summary:
As the challenge of global climate change becomes increasingly severe, in addition to governments around the world paying increasing attention to issues related to global environmental protection and sustainable development, companies have also responded to their greenhouse gas reduction responsibilities. my country passed the Climate Change Response Act in February this year (112), clearly setting a net-zero emissions target for 2050 and authorizing the formulation of sub-laws and regulations related to carbon pricing and management. In order to encourage companies to implement net-zero emission goals, the government will launch the operation of carbon rights and carbon trading markets to assist companies in their net-zero transformation and reduce the impact of climate change. Although most government carbon reduction policies prioritize large enterprises or emission sources for control, small and medium-sized enterprises are still part of the supply chain and must also face carbon reduction requirements from customers. Therefore, small and medium-sized enterprises must also keep abreast of international trends (CBAM, etc.) and relevant domestic regulations (such as carbon fee collection, reduction quota transfer, trading or auction, etc.) to understand the risks and impacts on themselves and make corresponding countermeasures , carry out net-zero transformation as early as possible and create green business opportunities.
1. Background:
As the challenge of global climate change becomes increasingly severe, in addition to governments around the world paying increasing attention to issues related to global environmental protection and sustainable development, companies have also responded to their greenhouse gas reduction responsibilities. In addition, in response to major international countries' promotion of net-zero emissions-related goals, strategies and mechanisms, China passed the Climate Change Response Act in February this year (112). In addition to enshrining the 2050 net-zero emissions target into law, it also authorized Formulate sub-laws and regulations related to carbon pricing and management, such as total control and allocation, carbon fee collection, carbon reduction credits obtained for voluntary reduction projects, carbon trading platforms and other mechanisms.
However, the government's promotion of carbon reduction policies and corporate goals related to environmental sustainability have a direct impact on corporate operating costs and management strategies. In particular, the operating mechanism and development of carbon rights and carbon trading markets will create risks and opportunities related to carbon management for enterprises, and will also play a key role in the implementation of reduction target commitments. All in all, the carbon trading market is a key tool in the carbon reduction strategy. It not only helps the world work together to achieve the goal of net-zero emissions, but also promotes the development of low-carbon industries and economies in various countries to mitigate the impact of climate change.
2. Carbon pricing tools and carbon rights:
1. Carbon Pricing Tools
The carbon pricing mechanism is a policy tool for carbon reduction. Through the setting of carbon emission prices, external carbon emission costs can be internalized to encourage all sectors to reduce greenhouse gas emissions. The main international carbon pricing tools mainly distinguish between mandatory and voluntary mechanisms. Mandatory mechanisms include carbon taxes (fees) and carbon emissions trading. Carbon tax (fee) refers to a fee levied by the government on carbon emissions, which is levied based on the amount of carbon emissions or carbon content, thereby encouraging companies and individuals to reduce carbon emissions to reduce costs derived from carbon emissions; carbon trading is It is a market mechanism in which the government issues permitted emission allowances (Carbon Allowance) to enterprises, allowing enterprises to trade, purchase additional carbon emission rights or sell excess carbon emission rights to ensure compliance with the enterprise's own emission limits. Voluntary mechanisms include carbon credits and internal corporate carbon pricing. Carbon credits refer to enterprises that are not subject to government regulation. They implement reduction measures and achieve specific carbon reduction results, which can be converted into carbon credits (Carbon Credit) after certification. In addition, internal carbon pricing of enterprises is based on the enterprise's specific carbon reduction results. Internal units or departments establish a carbon emission charging mechanism to encourage each business unit or department to take emission reduction measures.
(Figure 1) Carbon Pricing Tools
In order to seek cleaner ways of energy use and production, and thereby improve energy use efficiency. Carbon pricing mechanisms are one of the key strategies to address climate change and achieve net-zero emissions targets. Among them, the operation and development of the carbon trading market provide economic incentives to encourage the government and enterprises to work together to reduce carbon emissions. Because high carbon prices mean high costs, this will force companies to proactively find cleaner ways to use and produce electricity, and further promote the research and development of low-carbon technologies to achieve emission reduction goals; secondly, the regulatory mechanism of the carbon trading market will help The realization of the emission reduction targets of regulated enterprises; in addition, the income obtained from the operation of the carbon trading market, such as transaction fees, will also provide the government with the necessary funds to combat climate change and inject the research, development and application of low-carbon technologies.
2. Carbon rights
"Carbon rights" are the main trading object in the carbon trading market, and the essence of "carbon rights" is that when the government implements the "Cap and Emissions Trading Mechanism" (Cap and Trade), it is based on the total emissions limit for the current period ( Cap), issuing emission allowances (Emission Allowance) to regulated enterprises through paid (such as auction, allotment) or free (free) methods. If the actual emissions of a regulated enterprise for the current period exceed the current permitted emission quota, it must go to the carbon trading market to purchase permitted emission quotas to meet the current quota; conversely, if the regulated enterprise has remaining quota, it can sell permits through the carbon trading market. Emission credits. Another type of "carbon rights" comes from the carbon offsets (Carbon Offsets) obtained by companies implementing voluntary reduction projects. This is completely different from the carbon rights of the cap-and-trade mechanism, and is used in a different way.
(Figure 2) “Carbon rights” formed by cap-controlled emission exchanges
Therefore, in the process of implementing net-zero emissions, enterprises can adopt appropriate carbon pricing tools based on their own carbon reduction plans and financial situations to reduce the risks of their net-zero transformation.
Participate in the operating mechanism and current situation of the carbon trading market
1. The operating mechanism and trends of the international carbon rights trading market
The operation of national or regional carbon rights exchanges is mainly to provide a platform for carbon rights trading and transfer. It is a financial market with environmental benefits. Its main goal is to act as a supplementary mechanism for greenhouse gas reduction strategies to assist enterprises. Deliver on net-zero emissions targets.
The European Union Emissions Trading System (EU ETS) is one of the world's largest carbon trading markets and the first multi-country participating system, covering 28 EU member states. EU ETS has established a carbon emissions trading system The EU reduces the number of available emission permits year by year when allocating emission licenses to regulated companies to ensure that emission reduction targets are achieved. In addition, the EU ETS also designs market stabilization mechanisms, such as carbon price floors, to maintain emissions. Stability of ETS carbon prices. Since the establishment of EU ETS in 2005, the scope of control (covering energy-intensive industries and power generation industries) accounts for about half of the EU's total carbon dioxide emissions. So far, the total emissions of regulated objects have been reduced by approximately 41%. The European Commission proposed in 2022 that the emission reduction target for regulated objects in 2030 is 61%.
The development of the carbon trading market in the United States is relatively decentralized, and states can adopt different management methods. California's cap-and-trade program (CCTP) was established in 2012 and is the fourth largest carbon emissions trading system in the world, behind the European Union, mainland China and South Korea. CCTP also participates in the Western Climate Initiative (WCI) of the United States and is connected to the cap-and-trade system of Quebec, Canada, making CCTP the first cross-regional cap-and-trade system in North America. CCTP also sets total emission caps and issues emission permits to regulated companies. CCTP currently manages a wide range of industries, including energy, industry, transportation and construction. In this regard, the U.S. federal government is now beginning to re-examine the plan for a national carbon market to respond to climate change and implement the national net-zero goal.
Japan Voluntary Emissions Trading Scheme (JVETS) was implemented from 2005 to 2012. Participating companies must improve energy efficiency equipment and comply with greenhouse gas reduction targets. During the implementation period, the carbon reduction amount reached 1.89 million tons, while the transaction volume reached approximately 260,000 tons. In addition, the Tokyo Metropolitan Environment Bureau (とうきょうとかんきょうきょく) launched the mandatory Tokyo Cap-and-Trade Program (TCTP) in 2010, and based it on the commercial, industrial and public sectors in Tokyo. Building energy consumption and greenhouse gas emissions are controlled, and it is stipulated that greenhouse gas emissions must be reduced by 25% by 2020 compared with 2000. By 2017, carbon emissions have been reduced by 27%. In addition, the Tokyo Stock Exchange also announced that it will launch carbon rights trading on October 11, 2023, making it Japan's first carbon market established on an exchange.
South Korea launched the Korea Emissions Trading Scheme (K-ETS) in 2015 and formulated a five-year national emissions allocation plan and permitted emissions trading system. K-ETS regulates large industrial and energy sectors such as energy, heavy industry, construction, public sector, domestic air transport and waste management industries to encourage regulated companies to reduce greenhouse gas emissions. K-ETS is the second largest carbon trading system in the world after the European Union, and is also the first country in East Asia to establish a national carbon emissions trading system.
Table 1 Summary table of carbon trading systems in various countries
In summary, the operation mechanism of the carbon trading market is adapted to local conditions, but the purpose is to reduce the greenhouse gas reduction goals of the country or region and encourage regulated companies to actively implement carbon reduction measures to cope with the impact and impact of climate change.
2. Current planning of my country’s carbon rights exchange
According to the plan of the Ministry of Environment of the Executive Yuan of China, the Taiwan Carbon Solution Exchange (TCX) is currently jointly established by the Taiwan Stock Exchange (TWSE) and the National Development Fund (Executive Yuan) of the Executive Yuan , and was officially unveiled at the Kaohsiung City headquarters on August 7, 2023. Its main business is to assist companies in domestic and foreign carbon rights trading matters. Since Taiwan has not yet launched total cap control, it is currently a voluntary market. In the early stage, it mainly provides relevant carbon consultation and publicity activities.
However, in the face of the net-zero emissions target, the EU Carbon Border Adjustment Mechanism (CBAM), the pressure to reduce carbon emissions in the international supply chain, and the relevant sub-laws of the Climate Change Response Act, TWSE will first use foreign carbon rights trading as the basis for its initial planning. However, when considering the imminent launch of carbon fee collection and implementation, the carbon trading market will help China’s carbon pricing mechanism to become more complete.
Therefore, the current "carbon rights" transactions that TCX will conduct are based on the "carbon credit" of the voluntary carbon market, rather than the "carbon allowance" of the mandatory carbon market. Therefore, TCX's carbon The main uses of the rights at this stage are mainly the company's "carbon neutrality" declaration and "environmental impact assessment incremental offset". In addition, according to the carbon fee collection mechanism planned to be launched in 2025 by the Ministry of Environment of the Executive Yuan, whether the carbon rights purchased by enterprises in the future can be offset will not be determined until the relevant sub-law on carbon fees (expected to be announced by the end of 2012) is passed.
4. Corporate response strategies and future development
Taiwanese companies play a pivotal role in the international supply chain, mainly in the manufacturing industry. Facing the international trend of net zero emissions and carbon management policies, Chinese enterprises will face great challenges. Although most carbon reduction policies prioritize large enterprises or emission sources for control, the impact on small and medium-sized enterprises is not as urgent as that on large enterprises, but they are still part of the supply chain and must also face carbon reduction requirements from customers. At the same time, if carbon management is not carried out in a timely manner, it will have a certain impact on corporate operations. Therefore, small and medium-sized enterprises must also keep abreast of international trends (CBAM, etc.) and relevant domestic regulations (such as carbon fee collection, inventory registration, incremental exchange, voluntary reduction projects, reduction quota transfer, transactions or auctions, etc.), so as to Understand the risks and impacts on yourself and make countermeasures to carry out net-zero transformation as early as possible and create green business opportunities.
Sponsor: Ministry of Economic Affairs, Small, Medium and New Enterprises Agency, Ministry of Economic Affairs
Execution unit: Plastic Industry Technology Development Center
