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Taiwan’s net-zero roadmap promises $170 billion in spending, renewable expansion; more could be required

08 April 2022 Max Tingyao Lin

Taiwan is planning a NTD 4.9 trillion ($170 billion) splurge in public and private investment to kickstart cross-sector decarbonization on its pathway to net-zero emissions by 2050, with much of the spending routed to an expansion of renewable power generation.

But environmentalists and energy industry observers believe tighter emissions rules and stronger financial incentives are required to improve the roadmap's chances of success.

In a policy paper laying out Taiwan's net-zero roadmap, the government promises nearly NTD 900 billion in public spending and vowed to mobilize another NTD 4 trillion in private-sector investment between 2022 and 2030 to reduce emissions.

"State-owned enterprises will play a leading role in enhancing manufacturing processes, switching to low-carbon energy sources, and the circular economy, paving the way for more investments from privately-owned enterprises," according to the policy paper published in late March.

Taiwan's National Development Council (NDC), the government's planning body, said the public spending would include NTD 210.1 billion for renewable and hydrogen projects, NTD 207.8 billion for grid and energy storage, and NTD 168.3 billion for electrification of transportation.

"The spending is a strong policy signal for the government to demonstrate its role in decarbonization," said Kung-Yueh Chao, executive director of Taiwan-based thinktank International Climate Development Institute (ICDI), adding: "Eventually, the private sector will need to lead the energy transition."

For that to happen, "there should be associated regulations coming online … and there need to be more commercial incentives for private enterprises," Chao told Net-Zero Business Daily by S&P Global Commodity Insights.

The roadmap has come as Taiwanese lawmakers are preparing to enshrine the net-zero target and some decarbonization rules into domestic law in the coming months. Currently, Taiwan aims to halve its GHG emissions from 2005 levels by 2050.

Taiwan, the ninth biggest fossil fuels consumer by capita globally according to S&P Global estimates, achieved a 1.1% cut from the baseline to 287 million metric tons (mt) of CO2-equivalent in 2019 when carbon sinks were excluded. Carbon intensity fell by 34% in the timespan.

Based on the roadmap, the government plans to fully decarbonize Taiwan's power sector by 2050, with renewables accounting for 60-70% of electricity generation, fossil fuels with carbon capture, utilization, and storage (CCUS) for 20-27%, hydrogen for 9-12%, and pumped storage hydro 1%.

For other sectors, electricity, hydrogen, and biomass will be the power sources, but there will be 22.5 million mt of CO2e in residual emissions offset by carbon sinks.

"In the immediate term, we have stopped building any new coal-fired power plants and continued to expand renewable capacity," the policy paper said. "Later, we want to achieve a 100% smart grid and install CCUS technology at coal- and gas-fired plants."

Taiwan imported 97.4% of the energy it consumed last year, and decarbonization will help reduce the proportion to 50% in 2050, according to the government.

Big on solar, wind

The roadmap shows Taiwan is betting on a rapid expansion of renewable capacity for its emissions reductions. By 2050, the government aims to have 40-80 GW of solar power installed, 40-55 GW of offshore wind, and 8-14 GW of geothermal, wave, and biomass capacity.

In the interim period, Taiwan plans to install 20 GW of solar power by 2025 and 2 GW per year in the 2026-2030 period, also adding 5.6 GW of offshore wind by 2025 and 1.5 GW per year in the 2026-2030 period.

The government said its goal is to build a domestic supply chain for wind power equipment, with a particular focus on floating platforms suitable for the Taiwan Strait.

Last year, Taiwan's nonprofit Industrial Technology Research Institute teamed up with the UK's Offshore Renewable Energy Catapult to support the growth of the offshore wind industry in Taiwan.

"We want to promote the green transformation of our industries to generate fresh economic growth," according to the policy paper.

While Taiwan has some of the world's more aggressive plans in offshore wind expansion, Norman Waite, an analyst at the Institute for Energy Economics and Financial Analysis, said the confidence is warranted as "they've set themselves up for success."

"Some of the best wind conditions on earth are right off of Taiwan's west coast," Waite said. "The Taiwanese government has local content requirements but otherwise they have been very friendly to international investors and suppliers."

Taiwan has the potential to install 494 GW of offshore wind capacity in total, of which 67 GW would be fixed-bottom and 427 GW floating, the Global Wind Energy Council estimates.

If that full potential is reached, the fixed-bottom platforms alone can generate 293 TWh/year for Taiwan with a capacity factor of 50%, Waite said, adding: "If floating platforms are commercialized and the country's spend on grid and power storage pays off, wind could become Taiwan's biggest source of energy by far."

Transmission issues

Taiwan has been hit by several massive power blackouts in recent years. While the government generally blames the outages on human negligence, some experts believe Taiwan's grid infrastructure needs to be revamped amid rising power demand and expanding renewable output.

According to long-term government forecasts, Taiwan's electricity consumption will increase by 1.5-2.5% per year on average between 2021 and 2050, reaching somewhere between 427.5 TWh and 573.1 TWh at the midcentury point.

Official figures show Taiwan had 7.9 GW of solar power installed that generated 2.8% of its electricity in February, versus 2.1% a year earlier. Also, 825 MW of onshore wind capacity and 237 MW of offshore were installed, generating 1.9% of Taiwan's electricity, versus 0.9% a year ago.

With the government planning to phase out all of Taiwan's 2.89 GW nuclear capacity by 2025, Shan Xue, ENR principal analyst for power at S&P Global, said capacity reserves need to be increased and the grid structure improved to avoid further blackouts. However, "solving the problem is not easy and takes time," Xue said.

Government officials admitted there are stability issues with Taiwan's power transmission network, with renewables' intermittent nature highlighted as an issue.

"The most imminent task on the decarbonization pathway is to increase power storage capacity and enhance the robustness of grid infrastructure by 2030," said Kung Ming-Hsin, head of the NDC, in a press briefing.

Grid and energy storage is the second largest public spending pot for the roadmap. The government plans to use the money to diversify Taiwan's power sources, roll out smart meters, and enhance machine-learning technologies to forecast power supply and demand more accurately, among other purposes.

Soft on major emitters?

The roadmap did not include an interim decarbonization target for 2030, which Kung said will be determined by the end of 2022. The government has also not established emissions and energy intensity targets for the manufacturing sector, which accounts for slightly more than half of Taiwan's emissions.

"Taiwan's energy-intensive manufacturers are expected to replace their facilities en-masse in the next decade, and based on the long lifespan of their equipment, any investment decisions they make will affect 2050," said Chia-Wei Chao, chairperson of the nonprofit Taiwan Environment and Planning Association.

"I am concerned that the roadmap will lead to regulations that are too soft on industrial emissions to promote the manufacturers' decarbonization," he added.

The transportation sector makes up almost 13% of Taiwan's emissions, and the government said all city buses will be electrified by 2030 as part of its mitigation measures.

Moreover, 30% of new passenger cars sold will be powered by electricity or hydrogen by 2030, 60% by 2035, and 100% by 2040. For motorcycles, the government set sales goals of 35% by 2030, 70% by 2035, and 100% by 2040.

But Kung stressed Taiwan will not ban the sales of internal combustion engine cars, and that the government's policies will focus on subsidizing low-emissions vehicles and building charging stations for them.

This is an established pattern, said one group. "Far too often, the government shies away from mandatory rules and revert to subsidies," nonprofit Taiwan Environmental Protection Union said in a statement. "We question whether this approach will result in sufficient incentives."

Carbon pricing mechanism

The government reiterated its plan to impose a carbon levy on major emitters and use the income to fund decarbonization projects in the policy paper, without indicating an exact figure.

The roadmap suggests Taiwan will build CCUS facilities with a total capacity of 40.2 million mt of CO2e by 2050 for the net-zero target. Based on current technology costs, Greenpeace estimates Taiwanese companies will need to face a carbon price of at least $60-$70/mt before starting to consider CCUS investments.

"Government officials have not provided any detailed proposals on a carbon pricing mechanism, and it will be a long time before anything is implemented," the environmental campaign group said in a statement, adding that there is an absence of incentives in the roadmap.

Separately, the government plans to issue carbon credits to companies that voluntarily reduce their emissions as part of its roadmap.

The credits can be traded on a future trading platform to be established by the government, but financial institutions will not be allowed to take part in the transactions initially.

"We don't want Taiwanese businesses to speculate on the credits, and we don't want them to trade international carbon offsets because those do not contribute to domestic decarbonization," said Chang Tzi-Chin, head of Taiwan's Environmental Protection Administration.

Money and law

In the capital markets, the government also plans to introduce several measures to promote decarbonization in the coming years.

Listed companies will be required to disclose their GHG emissions data from 2023, with steel and cement companies, plus all those with paid-in capital of NTD 10 billion or more being initially targeted. By 2027, all listed companies will need to make the disclosures.

"During the process of carbon accounting, the companies will be able to learn where their emissions are from and how they can set emissions reduction targets," Taiwan's Financial Supervisory Commission (FSC) said in a statement.

Separately, the FSA is set to introduce a pilot taxonomy to identify low-carbon projects in the construction, manufacturing, and transportation sectors later this year.

"With the guidance, Taiwanese banks would become more willing to provide low-interest loans to fund those projects," ICDI's Chao said.

Once the net-zero target is enshrined into domestic law, Chao said there could be some climate lawsuits to force businesses to decarbonize their operations even if the government does not impose any emissions cap.

In the Netherlands, Shell lost a climate case last year and was ordered by a court to cut emissions by 45% from 2019 levels by 2030. Greenpeace launched what it described as Taiwan's first climate suit against the government in early 2021, arguing the existing renewable regulations would not be sufficient for achieving some legally-binding energy goals.

"Once it goes into law, the net-zero target will be binding … The plaintiffs will have a very powerful tool in litigation," Chao said. "But what I would like to see is more communication between businesses and civil society to form a consensus on decarbonization."

Posted 08 April 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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