FEATURE/Taiwan set on carbon 'fee' rather than 'tax' to cut carbon
By Alison Hsiao, CNA staff reporter
After years of debate, Taiwan has decided on using a carbon "fee" approach to curb carbon emissions that will be implemented starting in 2024. Most other countries have opted for a carbon "tax" (or cap-and-trade system) to address the issue.
So is there a difference between a carbon "fee" and carbon "tax" and will the system as presently conceived actually work?
Scholars said the "fee" and "tax" approaches vary mainly in how the revenues are used, and that the main issue -- whether they actually cut emissions -- depends on whether and how other measures are put in place to supplement the collection of carbon fees.
Taiwan has set a general outline of how its plan will work.
In late August, the Ministry of Environment announced that 512 companies that emit more than 25,000 metric tons of carbon dioxide a year will be charged carbon fees in 2025, based on verification of their total emissions in 2024.
As of mid-October, the fee that will be charged had yet to be announced. The government has hinted at an initial fee of NT$300 (US$9.32) per metric ton of emissions, which environmental groups have blasted as being far too low to attack the climate crisis.
A tax or a fee?
In many media, the terms "carbon tax" and "carbon fee" are used interchangeably. In either case, they are consistent with the concept of carbon pricing, which according to the World Bank is an instrument that helps "shift the burden for the damage from GHG emissions back to those who are responsible for it and who can avoid it."
In Taiwan, a "fee" and a "tax" are differentiated by which agency collects the funds and how those revenues are used, according to John Chung-en Liu (劉仲恩), an associate professor of sociology at National Taiwan University who also is part of the school's International Degree Program in Climate Change and Sustainable Development (IPCS).
Carbon "fees," Liu told CNA, would be collected by the Ministry of Environment, while a carbon "tax" would be collected by the Ministry of Finance.
The tax revenues collected would go into state coffers for use in the general budget, Liu said. "Fee revenues, on the other hand, are designated for specific uses," depending on which government authority collects the fee.
So why did Taiwan choose a fee-based system when there were precedents of tax-based systems in other countries?
One reason, according to Liu, was that when the carbon fee scheme was first laid out in the 2015 Greenhouse Gas Reduction and Management Act, issues related to the environment were solely under the purview of the Environmental Protection Administration (upgraded to the Ministry of Environment in 2023).
Lee Chien-ming (李堅明), a professor in National Taipei University's Institute of Natural Resource Management, added that when the greenhouse gas act was being discussed, no national net-zero plan existed to spur inter-ministerial cooperation, a necessity for a significant initiative such as carbon pricing.
The Greenhouse Gas Reduction and Management Act that took effect in 2015 was later overhauled in 2023 and renamed the Climate Change Response Act, but the carbon fee scheme, which Lee described as something "rarely seen in the world," remained relatively intact.
Environment Minister Shieu Fuh-sheng (薛富盛) said at a legislative hearing earlier this month that the fees will be used for 13 kinds of activities listed in the Climate Change Response Act.
They will form the foundation of a Greenhouse Gases (GHG) Management Fund that will be established exclusively for the purpose of "GHG emissions reductions and adaptation to climate change."
The list of uses includes a range of GHG emissions reduction promotion and management activities and administrative tasks.
Also included was the need to "[assist] the central competent agency to execute a just transition," which according to Taiwan Climate Action Network Chairman Chao Chia-wei (趙家緯) was included at the urging of social groups when discussing amendments to the original act.
Fee revenue has a specific purpose and therefore narrower range of use, Chao told CNA, necessitating the clause to cover those hurt by the move to lower-emission processes.
Without the clause, "it would have been a stretch for vocational training for those unemployed due to the closing of oil refineries or the shutdowns of fuel-consuming motorcycle repair shops to be seen as being for 'GHG reduction,'" Chao said.
He contended that as the carbon fee increases -- which environmental groups consider a must to meet international standards -- it will be imperative to turn carbon fees into carbon taxes.
A carbon fee rate of NT$300 per metric ton for example, which the government has teased, would yield about NT$60 billion for the big emitters' 220 million metric tons of emissions that account for 80 percent of total carbon emissions in Taiwan.
If that amount went up further, it would need to be categorized as a tax for the financial resources to be properly and fully used and allocated, Chao said.
Lee, the NTU natural resource management professor, has argued, however, that carbon fees alone would fall short of necessary climate change goals.
"Carbon fees might be able to reduce emissions, but not achieve net-zero, which has to be achieved by [facilitating carbon] offsetting and cooperation," stressed Lee, who has been dubbed by local media as the "father of Taiwan's carbon exchange."
"Carbon exchange is a mode of such cooperation," he said.
Carbon offsetting is the use of reductions in GHG emissions in one location to make up for (or "offset") emissions that occur elsewhere. Verified reductions become carbon credits that can be traded on a carbon exchange for enterprises or entities needing to offset their emissions.
Different from the commonly used cap-and-trade system, most notably used by the European Union, Taiwan's carbon exchange will be a "voluntary" one because the country has yet to impose a cap on carbon emissions, Lee explained.
In a cap-and-trade system, a mandatory upper limit for emissions is set and emission allowances (allocated by the government) are traded, meaning those who can reduce emissions the most have the most allowances to sell.
In Taiwan's carbon exchange, companies not subject to carbon fees that voluntarily apply to cut more emissions than a certified baseline will be able to earn carbon credits, verified by certified institutions, to be traded in the exchange.
Big emitters obliged to pay carbon fees will be able to purchase the credits to partially offset the fees.
Carbon credits will also be needed by enterprises that want or are required by international clients to achieve net zero.
"In a sense, the exchange system is to encourage the development of low-carbon-emission technologies and enterprises through the demand for credits from high-carbon emitters," Lee said.
Taiwan's carbon exchange, the Taiwan Carbon Solution Exchange (TCX), was opened in August.
So far, however, the TCX's function has been mainly focused on carbon trading-related education and consultation.
Trading on the exchange has not begun as it awaits more detailed regulations governing carbon fees and carbon exchanges to be announced by the end of the year.
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