In order to achieve the net-zero goal by 2050, theClimate Change Response Act not only imposes a carbon fee, but also establishestwo supporting measures, namely the voluntary greenhouse gas emission reductionand offset mechanisms. The voluntary emission reduction refers to the mechanismby which entities and government at all levels may propose "voluntarygreenhouse gas reduction programs” to be reviewed and approved by the competentauthorities and implemented accordingly to apply for "reduction credits,"commonly known as "carbon credits[1],"which can be used to offset carbon fees as well as trade in a carbon creditexchange. (Article 25 and 26 of the Climate Change Response Act).  

On October 12, 2023, the Ministry of Environmentannounced the Guidelines for the Administration of Voluntary Greenhouse Gas EmissionReduction Programs (hereinafter the “Guidelines”), providing regulationsregarding applications for obtaining domestic reduction credits. Key contentsinclude the documents to be prepared when applying for registration ofvoluntary emission reduction programs with the competent authority (Article 4),the requirements on the crediting period of voluntary emission reduction programs(referring to the implementation period during which reduction credits can beobtained after registration of voluntary reduction programs) (Article 7), thereview procedures after the competent authority accepts the application for programregistration (Article 9), and the documents to be submitted when applying for reductioncredits to the competent authority (Article 16), and circumstances under whichthe reduction program or reduction credit may be revoked (Articles 20 and 21).       

In order to ensure the high quality of reductioncredits and prevent greenwashing, the Guidelines refers to the relevantinternational standards for issuance of reduction credits and require reductionprograms to comply with the "three plus five principles" (Article10), which means that the programs should be "trackable, reportable,verifiable," and have "additionality, robust quantification,permanence, no double counting, and avoidance of environmental hazards." Toimplement the three plus five principles, the Guidelines require that whenapplying for a program, quantitative explanation and verification as well asadditionality analysis and environmental impact analysis should be provided forthe calculation of reduction credit, and when applying for the issuance ofreduction credit, the monitoring report should also be verified.

Among them, additionality means that “thegreenhouse gas reductions occur because of the existence of carbon credit markets,and not because of other conditions or incentives such as financial investmentefficiency or regulatory requirements." That is, when an entity will carryout emission reduction measures regardless of whether there is a carbon creditmarket, there is no additionality. For example, the current Renewable EnergyDevelopment Act provide that energy-heavy industries must use a certainproportion of renewable energy. Therefore, for these energy-heavy industries,measures to use renewable energy to reduce carbon emissions under this legalobligation are not additional, and carbon credits cannot be obtained. As onecan see from the above, legal regulations will affect the determination ofadditionality. Therefore, under the trend of increasingly stringentsustainability-related laws and regulations, being aware of changes in laws andregulations is something that companies cannot ignore when they want to obtaincarbon credits. Regarding this, the Guidelines also clearly provide thatmonitoring reports should also include "additionality analysis" andfocus on the impact of regulatory changes.

It must be pointed out that although the threeplus five principles are the keys to the quality of reduction credits, however,the Guidelines do not have in-depth provisions on its substance. Therefore, itis recommended that companies continue to track the development ofinternational standards[2]and conduct more due diligence on the quality of carbon credits beforepurchasing to avoid greenwashing disputes.  

[1] The international carbon trading market can bemainly divided into "mandatory carbon markets" and "voluntarycarbon markets". The former are carbon markets in which the governmentsets carbon reduction targets and allocates them to regulated objects so thatthey can use emission rights as the objects for trading. An example is thecarbon trading system in the European Union. The latter is, after an enterpriseproposes a reduction program and is certified to have achieved reductionresults, it provides such credits to entities that need carbon reduction tooffset their carbon emissions. The carbon credits trading currently promoted inTaiwan falls into the latter category.

[2] For example, the "Carbon Offset Guide"published by two renowned international environmental think tanks, theStockholm Environmental Institute and the Greenhouse Gas Management Institute,requires that reduction programs should not cause significant social harm. Regardingthis, the Guidelines do not provide explicit requirements. Recently, some landpurchase afforestation reduction projects in Central and South Americancountries have resulted in disputes over land grabbing or infringement of thehuman rights of the indigenous people, and have even entered court litigation. IfTaiwan develops afforestation reduction projects in the future, it should alsopay attention to such issues involving land ownership or stakeholder sharingmechanisms.