Energy Policy to Cope with Energy Policy to Cope with Climate Change in TaiwanClimate Change in Taiwan

Dr. ChiDr. Chi--Yuan LiangYuan LiangChairman of Chung-Hua Institution for Economic Research

Chair Professor of National Central University

March 12, 2012

RECCS Road-Show Project: Increasing Climate Chang Impact Assessment Cpacity in Asia

2

OutlineOutline

1. Characteristic of Energy Situation in Taiwan

2. Framework of Sustainable Energy Policy

3. Energy Policy to Cope With Climate Changes

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1. Characteristic of Energy Situation in Taiwan

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1.1 Imported Energy Ratio

1) The imported energy ratio and the concentration rate of energy supply are conventionally chosen as key energy security indicator.

2) In addition, for coping with the global warming issue, CO2 per capita CO2/ GDP are also important to be considered.

3) The imported energy ratio is defined as：

Imported Energy / Total Energy Supply

4) For each of energy resources, Taiwan’s imported energy ratio was 98.1 percent in 2009. That was the highest one among 10 major countries. Next to Taiwan were Korea (97.6%), Japan (95.6%) and France (91.4%). Conversely, PRC (12.4%), United Kingdom (34.2%) and the United States (34.5%) were among the lowest. (see Figure 1)

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1.1 Imported Energy Ratio (Cont.)

5) Compared to the other types of energy, a small amount of nuclearfuel can generate a lot of energy and lasting for much longer time. Therefore, in some countries, e.g. Japan, define nuclearnuclear energy as a quasi-indigenous energy.

6) Even though nuclear is excluded from imported energy, Taiwan’s imported energy ratio (87.6%) was still the highest one among major countries. (see Figure 1)

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Figure 1. Imported Energy Ratio (2009)

98.1 97.6 95.6 91.4 88.6 83.972.1

34.5 34.2

12.4

78.8

25.7

83.981.7

50.9

80.487.6

61.5

24.9

11.6

0

20

40

60

80

100

120

Taiwan Korea Japan France Spain Italy Germany USA UK PRC

%Energy Imported / Total Energy Supply Energy Imported(Excluing nuclear) / Total Energy Supply

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1.2 Energy Concentration Ratio

1) The energy concentration ratio (ECR) is calculated as follows:

i=1,2,3,…

where SEi denotes i type of energy in total energy supply

2) The higher energy concentration ratio, the lower energy security will be.

Taiwan had higher relative ECR, i.e., 63.4% among the major countries in 2009, only next to PRC (70.0%) and Italy (66.2%).

The United States was among the lowest (53.1%).

(see Figure 2)

i

EiSECR 2

8

Figure 2. Concentration of Energy Supply (2009)

63.4 62.5 60.554.0 53.4 53.1 51.6 50.4 49.5 48.4

66.270.0

0

10

20

30

40

50

60

70

80

PRC Italy Taiwan Korea UK Spain France USA EU Japan World Germany

%

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1.3 CO2 Emission, CO2 Per Capita

1) Taiwan emitted 276 million tones of CO2 in 2007, ranked the lowest among major countries. (see Figure 3)

2) However, Taiwan CO2 per capita recorded 12.1 tones/person, ranked the second and only next to the United States (19.1 tones/person). (see Figure 4)

3) Taiwan’s high CO2 per capita could be attributed to:

Taiwan is an export-oriented economy.

(export accounted for 70 % of GDP)

High energy intensity or high ratio of (energy consumption)/GDP

High CO2 emission per kWh of electricity generation

(See Figure 5)

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Figure 3. CO2 Emissions (2007)

6027.855769.31

1236.34798.44

523.01 488.71 437.56 369.31 344.7 276.18

0

1000

2000

3000

4000

5000

6000

7000

PRC USA Japan Germany UK Korea Italy France Spain Taiwan

Mt of CO2

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Figure 4. Per capita CO2 (2007)

19.1

12.1

10.1 9.7 9.78.6

7.7 7.4

5.84.6

0

5

10

15

20

25

USA Taiwan Korea Germany Japan UK Spain Italy France PRC

per capita CO2

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Figure 5. CO2 Emission per kWh of electricity generation (2007)

655

549

455 450427

405

205

9040 23 7 1

0

100

200

300

400

500

600

700

Taiw

an

Unite

d St

ates

Sout

h Ko

rea

Japa

n

Germ

any

Neth

erla

nd

Cana

da

Fran

ce

Swed

en

Switz

erlan

d

Norw

ayRe

publ

ic of

Icel

and

gCO2/kwh

Source: IEA CO2 Emissions From Fuel Combustion, 2009 edition

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1.4 CO2/GDP

1) PRC registered the greatest CO2/GDP (2.52kg/$US 2000 prices) among 10major countries.

2) Next to PRC are Korea (0.69kg/ $US 2000 prices), Taiwan (0.66 kg/ $US 2000 prices) and the United States (0.5kg/ $US 2000 prices).

(see figure 6)

CO2/GDP is adjusted by purchasing power parity3) After purchasing power parity adjustment, PRC still had the highest

CO2/GDP ratio (0.61kg/ $US 2000 prices).

4) United States ranked the second (0.5 kg/ $US 2000 prices).

5) The followings are Korea and Taiwan.

(see Figure 7)

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Figure 6. CO2/GDP (2007)

2.52

0.69 0.660.5 0.47 0.39 0.37 0.3 0.25 0.24

0.0

0.5

1.0

1.5

2.0

2.5

3.0

PRC Korea Taiwan USA Spain Germany Italy UK France Japan

kgCO2

(in 2000 US prices)

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Figure 7. CO2/GDP(PPP adjusted) (2009)

0.61

0.50.46

0.43

0.34 0.340.32

0.29 0.28

0.21

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

PRC USA Korea Taiwan Japan Germany Spain UK Italy France

kgCO2 (in 2000 US prices)

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1.5 Energy Consumption / GDP

1) Since CO2 emission mainly comes from energy consumption, the ranking of CO2/GDP are highly correlated with that of Energy consumption/GDP with only exception of France.

2) France uses a lot of zero carbon nuclear energy.

(see Figure 8, 9 and Figure 10)

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Figure 8. Energy Consumption/GDP (2009)

3126

20 20 18 16 15 12 10

82

0

10

20

30

40

50

60

70

80

90

PRC Korea Taiwan USA Spain France Germany Italy UK Japan

toe/thousand(in 2000 US prices)

18

2120 20

1715

14 1413

1211

0

5

10

15

20

25

Korea PRC USA Taiwan France Germany Japan Spain UK Italy

toe/thousandUS$ in 2000

Figure 9. Energy Consumption/GDP(PPP adjusted) (2009)

We conclude that Taiwan is vulnerable to all kinds of energy We conclude that Taiwan is vulnerable to all kinds of energy security indicators by international level.security indicators by international level.

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1.6 Changes in Imported Energy Ratio and Consumption of Energy Supply

1) Imported energy ratio increased from 86.2% in 1982 to 99.33% in 2008.

2) The concentration of energy supply steadily decreased from 67.13% in 1982 to 60.43% in 1999 and then stabilized up to 2008.

(see Figure 10)

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Figure 10. Imported Energy Ratio & Concentration of Energy Supply in Taiwan

0

20

40

60

80

100

120

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

%Imported Energy RatioConcentration of Energy Supply

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3) Per capita CO2 of Taiwan showed a trend of increase during 1982-2008 with the only exception of 2008.

4) The decrease of per capita CO2 in 2008 is due to the financial tsunami and the improvement of the energy efficiency.

(see Figure 11)

5) Taiwan’s CO2/GDP showed a trend of decrease during 1982-1999, while it reversed during 1999-2003.

6) Finally, it showed a trend of decrease during 2003-2008.

7) In the meanwhile, the changes in energy intensity showed the similar patterns.

8) During 1999-2006, the energy intensity increase 3.4%, compared to a decrease of 20 percent during 1982-1999

(see Figure 11, 12, and 13)

1.6 Changes in Imported Energy Ratio and Consumption of Energy Supply (Cont.)

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Figure 11. Per capita CO2 emission

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

toe/people

23

Figure 12. CO2/ GDP (kg/1000NT$)

18.5

19.0

19.5

20.0

20.5

21.0

21.5

22.0

22.5

23.0

23.519

82

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

kg/1000NT$

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Figure 13. Energy Intensity (LOE/1000NT$)

Energy Intensity(LOE/1000NT$)

7.07.58.08.59.09.5

10.010.511.011.5

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Year

LOE/

1000

NT$

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1.6 Changes in Imported Energy Ratio and Consumption of Energy Supply (Cont.)

This could be contributed to:

1) The changes in share of energy-intensive industries in total energy consumption.

It decreased during 1982-2003, while it increased during 1999-2003.

2) The changes of energy price

especially the increase of energy price led to the decrease of energy intensity during 2003-2008.

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2. Framework of Sustainable Energy Policy

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Figure 14. Sustainable Energy policy

To develop clean energy To increase energy security

To increase energy efficiency

• Energy efficiency will increase 2% annually in next 8 years.

•In 2015, energy intensity will decline 20% comparing to the level in 2005.

•In 2025, energy intensity will decline 50% comparing to the level in 2005 via breakthrough technologyand package measures.

•In order to satisfy the increasing demand of energywith growing economy, we will establish the supply system of energy security.

•We will enhance the degree of dependence on quasi

indigenous energy.

•The amount of CO2 emission will go back to the level in 2008 during 2016 to 2020, .

•The amount of CO2 in 2025 will go back to the level in 2000 and the amount in 2050will be a half of the level of 2000.

•In power generation system, the share of low-carbon energy will increase from 40% to above 55% in 2025.

Sustainable Energy Policy Framework

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Energy Saving and Carbon Reduction Promotion

Committee(Since Dec. 28, 2009)

Chairman: Vice Premier of Executive Yuan

Vice-Chairman: Secretary General of Executive Yuan and Two Minister without

Portfolio

Inter-Ministerial Committee

Members (14)

Executive Secretary(Ministry of Economic

Affairs)

Green Transport Promotion

Green Building

Low-carbon Community and Society

Low-Carbon Infrastructure

Energy Saving and Carbon Reduction Technology

Low-Carbon Industries

Energy Saving and Carbon Reduction Education

Propagation and Communication

Project and Indicator Management

Low-Carbon Energy System

Figure 15. Executive Yuan-Level Institution

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Figure 16. Executive Yuan-Level Institution

New Energy Development and Promotion Committee(Since Dec. 30, 2009)

Task 2:New Energy Promotion

Task 1: New Energy Development Policies

4 Major Tasks

Task 3: New Energy Technologies, Research and Development

Task 4: New Energy Industries Development

Executive Secretary: Director-General of Bureau of Energy

Co-Chaired by: One Minister without Portfolio and Minister of Economic Affairs

Inter-Ministerial Committee Members (11) with Industrial Experts (8)

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3. Energy Policy to Cope With Climate Changes

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3.1 Energy Restructuring: Renewable Energy

1) Taiwan has passed the “Renewable Energy Development Act” on July 8, 2009 to develop the clean energy.

2) The limitation of renewable energy

More costly than the traditional fuels

Unstable power supply

3) Resource of renewables is limited in Taiwan

High population density (637 persons/km2) less space to deploy renewables

2/3 of the land is mountain area

Hydro energy shares 0.3 percent of total energy supply only

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4) SuggestionsThe strategy to develop renewable energy is to separate promotion with industry development.

5) Criteria for Renewable Energy Promotion Energy output-input ratio ≧ 1

(Production cost of renewable energy) – (CO2 abatement cost) –(Net industrial linkage effect) ≦ (Traditional energy production cost)

6) R&D for renewable energyTo strengthen R&D for renewable energy is essential to increase the long-term competitiveness of Taiwan’s renewable energy industries.

3.1 Energy Restructuring: Renewable Energy (Cont.)

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89083200Total

Ocean PowerFuel cellBiofuel PowerGeothermal PowerSolar PowerWind PowerHydro Power

Year

200-200-

1400815150-

200011245643625021939

2025Target

2009 Actual

Source : Bureau of Energy (2010)

Unit: MW

Table 1. The Proposed Renewable Energy Targets in Taiwan (draft)

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Ration of electricity output by unclear

The Electricity Strategy of Carbon Reduction in OECD

7(6)0.0Australia

4(3)17Taiwan

10(7)19America

18(1)20Spanish

12(4)26Germany

10(9)28Japan

1(1)37South Korea

11(11)78France

Renewable Energy

(include Hydro-electricity)

NuclearCountry

• According to “Paradigm of carbon reduction in OECD” in 2006 (the CO2 emission coefficient is lower than 0.44), in Germany, South Korea, Japan and Spanish, their ratios of non-carbon energy were 38%, and the CO2emission coefficient was 0.46~0.37, due their higher electronic supply by low-carbon energy. • Developing renewable energy is not an easy job because of the geographical environment and climate. Taiwan will make the maximum ratio of electronic supply by renewable energy up to 8% in 2025. Besides, referring to the policies of above benchmark countries, Taiwan may need to increase nuclear power and LNG electricity to make the CO2 emission coefficient lower than 0.44, the paradigm of OECD.

CO2 emission coefficient (kg-co2/kwh)Australia, 0.92

Taiwan; 0.66

Germany, 0.26Spanish, 0.2

America, 0.54

Japan, 0.43

South Korea, 0.46

France, 0.09

0

0.2

0.4

0.6

0.8

1

0 10 20 30 40 50 60 70 80 90

CO2 emission coefficient (kg-CO2/kwh)

0.5(average in world)0.44(average in OECD)

CO2 Emissions from Fuel Combustion (IEA,2009 edition)

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3.2 Energy Pricing Policy

1) Energy Price should fully reflects its internal and external cost.

2) Taiwan’s energy prices are one of the lowest countries in the world.

3) Since state-owned Chinese Petroleum Corporation and Taiwan Power Company enjoy monopolistic power in Taiwan’s oil and electricity market, respectively, there are always pressures asking government to intervene the energy markets when import energy prices increase.

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Table 2. Comparison of Oil Prices (before Tax) among Taiwan, Japan, Korea and Singapore

-5,852-8.6-10.8-5.4-8599-10.2-10.0-8.1-2,936-5.8-7.5-5.7

Difference between Taiwan’s

Price and the Price above

24,93931.533.227.222,68234.334.031.416,65626.628.425.8

Average Price of

Japan, Korea and

Singapore

-34.834.2--39.236.836.1-29.830.329.6Singapore

25,77229.232.126.321,60234.031.129.016,42225.926.523.9Korea

24,10530.5-28.123,76229.8-29.116,89024.1-23.9Japan

19,08722.922.421.814,21924.124.023.413,72020.1Taiwan

959295929592Fuel OilDiesel

GasolineFuel OilDiesel

GasolineFuel OilDiesel

GasolineItem

Average Price (2012.01)Average Price (2008.05)Average Price (2007.10)Time

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Figure 17. Comparison of 2008 Regular Unleaded Gasoline Comparison of 2008 Regular Unleaded Gasoline Prices

0.0

0.5

1.0

1.5

2.0

2.5G

erm

any

Den

mar

k

Aus

tria

Cze

ch R

epub

lic

Kor

ea, S

outh

Japa

n

Sing

apor

e

New

Zea

land

Aus

tralia

Can

ada

Thai

land

Taiw

an

Uni

ted

Stat

es

Chi

na

Rus

sia

USD

$/Li

ter

38

Figure 18. Comparison of 2008 Premium Unleaded Gasoline Prices

Comparison of 2008 Premium Unleaded Gasoline Prices

0.0

0.5

1.0

1.5

2.0

2.5

Nor

way

Finl

and

Ger

man

y

Italy

Den

mar

k

Fran

ce

Uni

ted

Kin

gdom

Swed

en

Irel

and

Aus

tria

Switz

erla

nd

Sing

apor

e

New

Zea

land

Aus

tralia

Thai

land

Taiw

an

Rus

sia

Uni

ted

Stat

es

Indo

nesi

a

USD

$/Li

ter

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4) During May 2000-May 2008, the government even strongly intervened the domestic energy market. The energy prices were ‘frozen’ when crude oil price increased from USD $80 to USD $147 per barrel during Nov. 2007-May 2008.

5) The results of irrational energy price:State-owned Chinese Petroleum Corporation and Taiwan Power Company lost NTD$120 billion and NTD$75 billion, respectively, in 2008.

6) Since June 2008, the government has unfrozen and adjusted the energy prices upward: Oil price by 15% Electricity by 25% Natural gas by 30%

7) As a result, under the new government, the energy intensity has decreased by 7 percent in the second half of 2008.

3.2 Energy Pricing Policy (Cont.)

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1) The tax revenue should be used for following purposes:

To reduce the personal and business income tax rate

To lower the burden of social welfare (e.g. Retirement Fund and Medicare) of the employers

To subsidize the energy expenses of low-income families

To purchase CO2 emission credits from abroad

To refund the enterprises with outperforming energy efficiency

Energy R&D

Except for the item 5, others are the consensus and resolution of National Energy Conference in 2009.

2) Ministry of Finance is drafting the “Energy Tax Bill” to reflect the external cost of CO2 emission.

3.3 Carbon Tax and Green Tax Reform

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Table 3. Analysis Results for the Impacts of the Carbon Tax (without Tax Cut) on the Economy in 2020

+9.3+0.45%Net Effects(3)=(1)+(2)

+34.0+1.64%Industry Linkage Effects of Energy-Saving Investments(2)

-24.7-1.19%

Effects from 25% of Energy Saving（Carbon Tax without Tax Cut and Regardless of Industry Linkage Effects of Energy-Saving Investments）

(1)

Jobs(Ten Thousands)

Economic Growth (%)ItemNumber

Source: Based on the simulation result of Dynamic General Equilibrium Model of Taiwan (or Liang-Jorgenson Model)

42

Table 4. Analysis Results for the Impacts of the Carbon Tax (with Supplementary Tax Cut) on the Economy in 2020

+21.8+1.05%Net Effects(3)=(1)+(2)

+34.0+1.64%Industry Linkage Effects of Energy-Saving Investments(2)

-12.2-0.59%

Effects from 25% of Energy Saving(Carbon Tax with Supplementary Tax Cut and Regardless of Industry Linkage Effects of Energy-Saving Investments)

(1)

Jobs(Ten Thousands)

Economic Growth (%)ItemNumber

Source: Based on the simulation result of Dynamic General Equilibrium Model of Taiwan (or Liang-Jorgenson Model)

Implication:Energy conservation can not only reduce CO2 emissions, but also create jobs and increase economic growth rates. Thus, it is a no-regret policy in Taiwan.

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1) The Executive Yuan has sent the “Greenhouse Gas Emissions Reduction Bill” to the Legislative Yuan for approval.

2) The reduction measure of the bill includes: Registration and reporting Establish GHG emission standards Conditions for implementing cap-and-trade Regulation of new sources or expansion of existing sources checking

3) Establish credits for early action programs in order to reward industrial entities that achieve greenhouse gas reductions.

3.4 Cap and Trade

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3.5 Regulation on Energy Efficiency

1) Taiwan Government has amended the “Energy Management Act”on July 8, 2009 to promote energy saving measures.

2) Several key recommendations for enhancing Taiwan’s energy efficiency are suggested in the following:

Increase the minimum energy efficiency standards routinely and implement these standards effectively

Combine comparative labels for energy performance based on the concept behind Japan’s Top Runner program

Replace typical light bulbs with high-efficiency light bulbs

Promote green building and enhance building insulation

Promote high-efficiency vehicles

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3.6 Industrial Restructuring

1) Promote the less energy-intensive industries, such as service industry

2) Demand energy-intensive industries (such as steel, cement, petroleum chemical) to provide CO2 offset plans when investing in new projects.

3) Minimize the CO2 reduction cost and maintain industrial competitiveness, oversea CO2 offset plans are needed.

4) Apply for entering to the UNFCCC.

5) It will be very unfair to Taiwan for not being allowed to enter UNFCCC.

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3.7 The Development of Green Energy Industries

1) Taiwan’s Government has adopted the “Dawning Green Energy Industry Program”, including a pledge to provide NT$37.38 billion (US$1.2 billion) between 2009 and 2012 to support promising green technologies.

2) The program aims at developing seven industries considered vital to Taiwan’s green-tech future, including: Solar photovoltaic (PV) Wind energy Biofuel, hydrogen/fuel cells LED lighting Electric vehicles Energy information communication technology

3) The program has chosen two industries for priority development: Solar photovoltaic energy LED lighting

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3.7 The Development of Green Energy Industries (Cont.)

4) The program envisions: PV production value will be NT$450 billion in 2015 (from

NT$106 billion in 2009) LED lighting production value will be NT$540 in 2015 (from

NT$94 billion in 2009)

5) It is worth of noting that Taiwan has strong competitiveness in ICT industries which is the foundation of green energy industries. The production values of 14 ICT products in Taiwan were

ranked as No.1 or No.2 in the world. The production values of LED light sources and solar batteries

were ranked as No. 2 and No. 4, respectively, in the world.

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3.7 The Development of Green Energy Industries (Cont.)

6) Taiwan’s ICT enterprises are good at “process innovation”and world-wide logistic center which make the cost-down of new energy technologies possible.

7) The successful experience and policy to promote ICT industry since 1980 will be useful to refer.

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3.8 Industrial Development

1) Taiwan government promulgated the Industrial Innovation Bill on April 16.2010, and amended the Income Tax Bill, which lowers the Corporate Income Tax rate from 25 percent to 17 percent.

2) Starting from 2011 Taiwan will be one of the lowest Corporate Income Tax rate (17%) countries in East Asia.

3) Taiwan also signed Economic Cooperation Framework Agreement (ECFA) with mainland China on June 29, 2010.

4) All of the above changes will enhance the international competitiveness of Taiwan’s Industries.

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Thanks for Your Attention.