With the passage of the Climate Change Response Law, Taiwan has introduced a host of corresponding carbon management regulations, including the imposition of carbon fees on regulated emission sources, incentives for non-regulated enterprises to implement voluntary emission reduction programs to earn carbon credits, and the establishment of a national carbon trading platform, providing an open platform for businesses to trade carbon credits and obtain carbon rights both domestically and internationally. These policies primarily target large domestic enterprises (emission sources). While small and medium-sized enterprises (SMEs) currently face less regulatory risk, as part of the supply chain, they will face customer demands for carbon reductions. Furthermore, if SMEs fail to implement timely carbon management and decouple economic development from environmental impact, their economic growth will inevitably lead to corresponding carbon emissions. Furthermore, with future tightening regulations, SMEs face risks comparable to those faced by large enterprises. Therefore, SMEs must stay informed of relevant regulations in Taiwan, promptly analyze their impact, and formulate appropriate responses to prepare for the future. This article will explain Taiwan's carbon fees, voluntary emission reduction programs, and carbon trading platforms, and outline how businesses can easily assess the associated risks and opportunities.
1. Carbon Fees
To regulate carbon emissions, countries are adopting "carbon pricing" systems. These aim to put a price on carbon, factoring greenhouse gases generated by production into production costs and incorporating environmental costs into calculations, thereby curbing carbon emissions from production activities. Carbon pricing systems are categorized into "capacity control" and "carbon fees/taxes."
Cap-and-trade regulation primarily involves the government setting a national emissions cap and allocating emission quotas to regulated emission sources. Emissions must be capped within these quotas, and any excess must be purchased through a carbon trading platform to comply with regulations, or penalties will apply. Its advantages lie in effectively limiting national emissions and, in the future, further regulating prices and quantities through limiting total emissions and auctioning emission quotas. The European Union, the first region to implement a cap-and-trade system, reported in August 2023 that its greenhouse gas emissions in the first quarter of 2023 decreased by 3% compared to the same quarter in the previous quarter, despite economic growth of 1.2%, demonstrating the potential of carbon pricing strategies to decouple economic growth from environmental impacts.
Carbon fees/taxes are primarily based on the imposition of fees and taxes on emissions from regulated sources. As an alternative carbon pricing strategy, these offer advantages such as a simple system, low implementation costs, and rapid implementation. Depending on a country's tax system and revenue usage, a dedicated carbon fee or a carbon tax integrated into national revenue collection can be appropriate. These are also being adopted by countries such as Canada, Singapore, and Ireland, and could potentially be used to control emissions through increased taxes in the future.
With the enactment of the Climate Change Response Act, Taiwan will implement a carbon fee starting in 2024, targeting nearly 300 regulated emission sources with annual carbon emissions exceeding 25,000 metric tons. The rate will be determined based on the carbon tariff offsets required for companies exporting goods to the European Union and the appropriate carbon price that effectively mitigates greenhouse gas emissions without harming economic development. The current estimate is for the fee to be between 100 and 300 yuan per ton, with annual adjustments. A separate sub-law also includes preferential rates for regulated emission sources that are actively implementing carbon reduction efforts.
2. Voluntary Greenhouse Gas Reduction Project
In 2015, the Environmental Protection Agency promulgated the Greenhouse Gas Offset Project Management Measures, aiming to allow enterprises to implement greenhouse gas reduction projects in accordance with international reduction methodologies, and apply to the competent authorities for reduction quotas (carbon rights) based on these quotas, which can be used as offsets for voluntary declarations of carbon neutrality or emission increases. At the same time, it allows enterprises to trade and resell with each other through private agreements.
The main execution process is as follows:
- Reduction project writing: Select an applicable reduction methodology for project writing, which must comply with the principle of additivity and propose estimated reduction results.
- Confirmation application: Submit the project to a third-party verification unit for confirmation and obtain a statement.
- Registration application: Submit a special registration application to the competent authority.
- Project implementation: Initiate the project, collect relevant parameters according to the monitoring plan, perform reduction calculations, and produce a monitoring report.
- Verification application: Submit the monitoring report to a third-party verification unit for verification and obtain a statement.
- Application for a credit limit: Submit a verification statement to the competent authority to apply for a credit limit reduction. Upon approval, the credit limit will be distributed to the registered business account.
In response to the implementation of smaller domestic offset projects, the Act was amended in 2018 to add micro-scale offset projects, open up smaller-scale reduction methodologies and applications, and allow small-scale projects to only comply with the principle of regulatory additionality.
In 2023, with the amendment of the Climate Change Response Act, the Greenhouse Gas Offset Program Management Measures will be revised and renamed the "Greenhouse Gas Voluntary Reduction Program Management Measures". The reduction methodologies that are in line with national conditions will be re-examined, and the application process will be simplified. The draft amendment will be promulgated at the end of June, and applications are expected to reopen in the second half of the year.
3. Taiwan Carbon Trading Platform
In order to assist Taiwanese companies in purchasing carbon rights in the face of future carbon fee collection and to make the price of carbon rights for voluntary reduction projects transparent, the Ministry of Environment established the Taiwan Carbon Trading Platform in August 2023. It plans to provide a domestic and international carbon rights trading platform. It is currently in the process of functional construction. The first service provided is carbon consulting. Businesses can visit the official website of the carbon trading platform to learn about carbon rights trading and other related information.
It is expected that the carbon trading platform will offer two types of carbon credits: domestic carbon credits earned by companies through voluntary emission reduction programs in China, and voluntary carbon credits purchased from international carbon credit issuance organizations. Both will be used to offset the carbon fee levied starting in 2025, with the specific offset ratio currently under discussion.
Regarding the procurement of international voluntary carbon credits, the carbon trading platform is currently in talks with Gold Standard, an international carbon credit issuance organization, and plans to purchase carbon credits issued by the organization for corporate procurement; however, issues such as the type, standards, and price of the purchased carbon credits are still under discussion.
4. Summary and Suggestions
Looking at the carbon management policy tools outlined in the Climate Change Response Act, the urgency is relatively low for small and medium-sized enterprises (SMEs) with annual greenhouse gas emissions below 25,000 tons. However, in the face of international sustainability trends, SMEs must still prepare for potential future risks and opportunities as soon as possible. SMEs can conduct a simple enterprise risk and opportunity assessment based on risk factors such as internal business needs, external supply chain demands, and external regulatory requirements, as shown in the following figure:
Through a simple assessment, companies can gain a general understanding of the risks and opportunities presented by internal and external risk factors. Domestic and international regulations and supply chain requirements can impact a company's climate risk. However, if a company has completed internal greenhouse gas inventories and even initiated reduction efforts, this risk can be significantly reduced, potentially increasing new business opportunities driven by the green trend. With the implementation of Taiwan's Climate Change Response Law, small and medium-sized enterprises (SMEs) can also identify new needs and opportunities.
(1)Complete greenhouse gas inventory data:
- Assist downstream customers with sustainable development plans or regulatory requirements to calculate their carbon emissions. Completing this calculation early can attract more demand from similar customers.
- Gaining early understanding of your own emissions allows for early adaptation to increasingly stringent regulations.
- Understanding the carbon footprint of your products or services helps mitigate carbon tariff risks in future export planning.
- Providing more accurate emission coefficients for the industry, promoting the integration and development of industry carbon emissions data.
(2)Greenhouse gas reduction actions:
- Obtain carbon credits (carbon rights) through voluntary carbon reduction programs. With the launch of Taiwan's carbon trading platform, demand for credits from regulated companies will increase in the future, allowing small and medium-sized enterprises (SMEs) not currently regulated to benefit.
- The application and implementation procedures for voluntary carbon reduction programs will be streamlined to encourage more companies to participate.
- Implementation of carbon reduction programs will achieve long-term reductions, sustainably reducing companies' greenhouse gas emissions and mitigating future regulatory and supply chain risks.
- Leading companies to establish carbon management mechanisms and become green industry leaders means establishing a brand image early on in the green consumption trend.
Small and medium-sized enterprises currently face less significant climate risks than large enterprises, and they have the advantage of early action to generate green business opportunities. However, as demands from downstream customers in the supply chain gradually increase and the scope of regulatory oversight expands year by year, these green benefits will become increasingly limited. Early action can not only mitigate existing supply chain risks but also enhance corporate discernment and attract more brand owners.
Author: Lin Biyu, Group Leader, Policy Research Group, Quality, Environment and Safety Department, Plastics Industry Technology Development Center
