my country started to levy carbon fees this year. Major emitters will pay the first carbon fee in 2025 based on their emissions in 2024.
But how will the carbon fee be collected? How much will it be? On the 3rd, the Ministry of Environment unveiled its carbon fee calculation formula for the first time, along with preliminary plans for who will be charged, how carbon credits will be used to offset the fee, and preferential rates. Among these, the "deduction of 25,000 metric tons of emissions before calculating the carbon fee" algorithm has been controversial, with environmental groups criticizing it as tantamount to giving businesses free carbon quotas.
Currently, the Ministry of Environment has only released the framework of the bill, with a draft notice still pending. Climate Agency Director Tsai Ling-yi stated that the relevant measures and carbon fee rates will be finalized in the first quarter of this year.
1. Who will be charged the carbon fee? How is the carbon fee calculated?
According to a briefing from the Climate Agency, the entities eligible for carbon fees must meet two requirements: first, they must be identified as "sources of greenhouse gas emissions that should be investigated, registered, and verified" (mostly power and large-scale manufacturing industries); second, their "direct emissions and indirect electricity emissions totaling 25,000 metric tons of carbon dioxide equivalent."
The carbon fee calculation method is tentatively set at deducting 25,000 metric tons from emissions and then multiplying it by the carbon fee rate. That is, no fee is required for emissions of 24,900 tons, while only 1,000 tons of carbon fee needs to be paid for emissions of 25,100 tons.
The Climate Agency stated that this was done to avoid a threshold of only 25,000 tons, which would create an unfair situation where 25,100 tons would be fully taxed, while 24,900 tons would be exempted. Environment Vice Minister Shi Wenzhen stated that while the emissions to be audited account for approximately 75% of Taiwan's total emissions, the power industry must also deduct emissions from consumer electricity consumption, resulting in a total of 55-60% of Taiwan's total emissions.
As for the actual coverage rate after deducting 25,000 tonnes, the Climate Agency said it still needs to confirm it.
2. How do carbon rights offset carbon fees?
According to preliminary plans, both domestic and foreign carbon credits can be used to offset carbon fees. Domestic carbon credits include "voluntary reduction projects," "exchange projects," and the "preliminary project" for which the Environmental Protection Agency issued 61 million tons of carbon credits years ago. Foreign carbon credits will follow Singapore's example, with a capped deduction limit of 5%. As for which foreign credits can be used, the Climate Agency stated that it will establish separate "recognition criteria."
In addition, the carbon credit deduction for the "advance project" is only valid in 2024 and 2025. Tsai Ling-yi explained that this was because it was not issued based on a rigorous methodology at the time. However, he emphasized that all carbon credit deductions for carbon fees are not "1:1", and the Climate Agency will subsequently set the deduction ratios for various carbon credits.
3. How can companies obtain preferential treatment for carbon reduction?
Under the Climate Law, businesses that submit "voluntary reduction plans" (including switching to low-carbon fuels, adopting carbon-negative technologies, improving energy efficiency, using renewable energy, and improving processes) and achieve certain "specified targets" can qualify for preferential rates. The Climate Agency stated that the base year is currently set as the average of emissions from 2019 to 2023, with the target year being 2030. However, the actual "specified target" that will qualify businesses for the preferential rates is still under discussion.
Because the designated targets should align with national reduction targets, there's speculation linking them to the 2030 Nationally Determined Contribution (NDC), announced at the end of 2022, which would represent a 24±1% carbon reduction, or the "third phase control target" (2026-2030) stipulated in the Climate Law. However, the Climate Agency emphasized that the designated targets will be industry-specific and "will not be a single number."
4. Carbon Pricing Method and Schedule? Climate Agency: First Quarter Finalized
Regarding the carbon fee schedule, Tsai Ling-yi stated that public communication is still needed. She hopes to announce the "Carbon Fee Collection Methods" and the "Carbon Fee Designated Reduction Targets and Voluntary Reduction Plan Review Methods" in the first quarter. The carbon fee rate will be determined by the Carbon Fee Review Committee and will also be announced in the first quarter.
Sources: Environmental Information Center
