The ESG Matters Enterprises Should Understand in 2023
Brief Introduction on the Carbon Fee System from the Climate Change Response Act (Taiwan)

March 2023

Aaron Chen and Tina Lee

The National Development Council released the 2050 Net Zero Emission Pathway and General Description of Strategies on March 30, 2022 and announced the 12 Key Strategies for Net Zero Transition.  One of the foundations of these strategies is the climate law regime.  The one that attracts the most attention is the Amendments to the Greenhouse Gas Reduction and Management Act, which is renamed as the Climate Change Response Act.   The Climate Change Response Act was cleared through three legislative readingson January 10, 2023 and been promulgated affective on February 15, 2023. The Climate Change Response Act not only to include net-zero emission as a long-term national greenhouse gas reduction target but also additionally formulate relevant administrative and implementation regulations on such a basis, including the formulation of greenhouse gas reduction measures, elevation of the climate change governance level, and the addition of a dedicated chapter for climate change adjustments (for the other highlights of the Amendments, please refer to Lee, Tsai & Partners Newsletter titled Taiwan plans to enact carbon pricing into Climate Change Response Act (Taiwan)).

These Amendments have established relevant greenhouse gas reduction measures.  In particular, special attention should be paid to the implementation of the following carbon fee collection system:

I. The system aims to promote carbon reduction through an economic tool

In addition to the phased imposition of carbon fees on emission sources, enterprises are also encouraged to propose voluntary carbon reduction plans to qualify for preferential rates or have their greenhouse gas emissions which subject to carbon fees deducted from their reduction quota.  The carbon fees are then incorporated into the Greenhouse Gas Management Fund as a dedicated fund, which can be used to subsidize and reward work items related to the implementation of greenhouse gas reduction as well as the investment, research, and development of greenhouse gas reduction technologies, and other related purposes (Articles 28 to 33 of the Climate Change Response Act).

II. Direct emission sources and indirect emission sources targeted for the collection

Direct emission sources are those that come directly from sources owned or controlled by an organization, and will be charged to the owner of the emission sources according to its emissions (if the owner is not the user or manager, then the charge will be imposed on the actual user or manager).  Indirect sources of emissions, which are indirect greenhouse gas emissions caused by the input of electricity, heat, or steam, will be charged to the owner of the sources according to its indirect emissions from the use of electricity (or to the actual user or manager if the owner is not the user or manager).  In particular, for the direct emission sources that produce electricity, the organization may include proof of emission amount as a result of the electricity consumed in its application to the central competent authority to deduct the above-mentioned emission amount (Article 28 of the Climate Change Response Act).

III. Required verification of the emission amount and submission of corresponding projects

If an enterprise has an emission source announced by the central competent authority ,the accounting of emission sources shall be applied; for emission source  designated for inspection in the announcement, the relevant information on its emission inventory shall be inspected by the inspection agency.  For enterprises that newly establish or change their emission source up to a certain scale, they should propose an offset project for the emission increment. Enterprises or all levels of government that propose voluntary emission reduction projectsmay obtain a reduction quota upon approval by the central competent authority (Articles 21, 24, and 25 of the Climate Change Response Act).

IV. Formulation of the carbon fee rate

The carbon fee rate will be reviewed by the Rate Review Committee established by the central competent authority, which will review the current status of greenhouse gas reduction in Taiwan, types of emission sources, types of greenhouse gas emissions, emission scale, voluntary reduction efforts, reduction effectiveness, and other relevant factors. The committee will then submit the rate to the central government for approval and announcement, and conduct regular reviews.   If the carbon fee collection targets can effectively reduce greenhouse gas emissions and achieve the targets set by the central competent authority due to the adoption of greenhouse gas reduction measures such as switching to low-carbon fuels, adopting negative-emission technologies, improving energy efficiency, using renewable energy or improving processes, they can apply to the central competent authority for preferential rates by submitting a voluntary emission reduction plan.  The specific implementation measures, including measures for the calculation methods, collection methods, reporting procedures, and exemption, are yet to be set by the central competent authority.   (Articles 28 and 29 of the Climate Change Response Act)

V. Establishment of a carbon fee fund as a dedicated fund

The carbon fee is collected for injection into the Greenhouse Gas Reduction and Management Fund primarily to finance the following matters (Article 33 of the Climate Change Response Act):

1. Subsidized work items related to the implementation of greenhouse gas reduction by the central and local governments
2. Investment in greenhouse gas reduction technologies by research and development enterprises
3. Establishment, free allocation, distribution, transfer, and trading of information platform accounts
4. Coordination, research, and promotion concerning climate change adjustments and greenhouse gas reduction
5. Promotion of matters related to carbon footprint management
6. Assistance to the central competent authorities for specified sectors to implement work items related to “just transition”

“Just transition” is one of the 12 Key Strategies proposed by the National Development Council mentioned above and is also a climate change issue added to the Climate Change Response Act.  This means consulting with all communities affected by the transition to net-zero emissions, while respecting the principles of human rights and dignified labor, and assisting industries, regions, workers, consumers, and indigenous peoples in achieving a stable transition.

VI. Consequences for false reporting or late payment of carbon fees

The Climate Change Response Act stipulates that the payable fee shall be calculated by twice the carbon fee rate in the case of under-reporting or omission of materials related to carbon fee calculation; moreover, if the cash equivalent or carbon fee is not paid within the prescribed period, a fine for late payment and interest shall be added (Articles 55 and 60 of the Climate Change Response Act).

Taiwan’s carbon fee system certainly defines the direction and purpose of Taiwan’s greenhouse gas reduction measures.  However, during the legislative process, debate from all parties about the carbon fee system have also highlighted the challenges to be addressed in the implementation of the carbon fee system and the goals to be achieved,, including:

I. The lack of clear short and medium-term targets has the advantage of flexibility, but how to achieve the long-term 2050 net-zero emissions target depends on implementation through subsequent government policies and industry responses

II. How the “carbon fee” system will align with the European Union’s “Carbon Border Adjustment Mechanism” (CBAM) also depends on the government’s subsequent responses to assist Taiwan enterprises in proper coping mechanisms.

III. Although the Greenhouse Gas Management Fund injected by carbon fees fulfills the objective of policy-guided development since it will be used to subsidize investment in greenhouse gas reduction technologies by corporate research and development undertakings, since there is still a lack of specific regulations, its effects are yet to be observed.

Net zero emission has become a global trend.  The inclusion of the 2050 net zero emission target in the Climate Change Response Act is commendable. However, there are still many sub-laws and supporting measures that require to be formulated by the competent authorities, and we will continue to pay close attention.

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