Policy measures to respond to carbon fee impacts on industry in Taiwan

Report prepared for the Ministry of Environment Taiwan

Authors: Josh Burke, Luca Taschini, Baran Doda, Victor Ortiz and Anastasia Steinlein

Carbon pricing is increasingly seen as a crucial tool in the global effort to combat climate change. In this evolving policy landscape, Taiwan is actively advancing the development of its national carbon fee, which was launched in 2024, with an initial focus on the electricity and manufacturing industries. Within this framework, it is exploring the adoption of measures aimed at safeguarding its industries from potential adverse consequences.

Opposition to carbon pricing instruments is likely to arise from both the industrial sectors and population groups that will be impacted the most. This report focuses on resistance from the industrial sector and examines the relevant measures that have been adopted by major carbon pricing jurisdictions, including in the European Union, Singapore and UK, to provide insights for addressing potential industry resistance and the development of tailored recommendations for Taiwan.

Main messages

• Taiwan’s manufacturing activities are dominated by the electronic parts and components sector, followed by the computers, electronic and optical products subsector. Together, they contribute approximately 51% to gross greenhouse gas emissions, and also have the highest share of exports. Stronger resistance to a carbon fee may be expected in these sectors.
• There is little to no evidence indicating that the existing carbon prices in trade partner jurisdictions significantly influence Taiwan’s trade in these carbon-intensive products. Therefore, the carbon fee in Taiwan is also unlikely to be a key determinant.
• Common industry concerns about adopting carbon pricing encompass fears of economic impact, including job losses, reduced profitability and increased operational costs; regulatory complexity; and potential disruptions to day-to-day operations. Drawing insights from international experience provides guidance on effectively addressing opposition.
• Global strategies emphasise proactive approaches involving public consultations and communication campaigns highlighting job creation and environmental protection, as well as relief measures. Effective communication requires clear messaging, stakeholder engagement, transition support and transparent revenue allocation mechanisms.
• Taiwan can limit the total compliance cost by restricting the quantity of emissions subject to a carbon price; for example, by excluding small emitters or distributing free allocations, as seen in the EU emissions trading system (ETS) context.
• The total compliance cost can be reduced by charging a discounted carbon price, such as by implementing a lower carbon fee rate for specific entities or fuels, as illustrated by the Climate Change Agreements in the UK and transition framework for emissions-intensive trade exposed sectors in Singapore.
• The adoption of low-carbon technologies can be promoted using collected revenue, often through earmarking revenues to incentivise R&D and deployment.
• The carbon playing field can be levelled by adjusting embedded carbon costs at the border; for example, by imposing a carbon price on the carbon content of imports, as demonstrated by the Carbon Border Adjustment Mechanism in the EU ETS context.

Overarching recommendations for the Taiwanese Government

• There is a strong case for simplicity: Keep the carbon fee straightforward to enhance compliance, reduce costs, and build credibility both domestically and internationally.
• Maintain policy stringency: If using flexibility mechanisms like offsets, impose strict restrictions to avoid weakening decarbonisation incentives and prevent lobbying for inefficient preferential rates.
• Strike a balance: Ensure the measures instituted to manage opposition are not overly generous; for example, by imposing strict conditions on preferential rates.
• Consider international ramifications: Prioritise competitiveness risks but be mindful of the changing global policy landscape where high carbon prices are increasingly adopted.