Taiwan has proposed allowing certain heavy industries to reduce the share of emissions subject to carbon fees by up to 80 per cent, significantly lowering costs for sectors deemed at risk of losing competitiveness to overseas rivals.
Taiwan’s carbon-fee framework entered force on 1 January 2025, requiring large emitters to begin reporting emissions under a new pricing system designed to incentivise reductions rather than raise revenue. Companies will make their first payments in 2026, based on emissions generated in 2025, with proceeds directed to a dedicated climate fund supporting decarbonisation and climate adaptation.
The Ministry of Environment said it would designate 17 sectors, including steel, cement and oil refining, as “high carbon leakage risk” industries, allowing eligible firms to apply a discounted charging rate under which only 20 per cent of their emissions would be subject to carbon fees. Of the 465 factories covered by the regime, 262 fall into this category.
Firms outside the listed sectors may also apply for high-risk status if carbon fees exceed 30 per cent of gross profit, if gross profit is negative, or if operations are affected by anti-dumping duties or US tariff measures in 2025–2026, the ministry said.
Tsai Ling-yi, head of the Climate Change Administration under the Ministry of Environment, said first-year carbon-fee revenue is expected to total just over NTD$4 billion (US$127 million), with eligible companies required to submit applications by 31 January 2026, for joint review by the environment and economic ministries.
The policy aims to prevent companies from shifting production overseas in response to higher carbon costs – a phenomenon known as carbon leakage – while Taiwan transitions to carbon pricing and exporters face tightening climate rules in overseas markets.
Taiwan’s export-oriented economy has left carbon-intensive sectors such as steel, cement, aluminium and chemicals exposed to market forces in destinations including the European Union, the United States and Japan.
Pressure is growing as trading partners roll out carbon pricing mechanisms, including the European Union’s Carbon Border Adjustment Mechanism, which enters its implementation phase in 2026 and requires importers of goods such as steel and cement to account for embedded emissions, raising costs for producers without robust carbon accounting in place.
Taiwan has a legally binding 2050 net-zero greenhouse gas emissions target and commitment to progressively reduce emissions across key sectors as part of its long-term climate strategy. Under its updated climate plans, the government aims to cut net emissions by around 26 to 30 per cent by 2030 compared with 2005 levels, with further stepped targets for 2032 and 2035 aimed at deeper cuts on the path to 2050.
Climate policy researchers warned the exemptions could undermine investments in emissions reduction. Lin Yu-hsuan of the Taiwan Climate Action Network said more than 80 million tonnes of emissions could escape Taiwan’s carbon fees, cutting expected revenue by around a quarter from an earlier estimate of NTD$6 billion (US$190 million)
“With the EU’s carbon border mechanism starting in 2026 and more countries adopting carbon pricing, carbon-leakage risks should decline over time,” Lin said, urging regular reviews of the policy.
She also criticised the lack of transparency in how sectors were classified, noting Taiwan had cited South Korea’s approach without disclosing the underlying formulas. South Korea’s emissions trading scheme initially granted generous free allowances to carbon-intensive industries, a move later criticised by government auditors and researchers for blunting price signals and contributing to weak emissions reductions in the early phases of the programme.
Independent policy analyses and academic assessments note that South Korea’s emissions trading scheme has historically relied on high levels of free allowances, particularly for energy-intensive and trade-exposed sectors. Critics argue this has kept carbon prices relatively low and blunted the scheme’s incentive effects, reducing the urgency for firms to invest in deeper emission cuts.
Lin warned Taiwan risked repeating those mistakes if exemptions were too broad and not paired with clear, time-bound exit mechanisms.
