Streamlining the carbon fee system

In June of this year, the Ministry of Environment completed its first collection cycle under the carbon fee system, the first phase of which targets close to 500 of Taiwan’s largest emitters. The scheme is to be gradually expanded to encompass small and medium-sized manufacturers and commercial service providers that emit less carbon individually but exist in large numbers, with established carbon pricing mechanisms and the option of voluntary reduction plans that qualify companies for reduced rates.

This climate policy, which has significant implications for the green transformation of Taiwan’s industrial structure and its competitiveness in global supply chains, demonstrates the government’s commitment to implementing the Climate Change Response Act (氣候變遷因應法) and achieving its 2050 net zero emissions target. However, implementation faces a number of challenges, including carbon fee rate disputes, stringent approval requirements for voluntary emissions reduction plans, and a lack of carbon accounting capacity among small and medium-sized enterprises. Striking a balance between carbon pricing incentives, international competitiveness, and the burden of corporate transition has become a pressing public policy issue for central government agencies to confront.

Carbon pricing seeks to internalize the external costs of greenhouse gas emissions, directing investment and technological development toward low-carbon innovation. However, if it is designed primarily as a revenue-raising mechanism while neglecting financial support for companies’ efforts to develop and implement emissions reduction technologies, it risks triggering carbon leakage. This occurs when high carbon fee costs prompt the relocation of operations to other countries with weaker environmental regulations, dealing a blow to global emissions reduction efforts and the domestic economy. If the review process for voluntary emissions reduction plans lacks clarity and objective, quantifiable criteria, it risks leaving excessive room for administrative discretion and bias. This could create unfair competition between industries and infringe on businesses’ property rights and freedom of operation.

Strong governance in the transition to a carbon fee system requires a legal framework built on stable rules, transparent procedures and predictability. Drawing on the examples of the EU’s Carbon Border Adjustment Mechanism and Singapore’s carbon tax system, earmarking carbon fee revenues for specific purposes and introducing phased tax incentives are essential to maintaining resilience throughout the industrial transition.

Central government authorities should establish a legal requirement that 100 percent of carbon fee revenues be allocated to a specific greenhouse gas reduction fund and be earmarked for subsidies that help businesses upgrade low-carbon equipment, develop green energy technologies and conduct carbon capture, utilization and storage trials. Clear funding mechanisms and due process in the provision of technical support are essential to alleviating businesses’ fears about their viability in the face of double taxation and rising transition costs.

To streamline Taiwan’s carbon pricing framework and help industries make a smooth transition, central government authorities should amend the Regulations Governing Self-determined Reduction Plans (自主減量計畫管理辦法) and establish clear statutory criteria for qualifying for preferential carbon fee rates. The ministry should revise regulations to grant substantial carbon fee deductions directly to companies that adopt renewable electricity and meet statutory benchmarks for improving energy efficiency. It should also establish a streamlined online review system to eliminate regulatory uncertainty in administrative procedures.

Most importantly, the government should establish a public-private partnership to help small and medium enterprises measure their carbon emissions and transition to lower-carbon operations. The Ministry of Economic Affairs and the Ministry of Digital Affairs could jointly assess those enterprises’ digital and green transition needs, develop free, decentralized carbon accounting tools that do not require expensive software, and bring in third-party verification bodies. This would help traditional industries with limited resources establish compliant carbon footprint data and safeguard their ability to compete fairly within supply chains.

The continued rollout of the carbon fee system is key to Taiwan’s transition to net zero emissions and its standing in international green supply chains. The climate crisis demands urgent action, and the path to industrial transition must be grounded in justice, reason and the rule of law. The Ministry of Environment, the Ministry of Economic Affairs and the Executive Yuan should respond directly to the concerns of industry and environmental groups and undertake sweeping reforms to climate regulations and industrial incentive programs across government agencies.

The carbon fee system must be an engine for industrial upgrading in Taiwan. It is critical for national competitiveness and environmental justice that this regulatory framework operates with professionalism, rigor and proper legal procedures — and that every review of fee rates and emissions reduction plans withstands practical scrutiny. Only then can Taiwan turn the climate crisis into an opportunity for transformation and secure a more stable and conducive environment for economic development in the global transition toward a sustainable future.