Taiwan plans taxes for energy and CO2 emissions by 2011

In a potentially landmark move, Taiwan government officials yesterday agreed to impose new levies on energy and CO2 emissions that could generate up to US$12.4bn (£7.5bn) in annual tax revenues.

"We will first levy taxes on sources of energy such as fossil fuels and carbon dioxide emissions, and we expect the plan to start from 2011," said vice finance minister Chang Sheng-ho.

However, the proposed taxes – aimed at reducing the nation's CO2 output to 2008 levels by 2020 – will need parliament approval before becoming law.

The energy levy would apply to users of coal, gasoline, diesel and liquid petroleum gas. It, along with the CO2 tax, would be imposed incrementally, reaching the full rate in the 10th year after coming into effect.

Think-tank Chung-Hua Institution for Economic Research (CIER), which was commissioned by the government to advise on its plan to overhaul the nation's taxes, had recomended a levy of NT$2,000 (US$61.8, £37.6) on each tonne of carbon emissions.

CIER estimated that Taiwan could raise NT$164.7bn (US$5.1bn, £3.1bn) from the energy tax and a further NT$239bn (US$7.3bn, £4.4bn) from the carbon levy on an annual basis by 2021.

While officials have not yet confirmed the tentative tax rates, they said yesterday that the proceeds would go towards public transport and supporting low-income families, in addition to covering planned cuts in business taxes and stamp duty.

Meanwhile, an influential industry body representing the manufacturing sector has called for incentives for businesses, which would see their energy bills and raw material costs rise due to the taxes.

Preston Chen, chairman of the Chinese National Federation of Industries, cited calculations by CIER, which estimate that manufacturers would pay an additional US$3bn (£1.8bn) in higher taxes and electricity bills if the levies were imposed.

If adopted fully the new levies would represent one of the most far-reaching green tax regimes in the world. France is currently planning to launch a carbon tax, but that only covers transport fuel and domestic heating, while the UK is also reportedly considering introducing a carbon tax to help fund the development of nuclear and other low carbon energy sources.