from LSE.
LSE also pointed out that further capacity-building is necessary for Taiwan to implement an ETS:
“The relatively small size of its market and the concentration of emissions in a small number of players could lead to challenges regarding the concentration of market power and liquidity in secondary markets”, the report concluded.
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Secondly, there would be possibilities of electricity shortages, should the carbon pricing mechanism be implemented. In the new amendment, “carbon levy” is planned to help Taiwan develop rules for ETS market oversight and trading infrastructure, and sectors covered by Taiwan’s carbon levy are not limited to large emitters but also households and the services sector included.
However, the electricity sector, one of main emitters, argued its emissions are decided through electricity consumption. Once covered by the carbon pricing mechanism, there would be challenges balancing between emission reduction and stable electricity supply and distribution.
Lastly, the authorities of ETS are still unclear. According to the Financial Supervisory Commission (FSC) of Taiwan, the legislator authority plans to arrange ETS to FSC, as it is a trading system. However, FSC argued it regulates “marketable securities” and “financial derivatives”, which carbon emission allowance clearly does not belong to; furthermore, FSC’s professional field in stock exchange is incompatible with the ETS market either.
As for the Environmental Protection Agency, the agency pointed out that international ETS are mostly regulated by financial supervisory sectors. Take EU ETS for example, carbon trading is considered similar to financial securities, as there are real-time trading demands in both systems.
Taiwanese government is also considering to set up an independent agency. Financial Supervisory Commission named auction platforms like European Energy Exchange (EEX), Chicago Climate Exchange (CCX), which are regulated by neither Financial Supervisory Commission stock exchange or Environmental Protection Agency. Final decision is to be discussed.
Considering Taiwan’s market size of trading allowance and concerns from different sectors, the relatively small market makes it more difficult for Taiwan to initiate carbon pricing mechanisms. Nevertheless, the government has confirmed its efforts in implementing a carbon pricing mechanism in the future, not only to cater to the world net zero trend, but also to increase trading power in the global market and alliance.
Further amendment process is yet to be announced.
Sources: TheWorldShouldBe, Environmental Information Center (1), Environmental Information Center (2), Environmental Information Center (3)