Green taxes policy is a government’s fiscal engine of impacting corporate sustainability strategies in two perspectives: tax incentives and tax costs. Tax incentives are to encourage green investment behavior and innovation in green goods, production processes and technology. Tax costs are based on the polluter pays principle in which pollution costs are borne by the polluter and reflected in the prices of their goods and services. Polluters are penalized and thereby reducing their profitability. A carbon fee or carbon tax is a type of green tax cost. As governments worldwide commit to reducing emissions and environmental impacts, they are increasingly turning to fiscal policies to incentivize progress toward these goals. These taxes policies are designed not only to discourage environmentally harmful practices, but also to generate revenue that can be reinvested into sustainable initiatives and policy objectives.
As governments worldwide have successively pledged to achieve the goal of carbon emission net zero by 2025, how to formulate green tax policies to encourage industries to invest in energy-saving and carbon-reducing technologies and new energy exploitation has become the most important industrial development policy to achieve net zero goal. The target means not only punishing companies with high carbon emissions, but also encouraging companies to invest in energy-saving and carbon-reducing technologies and develop new energy sources. Should the carbon fee or carbon tax be levied based on the government's public carbon price? Or establish an appropriate carbon emissions trading platform to use market mechanisms to determine carbon prices? Even impose carbon tariffs on imported goods with high carbon emissions? These are important issues when designing the green tax policies.
Countries that charge carbon taxes include France, Ireland, Canada, Singapore, Japan, the five Nordic countries, etc. These countries also have carbon emissions trading systems that use market mechanisms to determine carbon prices. They belong to a dual-track system of carbon tax (penalty policy) and carbon credits (incentive policy). The government department responsible for implementing carbon taxes is usually the ministry of finance which collects taxes and distributes fiscal revenue in a nationwide unified manner, including taxation procedure, tax incentives and exemptions, and establishment of various infrastructure funds for energy conservation, carbon reduction and green power development.
Sustainable green tax policies in Taiwan are still developing. The “Climate Change Response Act” was enacted on 15 February 2023 in Taiwan. The most critical policy of the Act is to impose carbon fee on businesses with high carbon emissions. The carbon fee is implemented and levied by the Ministry of Environment. Carbon fees are collected from high-carbon-emitting companies and a climate fund is established to develop energy-saving and carbon-reducing facilities, green energy exploitation, and subsidize industries to transform into low-carbon emission processes.
In addition, the Taiwan Carbon Solution Exchange was established on 7 August 2023, which aims to provide carbon consulting services and a carbon trading platform. The Taiwan government has not completed the mandatory cap and trade regulation to generate carbon credits. However, according to the “Greenhouse Gas Voluntary Emissions Reduction Project Management Measures”, companies can apply for carbon credits certification or publish carbon credits trading information on this platform. All carbon credits certified by relevant institutions can be traded on this exchange or offset carbon fee.
The Ministry of Environment convened a carbon fee review committee on 7 October 2024, and set the carbon price per ton at NTD 300, which will be gradually increased in stages in the future. Enterprises that meet the "Autonomous Reduction Plan" can apply preferential rates for Case A of NTD 50 or Case B of NTD 100. According to Article 3 of the "Regulations Governing the Collection of Carbon Fees": the emission sources subject to the carbon fee collection are "direct emissions from the entire site" (Scope 1) and "indirect emissions from using electricity" (Scope 2). The initial collection targets will cover the power industry, gas supply industry and manufacturing industry with annual emissions exceeding 25,000 metric tons of CO2 equivalent. Enterprises subject to the carbon fee will formally declare in May 2026 to pay the carbon fee for carbon emissions in 2025, but companies must accrue provisions for carbon emissions liabilities every month starting from 2025, so the profitability of their financial statements will begin to be affected from the beginning of 2025.
The Taiwan government’s regulations on tax incentives are formulated in the “Statute for Industrial Innovation”. The investment credit outlined in Article 10-1 will expire on 31 December 2024. In order to facilitate the industry to respond to the global net zero emission trend, promote investment in start-up businesses, and strengthen the company’s key technologies, the Industrial Development Administration of the Ministry of Economic Affairs has announced a draft amendment to certain provisions of the Statute for Industrial Innovation on 5 October 2024. In order to comply with the global carbon reduction trend and year 2050 net zero emission goal, energy-saving and carbon-reduction items were included in Article 10-1 to promote active investment in green industries with tax incentives. The current upper limit of applicable investment expenditures has been increased from NTD 1 billion to NTD 1.8 billion, expecting more investment in energy-saving and carbon-reducing equipment to accelerate the dual-axis digital and net zero transformation. The implementation period will be extended to 31 December 2029. This draft amendment has not yet passed by the Congress (Legislative Yuan) at the end of 2024.
The landscape of sustainable green tax policies is both diverse and rapidly evolving, reflecting the unique environmental priorities and economic conditions of each jurisdiction. This diversity presents a significant challenge for businesses operating across multiple regions, as they must navigate a complex and ever-changing array of tax incentives, penalties, and reporting obligations. Therefore, the scope of the Taiwan government's formulation of green tax policies should not be limited to carbon pricing mechanisms, such as carbon fees, carbon taxes, carbon rights, and carbon emissions trading systems, or only provide investment tax credit for capital expenditure. It is necessary to design a wider range of “green tax measures” and “green tax incentives”.
Green taxes measures refer to governments using green taxation as a source of fiscal revenue, and also as an instrumental policy. Taxes are imposed on a variety of products, services and processes to encourage or discourage consumption. Simultaneously, governments offer exemptions of such taxes for certain qualifying product, uses or taxpayers, as in the following examples:
- Energy – conventional electricity, fossil fuels and nature gas taxation
- Water source – consumption and discharge taxation
- Pollution – air, chemical, soil and wastewater taxation
- Plastic and packaging – extended producer’s obligation of taxation
- Circular economy – provide landfill, recycling and returns of electronics waste with tax exemptions or refunds
