Striking a Critical Balance with Carbon Fees

Six major sectors and 22 local governments in Taiwan have had their carbon reduction action plans approved, the Ministry of Environment reported last year.

As the Taiwan government works to solidify new carbon-reduction policies, industries are preparing for a greener future.

Some of Taiwan’s most important industry sectors are waiting for a government policy decision that could markedly affect their bottom line.  

It will be up to a newly established committee under the Ministry of Environment (MOENV) to determine fees to be imposed on enterprises for their emissions of greenhouse gases (GHG). In February, Minister of Environment Shieu Fuh-sheng said he expected the Carbon Fee Rate Review Committee to reach that decision by the end of March, together with issuance of the relevant implementation regulations.  

But the day after the committee held its first meeting on March 13, Shieu said that the committee’s decision on carbon fee rates would be delayed, adding that he could provide “no guarantees” as to the announcement date. He cited the failure of the U.S. Congress to pass the Clean Competition Act at the end of last year and the delay of the EU’s implementation of its Carbon Border Adjustment Mechanism (CBAM) as reasons why the committee will need more time to consider the appropriate fee structure. 

The 21-member committee consists of eight scholars from various backgrounds, including economics, finance, climate change, and resource engineering, as well as six representatives from environmental NGOs and industry associations, and seven from government agencies.  

The setting of carbon fees will be the first step in implementing Taiwan’s carbon pricing policy. According to MOENV, starting in 2025 more than 500 companies that annually emit more than 25,000 MtCO2e (metric tons of carbon dioxide equivalent) of GHG will be charged carbon fees based on the total emissions verified as released in 2024. The calculation will include the external costs of GHG emissions – such as the impact on climate change, public health, and the environment – and is designed to create a direct economic incentive to reduce emissions. 

The government initially hinted at a fee of NT$300 (US$10) per metric ton of emissions – below South Korea’s US$30 but above Japan’s US$2 and Singapore’s US$4. That level is estimated to yield about NT$60 billion a year from the 220 million metric tons released by Taiwan’s big emitters, which together account for 80% of total carbon emissions.  

Some environmental groups criticized the proposed rate, saying it was far too low to have any substantial effect on the climate crisis. Minister without Portfolio Chang Tzi-chin cautioned that the final price would be set only after Taiwan’s Climate Change Act has been amended and key industries consulted. 

In an interview with Bloomberg, Greenpeace campaigner Tracy Chang stated that Taiwan could boost its GDP growth by nearly 1% by 2045 and cut carbon emissions by 36% if it initiates a carbon levy at NT$300 per ton and increases the fee by 10% annually, while also effectively reinvesting the revenue raised. The proposed fee would be within a range acceptable to companies and “bring significant benefits in moving toward net zero,” she added. 

Despite the delay in finalizing the carbon fee structure, it seems certain that the carbon fee rates will be announced at some point this year, and that once implemented, they will affect the operations of companies across many of Taiwan’s most prominent industries.  

Types of emissions 

The pressure on industries in Taiwan to decarbonize is coming from both domestic and international regulations, explains Tsai Hung-jeng, director of the Center for Carbon Research Solutions (CCRS) at National Sun Yat-sen University in Kaohsiung. As carbon taxes, tariffs, and fees take effect in multiple markets, companies will be charged for their Scope 1 and 2 emissions, he notes.  

Scope 1 emissions refer to direct emissions from sources owned or controlled by the reporting entity. Typical examples are fossil fuel combustion and emissions from chemical processes or manufacturing plants. Scope 2 encompasses indirect emissions associated with generating electricity, heat, or steam purchased and consumed by the reporting entity. Together, these elements provide a comprehensive picture of an organization’s carbon footprint and are commonly included in corporate sustainability reports.  

Taiwan Carbon Solution Exchange has collaborated with leading carbon exchanges in Japan, Singapore, and the UK, such as this panel held during the 2050 Net Zero City Expo, ensuring best practices are followed to meet net-zero ambitions.

In January, Deputy Director-General Huang Wei-ming of the MOENV’s Climate Change Administration said manufacturers that reduce Scope 1 and 2 carbon emissions by between 25% and 28% by 2030 would be allowed to pay carbon fees at preferential rates. 

Some Taiwanese companies have already begun to take action to prepare for the imposition of carbon fees. For example, manufacturer Delta Electronics in 2021 integrated a rigorous internal carbon pricing (ICP) system, set at US$300 per metric ton, into its global management mechanisms. This money is then invested in energy-saving and carbon-reduction projects.  

For its part, American semiconductor company Applied Materials aims to reach 100% renewable electricity in its Taiwan operations as part of its efforts to halve its Scope 1 and 2 emissions by 2030. Semiconductor manufacturing involves energy- and water-intensive fabrication processes, chemical usage, and waste generation, making the sector one of the more sensitive to carbon fees.  

Article 29 of the Climate Change Response Act, implemented in 2015, permits businesses subject to carbon fees to propose voluntary carbon reduction plans to qualify for these preferential rates. Plans could include switching to low-carbon fuels, adopting negative emissions technologies, increasing energy efficiency, using renewable energy, or taking other measures to reduce GHG emissions.  

Applied Materials has committed to several global sustainability initiatives and conducted supplier GHG emission surveys, enhancing its future eligibility for lower carbon fees. But switching to renewable energy sources can be challenging in Taiwan. In 2023, renewable energy accounted for less than 10% of the country’s total electricity generation. 

Chipmaking powerhouse TSMC faced pressure from Greenpeace activists at an annual shareholder meeting in Taiwan to boost its use of green energy.

“Taiwan’s electricity generation is still heavily dependent on fossil fuels,” says a representative of United Microelectronics Co. (UMC), a leading global semiconductor company based in Hsinchu. “As a result, the emission from Scope 2 energy use of UMC in Taiwan would be higher than in other economies.” 

UMC supported Taiwan’s GHG Early Action Project announced in 2015, which sought to strengthen environmental justice and share the responsibility of environmental protection and national development. It refers to any verified project under the Greenhouse Gas Reduction and Management Act created for emitters to earn reduction credits by offsetting emissions.  

Each carbon credit – allocated by the relevant government bodies or generated through projects that reduce or remove GHG emissions – represents the right to emit one metric ton of carbon dioxide or another GHG. UMC obtained about three million tons of carbon credits through the project.  

Companies with relatively low emissions can also sell their credits to high emitters through the International Carbon Credit Trading Platform established by the Taiwan Carbon Solution Exchange (TCX). Each carbon credit exchanged must first be approved by the Taiwan government and align with credible, transparent transaction systems like the Clean Development Mechanism under the Kyoto Protocol. 

For a company to reach net zero emissions, also referred to as carbon neutrality, managing its carbon footprint means accounting for and reducing emissions in its supply chain, for example from purchased goods and services, transportation, and waste disposal.  

“The impact and pressure of carbon neutrality on global supply chains have also deeply impacted Taiwan’s businesses,” says CCRS’s Tsai. “They must also reduce and balance their Scope 3 emissions, generating the need for quality carbon offset credits.” Scope 3 includes indirect emissions associated with an organization’s activities but originating from sources not owned or directly controlled by the organization.  

“It is important to note that it is difficult to collect, track, and reasonably estimate the Scope 3 emissions due to the complexity of the semiconductor industry value chain with various upstream and downstream companies,” says UMC.  

The company is currently driving a low-carbon supply chain with GHG inventory initiatives. According to the UMC representative, suppliers will have access to a GHG inventory platform that automatically calculates emissions based on a built-in database and methodology that is aligned with global standards.  

A pledge to triple nuclear energy capacity by 2050 attracted a mere 22 countries at COP28 in Dubai last year. Taiwan is among those not including nuclear energy in its renewable plans.

Uncertain path ahead 

With Taiwan’s timeline for setting rates in flux, much is still left to speculation and debate when it comes to Taiwan’s carbon fees. The challenge for the incoming Lai Ching-te administration will be to successfully undertake a critical balancing act. Implementing an excessively high carbon fee could hinder economic development and impact living standards. But setting the fee too low may lead to ineffective emissions reduction, triggering restrictions on Taiwan’s export products in foreign markets with strict carbon controls. Either way, Taiwanese industries could be put at a competitive disadvantage. Sectors such as steel and petrochemicals, known for their high carbon emissions, could be particularly vulnerable. 

“The next Taiwan government will likely continue in the current policy direction, striving to poise between economic development, environmental protection, and social equity,” says Tsai.  

Meanwhile, a suggestion has emerged from Taiwan’s ESG community that high emitters be placed in tiers according to whether they have made formal and public sustainability pledges. For example, a company could pledge to source a certain percentage of energy from renewable sources. 

However, industry sources note that there is currently no administrative infrastructure to support enforcement of such pledges. 

Without effective follow-up, there is concern that high emitters could make pledges that are never fully executed. In contrast, Taiwan’s Climate Change Response Act offers preferential rates to companies that can document their environmental actions and submit them for review to the central competent authority.  

“Ideally, a tiered system of carbon fees should be based on whether a company can really reduce its carbon emissions,” says CCRS’s Tsai.  

To achieve the needed balance, the government should demonstrate a commitment to both economic development and environmental protection. Tsai says that subsidies from the Ministry of Economic Affairs, for example, have already helped SMEs achieve low-carbonization and energy efficiency in their manufacturing processes to cut emissions. 

Companies looking to reduce Scope 2 emissions would benefit significantly from improvements in Taiwan’s renewable energy sourcing, distribution, and grid space availability. Tsai notes that while the adoption of negative emissions technologies may take time due to the need for scaling up and commercialization, the expansion of alternative energy development in Taiwan could be a more achievable goal within the next two years.