By Dr. Dino R. Ponnampalam
Change for Taiwan is overdue. As a Pacific island located within the Sunbelt region (+/- 35 degrees of the Equator), poor in conventional energy resources but rich in natural energy resources, a shift to harnessing natural sources of energy, such as solar energy, to generate electricity is required. As a way of concentrating this transition, introducing a carbon tax might be an interesting gambit. By applying a carbon tax, the renewable energy industry could rapidly accelerate the deployment of renewable energy technologies in Taiwan and allow the industry to experience considerable growth. Such a move might result in the dawn of a new sustainable age in Taiwan.
Accelerating the Transition to a Low-Carbon Economy through Policymaking
In making the transition from an agrarian society to an industrial powerhouse, Taiwan developed a very robust manufacturing sector and created behemoths like Taiwan Semiconductor Manufacturing Company (TSMC). In addition to building a strong presence in the semiconductor field, Taiwan has also leveraged her manufacturing machine in other technology sectors such as solar energy technology: Taiwanese companies Motech Solar, Neo Solar Power, and Gintech are ranked in the Top 10 list of global manufacturers.
With the premise that a carbon tax could spur development of the renewable energy industry, and in particular the solar energy industry in which Taiwan has an important advantage, perhaps the time has come for Taiwan to introduce a carbon tax. The challenges faced by Taiwanese energy policymakers are undeniably considerable, but inaction is not an option. By legislating the appropriate policies, Taiwan could look inward and marry her strength in solar cell manufacturing with her desire to gain energy security.
The passing of the Renewable Energy Development Act (REDA) in 2009 was a good first step in making this transition to a clean energy society. By placing a price on the amount, the state-run electricity supplier would pay for clean energy generation the hope was that this would spur growth in the industry. However, the force of this Act was blunted by the low price set for each renewable energy technology, doing little to promote clean energy technologies and actually strengthening a blase attitude to energy conservation. A stronger dose of medicine might be needed to rectify this malaise.
Carbon Tax: A Much-Needed & Environmentally-Friendly Tax
For an island nation with a population of slightly over 23 million peopleroughly 0.3% of the world populationaccounting for around 1% of global carbon dioxide emissions, this statistic is both unwanted and makes for sorry reading. With limited conventional sources, Taiwan imports energy to meet her requirements. By imposing industry-friendly policies to maintain depressed energy prices, economic growth ensued over the decades from 1960 onward but this was (and still remains) detrimental to the environment and to the health of the nation’s finances.
In 2010, data from the Bureau of Energy (from the Ministry of Economic Affairs, MOEA) gave an indication on the seriousness and severity of this unsustainable situation. In 2010, the energy importation level was 99.30% with a numerical impact of US$45.3 billion. Incidentally, this figure was 29.98% higher than the figure for 2009. With a Gross Domestic Product (GDP) value of US$423 billion, Taiwan is placing a little over 9% of her GDP on servicing the cost of this imported energy.
An elegant mechanism to arrest this worrying financial cost would be to impose a tax. One could make the argument that paying tax is just one of the necessary evils that have to be endured in a civilized society. Thankfully, there is one version of this necessary evil that might actually bring about change to the environment, industry, and public in a beneficial way. And from Taiwan’s point of view, it is a tax that is sorely needed on all three points.
Carbon tax, as its name suggests, is a tax on carbon sources and its purpose is to reduce the greenhouse gas emission levels produced from the combustion of a carbon source. Fundamentally similar to the cap and trade mechanism, the difference lies in the approach: Cap and trade aims for an environmental certainty (reducing carbon emissions) whereas carbon tax aims for cost certainty (fixed price per ton of carbon). Both, however, result in a change in behavior that hopefully will help tackle the complicated issue of climate change.
Carbon Tax: It’s All in the Price
Many countries have implemented, or have plans to implement, a carbon tax and key to the success of the carbon tax (potentially measured as a shift in behavior of the public and of industry) is the price. If the price is too low, then industry will simply choose to pay its tax bill rather than invest significantly in clean energy technologies. Set the price at a suitable level, and then the investment will flow.
The European Union, a leader in making the change to a low-carbon economy, has in place a cap and trade mechanism (termed European Union Emissions Trading Scheme, or EU-ETS) for certain sectors. However, for economic segments outside the writ of the EU-ETS, there is talk of introducing a carbon tax with a price for carbon floating between €4~€30 (about US$5 - US$40) per ton of carbon dioxide with some calling for €50 or more for each ton. At €30 per ton, the EU estimates that they could cut their emissions by 30% by 2020.
Australia has recently legislated a carbon tax, to be introduced in July 2012. This mechanism will gradually increase the price of carbon by 2.5% each year till 2015, when the emissions trading program is slated to take effect. The initial price set by the Australian government is A$23 per ton of carbon dioxide (roughly US$25 / €18 per ton).
Both the EU and Australia have stated that the revenue generated from the imposition of the carbon tax will be directed to investing in clean energy technology and energy saving measures. As both the EU and Australia benefit from substantial solar irradiation, solar energy technologies both large and small-scale are expecting a boom in business.
Structuring a Carbon Tax in Taiwan
Depending on the level of ambition, a carbon price could be set in Taiwan to really make a good attempt at reducing greenhouse gas emissions. One reflection of this ambition would be for Taiwan to set a carbon price between NT$1500 (~US$50/€38) to NT$2000 (~US$68/€50) per ton of carbon dioxide. This high price would cause an outcry at first, but when the dust settles, heavy industry will be faced with a stark choice: change and incorporate solar energy technology for domestic use; or pay for the on-going environmentally destructive behavior.
In Taiwan, as in other countries, the possibility that consumers will pay more for products is a real one as everything in life is based on the cost of energy. If the price were to increase due to the implementation of a carbon tax, then energy costs and food costs will rise. However, using a portion of the revenue generated from the carbon tax, this rise could be offset through tax returns to the general public. Or, if the government is feeling sufficiently progressive, perhaps a threshold could be set where people with incomes below the threshold would be completely removed from the tax system. This would also help low-income households deal with any possible rise in the price of energy.
How a Carbon Tax Could Assist the Solar Industry in Taiwan
Taiwan is one of the biggest manufacturers of conventional first-generation solar energy technology, and is slowly building up a presence in the manufacture of second-generation thin film solar cells (widely used in building-integrated projects). Some of the largest manufacturers, such as AUO, Gintech, TSMC, and Motech all service the international market but have had little incentive to focus on the domestic market. The incentives currently available are not nearly enough as the incentive to export, which further weakens the intention to serve the domestic market.
With this in mind, now would be the best time for a carbon tax to be implemented with the expectation that the domestic market will be spurred into action. A carbon tax, set at the right level, would provide an incentive for Taiwanese companies to invest in renewable energy technologies and make the transition to a low-carbon economy. As Taiwan is rich in solar irradiation, and as Taiwan is a solar cell manufacturer in an industry that is suffering from excessive supply and depressed prices, common sense would indicate that introducing a tax structured to help the domestic adoption of clean energy technologies (with a particular focus on solar energy) would tremendously benefit Taiwan’s solar energy industry.
Taiwan suffers from land constraints; She cannot afford large tracts of land for large-scale solar development throughout the island. As such, creative ways will be required to utilize solar energy technology and harness this powerful natural energy resource that go further than the typical rooftop mounted solar installations. In the southern part of Taiwan, which receives over 2,000 hours of sunshine per year and where land is less constrained, solar projects could be installed that are grander in nature than those in the northern part.
Maximizing Taiwan’s Natural Advantage
In the city of Kaohsiung, one can find the largest solar power plant (rated at 6 MW and fitted with 16,000 solar panels) and a concentrating solar power project (1 MW, and fitted with 141 concentrator solar panels). With a carbon tax, the heavy industries located in Kaohsiung could be incentivized to further install large-scale solar projects. In addition, wherever feasible, small-scale solar projects could be installed to take advantage of the significant amount of insolation Taiwan receives, especially in other southern cities and towns like Tainan (which receives over 2,200 hours of sunshine per year). With this in mind, any flat surface that faces the sun could potentially be transformed: bus shelter roofs, highway barriers, railway track barriers, and even the train roofs themselves! Conventional first-generation solar cells and modules could be installed to achieve this task, with the supplies all coming from local Taiwanese inventories.
Developed areas are trickier but not impossible; in fact, the tricky nature allows for a certain degree of artistic flair and creativity so another aspect to the growing knowledge-based and creative economy in Taiwan might be stimulated. Due to the built-up nature of cities in Taiwan, solar installations involving first generation solar technology are limited to rooftops. However, thanks to the flexible nature of second-generation thin film solar cells, a segment that Taiwan is steadily developing, building-integrated installations are possible. Construction projects can be found all over Taipei (the capital) and other cities. However, while some building projects are using thin-film solar technology, it is quite clear that the majority will not incorporate thin-film technology into their building facades or architecture.
With the revenue generated from implementing a carbon tax, the Taiwanese policymakers could direct investment towards building-integrated solar projects in addition to the standard rooftop installations. For example, in Taipei, any and all shelters that possess a flat surface should have a solar panel installed on the roof. Public parks, including the zoo, aquariums, and water parks could all have solar panels installed on their roofs and suitable sunlight-receiving facades.
Public transportation sites could also benefit from this tax-funded solar facelift. Refurbishing the airport and all train stations should incorporate both rooftop installations and thin-film solar panels in the architecture. For example, the airport terminals are vast buildings that can easily accommodate solar panels on the roof and thin-film solar cells integrated in the walls. Furthermore, designated sections of the non-essential airfields could happily house conventional solar panels to assist in providing power to run the airport.
In Taipei, the underground/subway system (called the Metro or the MRT) is currently undergoing a combination of refurbishment (at some existing stations), extension (of which three lines have been affected), and expansion (of which 10 new lines are slated). With this carbon mechanism in place, Taipei─with over 1,400 hours of sunshine per year─could use the revenue generated to fit solar technology to the multiple station exits. As they all possess some sort of canopy for passengers as they enter/exit the MRT station, harnessing the sunlight that strikes these canopies will no doubt be of benefit in part-powering the lights and air-conditioning systems inside.
The Promising Prospect of a Carbon Tax in Taiwan
The transition to a low-carbon society will require a concerted effort of epic proportions. With Taiwan’s current statistical data indicating that pollution from carbon emissions is an issue that is not improving, implementing radical initiatives might help correct this sorry state of affairs.
A tax to encourage investment in solar energy technology, to increase energy security and reduce the wasteful nature of spending around 9% of GDP to pay for energy, to be rolled out for use domestically and to be sourced domestically, is certain to have a progressive effect on society. Perhaps this is a tax we should all learn to love?
After obtaining his Ph.D. in Physical Chemistry from the University of Nottingham, Dr. Dino R. Ponnampalam moved to Taipei, Taiwan and worked for the National Energy Program Office. He is now a freelance consultant and external contributor, focusing on renewable energy technology, strategy, and policy.
1) The World Factbook
2) International Energy Agency
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