Faced with the challenges of global climate change, carbon pricing has become a key mechanism within the global climate governance framework to drive countries and regions to reduce greenhouse gas emissions. Taiwan, in addition to fulfilling its environmental responsibilities as a global citizen, faces pressure from its high dependence on foreign trade to transform its supply chains. Therefore, establishing and improving its own carbon market is both urgent and important for Taiwan. This report will analyze the current status, challenges, and future trends of Taiwan's carbon credit market from multiple perspectives, aiming to provide a comprehensive perspective for policymakers, corporate decision-makers, and stakeholders.
I. Current Situation and Development Overview
Taiwan's carbon market initially relied primarily on voluntary emissions reductions. The government has established a greenhouse gas monitoring, reporting, and verification (MRV) system through legislation. Furthermore, through the 2021 revision of the Climate Change Response Act, relevant sub-laws were introduced, including voluntary emission reduction programs, the imposition of carbon fees, and the establishment of a carbon exchange. This initiative aims to establish a robust carbon market in Taiwan, enabling businesses to follow these guidelines and use them as a carbon management tool to reduce emissions.
After the amendment, the goal of establishing a carbon emissions trading system (ETS) remains in the regulations, so it is not ruled out that Taiwan will introduce a national ETS in the future, as well as plans to set an emissions quota cap. Such development requires cross-departmental cooperation and long-term policy guidance and support.
II. Government Policies and Promotion
As the Taiwanese government's legislation and policy planning regarding climate change and carbon reduction gradually improves, it has proposed medium- and long-term carbon reduction targets and developed a series of emission reduction strategies for major emitting sectors, such as energy, industry, and transportation. For reference, please refer to the Taiwan 2050 Net Zero Roadmap published by the National Development Council. The following will explain the current status of the Taiwanese government's policy planning regarding related carbon management issues.
(1) Regarding carbon policy, in accordance with the Climate Change Response Act, the Ministry of Environment prioritizes the following 12 key sub-laws:
– “Emission Sources that Enterprises Must Inventory, Register, and Verify for Greenhouse Gas Emissions”
– “Measures for the Administration of Inventory, Registration, and Verification of Greenhouse Gas Emissions”
– “Measures for the Administration of Greenhouse Gas Certification and Verification Bodies”
– “Measures for the Administration of Greenhouse Gas Emission Increment Exchanges”
– “Measures for the Administration of Voluntary Greenhouse Gas Reduction Projects”
– “Enforcement Rules of the Climate Change Response Act”
– “Guidelines for the Establishment of the Carbon Fee Rate Review Committee”
– “Measures for the Administration of the Trading, Auctioning, and Transfer of Greenhouse Gas Reduction Credits” (not yet released)
– “Draft Carbon Fee Collection Measures” (not yet released)
– “Preferential Rates for Carbon Reductions that Achieve Government-Specified Targets and Related Matters Regarding Application and Review” (not yet released)
– “Regulations on Fees Required to Be Paid by Enterprises” (not yet released)
– “Measures for the Custody and Use of the Greenhouse Gas Management Fund” (not yet released)
Currently, 7 of the 12 key sub-laws have been announced, 1 is preparing for announcement, and 4 are under discussion.
Another important task in 2024 is that the Ministry of Environment should propose five-year reduction targets in accordance with Article 10, Paragraph 4 of the Climate Law. This time, the third phase (2026-2030) will be proposed, and it must be submitted in 2024, two years in advance.
(2) Regarding the carbon market, given the international imposition of tariffs on carbon emissions and the inclusion of carbon regulations as a criterion for companies to evaluate suppliers, the government will prioritize establishing a regulatory foundation for the carbon trading market to assist Taiwanese companies in adapting. This will create a fair and transparent market operating mechanism, enabling companies to conduct more rapid and effective inventory, supervision, and further manage their emissions/reduction quotas. With the launch of the domestic carbon trading platform at the end of 2023, officially ushering in the first year of carbon trading in Taiwan, Taiwanese companies will have easier access to the carbon market and accelerate their carbon management planning. Taiwanese legal entities can open accounts free of charge, and international carbon credit purchasing services are now available.
(3) Regarding enterprises obtaining carbon credits (carbon credits) in Taiwan, the recently announced sub-law, the "Measures for the Administration of Voluntary Greenhouse Gas Emission Reduction Programs," provides detailed application and implementation instructions. This sub-law will facilitate enterprises obtaining carbon credits in Taiwan and use them as tools for self-carbon neutrality, environmental impact assessment incremental offsets, and carbon fee credits (pending). The Ministry of Environment has also announced that domestic carbon credits will be available for trading on Taiwan's carbon trading platform as early as mid-2024.
(4) Taiwan's carbon fee is currently a top concern for businesses and environmental groups. The Ministry of Environment announced draft sub-legislation on April 29, 2024, including the "Carbon Fee Collection Measures," the "Voluntary Reduction Plan Management Measures," and the "Designated Greenhouse Gas Reduction Targets for Carbon Fee-Implemented Entities." Key highlights are as follows:
1. The first wave of carbon fee collection will be from emission sources announced by the Ministry of Environment (with direct and indirect emissions of 25,000 metric tons of CO2e). The announcement must be completed before April 30 each year, and the carbon fee must be paid before May 31.
2. Emissions must first be deducted from the 25,000 metric ton threshold before they become the emissions subject to carbon fees.
3. Regulated enterprises may submit voluntary reduction plans in accordance with the "Voluntary Reduction Plan Management Measures". Those that pass the review can use preferential rates. Industries judged to have high carbon leakage risks can also obtain carbon fee exemptions for voluntary reductions by multiplying the "Carbon Leakage Coefficient". The "Carbon Leakage Coefficient" will be adjusted upwards annually.
The voluntary reduction plan should include:
– Selected reduction targets: Industry-specific reduction rates as set by the SBTi or domestic and international emission technology benchmarks and reduction rates based on technology benchmarks set to achieve the 2030 Nationally Determined Contribution.
- Self-determined Reduction Plan: Select a target calculation method, determine the designated reduction target for 2030, and plan the reduction measures to be taken by 2030 accordingly. Then submit an application for a self-determined reduction plan.
- Regular review of effectiveness: The central competent authority will review the implementation progress of voluntary reduction plans annually. Enterprises must submit a progress report on their voluntary reduction plans for the previous year by the end of April each year. Enterprises that meet the implementation progress requirements will be eligible for preferential rates for that year. If the central competent authority finds that an enterprise has not implemented the plan in accordance with the plan, its voluntary reduction plan will be revoked in accordance with the law, and the difference between the general rate and the preferential rate for that year will be recovered.
4. The actual carbon fee rate has not yet been finalized: After three carbon fee rate review meetings on March 15, March 26, and May 7, no consensus has been reached on the balance between industrial development and environmental protection. The Ministry of Environment stated that referring to the practices of neighboring countries, they all have a "transitional transformation stage", that is, the initial carbon fee should not be too high, and should be accompanied by comprehensive transformation guidance measures to assist industrial transformation, emphasize emission reduction results and the growth of the carbon market. The next review meeting will also propose a carbon pricing simulation scenario for public reference.
3. Taiwan’s filing status since the launch of CBAM
The first trial submission period for the EU Carbon Border Adjustment Mechanism (CBAM) closes at the end of February 2024. According to the Financial Times, the European Commission provided initial submission statistics showing that the number of reports of carbon-intensive products originating from China is more than double that of any other country. Taiwan also ranked in the top five, slightly surpassing India. Of the 13,000 reports submitted by EU manufacturers, approximately 5,000 entries were from Taiwan. In addition to Taiwan's eighth-largest global export output, Taiwan's proactive preparations and the promotion of greenhouse gas inventory systems have also enabled businesses to meet CBAM requirements.
IV. Comprehensive
Taiwan's economic restructuring has brought new opportunities and challenges to low-carbon development, especially for manufacturing and high-tech industries that are highly dependent on foreign trade. They need to reduce carbon emissions through innovation and technological upgrades. The establishment of a carbon market will provide market-based incentives for these industrial transformations and promote green investment and technological innovation.
Technological innovation is an important way to reduce carbon emissions. Taiwan's innovations in renewable energy, energy efficiency improvement, and smart manufacturing will bring opportunities for emission reduction and promote demand and supply in the carbon market.
As public concern about climate change increases, consumers and investors have higher expectations for companies' environmental performance. This trend will drive companies to participate more actively in the carbon market to improve their carbon footprint.
In addition, the participation of the financial industry also plays an important role. The green transformation requires sufficient funds and investment to drive the development of a low-carbon economy, such as green technology development and carbon capture technology. This also includes the prevention of future climate disasters and the subsequent recovery from losses and damages. Both require public and private sectors to jointly establish a sound financial system to support it.
The establishment and development of Taiwan's carbon rights market is a complex process involving multiple factors and stakeholders. In the future, it will develop in parallel with global climate goals and local sustainability goals. The country's approach to balancing economic growth and environmental responsibility will play a key role in shaping the market trajectory. As the carbon market matures, it will also become an indispensable part of Taiwan's strategy to reduce greenhouse gas emissions and promote a green economy. Stakeholders including the government, industry and the public will play an important role in the successful implementation and development of the carbon market.
References:
1. National Taiwan University Center for Risk Society and Policy Research: https://rsprc.ntu.edu.tw/zh-tw/m01-3/climate-change/1851-0217-climate-change-response-act.html
2. https://enews.moenv.gov.tw/Page/3B3C62C78849F32F/81c06c43-fb95-49a8-9cff-ef10a7bc92e9
3. https://e-info.org.tw/node/239018
By Lin Biyu, Team Leader, Strategy Analysis Group, Quality, Environment, and Safety Department, Plastics Industry Technology Development Center
