1. Emissions Trading Scheme in Taiwan and International Linkage
EU-Taiwan Climate Change Forum
Dr. Hui-Chen Chien
Deputy Director-General
Department of Air Quality Protection and Noise Control
Environmental Protection Administration
13 October 2010

2. Outline 1. Existing and Emerging ETS Worldwide
2. Legal Foundation in Taiwan
3. Taiwan’s Emissions Trading Scheme
4. International Linkage
5. Concluding Remarks

3. Existing and Emerging ETS Worldwide1
Existing and Emerging ETS Worldwide
Taiwan ETS
similar in size to RGGI

4. Elements for ETS Linkage1
Elements for ETS Linkage
Cap (absolute vs. intensity-based, stringency of cap)
Coverage (sectors and GHGs)
Allocation rules (free vs. auction)
MRV standards (methods for monitoring, reporting, verification)
Offsets (eligibility of Kyoto and non-Kyoto units)
Cost containment (offsets, borrowing, price cap, etc.)
Registry system (inter-registry linkage, technical issues)
Trading platform (trading of various units, liquidity)

5. Complementary Measures of Taiwan ETS1
Complementary Measures of Taiwan ETS
MRV Mechanism: assures that all sectors follow international MRV requirements when reducing their GHG emissions or generating offset credits.
National Registry: serves as the national GHG emissions database, and provides a transparent management system for emitters.
Offset Project Management System: managing early action that the government has been promoting over the past years, and issues offset credits following MRV requirements.
Carbon Credit Management and ETS: establishing a system which is capable of linking with international markets, offers participants a fair and open trading environment.
Foreign Offset Credit Transfer Mechanism: provides a strict reviewing process to ensure the credibility and cancellation of foreign offset credits, in order to avoid reselling.

6. Taiwan’s Voluntary Reduction Target2
Taiwan’s Voluntary Reduction Target
Government adopted emission reduction targets with the
National Energy Conservation and Carbon Reduction Program
Returning to 2005 level by 2020
Returning to 2000 level by 2025
467
2009 BAU
(GDP High Growth Scenario)
M Tonnes CO2
2000
2005
2010
2015
2020
200
250
300
350
400
450
500
257
391
341
375
338
370
305
269
265
243
Return to 2005 level in 2020
Energy intensity
-2%/yr
LNG
Renewables
Nuclear
Afforestation
Taipower offsets
Shortfall
(~48 mt) 6 6 6

7. Medium Growth Scenario2
Our GHG Reduction Goal
GHG reduction goal in Taiwan – Return to 2005 level in 2020, it means 45% BAU decreasing percentage in 2020.
This BAU reduction percentage is far more than those comparative countries as Taiwan (Korea declines 30% GHG emission of BAU , Singapore declines 16% GHG emission of BAU); and IPCC suggested developing countries shall set a goal as decreasing 15-30% GHG emission of BAU in 2020.
Low Growth Scenario
Medium Growth Scenario
High Growth Scenario
M Tonnes
Growth
emissions
Reduction
Sorts of Contribution
Oversea Credits
Reduction Gap
(1) Nation Reduction (including yearly 2% energy density decline)
BAU reduction contribution compared to 2020
Note: GHG emissions are mainly combusted fuel CO2 in Taiwan (90%), Other Non-CO2 emissions declined in recent year. 7

8. Establishing a Legal Foundation for GHG Reduction in Taiwan2
Establishing a Legal Foundation for GHG Reduction in Taiwan
In order to achieve the target, “Green Policies” will be the important legal foundation for “Energy Saving and Carbon Reduction” :
Energy Management Act and Renewable Energy Development Act have already been passed in the Legislative Yuan in 2009.
The above-mentioned bills are complementary to Greenhouse Gas Reduction Bill and Energy Tax Bill, waiting to be reviewed and promoted the Legislative Yuan and Executive Yuan.

9. Taiwan Emissions Trading Scheme (ETS)3
Taiwan Emissions Trading Scheme (ETS)
The design of the Taiwan ETS is according to the spirit of low-cost and cost effectiveness in the GHG Reduction Bill, currently being reviewed by the Legislative Yuan. Taiwan ETS is a market-based approach used to reduce the emissions by providing economic incentives. The scheme also works to develop industries capacity-building.
MRV Mechanism:
The design of the Taiwan ETS not only follows the international MRV requirements, but UNFCCC/CDM mechanism as well, using similar standards for verifying project-based reduction.

10. GHG Reduction Strategies by Stages3
GHG Reduction Strategies by Stages

11. GHG Reduction Act Implementation3
GHG Reduction Act Implementation
Before GHG Act
Stage I
Stage II
Stage III
Voluntary
inventory/
reduction
Mandatory
inventory/
Voluntary reduction
Performance standards/
Offset trading
Cap and Trade
Inventory reporting
Inventory reporting
Inventory reporting
Inventory reporting
Verification system
Verification system
Verification system
Verification system
Performance standards
Performance Stds
Allocation
Auction
Emission Permits
Pilot offset trading
Offset trading
Cap and trade
Early action/offset
Early action/offset projects
Early action/
offset projects
International offsets
International offsets
International offsets
Perform std offsets
Perform std offsets
Allowances 11 11

12. Current Participants of the Taiwan ETS3
Current Participants of the Taiwan ETS
Under the Environmental Impact Assessment (EIA) Act, facilities that are required to offset their emissions will be the potential participants of the Taiwan ETS. Other facilities are not included in the scheme, but voluntary buyers are welcomed.
EIA commitment: Companies have committed to offset the increased emissions by purchasing carbon credits.
Voluntary buyers (e.g., Carbon Disclosure and Carbon Neutral): In order to strengthen international competitiveness, companies in Taiwan are participating the Carbon Disclosure Project and considering making their company carbon neutral to promote green business image.

13. 3
Recent Progress
Since the GHG Reduction Bill is still being reviewed by the Legislative Yuan, the following guiding principles were set using Executive Regulations:
6 November 2009: “EPA Operational Principles for GHG Verification Bodies” - establish third-party verification system
10 September 2010: “EPA Management Principles for GHG Emissions Inventory and Registration” – establish MRV system
10 September 2010: “EPA Promotion Principles for Early Action and Offset Projects” – establish emission credit MRV system
Emission credits management and trading system: under development

14. Early Action Crediting Program3
Early Action Crediting Program
Early Action
Offset Projects
Reduction Project
Methodology
ISO
Designated Sources
Emissions Intensity
ISO
EIA Offsets
Performance
Standards
Cap and Trade
Organization-based reduction credits
Offsets
Project-based reduction credits
May choose either one but NOT both

15. Early Action Crediting3
Early Action Crediting
Crediting starting from 1 January 2000
Intensity-based standards
e.g., emissions/unit production
To be set in consultation with industry authorities
Target: designated emission sources before the performance standards (GHG Reduction Act)
Emission Reductions =
(Intensity Standard – Calculated intensity) x
Activity (e.g., production units)

16. 3
Offset Crediting
CDM methodology or those approved by the central competent authority (EPA)
Additionality test
Nuclear power excluded
Crediting starting date:
No earlier than EPA registration date (except for those that have been validated before rules set)
Crediting period:
Forestry: 30 years fixed, or 20 years with 2 renewals
Others: 10 years fixed, or 7 years with 2 renewals

17. Emission Credits Management System3
Emission Credits Management System
EPA
Completed
Under development
Accreditation
Entity
Domestic
(Early action
offsets)
International
Offsets
(CDM)
Verification
Bodies
(international)
Project Proponents
National
Inventory
National
Registry
Emission
Credits
Platform
Emission Sources
Inventories
Sector
Allocation
EPA
Trading
Platform 17 17

18. Pilot Emissions Trading Plans3
Pilot Emissions Trading Plans
Emissions trading platform consist of “registry”, “trading”, and “clearing” systems
Trading platform is an electronic database that provides credits registration and transfer by participants, and linkage to national registry
Trading account functions managed by the trading system.
Registry system
Emission Credits Management System
Electronic
operations
Clearing system
Trading system 18 18

19. Reduction Credit Source and Application3
Reduction Credit Source and Application
Domestic Reduction Project
Before CAP
Validation/
Verification
EIA
International
Offset
Performance
Standard
Early Action / Offset
Program
Permit
CERs
Offset
EPA Approval
Acquire Credit
After CAP
Others approved
by the UNFCCC
Allowance
Central GHG Registry

20. Preliminary ETS Scheme Design3
Economy-wide Target
ETS Sector coverage
Other policy instruments
Energy
Industry
Transport
Resident/
Commercial
Allocation
Source A
Source B
Source C
Source D
International Offsets 35-50%
(CERs, etc.)
Acct. A
Acct. B
Acct. C
Acct D
Govt.
Approval
Central Registry
Early action,
Domestic offset
Carbon Price Signal
Clearing
Acct. A
Acct. B
Acct. C
Acct. D
Others?
Domestic Trading Platform

21. Implications of Taiwan Entities for Getting CERs3
Implications of Taiwan Entities for Getting CERs
To assist emitters to use available resources in the most cost-effective manner to meet their responsibility under our government’s voluntary GHG reduction program, or provide credits to new emission sources for meeting their reduction commitment from the environmental impact assessment.
For those emission sources implementing domestic reduction and offset as a priority but would still need to meet their voluntary reduction responsibility through foreign carbon offset projects, the government would assist them acquire offset credits from the CDM in order to gain international credibility, while assuring the effectiveness of their foreign investment.

22. International Offset Credits Acquisition3
International Offset Credits Acquisition
Establish Foreign
Account
Set up foreign entity and Annex-I account
Entity participates in CDM projects in non-Annex I countries
Transfer CERs to foreign account
CERs from primary, secondary markets
CERs cancellation for domestic offset (EIA, cap)
Annex I country issues LoA
Account Administrator
(EPA Registry)
Issue domestic credits
Develop CDM
Projects
CERs Management
Indirect Transfer to Taiwan 22 22

23. International Linkage4
International Linkage
Advantages of International Linkage
Reduce the aggregate cost of the linked systems’ collective emissions target
By broadening markets for allowances and credits, linking increases liquidity and improves the functioning of those markets
High cost of reduction in Taiwan is one of the reasons to explore the possibilities of international linkage.

24. Linkage with International Carbon Market Regional Carbon Market4
Linkage with International Carbon Market
Establishing a domestic ETS linking with Kyoto mechanisms has become the main measure for countries to reduce CO2 emission.
Taiwan is actively seeking an opportunity to participate in international carbon markets and build bilateral or multilateral corporations with developed countries and countries in Asia-Pacific region.
Taiwan ETS would inevitably linked with the international carbon markets
e.g., EU Linking Directive
e.g., EU ETS, Norway,
Switzerland, etc.
e.g., CDM, international offsets
Regional Carbon Market 24 24

25. 5
Concluding Remarks
As a highly industrialized economy, Taiwan is building the capacity for domestic mitigation, but our reduction cost is very high.
We are aiming at measurable, verifiable, reportable (MRV) management for GHG reduction, and proceeding with legislation of the GHG Reduction Bill.
Market mechanisms such as emission trading would allow us to join the global effort to reduce emissions in a cost-effective manner, through linkage with other offset and trading schemes.
A clear carbon price signal would promote domestic reduction, moving us toward a low-carbon society.

26. Thanks for your attention, Comments please…