Analyzing the Effect of Preferential Fiscal and Tax Policies for Energy Saving and Carbon Emission Regulations on Taiwan’s Industry Sector 

---

Abstract:

To maintain Taiwan’s energy security and environmental sustainability, mitigating the shocks of climate change and improving industrial competitiveness, promoting Taiwan industry sector’s energy-saving policies and rising energy efficiency are essential. The purpose of this study is to evaluate the effects of implementing preferential fiscal and tax policies for energy saving and carbon emission regulations in Taiwan industry sector. Concretely, we mainly discuss the following questions: 1. We adopt tax expenditure analysis asked by the Ministry of Finance and the Executive Yuan to measure the feasibility on establishing energy-saving preferential fiscal and tax policies and propose suggestions. 2. We will set different cases to calculate each industry sectors’ carbon reduction credits and evaluate the effects of carbon emission regulations. 3. To facilitate the cost-benefit analysis and feasibility assessment of energy-saving preferential tax policies and carbon emission regulations, we are going to update and maintain Dynamic General Equilibrium Model of Taiwan, as well as build the new intermediate input sub-model for industrial products. Up to research purposes, summary of the medterm research results in order as follows: 1. We suggest revising Article 26 and combine Article 10, Statute for Industrial Innovation. Provide business with tax incentive about 15% tax credits against the profit-seeking enterprise income tax payable for expenditures on investing energy-saving equipments. The evaluation results are: (1) Energy saving and economic growth: Saving energy 233,358 KLOE. Lowing carbon 535,709 metric tons. Increasing total output $ 256 million and GDP $ 73 million. (2) Low implement’ cost: Compliance cost is $ 290,000/company. Administration cost is 762.28 thousand. (3) Small tax revenue: Tax loss is $ 155.3 million. Comparing subsidy expense $ 5,372-23,635 million is low (0.66-2.89%). 2. EU ETS, South Korea ETS and Tokyo ETS are all in stages and rolling revise greenhouse gas reduction goals and energy-saving measures. The threshold limits, covered industries, credit plans, restrictions and punishments, enengy-saving effects, and experiences on global business cycle or slowing business activities could be taken as references for Taiwan to plan the “Greenhouse Gas Reduction and Management Act.” 3. According to greenhouse gas reduction procedure and goal of “Intended Nationally Determined Contribution” and “Greenhouse Gas Reduction and Management Act,” Taiwan has set a greenhouse gas reduction goal on reducing 214 million metric tons CO2e by 2030. Above 208 million metric tons CO2e could take advange of establishing energy-saving policies, modulating industrial structure, and achieving low-carbon energy supply combination. From modulating industrial structure (19.96 million metric tons CO2e) and achieving low-carbon energy supply combination (46.44 million metric tons CO2e), our study calculates 141.60 million metric tons CO2e could be reduced by strictly implementing energy-saving policies. 4. We set 141.60 million metric tons CO2e as Taiwan’s greenhouse gas reduction goals in 2030 by establishing energy-saving policies. The evaluation results on each sectors’ carbon reduction credits method and effect are: (1) Proportionally Method: Based on carbon emission proportion, we proportionally calculate mining and quarrying sectors, manufacturing sectors, electricity and gas sectors, and construction sectors should reduce 0.30, 89.46, 14.13, and 0.40 million metric tons CO2e. Among manufacturing sectors, electronics-related industry (39.99 million metric tons CO2e) and chemical-related or plastic products manufacturing (38.96 million metric tons CO2e) have to reduce the most carbon emission. (2) According to Proportionally Method and setting 141.60 million metric tons CO2e as Taiwan’s greenhouse gas reduction goals in 2030, for manufacturing sectors, price level would increase 1.15%, GDP would lower 0.14%, and employee would decrease 46,171 people. Additionally, whole economic marginal cost on carbon reduction is US$ 15.68/ton. (3) Energy Tax/ Carbon Tax Method (DGEMT): Based on leving energy taxs on different energy categories for controlling industies’ carbon emission mode, manufacturing sectors have to reduce 119.96 million metric tons CO2e. Among manufacturing sectors, chemical-related or plastic products manufacturing (62.24 million metric tons CO2e) and petroleum and coal products manufacturing (20.74 million metric tons CO2e) have to reduce the most carbon emission. (4) According to Energy Tax /Carbon Tax Method and setting 141.60 million metric tons CO2e as Taiwan’s greenhouse gas reduction goals in 2030, for manufacturing sectors, price level would increase 1.54%, GDP would lower 0.192%, and employee would decrease 15,650 people. Additionally, whole economic marginal cost on carbon reduction is US$ 7/ton. (5) Benchmarking: Based on Japan industrial carbon emission intensity in 2005 and 2013 as each sectors’ carbon reduction credits in Taiwan, industry sector (including agriculture) have to reduce 103.6-109.7 million metric tons CO2e. (6) According to Benchmarking and setting 141.60 million metric tons CO2e as Taiwan’s greenhouse gas reduction goals in 2030, for industry sectors (including agriculture sectors), price level would increase 1.26-1.34%, GDP would lower 0.16-0.17%, and employee would decrease 25,817-27,337 people. Additionally, whole economic marginal cost on carbon reduction is US$ 9.65-13.76/ton. 5. The short-term price elasticity of oil and electricity in manufacturing is -0.87 and -0.33. The cross elasticity of electricity is larger than 0.5, so the feasibility of other energy substituting is high when electricity price rise. 6. When average energy price rise 1%, the short-term consumption in manufacturing would decline 0.86%. Energy has positive substitute relationship with capital, labor, and intermediate inputs.