On 14 July, the European Commission announced Fit for 55, a series of legislative proposals that aim to reduce carbon emissions by 55% by 2030. The draft Carbon Border Adjustment Mechanism (CBAM) garners the most global attention out of these proposals. The EPA has declared to keep up with the international carbon reduction efforts and that it will, as part of its determination in carbon reduction, put carbon pricing in action, revise the Greenhouse Gas Reduction and Management Act (溫室氣體減量及管理法), and set up a carbon levy collection system. Another task is to figure out how the CBAM calculates carbon contents in products to help Taiwan's industries understand their products' carbon contents and prepare to adapt to the Mechanism.
Climate change is a global challenge to which every country has to respond. The EU is setting up stricter reduction goals and intensifying reduction efforts. The CBAM's purpose is to urge the EU's trade partners to absorb the exact carbon cost of industries inside the EU to avoid "carbon leakage," where industries move to countries or regions with more relaxed controls on emissions. Not only will it maintain the competitive edge of industries within the EU, but it can also encourage trade partners to lower carbon emissions.
According to the EPA, the EU's CBAM would gradually be carried out as trial projects starting 2023 based on the draft. It will be applied only to products with high risks of carbon leakage in the early stage, like imported steels, aluminum, cement, fertilizers, and electricity. Importers will be required to register only the emission amount of imported products (a product's carbon emissions = carbon contents of the product per unit * number of imported units) without paying any fees. After it is officially launched in 2026, importers must purchase CBAM certificates from the EU as fees for imported products' carbon emissions. The CBAM certificates' prices are determined based on the average closing price from the weekly carbon rights auction in the EU's Emission Trading Scheme (ETS).
From the explanations above, the lower a product's carbon contents per unit are, the fewer certificates will be required to purchase. Nevertheless, importers are to present documents as proof of their products' carbon contents. A default data set by the EU will be used to determine carbon contents in the absence of such documents. That makes calculating carbon contents in a product a critical task. Moreover, fees are waivered if importers can prove to the EU that their products' carbon cost has been paid in the production countries.
Besides amendments of the Greenhouse Gas Reduction and Management Act and improvement on the carbon pricing mechanism, the EPA will add provisions concerning authorization for carbon levy collection. Carbon levy will only be used to develop low-carbon technology in Taiwan and help the local industries transition into low-carbon operations, which will help increase their strengths when competing in the world while lessening the CBAM's impacts on them. In addition, the EPA will study the CBAM's carbon calculation formulas to help local industries understand the carbon contents in their products and gradually set up a mechanism that inspects the carbon contents in products made in Taiwan.
The EPA pointed out that, besides the EU, countries like the US and Japan have expressed the possibility of collecting carbon levies on imported products. Measures to lower the risks of carbon leakage will be inevitable in the future global trades. Therefore, the EPA will closely follow the development of international carbon reduction trends and help local industries prepare by regularly communicating with stakeholders and finding response actions and solutions best suited for Taiwan.
Excerpt from Major Environmental Policies, August 2021
- Environmental Protection Administration, R.O.C.(Taiwan)