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ECCT LCI Event - Carbon market dialogue

(L to R): Tsai Yi-Tai (蔡亦臺), Partner of PwC Taiwan; Wu Chen-Hua (吳振華), Director of Sustainable Development Division, Industrial Development Administration, MOEA ; Freddie Hoeglund, ECCT CEO

Freddie Hoeglund, ECCT CEO, warmly welcomed guests of honour

Tsai Yi-Tai (蔡亦臺), Partner of PwC Taiwan, gave the opening remarks

Wu Chen-Hua (吳振華), Director of Sustainable Development Division, Industrial Development Administration, MOEA, gave the opening remarks

The ECCT's Low Carbon Initiative (LCI), in cooperation with PwC, hosted a carbon market dialogue forum, analysing best practices for businesses in response to carbon trade and fees in Taiwan. In a series of presentations, guest speakers offered insights and practical guidance to help businesses navigate the challenges of reporting and achieving their carbon neutrality goals. The event began with opening remarks by Wu Chen-Hua (吳振華), Director of the Sustainable Development Division of the Industrial Development Administration, under the Ministry of Economic Affairs, Tsai Yi-Tai (蔡亦臺), Partner at PwC Taiwan, and ECCT CEO Freddie Höglund. This was followed by presentations by Andrew Lee (李宗哲), Director at PwC Taiwan; Joshua Tien (田建中), CEO of the Taiwan Carbon Solution Exchange (TCX) and Kenny Liu (劉彥均), Manager of the Strategy & Sustainability Business of Schneider Electric. The event concluded with a panel discussion with the speakers moderated by Tsai Yi-Tai.


Andrew Lee (李宗哲), Director of PwC Taiwan

In his presentation, Andrew Lee began by noting that three new draft regulations to the Climate Change Response Act (CCRA) were announced on 29 April by the Ministry of Environment (MOENV). One is related to collecting carbon fees, one to managing a voluntary emissions reduction programme, and one on how carbon reduction goals should be set for companies subject to carbon fees. According to the law, entities that emit more than the equivalent of 25,000 metric tons of carbon emissions a year will have to pay carbon fees starting in 2025 (based on their emissions in 2024), with the threshold being lowered over time, to 15,000 and later 10,000 metric tons by 2030. The MOENV has emphasised that the primary goal of the carbon fee system is to incentivize reductions rather than generate fiscal revenue. The draft regulations will serve as important guidelines for fee payers, helping them to plan their carbon reduction measures and pathways towards Taiwan's 2050 net-zero target. There is a 60-day public consultation period for these regulations, during which the MOENV will engage in dialogue to build consensus among all stakeholders.

According to statistics cited by Lee, the global decarbonization progress is falling behind schedule. While carbon intensity has fallen by 2.5% over the past two decades, the global decarbonization rate must accelerate to 17.2% every year from now until by 2050 to limit global warming to 1.5°C. To date, 136 countries around the world have proposed net zero goals (accounting for 83% of global emissions), while some other countries have proposed preliminary ideas for net-zero goals, but have not yet officially announced them. Taiwan has enshrined its net zero goal into law through the CCRA. Given that many Taiwanese companies are suppliers to global brands, they are under urgent pressure to reduce emissions, which is a more urgent motivation than the government's requirements.

The CCRA lists the following greenhouse Gas (GHG) substances: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydro fluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6), nitrogen trifluoride (NF3), and others designated by the central competent authority. Since the semiconductor industry produces a lot of emissions other than CO2, companies in the sector will have to reduce and mitigate these emissions as part of their plans. The MOENV will initially only regulate so-called scope 1 (direct) and scope 2 emissions (indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling) for companies that emit more than 25,000 tons of emissions per year.

Taiwan's Renewable Energy Certificate (T-REC) process has strict rules and procedures to ensure certificates are genuine and prevent double counting. The Bureau of Standards, Metrology and Inspection, under the MOEA organises related matchmaking processes for renewable energy and T-RECs). Companies may also choose to adopt their own voluntary carbon offset mechanisms whereby they internalise the external costs of greenhouse gases. This is achieved by setting a carbon price internally and charging relevant units for their carbon emissions. In Taiwan, companies implement internal carbon pricing by establishing their own carbon pricing, which is then applied to the relevant units within the organization. This mechanism aims to incentivize emission reduction and promote sustainable practices within the company.

Some companies in Taiwan have implemented internal carbon pricing as part of their carbon reduction strategies. For example, Delta Electronics has adjusted its internal carbon pricing to US$300 per ton as part of achieving its RE100 goal by 2030. Similarly, AU Optronics has set its internal carbon price at NT$875 per ton, demonstrating the adoption of internal carbon pricing as a means to drive emission reduction efforts.

Since legislation in Taiwan is still subject to the 60-day review period, pricing of carbon fees has yet to be determined. Based on the government's statistics, 550 companies will be subject to fees. The draft legislation has a simple formula for calculating carbon fees. With carbon fee collection as the core, there will be multiple supporting measures such as inventory registration, certification and inspection management, voluntary reduction and incremental offsets.

The speaker went on to talk about business practices and how companies should begin preparing for carbon pricing and trading. This should begin with taking inventory and investing in technology and equipment to reduce emissions in their operations. Companies can also get carbon credits by investing in carbon reduction measures in their supply chains.

For those companies which have not proposed an independent reduction plan, carbon fees will be calculated according to the general rate after deducting 25,000 tons from the emissions. For those which submit voluntary reduction plans to the competent authority and achieve the specified target, a preferential fee approved by the central competent authority shall be applied. Businesses with high carbon leakage risk must first propose a voluntary reduction plan, and then apply to see if they qualify as a high-carbon leakage risk enterprise.

Joshua Tien (田建中), CEO of Taiwan Carbon Solution Exchange (TCX)

In his presentation, Joshua Tien gave an analysis of and outlook for Taiwan's carbon market. Statistics from the "Carbon Price Status and Trends Report" released by the World Bank and the International Carbon Action Partners, as of 1 April 2023, found that there are 74 carbon pricing mechanisms around the world covering 11.66 billion tons of CO2 equivalent or approximately 23% of global carbon emissions.

To achieve Taiwan's 2050 net zero goal, the Taiwan Stock Exchange and the Executive Yuan National Development Fund Management Committee jointly established the Taiwan Carbon Solution Exchange (TCX) in August 2023. The goal of TCX is to establish a fair, efficient, and public trading platform for domestic and international carbon credits. TCX collaborates with internationally credible verification institutions to provide carbon consulting services and support for the sale of high-quality foreign carbon credits. Trading in international carbon credits on the TCX began in December 2023.

The speaker noted that most of the emissions of companies like Microsoft and HP are scope 3 (indirect), which means they are putting a lot of pressure on their suppliers (many of which are Taiwanese companies) to reduce their emissions. Delta is a role in model in Taiwan given the high price it has put on carbon (US$300 per ton) in its own voluntary reduction plan. Various divisions and departments within the company have to account for their emissions and department heads are rewarded or penalised according to how well (or badly) they are performing in reducing emissions. This creates an incentive for every part of the operation to improve efficiency, switch to renewable energy, digitalise functions and implement other measures to cut emissions.

In 2023, the European Union began to enforce the "Corporate Sustainability Reporting Guidelines" Reporting Directive (CSRD), and the European Sustainability Reporting Standard (ESRS) as its supporting standard. The CSRD modernises and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability. Some non-EU companies will also have to report if they generate over €150 million on the EU market. The new rules aim to ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.

In August 2023 the Financial Supervisory Commission released a blueprint for Taiwan's Sustainability Disclosure Standards in Alignment with IFRS international sustainability principles, which will require disclosure of sustainability-related financial information and climate-related disclosure.

The lifecycle of the carbon credit cycle begins with developers identifying and designing projects, which are then validated, developed, after which emissions are measured and reported and verified by a third party. Offsets can then be listed in a certificate which can be traded and finally retired. Tien noted that the costs and efforts to implement carbon offset projects are substantial. A study cited by Tien from Ecosystem Marketplace, a DC-based nonprofit organisation claimed that many companies are investing significantly in reducing emissions of their own businesses. According to Tien, the price of voluntary carbon credits will likely rise if the Science Based Targets initiative (SBTi) recognizes the use of carbon credits to offset companies' carbon emissions.

Moreover, companies are increasingly willing to pay a premium for quality carbon credits. However, at the moment there are very few available at present. The global stock of voluntary carbon rights only accounts for the equivalent of around eight days' worth of global fossil fuel emissions. As corporate net zero commitments convert into demand for offsets, this inventory will likely be depleted faster than it can be replenished, which will add to the upward pressure on carbon prices.

Kenny Liu (劉彥均), Manager of Strategy & Sustainability Business of Schneider Electric 

Kenny Liu gave a presentation titled "The fastest path to Net Zero - Our fastest route to Net Zero" in which he discussed his company's commitment to achieving carbon neutrality and net-zero emissions. Schneider Electric aims to achieve carbon neutrality in its operations by 2040 and throughout its value chain by 2050. The company is assisting external customers to reduce their emissions. Schneider Electric also emphasizes the importance of digitalisation in promoting five-dimensional integration to enhance efficiency, focusing on energy, automation, design and construction, decentralized management, and sustainable comprehensive energy management.

The speaker highlighted the impact of key transformations on decarbonisation, including the removal of 70% of CO2 emissions through existing technologies, 25% through energy efficiency optimisation, and 45% through energy transition, electrification, and digital transformation.

Schneider Electric is recognised as a leader in ESG. The company's approach to decarbonisation involves a comprehensive strategy, encompassing aspects such as decarbonisation, electrification, reduced energy usage, and digitalisation. The speaker also outlined the stages of companies' carbon management development, from the early stage of understanding carbon emissions levels to the mature stage of aligning with international trends and shaping a green brand image. The company supports businesses in their journey towards carbon neutrality through a comprehensive one-stop-shop approach, offering strategic planning, practical implementation, and performance tracking support.

Schneider Electric is involved in various carbon reduction initiatives, such as the establishment of greenhouse gas emission baselines, setting carbon reduction targets, and developing a clear and practical carbon reduction pathway. The company also provides consulting services to help clients achieve their sustainability goals, conduct carbon footprint assessments, and implement energy efficiency and digital energy management solutions.

The speaker went on to describe some real-world case studies of Schneider Electric's efforts in helping clients achieve carbon neutrality, including the transformation of a mineral water company and a low-voltage products factory towards carbon neutrality, emphasizing the benefits of energy efficiency, digitalisation, and sustainable manufacturing practices.