summary:
Climate change and anomalies pose serious consequences not only for the environment but also for the economy, making them a global issue that cannot be ignored. A report by British economist Sir John Stern states that climate change constitutes a serious market failure, potentially resulting in a loss of up to 20% of global GDP. To address this issue, governments around the world have adopted carbon pricing mechanisms to control greenhouse gas emissions, with carbon taxes being one such mechanism. Furthermore, according to a World Bank report, the implementation of carbon taxes is on the rise globally, with global carbon tax rates gradually increasing. To address climate change, Taiwan passed the Climate Change Response Act in February 2023, planning to implement a carbon fee on businesses in 2024 as a countermeasure. Although the price of the carbon fee has yet to be determined, this measure will be a key step in aligning Taiwan with the rest of the world and will be the first such implementation globally. Going forward, Taiwanese businesses will actively conduct comprehensive carbon inventories and develop comprehensive carbon reduction strategies to achieve their net zero goals.
I. Background
Global climate change and anomalies have always been a thorny issue. In recent years, humanity has realized that climate change affects more than just the environment in which we live. From an economist's perspective, climate change is the world's most serious market failure. According to the first report on the environmental dilemma, authored by British economist Sir Nicholas Stern, the cost of climate change could reach as much as 20% of global GDP. Numerous studies have demonstrated the importance of emissions, compelling countries to prioritize environmental issues. However, to overcome climate change and market failure, governments and legislatures in various countries and regions have decided to impose a price on the very things that cause this damage—that is, greenhouse gas emissions. Carbon taxes are a commonly used carbon pricing mechanism, differing from other mechanisms in that they use a price-based approach to control emissions reductions.
Carbon taxes are based on the user-pays principle, shifting the social costs of carbon pollution to emitters. This helps businesses reduce their carbon footprint and contribute to their commitment to carbon footprint reduction goals. Furthermore, the key to carbon taxes lies in the setting of the tax rate, which varies across regions and for different sectors and fuel users. For governments, carbon taxes can promote the use of renewable energy and technologies and reduce environmental damage. Furthermore, they can serve as a source of revenue for social welfare, infrastructure development, and other areas. Furthermore, since the carbon tax price is not subject to market fluctuations but is predetermined, it allows businesses and investors to better plan and make long-term investments. However, for businesses, increased operating costs lead to reduced profits, which companies will pass on to consumers. Furthermore, to avoid high carbon taxes, businesses may relocate production and investment to lower-cost countries, resulting in carbon leakage.
II .Current Status:
1. International Trends
According to the World Bank's 2023 report, "State and Trends of Carbon Pricing 2023," countries implementing carbon taxes include Canada, Spain, and Switzerland, which combine carbon taxes with the EU Emissions Trading System (ETS) and carbon offsets. The United States, the United Kingdom, and Sweden use a combination of taxes and fees and the EU ETS, both of which are multiple mechanisms that include carbon taxes. Argentina, Chile, Colombia, and Singapore also implement a single carbon tax mechanism. Although many Asian countries have established carbon trading platforms and implemented carbon tax mechanisms, compared to Europe, the United States, and other regions, carbon tax mechanisms are very rare in Asia, started later, and prices are below the global average.
Global carbon tax rates showed a steady trend in 2020, but increased by an average of $6 (approximately NT$184) per ton of carbon dioxide equivalent (tCO2e) in 2021 and $11 (approximately NT$337) per unit in early 2022, respectively. Most regions saw increases compared to the previous year. Uruguay in South America leads the world with a 2022 carbon tax rate of $137 (approximately NT$4,200) per ton of carbon dioxide equivalent (tCO2e), followed by Sweden in Northern Europe at $130 (approximately NT$3,986) per unit, British Columbia in the Americas at $40 (approximately NT$1,226) per unit, and Ireland in Europe at between $37 and $45 (approximately NT$1,134 and NT$1,380) per unit. In contrast, relatively few countries in Asia have implemented carbon taxes. For example, Singapore, which was an early adopter, implemented a phased carbon tax increase: the first phase (2019-2023) was US$3.73 (approximately NT$114) per ton of carbon dioxide equivalent (tCO2e), and the second phase increased to US$18.65 (approximately NT$571) per unit in 2024. Japan, on the other hand, imposed a rate of US$2 (approximately NT$61) per unit two years ago (2021). This shows that Asian regions, which only recently implemented carbon taxes, have lower carbon tax pricing than regions like Europe and America.
Carbon tax revenue is typically used for specific purposes. According to the 2023 Carbon Pricing Status and Trends Report, nearly 40% of revenue is earmarked for green spending, while 10% is used to compensate households or businesses. The report also counts 73 carbon pricing mechanisms in operation, including carbon taxes, targeting emissions that account for 23% of global greenhouse gas emissions.
2. my country's policies
A carbon fee, similar to a carbon tax, also imposes a fee on carbon emissions. This can be a direct tax, implemented through an emissions trading system, or other mechanisms. However, Taiwan has chosen to implement a carbon fee in response to the severity of global climate change, the increasing demand for carbon reduction within international industrial supply chains, and the impending implementation of stricter carbon emission controls in various regions. Therefore, to strengthen Taiwan's climate legal framework, a climate change adaptation strategy was formulated. The Climate Change Response Act was passed in third reading on February 10, 2023. The amendments explicitly incorporate the goal of achieving net zero emissions by 2050 and incorporate a carbon fee into the law. The parent law does not explicitly address the setting of carbon fee rates or the establishment of a carbon tax, necessitating the drafting of a subsidiary law to authorize implementation. The most critical of these is the "carbon fee" subsidiary law, which addresses key matters such as the fee rate and the recipients of the fee. To this end, the Environmental Protection Administration is developing and plans to submit a draft subsidiary law within six months. The finalized subsidiary law is expected to be published in 2024. This will provide clearer guidance and a legal basis for the specific implementation of the carbon fee system. If implemented, it will be the first case of carbon pricing in the world.
The "carbon fee" has been codified in the law and will be levied on the Environmental Protection Administration (EPA) for its designated purpose. According to the EPA's plan, the carbon fee will be implemented on businesses in 2024. This measure will be implemented in a phased approach, starting with large enterprises and moving on to smaller ones. The first phase will target 287 major carbon emitters. These companies emit more than 25,000 metric tons of carbon dioxide equivalent (CO2e) annually and include companies in the steel, petrochemical, semiconductor, cement, and power industries.
Regarding the price of Taiwan's carbon tax, civil society groups have suggested it should be NT$500 per metric ton, rising to NT$3,000 per metric ton in 2030. However, the EPA had not yet announced a figure as of June 2023. A 2020 EPA-commissioned research report, "Carbon Pricing Options for Taiwan," published by the London School of Economics and Political Science (LSE), recommended that Taiwan's carbon pricing start at US$10 (approximately NT$300) per ton.
III. Future Development
Climate change is the responsibility of every member of the planet. Therefore, whether it's a carbon tax or a carbon fee, the goal is to achieve net zero emissions. Countries are implementing carbon pricing mechanisms, as well as various other measures such as carbon tariffs. Therefore, China is actively developing carbon fee mechanisms, not only to compensate for the environmental damage caused by greenhouse gas emissions, but also to keep pace with other countries in improving its climate change regulations. The European Union's official announcement of the Carbon Border Adjustment Mechanism (CBAM) on May 16, 2023, indicates that international industries will expand and tighten emission reduction measures, impacting all supply chain companies. The CBAM stipulates that exporting countries can receive import credits for carbon taxes paid. Therefore, China is export-oriented, and the EU is one of its major export markets. If well-formulated carbon tax or carbon fee legislation is implemented, the collected revenue will not fall into the hands of others.
The scope of carbon tax implementation is increasing year by year, even extending across industrial supply chains. Companies in China that bear the brunt of the CBAM include those in the five high-carbon-emitting industries of cement, steel, aluminum, fertilizer, and electricity. The establishment of China's carbon fee system has heightened awareness among businesses about emissions reductions, contributing to environmental protection goals and encouraging them to adopt more environmentally friendly operations. However, other commodities are not yet included in the list. Improving energy efficiency and reducing reliance on fossil fuels are key solutions. This includes advancing technologies, research, and applications of renewable energy sources such as solar and wind power. This will reduce China's demand for traditional energy, lower carbon emissions, and establish a more sustainable energy system – a long-term solution.
Organizer: Ministry of Economic Affairs, SME Administration
Executing Unit: Plastics Industry Technology Development Center
