(1) Summary and explanation of the draft domestic carbon fee collection 

Introduction 

In the face of the severe challenges of global climate change, countries have taken action to reduce carbon emissions, with carbon pricing strategies being an effective policy tool used to promote the transition to a low-carbon economy. In this context, Taiwan has introduced a carbon fee collection policy, aiming to achieve the country's carbon reduction goals through economic incentives. This article will comprehensively introduce the content, purpose, implementation mechanism, and expected effects of Taiwan's carbon fee collection draft.

 In order to curb the continuous deterioration of the global climate, at the 21st session of the 2015 session of the Climate Change Framework Summit, 195 countries unanimously adopted the Paris Agreement, pledging to take action to limit the global average increase to 2°C by the end of this century. In order to guide enterprises to invest in low-carbon transformation and achieve national reduction targets, the government has decided to introduce a carbon fee change mechanism as an important economic incentive tool.

I. Background of global carbon pricing policy

 1. International carbon price mechanism 

Development Carbon pricing refers to internalizing the external cost of carbon emissions and setting prices to regulate market behavior and reduce greenhouse gas emissions. Many countries around the world have implemented carbon pricing through carbon taxes or carbon trading systems, such as the European Union, Canada, and China, and these measures have initially shown potential to promote economic transformation. 

2. Development of Taiwan's climate policy 

As a responsible member of the international community, Taiwan actively participates in global climate governance. With international cooperation and increased internal environmental awareness, the Taiwanese government has established specific carbon reduction goals and policy paths through the revision of the "Climate Change Response Act," and the carbon fee policy is one of them.

 The "Climate Change Response Act" was promulgated and implemented in February 2022, replacing the original "Greenhouse Gas Reduction and Management Act". 

II. Detailed introduction to the draft carbon fee collection 

1. Legislative significance and purpose 

The carbon fee collection aims to promote industries to reduce their dependence on fossil fuels through economic incentives, thereby reducing carbon emissions. The policy is designed to achieve long-term environmental and economic benefits, including both climate change mitigation and promoting technological innovation and green job creation. 

2. Key points of the draft carbon fee collection sub-law 

3. Targets and scope of collection 

The draft stipulates that all enterprises that emit greenhouse gases directly and indirectly are subject to carbon fees, including but not limited to manufacturing, power and transportation industries. The scope of carbon fees and the basis for calculating them are fully defined and explained in regulations, aiming to ensure fairness and transparency in policies.

 According to the Environmental Protection Agency, the purpose of carbon fee collection is not as a source of government fiscal revenue, but as a specific economic incentive to internalize external emission costs as a mechanism to encourage enterprises to invest in low-carbon transformation, reduce tax payables, and accelerate the pace of structural adjustment and low-carbon transformation of Taiwan's industries. 

Therefore, the carbon fee revenue from transportation in the future is expected to be returned to the industry and the poor in the early carbon cost expenditure, and used for related purposes such as guiding the reduction plan proposed by the industry. 

4. Rate Setting and Calculation Method 

The specific rate of carbon fees will be set and regularly adjusted by a dedicated review committee based on the actual situation of carbon emissions and economic impact. In addition, the government will also set free quotas and reduction policies to mitigate the economic impact that initial policy implementation may have on certain industries.

 According to the announced draft carbon fee charging method, public institutions must pay fees every year based on their actual emissions, and if they can take various carbon emission reduction measures, such as switching to low-carbon fuels, improving energy efficiency, using renewable energy, and improving production progress, they will need to pay the amount due to reduce emissions. 

In the long run, this will rely on high-emitting businesses to weigh the economic burden of carbon fees, and focus on energy-saving and carbon-reducing technologies and equipment to achieve low-carbon transformation in production and operations, helping to increase green sales. 

III. Impact and Challenges of Implementation 

1. Economic Impact on Industries 

The implementation of the carbon fee policy will have a significant impact on the industrial structure of Taiwan, especially for industries with high energy consumption and high pollution. These industries need to undergo technological innovation or transformation driven by policies to adapt to the new economic environment. 

2. Administrative and Regulatory Challenges 

From an administrative and regulatory perspective, the effective implementation of carbon fee collection requires the establishment of a comprehensive monitoring, reporting, and verification system (MRV) to ensure data accuracy and policy transparency. In addition, how to design a market mechanism that is both fair and effective is the key to the successful implementation of carbon fee policies.

IV. Future Prospects and Conclusions 

1. Long-term Goals and Prospects of the Policy 

With the gradual improvement and implementation of the carbon fee policy, it is expected to not only effectively reduce Taiwan's carbon emissions but also promote the optimization and upgrading of the economic structure. In the long run, this will help Taiwan play a more active role in global decarbonization efforts and drive the development of a green economy. In the design of the draft carbon fee collection method, my country refers to the implementation methods of carbon fee pricing in the European Union, South Korea, Singapore, California and other regions, and gives a certain degree of transitional adjustment to industries with high carbon emission risks, such as only 20% preferential rate in the first stage. 

The transition period can help high-energy industries solve operational pressures during the transition period, formulate timely plans and gradually adjust to avoid severe shocks due to the rapid and sudden impact of policy transformation. The carbon fee policy is an important strategy in Taiwan's response to climate change, and through this policy, it can not only achieve the purpose of environmental protection but also help promote the transformation of the industrial structure. In the future, Taiwan will continue to seek cooperation at home and abroad to jointly promote climate action plans to achieve sustainable development goals.

 2. Major economic supporters such as the International Carbon Border Adjustment Mechanism 

the European Union, the United Kingdom, and the United States should promote carbon tariff adjustment (CBAM) and impose tariffs on imported carbon-intensive products to cover a level playing field for domestic industries. taxes, which will seriously impact the competitiveness of the industry. Therefore, promoting the domestic carbon fee collection system early and making Taiwan's industry inert to reflect external emission costs will help maintain a competitive advantage in the international market in response to the impact of CBAM implementation in various regions in the future. 

As the global Net Zero goal advances, the Taiwanese government will officially implement a carbon fee collection system in 2025 as an important part of the domestic carbon pricing mechanism. This move is not only a response to international carbon reduction trends but also aligns with the government's commitment to promoting the Climate Change Response Act, further ensuring the competitiveness of Taiwan's industries in the international supply chain. 

According to the announcement of the Ministry of Environment (formerly the Environmental Protection Agency of the Executive Yuan), the carbon fee will be levied in a "gradual and phased" manner, and the first wave will cover carbon-intensive industries such as the power industry, gas supply industry, steel, cement, and petrochemicals, and will be extended to all high-carbon emission enterprises in the future. The promotion of this policy will not only affect corporate operating costs but will also have a profound impact on Taiwan's overall industrial structure and international trade environment.

I. Implementation status of the carbon fee collection system in 2025 

1. The first wave of affected industries to be collected: 

enterprises with annual carbon emissions exceeding 2.5 metric tons, including: 

power industry (Taipower, private power plants, etc.), 

gas supply industry (liquefied natural gas and other suppliers), 

cement industry, steel industry (high carbon emission process), 

petrochemical and chemical industry (oil refining and petrochemical production) 

2. Future expansion of the scope of collection:

 Starting in 2026, the government will gradually expand the scope of the levy to small and medium-sized enterprises with emissions exceeding 1 metric ton, and may cover other energy-intensive industries such as technology manufacturing, semiconductors, and electronics. 

3.Rate Standards :

According to the current announcement, Taiwan's carbon fee charging standards will be designed according to the principle of "polluter pays": Basic rate: Approximately NT$300 per metric ton of CO₂ equivalent (tCO₂e) (initial trial).

 Preferential rate: If the company voluntarily commits to carbon reduction and achieves a voluntary reduction plan (such as a carbon reduction of more than 5%), a preferential rate of 50-100 yuan/ton of CO₂e will be applied.

 Possibility of future adjustments: It is expected that by 2030, the rate will be gradually increased every year depending on the company's carbon reduction progress and international trends, possibly increasing to 600-1000 yuan/ton. 

4. Reporting and Payment Schedule 

May 2024: Companies must start piloting carbon emission declarations without paying fees. 

May 2025: Officially declaring 2024 emissions data, companies begin paying carbon fees.

From 2026: The government will evaluate whether to further expand the scope of collection or adjust the carbon fee standard. 

II. The impact and challenges of carbon fees on enterprises 

The implementation of carbon fee policies will have a significant impact on enterprises' production costs, supply chain operations, and global market competitiveness, with the main challenges including:

 1. Corporate operating costs 

The operating costs of high-carbon emitting companies will increase significantly after the carbon fee is imposed, for example, 

• Taiwan Power Company (Taipower) has expected to increase the carbon fee cost by billions of NT dollars per year, which will directly affect electricity prices and indirectly increase the energy costs of all manufacturing industries. 

• Energy-intensive industries (steel, cement, petrochemical) need to bear higher production costs, and product prices may rise, affecting competitiveness. 

2. Supply chain carbon emission management requirements will be increased 

• Companies exporting to the EU, the United Kingdom, and the United States will face increased scrutiny under the Carbon Border Adjustment Mechanism (CBAM), which will affect export competitiveness if the cost of carbon content of products is too high. 

• International brands and retailers (e.g., Apple, Tesla, IKEA) have required supply chain companies to adopt internal carbon pricing (ICP) to ensure that carbon emissions are kept within acceptable limits. 

3. Increasing Demand for Carbon Asset Management and Trading 

Taiwan officially launched a carbon credit trading platform in October 2024, and companies need to learn how to use the carbon market to reduce the burden of carbon fees by purchasing carbon credits or participating in carbon reduction projects. 

III. Strategies for Enterprises to Deal with Carbon Fees 

In the face of carbon fee policies and global carbon governance trends, companies should plan and implement carbon reduction actions in advance to reduce future compliance risks and financial burdens. 

1. Plan internal carbon reduction strategies in advance 

• Improve energy efficiency: Introduce intelligent energy management systems (EMS) and use low-carbon fuels to improve production efficiency.

•  Increase the proportion of renewable energy: Companies should actively invest in green electricity such as solar and wind energy to reduce carbon emission intensity to adapt to stricter carbon fee standards in the future. 

2. Applying for preferential carbon fee mechanisms:

•  Companies can strive for lower carbon fee rates through independent carbon reduction plans (such as SBTi commitments).

•  If the company meets the carbon reduction standards certified by the Taiwan government, it can reduce the payment fee through the carbon offsetting mechanism. 

3. Master the carbon credit trading market to purchase carbon credits: 

• Companies can participate in Taiwan's carbon trading market to offset part of the carbon fee burden by purchasing appropriate carbon reduction credits. 

• Invest in carbon emission reduction projects: Participate in domestic and international carbon credit projects (such as forestry carbon sinks, CCUS carbon capture technology) to obtain tradable carbon credits. 

4. ESG sustainability disclosure aligns with international standards and complies 

• with IFRS S1/S2 and TCFD requirements to ensure that investors and the international market recognize the company's sustainable development. 

• Internal Carbon Pricing: Companies should implement internal carbon pricing systems to assess carbon costs more accurately and optimize investment decisions. 

IV. Conclusion and Outlook 

The implementation of Taiwan's carbon fee policy in 2025 marks the official arrival of the era of carbon reduction for domestic enterprises. In the face of global carbon governance trends, companies not only need to meet compliance requirements but also consider carbon reduction as the key to long-term competitiveness. Through comprehensive strategies such as internal carbon reduction plans, carbon fee preferential policies, carbon market participation, and ESG investment, companies will be able to effectively reduce their carbon fee burden while maintaining a leading position in the global green supply chain transformation. 

(3) Included in the controlled emissions due to the supervision of large enterprise customers 

With the implementation of carbon fee policies, the supply chain carbon emission management of large enterprises will become more stringent. In the first phase of China, enterprises with high carbon emissions of 2.5 tons will be levied on high-climate risk, high-carbon emission industries, large enterprises, etc., such enterprises with capital markets or scales will inevitably surround the external upstream and downstream supply chain or value chain (Value Chain), including many medium-sized or small enterprises (SMEs), such small and medium-sized enterprises will also be an important source of emissions for large enterprises supervised by the government (Scope 3 Scope-3), therefore, Such large enterprises are likely to further pass on the emission source items from the supply chain, or require their supply chains to carry out emission control or control as part of the net-zero low-carbon strategy. 

Bu-Jhen recommends that small and medium-sized enterprises (SMEs) respond to the following impacts and challenges in advance: 

1. Pressure to pass on carbon fees 

large enterprises may pass on the cost of carbon fees to the supply chain, so small and medium-sized enterprises need to actively take carbon reduction actions to reduce the burden of operating costs. 

• Businesses can reduce electricity consumption and reduce energy costs by: introducing energy-saving equipment.

•  Use low-carbon fuels (such as hydrogen and biofuels) to reduce carbon emissions.

•  Optimize logistics and supply chain management, reducing carbon emissions during transportation through green transportation and efficient supply chain models. 

2. Supply Chain Compliance Requirements and Market Risks 

• As global ESG regulations become increasingly stringent, it will be difficult for small and medium-sized enterprises to obtain orders from large enterprises if they fail to meet carbon emission management standards. 

• Establish science-based carbon reduction targets (SBTs) to ensure that corporate carbon reduction targets meet international standards. 

• Participate in international carbon markets, such as purchasing carbon credits to reduce carbon footprint. 

• In response to the clean procurement strategies of large enterprises, increase the proportion of low-carbon products to avoid losing market opportunities due to high carbon emissions. 

3. Internal Carbon Management Mechanism and New Market Opportunities 

• Establish an internal carbon pricing mechanism (ICP) to internalize carbon costs and plan carbon fee expenditures in advance.

•  Set internal carbon reduction indicators to ensure that future carbon fee expenditures are controllable. 

• Actively engage with new customers, as large enterprises seek low-carbon suppliers, SMEs can enhance their low-carbon competitiveness and open up new market opportunities 

4. Low-carbon technology and energy transition 

• Introduce green energy, such as solar and wind energy, to reduce dependence on fossil fuels.

•  Develop low-carbon products to meet market demand for environmentally friendly products and improve competitiveness. 

• To apply for government subsidies, the Taiwanese government provides a variety of carbon reduction incentive mechanisms to reduce the cost of corporate transformation. 

Bu-Jhen not only provides strategic consulting services but also devotes itself to industry docking and policy advocacy to ensure that companies can seize the best opportunities for carbon reduction and sustainable development in the ever-changing global carbon market and policy environment. We will continue to pay attention to international carbon governance trends and provide cutting-edge low-carbon strategy support to enterprises.