After the Taiwan Carbon Solution Exchange (TCX) was launched on Aug. 7 last year, it took just four months to fully establish its carbon trading information system and adopt the internationally recognized Gold Standard voluntary carbon credits.
On Dec. 22, the TCX recorded 88,520 tonnes of transactions totaling about US$800,000.
This success is a milestone in Taiwan’s carbon credit trading, and the TCX staff should be congratulated for being highly efficient.
However, from Dec. 22 onward, carbon credit price discovery would be the real test of the TCX’s role in helping Taiwan transition to net zero emissions. It has yet to be seen how it expands and creates liquidity on the TCX. Only when there is liquidity can there be price discovery, and only then can there be incentives to develop carbon-reduction technology and implement carbon reduction on the ground.
The supply of carbon credits is a key aspect. Under the carbon credit standards set by the TCX, which must meet at least three of the UN’s Sustainable Development Goals, the exchange should make available more sources and products, such as the Verified Carbon Standard and mainstream international carbon dioxide removal credits, such as those derived from forest and wetland carbon sinks.
It is imperative to continually provide high-quality carbon credit options.
However, the key task is to maintain demand for carbon credits.
First, the Ministry of Environment should, in accordance with Article 27 of the Climate Change Response Act (氣候變遷因應法), swiftly announce high-quality carbon credit products and ratios that can be used to offset carbon fees.
It should also amend Article 24 of the act to allow enterprises to use the high-quality carbon credits announced in accordance with Article 27 to offset increases in environmental impact assessments.
Second, it should encourage enterprises to set interim net zero targets. If this is done, it should be possible to maintain stable demand for carbon credits.
A correct understanding of carbon trading is the key task for establishing a broader path for carbon trading in Taiwan. In October, Ecosystem Marketplace, an international authority on the voluntary carbon market, released its report for last year — All in on Climate: The Role of Carbon Credits in Corporate Climate Strategies — in which it analyzed the data of 7,415 companies that have applied for the Carbon Disclosure Project.
The report found that about 10 percent of the companies surveyed that have purchased voluntary carbon credits performed better than the approximately 90 percent of companies that have not done so, in areas such as board oversight, the integrity of carbon emissions disclosure (including Scope 3 emissions), supply chain reconciliation and carbon reduction ambitions.
The report found that these companies buy carbon credits to achieve more ambitious carbon-reduction targets, not to shirk their responsibility for reducing carbon emissions.
Such an understanding would encourage and maintain a stable demand for carbon credits.
I had the privilege of attending last year’s COP28 climate summit in Dubai, the United Arab Emirates. While there, I observed how international standards for businesses’ use of voluntary carbon credits are being established. These standards highlight that enterprises are purchasing carbon credits to offset their ambitious carbon reduction targets, not to offset increased emissions, and that purchasing a sufficient quantity of carbon credits enables them to achieve their ambitious emission reduction targets.
For example, if they aim to reduce their emissions by 40 percent by 2030, while working to reduce their own emissions by 20 percent, they can make up the remaining 20 percent by using high-quality voluntary carbon credit offsets.
By doing so, the company would meet the most comprehensive carbon credit standard and would be issued the highest-possible platinum level of accreditation.
Promoting this standard of integrity of using carbon credits, known as the Claims Code of Practice, should also generate a stable demand for carbon credits from companies in Taiwan.
COP28’s report on the first global stocktake says that Article 6 of the Paris Agreement contributes to the global net zero transition.
Article 6 has three key implications, namely that international cooperation on reducing emissions would cut the cost of carbon reduction, raise carbon-reduction ambitions and promote the development of low-carbon, zero-carbon and carbon-negative technologies.
This means that if you cannot achieve carbon reduction on your own, you can do it by working with others.
Tokyo has converted Article 6 of the Paris Agreement into the Joint Crediting Mechanism — an international carbon reduction-cooperation program of the Japanese government. Through this program, it plans to offset 46 percent of its emissions-reduction target by securing carbon credits for 100 million tonnes of carbon dioxide credits from abroad by 2030.
Taiwan is a global manufacturing powerhouse, and the high cost of carbon reduction makes it hard for companies to propose ambitious carbon reduction targets.
Although Taiwan cannot take part in Article 6 of the Paris Agreement under the UN system, it can learn from Japan’s Joint Crediting Mechanism by making good use of carbon credits from the international high-quality voluntary market and encouraging Taiwanese companies to go out into the world to deploy and develop high-quality carbon credits, such as subscribing to protect Brazilian rainforests, or Indonesian wetlands or mangroves.
On the one hand, this would make Taiwan more ambitious about reducing carbon emissions and increase its international influence. On the other, the nation could become a carbon credit supplier by transferring high-quality voluntary carbon credits from abroad and listing them on the TCX.
As Taiwan’s carbon-trading path expands, it could also become more ambitious about carbon reduction, and opportunities for net zero transformation would naturally follow.
Lee Chien-ming is a professor in National Taipei University’s Institute of Natural Resources Management.
Translated by Julian Clegg
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