Taiwan is set to levy carbon fees by the end of 2024, with three sub-laws expected to pass by August. According to Minister of Environment Peng Chi-ming (彭啟明), the carbon fee will operate on a “leading by example” approach and may shift to cap and trade in two to three years. Here’s a breakdown of the six main aspects of the current carbon fee scheme.
What is carbon fee?
A carbon fee is a carbon pricing tool commonly used around the world, which is imposed on emitters of greenhouse gases (GHGs) such as carbon dioxide. According to the World Bank, this mechanism is designed to return the cost of carbon emissions to the emitters, providing an economic and flexible approach to reducing emissions while minimizing social costs.
Who will be first to pay the carbon fee?
According to the draft "Regulations for Charging of Carbon Fees," two main criteria determine who will be subject to the carbon fee. First, the entity must be a regulated emission source registered and inspected by the government, such as power generation, steel, refining, cement, semiconductors, TFT-LCDs, and petrochemicals industries. The second criterion is that the entity's annual direct and indirect greenhouse gas emissions must reach 25,000 tons of carbon dioxide equivalent. The primary targets are electricity producers and manufacturers, with over 500 companies expected to be the first to be taxed, accounting for about 155 million tons of carbon emissions or 54% of the nation's total emissions.
Carbon fees charged by the government will become a cost to business. (Photo: iStock)
How will the carbon fee be collected?
The legal basis for Taiwan’s carbon fee collection is the "Climate Change Response Act." The three supporting laws include the "Carbon Fee Collection Method," "Voluntary Emission Reduction Plan Management Method," and "Greenhouse Gas Reduction Targets for Carbon Fee Entities." The phased collection of carbon fees aims to encourage businesses to transition to low-carbon operations, with preferential rates offered to accelerate this process.
The draft "Voluntary Emission Reduction Plan Management Method" allows companies to apply for lower carbon fee rates by implementing emission reduction measures, such as switching to low-carbon fuels, improving energy efficiency, using renewable energy, upgrading processes, or adopting carbon-negative technologies.
The "Greenhouse Gas Reduction Targets for Carbon Fee Entities" outlines the reduction targets and calculation methods, allowing companies to choose between two approaches:
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Sector-specific reduction rates: Based on the Science-Based Target initiative (SBTi), this method sets a 42% reduction target by 2030, using 2021 as the baseline year.
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Technology benchmark reduction rate: In line with Taiwan’s 2030 Nationally Determined Contribution (NDC) target, this method aims for a 24±1% reduction by 2030 compared to the 2005 baseline, with companies setting their reduction targets based on their average emissions from 2019 to 2023.
How is the carbon fee calculated and how can carbon credits offset it?
Generally, the carbon fee payable is calculated by subtracting a free threshold of 25,000 tons from the total emissions and then multiplying by the rate. Initially, the government will set the 25,000-ton threshold as the starting point, exempting emissions below this level from the fee. However, the exact rate is still undecided, with discussions suggesting a range of NT$100 to NT$1,000 per ton as a simulated price.
For industries at high risk of carbon leakage, such as steel and cement, although they cannot deduct the 25,000-ton free threshold, they can enjoy preferential rates of 20%, 40%, or 60% off depending on the timeline. This gradual adjustment is designed to prevent production lines from moving to other countries, which could increase global carbon emissions. However, companies must first submit and receive approval for a voluntary reduction plan. If companies apply for the preferential rate, they must ensure that their voluntary reduction targets are met, or they will be required to pay the difference.
Apart from preferential rates, the government also suggests using reduction quotas to offset part of the carbon fee through the purchase of "voluntary carbon credits."
There are three ways to obtain reduction quotas domestically: "voluntary reduction projects," "offset projects," and "early action reduction quotas." Carbon credits obtained from "voluntary reduction projects" or "offset projects" can be multiplied by 1.2 times, but the deduction limit cannot exceed 10% of the total emissions subject to the fee.
For businesses not at high risk of carbon leakage, two other methods are available to offset emissions using carbon credits: using "early action reduction quotas" to offset emissions from 2024 to 2025, with the offset ratio reduced to 0.3, meaning 100 tons of early action carbon credits can only offset 30 tons of emissions; and using foreign carbon credits recognized by the central competent authority, with a deduction limit not exceeding 5% of the business’s emissions subject to the fee.
How will the carbon fee be paid and what about late payments?
Declaration schedule
Starting in 2025, companies will need to calculate their carbon fee based on their total greenhouse gas emissions from the previous year and submit payment by the end of May each year.
Declaration and payment process, late payment rules
According to the draft, entities subject to the fee must first log into the designated platform to calculate their carbon fee, then fill out a declaration form and payment slip. The fee is to be paid to a designated financial institution, and finally, the declaration is submitted to the competent authority.
If a company fails to pay or underpays, there is a 90-day grace period. If payment is not made within this period, a late fee of 0.5% of the unpaid amount will be charged for each day overdue, with the most severe cases being referred for compulsory enforcement according to Article 60 of the "Climate Change Response Act."
What’s the difference between carbon fees and carbon taxes?
Taiwan adopts a carbon fee system, primarily using it as an economic incentive collected by the Ministry of Environment (MOEVN) and allocated specifically for environmental actions. Internationally, carbon taxes are typically collected by the Ministry of Finance and used for broader purposes. However, both mechanisms essentially require businesses to reduce emissions. The Taiwan Carbon Tax Alliance outlines the differences as follows:
| Difference | Carbon Fee | Carbon Tax |
|---|---|---|
| Competent authority | Dedicated use by MOEVN | Collected and distributed by the Ministry of Finance |
| Purpose | Used solely for climate change mitigation and adaptation | Green fiscal policy reforms, such as tax reduction, returning carbon tax revenue to the public, or establishing a carbon debt reserve fund |
| Carbon reduction effect | Low carbon price, limited effect | High carbon price, significant effect |
| Impact on the public | Increased fuel, electricity, and consumption expenses | Potential to increase net income through carbon tax rebates |
| Impact on Socio-economics | Maintains a high-pollution brown economy | Transition to a green economy, enhancing international competitiveness, while improving income distribution and promoting social equity |
Differences between carbon fee and carbon tax. (Source: Carbon Dividend)
As Taiwan enters an era where carbon emissions come with a price, companies must develop greenhouse gas inventory capabilities, monitor their emissions, identify carbon hotspots, and actively plan and implement voluntary reduction strategies to minimize their carbon fee burden.
Source: Ministry of Environment, World Bank, Risk Society and Policy Research Center, Carbon Dividend
