Taipei Times (TT): The Cabinet has suggested that a task force explore measures other than price controls to encourage energy conservation and cut greenhouse gas emissions. What prospects would this approach have of achieving such goals?
Shaw Daigee (Shaw): Traditional approaches include quantitative control, subsidy programs and other regulatory measures. They have all proved inadequate in the absence of taxes. The effort to encourage energy conservation dates back to the first energy crisis in 1973.
Taiwan has consumed more energy than Germany, the United Kingdom and Japan while achieving lower GDP growth. Construction, manufacturing, business and other sectors all consume energy. People may give different accounts for the phenomenon. But no one can deny the most important factor is that Taiwan’s energy costs are too low. Only the US, Canada and Australia have lower energy costs.
PHOTO: FANG PIN-CHAO, TAIPEI TIMES
Had the US raised its energy prices to the level in Japan or Europe, it would not have large sprawling suburbs or depend so heavily on cars for transportation. Rather, Americans would live in high-rise buildings and use public transport more, as people in Japan and Europe do. Consequently, less energy would be consumed.
You see, energy prices play a critical role in shaping people’s lifestyles. Higher energy costs will lead them to depend less on cars, making them unnecessary in the long run.
TT: Many have frowned on your proposed energy and environment taxes because they would increase financial burdens for all — resulting in an extra NT$810.1 billion (US$24.6 billion) in taxes in the 10th year. How did you arrive at the rates?
Shaw: I drew up the formula after factoring in the energy prices in Japan and South Korea, Taiwan’s main economic rivals on the international stage. Take gasoline as an example. My research calls for a NT$9.55 energy tax and a NT$0.45 environment tax for each liter of gasoline consumed in the first year. The taxes will then go up by a small amount each year until they reach NT$24.12 and NT$4.53 respectively in the 10th year — or about the same levels in Japan and Korea.
The environment tax has riled the petrochemical industry because it suggests putting a cost of NT$2,000 on each tonne of carbon dioxide emissions [and would account for 74 percent of the extra tax revenues].
Under the reform plan, we hope to keep the nation’s total carbon emissions in 2020 at the same level as they were last year and down to the level of 2000 another five years later, as recommended by the National Energy Conference earlier this year.
TT: Will the tax plan remain flat after a decade?
Shaw: I cannot guarantee that. It all depends on the situation at that time. The impact of price policy tends to weaken over time because of inflation. There should be more price adjustments after a certain period in order to keep the taxes effective.
TT: Who will suffer or benefit from the reform, once it is implemented?
Shaw: The tax plan seeks to raise transportation, electricity and water prices for everyone, but it will not inflate the national treasury so it is revenue neutral. The Ministry of Finance intends to use the extra funds to increase subsidies for low income earners, cut income taxes on individuals and companies as well as abolish stamp levy and commodity taxes on rubber tires, drinks, plate glass and electrical appliances.
Still, the reform would inevitably redistribute the nation’s wealth in that high-energy consumption firms would have to pay more taxes than their low-energy consuming counterparts. The design is in line with the principle of “taxing the bad and rewarding the good.”
For a long time, the government has sought to foster economic growth by keeping low energy costs — the lowest among all Asian countries — so that our exports can remain competitive in the international markets.
The policy helps perpetuate the phenomenon of firms living on thin profits and high energy consumption, while increasing greenhouse emissions. China is doing the same thing in the pursuit of economic expansion. It is time Taiwan took steps to address the worsening greenhouse effect.
TT: Isn’t it easier for the tax reform to stay focused on energy conservation?
Shaw: Sure. The potential change in industrial behavior is the natural spinoff, if the government means to rein in carbon dioxide emissions.
In fact the government has been manipulating industrial behavior partly through providing subsidies for energy conservation and pollution prevention investments, once up to 40 percent of the investment value.
Paradoxically, such subsidies are not helpful. Rather, they lead to greater energy consumption in the end. You see, the subsidized industries have a better chance of survival or expansion, compared with those that are not subsidized. Separately, individual factories do save a certain amount of energy. Collectively, however, they produce more pollution.
In the absence of subsidies, unprofitable companies may choose to exit the market, consuming no more energy or producing no more pollution. But some of them manage to stay alive today, thanks to subsidies, and add to carbon emissions.
I first warned against subsidies 20 years ago and stand by the stance today. Higher energy costs would force heavy-polluting firms to upgrade and adopt an energy-efficient business model to maintain financially viability. This way, some companies will earn less profit and become smaller. But others will emerge and grow, creating jobs and fueling GDP growth.
All in all, higher energy costs do not have a totally negative impact on the economy, while helping the environment. In fact, subsidies benefit only 15 percent of firms in high-energy consuming industries.
TT: What are the biggest challenges to the “green tax” reform and what do you think of its chance of success?
Shaw: The industrial community thwarted a similar reform effort in 2006 and has exerted great pressure this time around. The Ministry of Economic Affairs has been sympathetic with the sector.
Steelmakers and oil refiners, in particular, have warned the tax plan would threaten their survival. I challenge them to explain why their counterparts in Japan and South Korea can thrive despite higher energy costs.
I know the reform is unpopular and will be stillborn unless the government offers its full support. Top policymakers must look at the issue from the nation’s long-term interests, not just from the perspective of short-term gains. I believe President Ma Ying-jeou (馬英九) shares the will to reduce carbon emissions before it is too late.
Opponents have questioned the tax rates for greenhouse gas emissions. The figures are negotiable. I set the amount high to save bargaining chips for later negotiations. A cost upward of NT$1,000 for each tonne of carbon dioxide emissions is acceptable.
TT: Has there been any progress since Aug. 3 when the disagreeing parties were given one month to bridge their differences?
Shaw: Most media interpreted the instruction as meaning the Cabinet had stepped back on the reform. That is not true. Non-tax measures have always been a necessary part of the reform plan.
The energy and environment taxes alone could only cut carbon emissions by 42 percent of the target set for 2020. That’s why the Cabinet involved the Environmental Protection Administration and the Energy Bureau as well as Industrial Development Bureau in the reform.
We were instructed to put forth our views and seek to work out a consensus. The process is ongoing.
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