Establish the True Costs of Carbon Emissions and Pollution: By Internalizing External Costs



Current Challenges

In order to undergo energy transition, it is necessary for the general public to understand the impact of traditional energy systems on the society and environment, and to highlight the necessity of structural adjustments. However, in the promotion of relevant policies, the following bottlenecks have been met:


1. The Ineffectiveness of Green National Income Accounting

  • Since 2000, Taiwan has been compiling green national income accounts, however the current official compilation does not allow the public to understand the external costs of energy supply and demand, due primarily to three issues: narrow coverage, outdated assessment methods, and undifferentiated sectoral contributions.


2. The Exclusion of Cost-Effectiveness in External Costs

  • In the formulation of policies and the planning of major public works, cost-benefit analysis should be conducted to effectively assess the impact of these programs on the society as a whole. Although the major development plans of the current government have been submitted for cost-benefit analysis, the analyses conducted have been brief and lack accuracy, which therefore leads to the results of such cost-benefit analyses lacking in credibility. Since 2015, the National Development Council has been promoting its Regulatory Impact Assessment mechanism, but in the relevant operations manuals that have been prepared, externals costs have not been taken into consideration.


3. The Presence of Existing Structural Loopholes

  • Carbon prices which are set at too low a level will diminish the incentive for industries to adopt carbon reduction initiatives, and global emissions trading systems (ETS) would therefore need to establish a carbon base price or a market stability reserve to prevent this from happening. At present, Taiwan has yet to discuss incorporating such ETS best practices into the sub-legislation, which therefore means loopholes in the system which have yet to be patched up.


4. A Lack of Timeline for the Implementation of Energy Tax

  • At present, the competent authorities overseeing energy and environmental issues have ignored the impact of energy tax on fiscal reform, energy transition and social equity, but the Executive Yuan continues to regard energy tax as an issue to be handled by the Ministry of Finance, and have lost sight of how energy tax should be administered and coordinated by the Premier of the Executive Yuan. In addition, energy tax encompasses the two fundamental principles of ensuring the 'polluter pays' and to 'punish the evildoers while rewarding the well doers', and is a necessary tool to uphold environmental justice.



Proposed Action Plans

In order to resolve the abovementioned issues, current international governance mechanisms to promote the internationalization of external costs should be adopted as part of Taiwan's core transformational measures:


1. Periodic Estimation and Disclosure of External Costs

  • The first task at hand should be to instruct relevant ministries and agencies, such as the Bureau of Energy and the Environmental Protection Administration, to jointly develop an estimation method for the external costs of the energy system, and to request that the DBGAS compile a green national income account which should also include the external costs of the energy system as part of its annual report. A mechanism for the regular disclosure of external costs should also be developed as part of the statutory annual green national income account, where industries should be required to fully disclose the external costs of their energy systems, which should then be fed back to the annual central government budget.


2. The Institutionalization of Policy Evaluation

  • As part of the operations manual for Regulatory Impact Assessment, an additional chapter on environmental external cost estimation should be developed and included into the third phase of the Regulations for Periodic Regulatory Goals and Approaches of the Greenhouse Gas Emissions.


3. Fossil Fuel Subsidy Reform

  • In view of the fact that fossil fuel subsidies span the work of multiple ministries and agencies, the subsidy reform should be coordinated by the Office of Energy and Carbon Reduction at the Executive Yuan, with the Bureau of Energy as the lead agency. Starting from 2020, estimations of the fossil fuel subsidies should be conducted every two years, based on the fossil fuel subsidy reform peer review process led by the APEC Energy Working Group, and stakeholder consultations conducted, to eventually publish review reports which can be communicated with the public, with the aim of completely eliminating fossil fuel subsidies by 2025.


4. Promote Carbon Pricing

  • Carbon pricing is the most critical of these proposed measures, because whether it can be successfully implemented depends on the support of businesses and the public, and therefore requires careful analysis of an effective implementation strategy. From the business perspective, the government should follow the international trend of internal carbon pricing and the adoption of emissions trading systems, in order to similarly promote the adoption of internal carbon pricing by local industries, so as to familiarize energy-intensive industries with the emissions trading system. For the public, the government should come out with a draft energy tax bill in the areas such as tax rates, uses, the scope of levy, and hold consultations with the general public via civic conferences with people from all walks of life to achieve a consensus. In addition, it would be necessary to work with citizen groups to organize social communication actions on energy tax issues, in order to advocate for an energy tax legislation.