Abstract:Since the enactment of Kyoto Protocol GHGs mitigation activities has been the global trend. Many countries keen to develop new technology or implement economic incentive schemes to curtail CO2 emission. Taiwan, though not being a member of the Protocol, as a country of global world we need to fulfill our duty in the emissions mitigation effort. It is therefore necessary for the government to design a comprehensive policy to counteract the global warming. Currently, two economic incentive schemes, i.e. carbon tax and energy tax, were raised and attracted media attention. Owing to the importance of electricity supply sector in the contribution to the production of CO2 as well as to the tax revenue, a hot issue on whether to include power industry into the tax base has been debated by different government groups. This paper is to investigate the impact of the proposed taxes on the electricity supply sector. By applying the analysis of long term power plant expansion model we find that for the sake of CO2 mitigation carbon tax is much effective compared to the energy tax. At the level of 2000 dollars per ton CO2 the emission from the electricity supply sector will be cut by 16% while for the energy tax the cut is only 6%. However, the system generation costs will increase by 37% for carbon tax versus 15% for the energy tax option. We suggest government to adopt a comprehensive pack of schemes to support either carbon tax or energy tax policy. These schemes may include a flexible electricity tariff adjustment formula to pass over the tax burden to consumer or a subsidization program for the power industry by using the tax revenue. The power company may use the subsidy to finance the introduction of new CCS technology or to establish a carbon fund for handling the emission trading scheme to be developed by Environmental Protection Administration for the emission cap control in the near future.