Taiwan Pushes Companies to Begin Buying CO2 Permits (Update3)

Feb. 5 (Bloomberg) -- Taiwan is forcing some of its largest companies such as China Steel Corp.’s Dragon Steel unit to cut emissions or begin buying carbon credits on global markets.

The government will set up an offshore company to help them acquire United Nations-authorized credits that represent gas reductions made in other nations, Stephen Shen, head of the Environmental Protection Administration, said in an interview.

Taiwan, seeking to rein in greenhouse gases, has begun withholding permits for expansion from some of the biggest polluters unless they reduce emissions or start competing with European and Japanese buyers in the $120 billion carbon market. One of the projects at stake is Formosa Plastics Group’s $8.7 billion plan to boost energy and chemicals production.

“For heavy industries, such as electricity, steel and petrochemical, costs will rise,” said Peter Tzeng, an analyst at Polaris Securities Co. in Taipei.

Lowering companywide carbon-dioxide emissions by an amount equal to half of what a new plant would produce may become a benchmark in government approval of large industrial projects, Shen said from Taipei. The policy may be applied to the NT$280 billion ($8.7 billion) expansion by Formosa Plastics, parent of the island’s only publicly traded refiner, he said.

The policy is a stopgap until permanent limits are set in the Greenhouse Gas Reduction Act under debate in parliament.

Companies are resisting the requirement, which adds costs.

‘Throwing Money Overseas’

Taiwan Power Co. is requesting that the environmental agency retract its Sept. 2 demand that the island’s biggest electricity producer start estimating the amount of credits it needs to buy over the next 15 years, Chief Engineer Tu Yueh-yuan said by telephone on Feb. 3. The company accounts for about 30 percent of the island’s emissions.

Carbon credits may increase the cost of output by “tens of billions” of New Taiwan dollars, which the utility will have to pass on to customers, Tu said. “It’s like throwing money overseas,” she said. “How could we do something like that?”

The industrialized island releases about three times more heat-trapping gases per person than the world average, Bloomberg data show. The nation contributes 1 percent of world carbon output and emitted about 3 percent less last year, Shen said.

UN Certified Emission Reductions credits for December delivery fell 0.5 percent to 11.5 euros ($15.80) on London’s European Climate Exchange. That reduced this year´s gain to 4.7 percent for the credits in the second-biggest carbon market.

Credit-Price Impact

“This is of course bullish for the CER price,” said Emmanuel Fages, an analyst in Paris at Orbeo, Societe Generale SA’s carbon-trading venture with Rhodia SA. New demand from Taiwan won´t be enough to change the “fundamental equilibrium for CER” prices, he said in an e-mailed response to questions.

The government could potentially allow companies to acquire as much as half of their carbon credits overseas under the gas- reduction bill in the legislature, according to Shen.

The proposal, which may become law next year, may impose a cap-and-trade program in Taiwan in five to six years, similar to Europe´s carbon rules. Voluntary reduction and emissions limits based on energy efficiency will precede that, according to Shen.

Dragon Steel Corp. has agreed to reduce overall gas output in return for adding a furnace that doubles capacity. The unit of Taiwan´s largest mill may become the nation´s first company to buy carbon credits for regulatory compliance, Shen said, an assertion its parent company disputed.

Dragon Steel´s Plan

While Dragon Steel´s expansion to 5 million metric tons of steel a year is slated for 2013, the company aims to meet the carbon requirement by deploying late-model emissions-reduction technology, said Chung Le-min, China Steel executive vice president. “I’m confident we don’t need to buy carbon credits,” he said in an interview.

An alternative way to meet emissions rules is to invest in projects that reduce emissions at other companies.

“Producers of alternative energy, including wind and solar, will benefit” because they may attract investment, Tzeng of Polaris Securities said.

The government’s proposed offshore company, most likely in Japan, will help Taiwanese companies accrue carbon-dioxide credits certified by the United Nations in a “cost-effective way,” Shen said, without elaborating.

The East Asian island remains outside UN-set carbon controls because it’s not a UN member, unlike European countries and Japan. They dominate carbon-market purchases, used to meet their targets under the 1997 UN-brokered Kyoto climate treaty.

Emissions Pledges

Taiwan’s President Ma Ying-jeou has pledged to cut carbon emissions to 2008 levels between 2016 and 2020 and to 2000 levels by 2025. Local companies, so far not bound by law to offset greenhouse-gas output, already may voluntarily buy credits in non-UN markets such as the Chicago Climate Futures Exchange or sponsor carbon-cutting projects such as wind farms.

CPC Corp., Taiwan’s state-run oil refiner, will plant trees on the island to help reduce emissions as it expands capacity to produce petrochemicals, Lin Maw-wen, a vice president at the company, said.

Emissions more than doubled from 1990 to 2007. Taiwan Power has erected wind-power turbines since 2002, while Formosa Plastics has planted more than 1 million trees in Mailiao.

The island’s carbon-dioxide emissions reached 13.2 tons per capita in 2006, compared with the world average of 4.5 tons, according to the most recent data on Bloomberg.

The majority of UN members recognize only the government in Beijing, which claims Taiwan as part of its territory. The island and China have been administered separately since a civil war in 1949. Taiwan has formal diplomatic ties with 23 nations, mostly in Latin America, the Pacific and Africa.

To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net