Figure: British Office Taipei Head of Economy and Prosperity Michael Watters giving the opening remarks (right), with Policy Fellow Josh Burke (center) and RSPRC Lead Principal Investigator Kuei-Tien Chou
Our center had the pleasure of inviting Josh Burke, Policy Fellow at the Grantham Research Institute on Climate Change and the Environment, for an academic exchange on February 26, 2020, where we exchanged learnings on carbon pricing and its implementation. Burke also leads the policy analysis team on the United Kingdom (UK)'s climate and energy policy. We would also like to thank Michael Watters, Head of Economy and Prosperity at the British Office Taipei, for facilitating the exchange.
Sharing by Dr. Chia-wei Chao
Our center postdoctoral researcher Dr. Chia-wei Chao kicked-off the meeting by giving an overview of Taiwan's energy transition. Dr. Chao shared that our center launched our flagship report on the strategy for Taiwan's long-term energy transition in November 2019, which comprised six key recommendations:
- Adoption of participatory governance innovation
- Internalization of external costs
- Creation of a sustainable electricity market
- Strengthening of local energy governance
- Implementation of the industrial energy efficiency first principle
- Acceleration of greening the financial system
Dr. Chao pointed out that according to International Monetary Fund (IMF) calculations, the true costs of using fossil fuels in Taiwan when accounting for the impact of global warming and air pollution is about 5% of Taiwan's GDP, and if electricity prices should be adjusted to account for the costs to the environment, Taiwan's electricity prices would need to be increased by about 50%.
However, Dr. Chao also pointed to surveys conducted by our center which showed that only 10% of Taiwanese would be willing to accept such price increases. Nonetheless, if carbon tax is implemented in Taiwan, the top three uses in which respondents believe the revenue should be channeled to are in supporting pollution prevention plans for industries, (44.0%), enhancing government spending on energy transition (42.5%), and increasing the budget for social welfare (36.1%). 30.8% of respondents also believe that the revenue should be spent on increasing subsidies for public transportation.
Dr. Chao also revealed that back in 2012, energy tax was actually a political rallying point, where both major political parties in Taiwan had promised to implement energy tax if they had won the presidential and legislative elections held in 2012. However, when the ruling party Kuomintang increased electricity prices after winning the election, it resulted in a public backlash leading to the discussion on energy tax being shelved in Taiwan since.
Finally, Dr. Chao shared that as part of our center's flagship report on Taiwan's long term energy transition, our center has proposed the setting up of a climate action cabinet, and an independent Taiwan Committee on Climate Change under the Greenhouse Gas Reduction and Management Act which can be modeled after the UK's Committee on Climate Change established in 2008 under the Climate Change Act after the act was passed in 2008.
Sharing by Mr. Josh Burke
In his sharing, Mr. Burke explained that the UK's carbon pricing strategy comprises both upstream carbon policies including carbon taxes and the European Union (EU) Emissions Trading System (ETS), as well as downstream taxes levied on businesses for the energy consumed. Mr. Burke highlighted that the UK's carbon pricing had the greatest impact on medium businesses which paid the highest prices while the exemptions provided for households enabled lower prices for them, thereby reducing the carbon pricing impact they face.
In view of the UK having left the EU in 2020, Mr. Burke explained that the UK has to therefore consider how its carbon pricing policy would need to evolve post-Brexit. Mr. Burke highlighted four approaches the UK could adopt:
- Remain as part of the EU ETS
- Establish a domestic carbon pricing system linked to the EU ETS, which he said would be a "natural choice", as UK institutions are already aligned to the ETS
- Implement a UK carbon tax
- Implement carbon pricing, though the issues that the UK would face are due to its small market size which would limit transactions and result in prices being volatile
Mr. Burke also shared that the UK government has a determined shadow carbon price which it uses in deciding whether new developments such as the construction of new infrastructure should be allowed, currently set at £40 per tCO2, based on an 80% emission reduction target. However, as the UK has already set a new target for net-zero emissions, Dr. Burke explained that his institute's calculations are that the UK's carbon price should accordingly be increased to £50 per tCO2 in 2020, and later on to £160 by 2050. Mr. Burke also explained that even though it would be more economically efficient to implement a uniform carbon price across different economic sectors, it was established that this would not be possible, which therefore requires prices to be calculated based on the different sectors.
Interestingly, Mr. Burke pointed out that even though electricity prices have increased due to carbon prices, electricity bills in UK have actually gone down due to energy efficiency, which has allowed bills to be decoupled from electricity prices, thereby minimizing the impact of carbon price on households. Mr. Burke also illustrated how the UK's strong carbon pricing has helped to reduce coal generation and emissions, though he added that this is also due to a holistic policy package comprising subsidies for renewable technologies, the combustion directive (which restricted coal-fired power stations to run during certain hours a day), and energy efficiency. However, carbon pricing is still key to why emissions have reduced in the UK, Mr. Burke highlighted. He also pointed to a study conducted by the Aurora Energy Research which suggested that the UK's carbon price policy had resulted in a 73% reduction in coal generation from 2012 to 2016. Still, due to political factors, the UK's carbon price has plateaued since 2015.
Finally, Mr. Burke explained that even with carbon pricing, pushback from consumers and the industry has been limited in part because energy bills have gone down. He explained that if consumers could see that carbon tax is not a punitive measure but could actually contribute to emissions reduction, this would increase its acceptance. Moreover, the implementation of carbon pricing is also key – for example, the implementation of carbon tax in France was accompanied by tax cuts for wealthier households, while in Ireland, an economy-wide package reform was implemented to soften the impact of carbon pricing. He added that in 28 countries where carbon tax has been implemented, 24 countries have an explicit policy to return the carbon tax revenue collected into green spending, thereby engendering trust in the carbon tax system. An extreme example is the government of British Columbia, which gives out 140% of what it collects from carbon tax and has also developed a 3-year communication plan to inform citizens of how the revenue collected would be spent. In addition, since 2019, all households also receive a citizen dividend, which allows citizens to see for themselves the amount of money they can receive.
Mr. Burke added that while the UK is one of the few countries that does not return the revenue collected into green spending (the money goes into a general budget), the impact of its carbon pricing system has already helped to reduce emissions, and given greater transparency where the revenue is clearly returned to green spending, this would contribute to even greater emission reduction than is currently seen.