Taiwan Plans To Enact Carbon Pricing Into Climate Change Response Act.

1. Summary of “Climate Change Response Act” draft amendment
 

Taiwan established in 2015 the “Greenhouse Gas Reduction and Management Act” to include the goal of lowering greenhouse gas emissions below 50% of 2005 by 2050. However, the demand for carbon reduction in transnational industry supply chains increases as climate change deteriorates. As a result, the Environmental Protection Administration (EPA) of the Executive Yuan issued a draft amendment of the above act (the “Draft”) and renamed it the “Climate Change Response Act,” whose notice period starts from October 21 to December 20, 2021. Since the Draft has a huge influence over the industries, the EPA has communicated with each interested industry in advance. Below are five main points in the Draft as follows:
 

(1) Net zero emission by 2050 (Articles 2 and 4 of the Draft)
 

The EPA is the central competent authority of this Act. In order to achieve net-zero emission by 2050, there is other cooperative central department(s) involving related matters under this Act. For example, the Ministry of Economic Affairs is responsible for greenhouse gas reduction technologies, assisted by the Ministry of Science and Technology, and the EPA handles waste recycling and reusing.
 

(2) Strengthening Climate Governance (Articles 8-13, 15, and 16 of the Draft)
 

The National Council for Sustainable Development of the Executive Yuan coordinates and integrates the basic principles and major policies on interdepartmental affairs.
 

Regarding the central government, the EPA shall establish a “National Greenhouse Gas Reduction Action Plan,” setting a phase control target per 5 years. Each central department involving related matters under this Act shall establish a “Departmental Greenhouse Gas Reduction Action Program” and publish results reports and improvement measures yearly. As for local governments, each municipality and county (city) government shall create a “Climate Change Response Promotion Committee,” establish a “Greenhouse Gas Reduction Implementation Program,” and publish results reports yearly.

(3) Adding the chapter on Climate Change adaptation (Articles 18 to 21 of the Draft)
 

The Draft expressly states that Government shall promote matters to construct climate change adaptability and citizens, entities, and organizations should actively participate in such promotion.
 

Central competent authority agencies of technology and weather shall jointly publish a climate change scientific report regularly as a basis of climate change risk assessments for central and/or local governments.
 

As for the central government, the EPA shall formulate a “National Climate Change Adaptation Plan,” and each central department involving related matters under this Act shall establish an “Adaptation Action Program” for the fields that tended to be impacted by climate change and publish results reports and improvement measures yearly. As for local governments, each municipality and county (city) government shall establish an “Adaptation Implementation Program,” and publish results reports yearly.
 

(4) Strengthening emission management and incentive mechanisms to promote greenhouse gas reduction (Article 23 to 25 of the Draft)
 

In the cases of emitting greenhouse gases, the appliances, equipment, processes, or factories specifically designated by the EPA shall meet the “performance standards”. Cars and buildings shall meet the provisions of “allowance or reduction of greenhouse gas emissions.” Moreover, for newly established entities, their emission sources designated by the EPA shall apply the best available technology and “offset against the increased emissions”. Entities and each government agency not being regulated under the emission cap designated by the EPA as said above may be awarded the amount of reduced emissions after their “voluntary reduction”.
 

(5) Exclusive use of carbon fees imposed (Articles 26, 27, and 31 to 35 of the Draft)
 

The owner, or actual user/manager of an emission source is imposed a carbon fee on a “direct emission source” that emits greenhouse gases domestically and an “indirect emission source” that uses electricity. Offset against the amount of emissions could be approved by the EPA for direct emission sources that produces electricity, or those who obtain the amount of reduced emissions after voluntary reduction. The EPA may establish a method for calculation of carbon content and an identification method for specific goods, and impose carbon fees on imported goods with high carbon content to the importer. Carbon fees are included in the greenhouse gas management fund and are exclusively used in matters related to greenhouse gas reduction and climate change adaptation (such as low-carbon and negative emission technologies)
 

Specific goods designated by the EPA shall comply with the “Carbon Footprint Labeling” within the specified period. The EPA may prohibit or restrict “high global-warming potential greenhouse gases” (such as chlorofluorocarbons, HFCs) and related goods. Moreover, provisions regarding “capture, reuse and storage of carbon dioxide” are established to develop relevant low-carbon technologies.
 

2. Matters to subsequently observe
 

Under the framework of the Paris Agreement, various countries have taken active actions in response to climate change. As a result, the number of provisions of the Draft has been increased from 34 to 57 as compared with that of the current law to not only follow up international trends but also promote sustainable development.
 

To achieve the abovementioned five major points of the Draft, the Draft has (1) expanded the scope of administrative inspection (Article 36 of the Draft); (2) expressly distinguished penalties between entities and verification bodies; (3) carried penalties for violating the administrative managements mentioned above (including performance standards; provisions regarding allowance or reduction of greenhouse gas emissions, offset against the increased emissions, carbon footprint labeling, provisions regarding prohibiting or restricting high warming potential greenhouse gases, and capture, reuse, storage of carbon dioxide, and the like) (Articles 42, 45, 47 to 49 of the Draft); (4) established provisions regarding payment and penalties for failing to pay the carbon fee within the specified period and for under-declaring or omitting the declaration of the carbon fee in an improper manner (Articles 50 and 51 of the Draft); and (5) expressly established the period of supplement/correction, improvement or declaration, the authority to execute penalties being the EPA, and license the EPA to establish the penalty standards of fine (Articles 53 to 55 of the Draft).
 

On July 14, 2021, the EU published the “Fit for 55” to reduce greenhouse gas emissions by 55% by 2030, including the draft of Carbon Border Adjustment Mechanism (CBAM). The CBAM will go into effect in 2026 and by the time, importers have to purchase a “CBAM certificate” as carbon fees and the carbon content of goods would be required to be verified. The lower the carbon content of goods is, the less CBAM certificates would expend. In addition to the EU, the US and Japan may start to impose carbon fees on imported goods in the future.
 

The industry must take the Draft seriously and thus develop low-carbon technologies and green transitions to increase competitiveness. Otherwise, there would be risks resulting in consecutive fines for each violation domestically, and for entities importing goods would also be impacted by the carbon border adjustment mechanism.
 

 

For further information, please contact:  

 

Angela Wu, Lee Tsai & Partners

lawtec@leetsai.com