Cablegate: Energy Tax, Good Idea Searching for a Good Plan

VZCZCXYZ0004
RR RUEHWEB

DE RUEHIN #4069 3410249
ZNR UUUUU ZZH
R 070249Z DEC 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 3368
INFO RUEHBJ/AMEMBASSY BEIJING 6060
RUEHUL/AMEMBASSY SEOUL 8312
RUEHKO/AMEMBASSY TOKYO 8284
RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS AIT TAIPEI 004069

SIPDIS

SIPDIS

OES/ENV FOR J. LUNSTEAD;
DEPARTMENT OF ENERGY FOR DOE/PI R. PRICE

E.O. 12958: N/A
TAGS: ENRG SENV EPET ECON TW
SUBJECT: ENERGY TAX, GOOD IDEA SEARCHING FOR A GOOD PLAN

REF: TAIPEI 3487

1. SUMMARY. Concern over rising energy use and carbon
dioxide emissions have led Taiwan authorities to devise new
strategies for increased energy efficiency and conservation.
A proposed new tax targeting hydrocarbon fuels was sent to
the Executive Yuan in September. It targets eight fuel
types, with the highest tax on gasoline. With elections
looming, chances of the proposal becoming law soon are slim
but the issue is likely to reemerge in 2007. END SUMMARY

INCREASING ENERGY USE AND CO2 EMISSIONS
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2. Taiwan authorities have long sought an energy policy that
encourages energy conservation, keeps a lid on CO2 emissions,
but does not stifle industrial growth. At the Conference on
Sustainable Economic Development in July, authorities
proposed an energy tax to promote energy efficiency and
conservation. Low fuel costs have contributed to low energy
efficiency in Taiwan. In September the Ministry of Finance
designed an energy tax proposal to promote energy
conservation and efficiency. The tax would be imposed in
rising annual increments on gasoline, diesel, fuel oil,
natural gas and liquefied petroleum gas, coal, aviation fuel
and kerosene until 2016, after which the tax rate would
remain fixed. The proposed tax for gasoline is
NT$1.00/liter/year (about US$.03). The energy tax proposal
is being reviewed by the Executive Yuan for subsequent
transmittal to the Legislative Yuan.

WILL A NON-COMPREHENSIVE ENERGY TAX MEAN ANYTHING?
--------------------------------------------- -----

3. Taiwan agencies currently impose their own vehicle taxes
in an effort to capture the costs of pollution. The Ministry
of Transportation and Communications (MOTC) collects a
vehicle fuel surcharge while Taiwan's Environmental
Protection Agency (TEPA) collects both air and ground
pollution surcharges. Critics of the MOF energy tax proposal
complain it does not include the surcharge now collected by
the MOTC and TEPA. Without these, they say producers will
not be paying for the pollution they generate. Opponents of
the tax also say that its implementation will cost households
NT$3,000 per month in additional expenses. MOEA Bureau of
Energy analysts believe, however, that the gradual
implementation of this tax would balance a planned
cancellation of part of the commodity tax and vehicle fuel
surcharge. Both EPA and MOT object to a comprehensive tax
scheme since they will stand to lose control over the revenue
currently collected by those agencies under the surcharges.
Dr. Liang Chi-Yuan of Academia Sinica notes that the energy
tax will affect both consumers and producers of fuels, since
fuel production requires energy.

GREENHOUSE GASES AND ENERGY TAX
-------------------------------

4. Taiwan ranks 22nd in the world for CO2 emissions and
contributes about one percent of
global carbon emissions. Its energy efficiency figures for
2004 lag behind Japan and the EU, with every kilo of oil
generating $4.55 in value versus $6.44 for Japan and $7.11
for the UK and $6.21 for Germany. Although not part of the
Kyoto Protocol because it is not a UN member, Taiwan has
pledged to reduce CO2 emissions. In June 2005, MOEA
announced plans to cut carbon dioxide emissions. Currently
there is an air pollution surcharge that is levied on
industry. However of all energy sources, coal, the most
polluting, has the biggest potential for growth. The Bureau
of Energy estimates that coal use will increase from the
current 34 percent to almost 50 percent by 2025. In
addition, Taiwan plans to build a large new steel plant, a
new naptha cracker, and new coal fired power plants.

COMMENT
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5. While experts debate the pros and cons of the energy tax,
legislators will sit this one out until after the elections.
Taiwan still enjoys relatively low energy prices in East
Asia. Academics and policy makers believe an energy tax can
be useful to encourage conservation, but finding the correct
formula for implementation and ensuring that the economy is
not adversely affected will be a big challenge. END COMMENT
YOUNG

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