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Evaluating Applicable Industrial Energy-Saving Fiscal and Tax Policies for Taiwan and the Effect of Energy-Saving Market Mechanism on Taiwan’s Industry Sector 

No.: PR1913

Author: Chi-Yuan Liang

Price: Not for Sale

Publication: 2017.12


Abstract:

Taiwan is short of indigenous energy, isolated power system, and difficult to access the power development. Due to the energy transformation goal and the pressure on power outage, it is essential to promote industrial energy saving and improve energy efficiency. The purpose of this study is to evaluate energy-saving fiscal and tax policies or other economic incentive policies, the impact of the electricity price change on industrial electricity-saving and the model building on its time lag effect and the rebound effect, and energy-saving market mechanism (white cert-project). Concretely, we mainly discuss the following questions: 1. we collect international latest industrial energy-saving incentive policies to evaluate every energy-saving fiscal and tax policies or other economic incentive policies. Additionally, we hold the forum to combine the opinion of industry, official and university, and provide energy conservation policy suggestion. 2. We update and maintain Dynamic General Equilibrium Model of Taiwan (DGEMT) to evaluate the impact of the electricity price change on industrial electricity-saving. 3. We build the model of the electricity price change on industrial electricity demand’s time lag effect and the rebound effect. 4. We summarize main developed countries’ white cert project and Taiwan’s feasibility analysis. Up to research purpose, summary of the research results in order as follows: 1. We suggest revising Article 26, Statute for Industrial Innovation. Provide business with tax incentive about 15% tax reduction against the profit-seeking enterprise income tax payable for expenditures on investing energy-saving equipment. The evaluation results are: (1) Energy saving and carbon reduction: Saving energy 12,395 KLOE, reducing carbon 28,455 metric ton CO2e, and reducing air pollution 2,271 metric ton. The energy-saving benefit is $297-334 million. (2) Investment and economic growth: Increasing energy-saving investment $166 million, total output value $306 million, and GDP $88 million. (3) Government tax revenue cost: Tax loss is $ 185.8 million. Administration cost is $0.83 million. 2. Reference to international energy-saving tax reduction policies case, we evaluate business with tax incentive about 1-55.5% tax reduction against income tax payable for expenditures on investing energy-saving equipment. The evaluation results are: (1) Energy saving and carbon reduction: Saving energy 826-45,862 KLOE, reducing carbon 1,897-105,282 metric ton CO2e, and reducing air pollution 151-8,403 metric ton. The energy-saving benefit is $20-1,234 million. (2) Investment and economic growth: Increasing energy-saving investment $11-614 million, total output value $20-1,132 million, and GDP $6-324 million. (3) Government tax revenue cost: Tax loss is $12.11-730.07 million. Administration cost is $0.05-3.26 million. 3. Reference to international energy-saving accelerated depreciation policies case, we evaluate business with tax incentive about 30-100% accelerated depreciation in the first year, and the energy-saving asset’s endurance life is 8 years. The evaluation results are: (1) Energy saving and carbon reduction: Saving energy 3,582-11,939 KLOE, reducing carbon 8,222-27,407 metric ton CO2e, and reducing air pollution 656-2,187 metric ton. The energy-saving benefit is $ 86-321 million. (2) Investment and economic growth: Increasing energy-saving investment $48-160 million, total output value $81-269 million, and GDP $27-89 million. (3) Government tax revenue cost: Tax loss is $52.59-178.62 million. Administration cost is $0.23-0.80 million. (4) Comparing with accelerated depreciation policies, the energy saving, carbon reduction, investment improvement, and economic growth’ evaluate results are better on providing business with tax incentive about 15% tax reduction against the profit-seeking enterprise income tax payable. 4. Coped with same energy-saving effect (Saving energy 826-45,862 KLOE) on 1-55.5% tax reduction or 30-100% accelerated depreciation against income tax payable for expenditures on investing energy-saving equipment, we have to spend $40.41-6,072.13 million if we replace them with investment subsidies or soft loans. 5. Due to energy scarcity and the high cost on building stable and safe new energy system in Taiwan, practicing energy-saving fiscal and tax policies meets the cost-benefit principle. Additionally, developing fiscal and tax policies focusing on energy-saving is the conclusion of the fourth national energy conference. So building energy-saving fiscal and tax policies is necessary. 6. Updating and maintaining DGEMT: (1) When energy price rises 1%, the short-term consumption in manufacturing would decline 0.86%. Energy has positive substitute relationship with capital, so we can reduce purchasing energy-saving equipment to achieve energy-saving benefit. (2) The short-term price elasticity of oil and electricity is -0.87 and -0.33. The cross elasticity of electricity with coal, oil or natural gas is larger than 0.5, so the feasibility of other energy substituting is high when electricity price rise. 7. Based on efficieny elasticity and Stochastic Frontier Approach (SFA), we estimate the electricity price change on industrial electricity potential efficieny and its rebound effect: (1) Electricity demand formula: When GDP rises 1%, industrial electricity consumption would increase 0.53%. Labor inputs have positive effect and capital and intermediate inputs have negative effect on industrial electricity consumption. (2) Electricity efficiency formula: Industrial structure changes and electricity price rises have positive effect on electricity efficiency. But the result on electricity price isn’t significant, so electricity price couldn’t sufficiently respond the electricity cost. (3) Electricity efficiency value: The yearly average potential electricity efficiency is 0.73 in Taiwan’s industry sector (1982-2015), so we have 27% potential to improve our electricity use. (4) Electricity consumption’s rebound effect: Electricity consumption’s rebound effect is -0.29 in the short run. The actual saving electricity is beyond our expectation, and we have super conservation result. 8. Based on Vector Autoregressive Model (VAR) and correction variable, we estimate the electricity price change on industrial electricity demand and its time lag effect: (1) Long-term electricity demand formula: The first-difference of the electricity consumption, GDP and industrial electricity price has a long-term equilibrium relationship. The long-term price elasticity of electricity is -0.79. (2) Short-term electricity demand formula: The short-term price elasticity of electricity is -0.40. (Based on DGEMT, the short-term price elasticity of electricity is -0.33.) (3) Time lag effect: The electricity price change last year has negative effect on electricity consumption this year, and has time lag effect. If the error correction last year higher than long-term equilibrium, it would adjust 3.86% down this year from non-equilibrium to equilibrium. 9. White cert project takes advantage of compulsory provisions to ask energy efficiency obligation to achieve energy-saving goal. On free market, energy efficiency obligation could choose the best economic benefit method to reach the energy-saving target by measuring their marginal cost. 10. The credible measurement and verification in white cert project is essential, and some countries require a share of energy efficiency measures to be implemented as a priority in households affected by energy poverty or in social housing. These are the main fasion and challenge for the years to come. 11. The white cert project and the emission trading schemes both have incentives to improve business to research and development the technology on energy conservation and carbon reduction. However, in the white cert project, the o