The EU launched a carbon trading market in 2005. By setting emission caps, carbon pricing is carried out, which assigns a cost to carbon emissions in the EU. In May of 2021, the EU’s carbon price came to the all-time high of 97 EUR (approximately 1760 NTD) per ton.
In order to achieve the goal of zero net carbon emissions by 2050 and the phased goal of 55% reduction of greenhouse gas emissions by 2030 (compared with 1990), the European Commission announced "Fit for 55" last year, wherein, in addition to expanding and reforming the carbon trading system in the EU, the most notable was the introduction of the Carbon Border Adjustment Mechanism (CBAM).
CBAM is the EU’s “Carbon Tariff” plan, which stipulates that, for carbon-intensive products such as products from the aluminum, steel, cement, fertilizer, and power industries that are outside of the EU to be imported into the EU, the company must declare the carbon emissions of such products and buy the “Carbon Border Adjustment Tax” certificates. The purpose is to protect the relevant industries in the EU and prevent the industries from relocating to countries with lax environmental protection regulations and no carbon emission costs to produce products that are even less environmentally friendly, resulting in “carbon leakage.”
The EU's carbon border tax has made the world pay attention to the issue of carbon leakage and started an international trend of carbon border adjustment. The United States and Japan are also evaluating launching their own carbon tariff. Since Taiwan is an export-oriented country, in addition to evaluating the imposition of carbon tariffs on imported products to help relevant domestic industries remain competitive in the face of international carbon tariffs in the future, we must also perfect our carbon pricing mechanism to actualize carbon reduction in our local industries.
On October 21, 2021, the Environmental Protection Administration of the Executive Yuan announced the amendment of the “Greenhouse Gas Reduction and Management Act.” In response to global climate change and the international efforts to accelerate carbon reduction, it was proposed to change the name of the act to the “Climate Change Responses Act” (the “Act”). After collecting comments from various fields, the newest version of the draft has been sent to the Executive Yuan and will be listed as a bill of highest priority in this session of the Legislative Yuan.
With respect to carbon pricing, the bill proposes to levy a “carbon fee” for domestic emission sources as an economic incentive (Article 26). The first phase will target large carbon emitters such as the steel, petrochemical, and semiconductors industries, that is, about 290 companies which directly or indirectly (using electricity) emit more than 25,000 tons. They will be levied on a per ton basis of carbon fee. The next phase will include smaller emission sources. The current carbon fee is estimated by the Environmental Protection Administration to be about NT$100 (between NT$70 to NT$120) per ton. Some research institutions pointed out that the carbon fee in Taiwan should be at least US$10 (about NT$300) per ton. In addition, in response to the international trend of carbon border adjustment, the bill adds that Taiwan may announce imported products with high carbon content and impose carbon fees (carbon tariffs) on importers (Article 27).
Therefore, in addition to being levied domestic carbon fees in the future, Taiwanese companies will also be levied a carbon tariff by the Taiwanese government if the imported raw materials or semi-finished products they rely on are announced as high-carbon-content imported products. If the products they export are high-carbon-content products, they will also need to face the problem of being levied carbon tariffs abroad. All of these three aspects are risks of increased operating costs due to climate change.
However, it is important to note that the EU CBAM has an exemption. If the imported product has already paid a certain cost for carbon emissions in its country of production, the company may file to the EU countries to deduct this cost (Article 9 of CBAM). In the draft of Taiwan’s Climate Change Responses Act, there is also a similar provision on refund mechanism (Article 27). In other words, in the future, the number of international carbon tariffs will depend on the well-roundedness of the domestic carbon pricing mechanism and the number of carbon fees of the exporting countries. If Taiwan’s carbon pricing mechanism and carbon fee amount can be in line with international standards, it will be the key for whether or not Taiwan’s domestic products would be imposed (high) taxes by the carbon border adjustment mechanisms of other countries.
The best part about the draft of the Climate Change Responses Act is that it sets zero net emissions by 2050 as the goal. And, among the key points of the amendments to the Act, the one that attracts the most attention is that Taiwan is using carbon fees as an economic incentive to curb greenhouse gas emissions for the first time. However, the central competent authority has been authorized to announce and promulgate the regulations of such fees, the rates, the calculation methods, the collection methods, etc. In response to the direction of the government's climate policies, businesses should understand the relevant laws and regulations as soon as possible so as to lower the risks to sustainability transformation.

(This article was published in the Expert’s Commentary Column of the Commercial Times：https://view.ctee.com.tw/tax/38642.html）