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【TEJ Dictionary】Where is the value of carbon? Take a look!

In recent years, extreme climates have been rampant, starting with the Kyoto Protocol to promote the reduction of greenhouse gases and then derived from carbon-related issues.

Preface

Since the industrial revolution in 1760, human activities have gradually negatively affected the global environment. After wanton exploitation, plunder, and abuse of resources, it has been counterattacked by nature. The occurrence of extreme climate has become a massive risk to human life. Countries worldwide have come up with solutions to contribute to their homeland to reduce the threat of nature. In 1992, the United Nations formulated the “United Nations Framework Convention on Corporate Change” (UNFCCC), which mainly drafted treaties on climate change issues. It is hoped that the power of the “United Nations Framework Convention on Corporate Change” will unite the centripetal force of all countries and jointly implement coping strategies. The “Kyoto Protocol” was passed in 1997, which means that governments must individually or collectively control the number of greenhouse gases emitted by artificial emissions. The topic has received much attention, and carbon trading has once again sparked discussions. What is carbon trading? This article takes you a look!

Keywords: Carbon Trade, Net Zero Emissions, Carbon Pricing

Highlights

📍The value of carbon
📍Carbon trade
📍Net zero emission

The value of carbon

The value of carbon comes from the “right to emit carbon,” that is, carbon credit. Why does carbon emission require rights? Under the upsurge of carbon reduction, countries have proposed carbon reduction incentives. The most typical way is to pay according to carbon emissions. The more carbon emissions, the higher the cost. The following describes how carbon is priced and how carbon credits are obtained.

  • Carbon Pricing

Carbon pricing assigns value to carbon and calculates the cost of carbon emissions with each ton of carbon dioxide equivalent (tCO2e) as the pricing unit. There are two ways to price carbon.

1. Quantity-based: Cap and Trade

The government calculates various types of greenhouse gas emissions and issues emission permits to companies with their limits. Suppose the enterprise has used up the quota of the emission permit. In that case, the enterprise must go to the carbon market to purchase the unused carbon quota from other enterprises, that is, carbon credit, to avoid being fined for exceeding the emission limit. It can also be traded in the carbon market, so it is also referred to as carbon trading, and the market mechanism will determine the price of carbon credits.

2. Price-base: Carbon Tax and Carbon Fee

The current pricing method is based on the average value of the amount of climate disaster losses over the years and then adjusted according to the current economy, environment, and regulations to obtain the number of carbon emissions per unit and pay the amount based on the number of emissions.

In April 2022, Taiwan renamed the “Greenhouse Gas Reduction and Management Act” to the “Climate Change Response Act.” as follows:

  • 2050 net zero emissions target enacted
  • Elevate levels to strengthen climate governance
  • New Chapter on Climate Change Adaptation
  • Strengthen emission control and incentive mechanism to promote emission reduction
  • Special funds for carbon fee collection

Presently, Taiwan is adopting a price-based system, and the carbon tax/fee is expected to be launched in 2024 at the earliest. The main difference between the carbon tax and carbon fee lies in the collection unit and the purpose of collection. The carbon tax is a tax and is under the jurisdiction of the Ministry of Finance; the carbon fee is a unique project fee and is managed by the Environmental Protection Agency. The fund is used to develop low-carbon and negative emission technologies and industries and subsidize and reward investment in greenhouse gas reduction technologies for promoting greenhouse gas reductionand low-carbon economic development. To sum up, whether it is carbon trading, carbon tax, or carbon fee, they can achieve the effect of reducing carbon incentives and allocating social costs.

【Extended Reading】
Take you to understand the carbon emission data of Taiwan enterprises

Carbon trade

A carbon credit is a right to emit carbon, which can be divided into two types according to the production method of carbon credits.

1. Mandatory: Cap and Trade

As mentioned above, when an enterprise’s unused carbon emission allowances are converted into carbon credit, they can be auctioned in the market to obtain additional profits.

2. Voluntary: Carbon Offset

Carbon offset means implementing various activities to reduce greenhouse gas emissions to compensate for the carbon emission impact of enterprises in the production chain. Everyday reduction activities include afforestation, carbon capture, and renewable energy development. After implementing carbon reduction actions, apply for certification from domestic or international institutions to obtain carbon credit.

Domestic applicants: SGS、BSI Taiwan、TUV Rheinland Taiwan及Bureau Veritas Certification

International applicants: VCS、Gold Standard、CDM

The carbon market uses “carbon credit” as the subject of transactions, but Taiwan’s “Climate Change Response Act” was passed only this year. The relevant laws and regulations are incomplete, and carbon credit is not a physical commodity. It’s a type of emerging market. Taiwanese companies wishing to trade carbon credit can apply to the Environmental Protection Administration Executive Yuan. This official website can also check greenhouse gas offset projects and reduction measures on the official website. According to the trading platform, as of November 16, 2022, a total of 91 projects have passed the registration application, with an estimated total reduction of 68,649,949 metric tons of CO2e; and 23 projects have passed the quota application, and the quota has been issued 23,786,494 metric tons of CO2e. There is a massive demand in the carbon rights market, and the government’s carbon reduction activities are imperative. Enterprises should plan carbon credit-related business strategies to achieve sustainable development goals.

▲ Mandatory Greenhouse Gas Reporting System

Net zero emission

Before the term “Net Zero” came out, the voice of “Carbon Neutral” remained high. According to the definition of the Intergovernmental Panel on Climate Change (IPCC), carbon neutral refers to the carbon dioxide emissions of an enterprise or an organization that are offset by the carbon reduction of renewable energy and natural forests so that the carbon emissions in the atmosphere remain below a fixed level. It is desired to achieve a state where carbon dioxide does not increase or decrease.

However, the greenhouse gases that cause the earth’s average temperature to rise are carbon dioxide, water vapor, methane, nitrous oxide, chlorofluorocarbons, and ozone. To achieve the goal, the concept of “net zero emissions” appeared at the United Nations Climate Change Conference (COP26) in 2021.

The Glasgow Climate Pact, also known as COP26, is jointly organized by the UNFCCC member states. The United States and the European Union initiated the “Methane Emissions Reduction Measures,” promising to reduce global methane emissions by 30% in 2030 compared to 2020. For the first time, the international conference addresses the reduction of greenhouse gases other than carbon dioxide.

Furthermore, the Glasgow Financial Alliance for Net Zero (GFANZ) is an alliance of 450 financial companies worldwide, which promises to provide US$100 trillion in funds needed for net zero transformation in the next 30 years. The company’s financing plans to reduce emissions by 50% in 2030 and net zero emissions in 2050. Therefore, net zero emissions have been set as goals by various countries, including Taiwan, which is not a party to the contract.

According to the Ministry of Economic Affairs definition, net zero emissions are not non-emissions but efforts to minimize artificial greenhouse gas emissions. The gases targeted by net zero emissions are carbon dioxide and related greenhouse gases such as methane and nitrous oxide. The intention is to let the greenhouse gases emitted by human activities achieve net zero effect through negative carbon technology and natural carbon sinks.

【Extended Reading】
Current Status of Renewable Energy Development in Taiwan

▲ Circular Taiwan Network — 2050 Net Zero

Where to get more info?

TEJ TAIWAN DB → TESG Sustainability Solution → TESG Rating Data Bank → Environment → Carbon Analysis & Carbon Indicator

You can find out the company’s carbon emissions and know which companies most need carbon trading!

▲ TEJ DataBase — TESG Rating Data Bank

If you have questions about this article or want more access to the TEJ Database, feel free to leave a comment or email us.

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TEJ 為台灣本土第一大財經資訊公司,成立於 1990 年,提供金融市場基本分析所需資訊,以及信用風險、法遵科技、資產評價、量化分析及 ESG 等解決方案及顧問服務。鑒於財務金融領域日趨多元與複雜,TEJ 結合實務與學術界的精英人才,致力於開發機器學習、人工智慧 AI 及自然語言處理 NLP 等新技術,持續提供創新服務