Taiwan Cannot Develop Renewable Energy While Secretly Subsidizing Fossil Fuels

A good friend of mine, Nate Maynard, based in Taiwan, recently wrote an article for The News Lens. In it, he discusses the implications of a Government trying to make the switch to renewable energy. A Government that on the one hand recognises global warming and all the health-related implications that go with it and on the other hand, heavily subsidies the fossil fuel industries which leads to some of the lowest energy prices in the world. This excellent article emphasises some of the struggles Governments face within their organisations with outdated and ineffective policies, cronyism and outright corruption.

Reprinted in full with permission: Original article on The News Lens by Nate Maynard

Taiwan plans to triple its renewable energy production to 20 percent by 2025 but carefully hidden subsidies threaten to keep Taiwan tied to coal, oil and gas.

Bringing this much green power online is a tough ask, even discounting a parallel commitment to draw down nuclear energy to zero from the current 6 percent of Taiwan’s total energy consumption. While difficult under normal circumstances, this transition is even more challenging when new energy projects must compete with fossil fuel prices subsidized by the government.

Subsidized fire

Historically, Taiwan’s government has used various subsidies to lower manufacturing costs for exports. This created country-wide economic benefits by stimulating industries, providing employment and boosting exports. Exports make up around 70 percent of Taiwan’s GDP.

台中火力發電廠。Photo Credit: 阿爾特斯via 維基共享資源 CC BY 3.0

However, they create dependence and often cause fierce protest upon removal or reduction. While energy subsidies are often necessary for young industries to help establish sectors and pushes innovation, they make little sense in the modern world and can actively cause harm.

Taiwan imports 97 percent of its energy, which has effects that ripple across society. One of the largest and most polluting coal plants in the world is in Taichung, western Taiwan. People tend to blame China for air pollution in Taiwan yet fail to realize that the dirtiest energy powers their lights.

Paradoxically, Taiwan leads the world in clean technology manufacturing, design and innovation. This small island produces a significant amount of the world’s solar panels, LEDs, and energy efficiency equipment, but the vast majority goes to export.

Because electricity prices remain so low, companies have little incentive to use the technologies designed and manufactured in Taiwan. Besides limiting domestic innovation, these fossil fuel subsidies cause severe harm to the people of Taiwan.

Cheap Power Kills

Cheap electricity causes harm in three ways: through human health, environment and reducing manufacturing competitiveness.

For human health, the clearest impacts come from asthma and lung cancer. Adenocarcinoma of the lung is closely related to air pollution, and is responsible for 75 percent of female lung cancer cases in Taiwan, while in Europe and the U.S. it accounts for only 30 percent.

Twenty percent of Taiwanese children have allergic asthma; this rate has doubled over the past 20 years.

This excessive air pollution destroys animal and bird life and continues to render parts of the island unfit for farming, fishing or swimming.

More seriously, Taiwan ranks 24th in the world for greenhouse gas emissions, producing 256 million tons of CO2 emissions per year, an astounding amount for the country’s relatively small population.

As a tropical island, Taiwan will face some of the most severe impacts of climate change. Stronger and more frequent typhoons, droughts, and heat waves already occur on a yearly basis. Without first fixing problems domestically, the government cannot seriously expect other countries to reduce emissions while still subsidizing power.

Hidden Subsidies

Currently, the “subsidies” are expressed in two ways: through fuel cost reduction for certain sectors and through electricity price setting. I would not have been able to find any accurate information on subsidies without the help of Vivian Lung from climate change advocacy group 350 Taiwan. The government no longer discloses the size of the subsidies, so 350 Taiwan had to find alternative means to estimate the size of fossil fuel subsidies.

The Legislative Yuan sets the electricity price for various users and usage grades. From 2008 to 2012, the price of electricity remained constant, which became a source of public controversy when rising fossil fuel prices caused a US$2.3 billion deficit at state-run energy company Taipower. This, combined with mounting public pressure on the government, caused them to “remove” the subsidies. In practice, they made the information more difficult to find.

Before 2012, subsidies were separated out based on sector and fuel type. Electricity bill subsidies valued at US$1.2 billion made up 50 percent of the subsidy. After 2013, when subsidies reached US$2.5 billion, the government stopped sharing subsidy information. Now, the only way to get subsidy information is through large international agency inquiries or through independent researchers.

The International Energy Agency (IEA) and the International Monetary Fund (IMF) both measured fossil subsidies in Taiwan as part of a larger drive to remove fossil fuel subsidies in developed countries.

The Asia-Pacific Economic Cooperation (APEC) report published in 2017 found five subsidies totalling more than US$400 million. They covered fuel subsidies for offshore island freight (US$3 million), preferential pricing for streetlights (US$85 million), tax exemptions for agricultural machinery oil (US$80 million), preferential electricity pricing for agriculture (US$264 million), and a petroleum product price subsidy (ongoing, but not implemented). No substantial changes came after this report, nor did it acknowledge the subsidies to power generation.

The IMF report found subsidies totalling US$300 million, with externality costs exceeding US$26.5 billion. The disparity arises from the high cost of air pollution, carbon emissions, and traffic congestion.

Both the IEA and the IMF reports suggest removing these subsidies and re-directing the money to the target groups in need. The APEC report recommended removing all identified fossil fuel subsidies as they each failed to achieve their intended target. If low-income citizens need help paying for their electricity bill there are better ways to seek compensation.

After 2013, it has been impossible to find information on the true subsidy of electrical bills. In 2013, fossil fuel subsidies peaked at US$2.1 billion. Other sources seem to suggest subsidies totalling US$620 million.

In 2014, according to 350 Taiwan, all of the direct subsidies went to oil, no longer targeting electricity prices. However, logically, Taiwan must still be subsiding electricity costs by controlling the price through the Legislative Yuan. A true cost to generate electricity exists from purchasing coal, oil, and gas — none of which Taiwan extracts itself.

Because Taipower is state-owned, however, the government can force them to take a loss to keep prices low. Taiwan already has some of the lowest electricity prices in the world, and possibly the lowest of a developed country.

It’s impossible for Taiwan to achieve this without subsidies. But if these subsidies have such substantial costs, why does the government continue to implement them? You need to understand electricity usage in Taiwan.

The Industry-Government Export Nexus

With an export-based economy, industry is by far the largest user of electricity.

Since most of the subsidies go to oil and electrical use, it isn’t difficult to find out who benefits. According to the Bureau of Energy, the industrial sector used 37.2 percent of electricity in 2016, with “non-energy use” using another 21.7 percent. “Non-energy use” covers the use of oil and coal to make secondary products or new materials for manufacturing. This includes naphtha (a plastic precursor), paraffin waxes, lubricants, bitumen, and any other material made from fossil fuels not used directly as energy.

Taken together, the true electricity usage of industry hovers around 58 percent, with commercial and residential using about 10 percent and transportation using 12 percent. Yet, cheap electricity will not drive Taiwan’s future manufacturing success.

Actually, Taiwan’s fossil fuel dependence could hinder its ability to win international bids for manufacturing. An ever-increasing number of global brands have made commitments to use 100 percent renewable energy, with many having deadlines to do so by 2020.

This includes not only their operations but their suppliers. Key industries from electronics to textiles are making the switch and right now many producers in Taiwan do not have the option to switch to renewables. Under new regulations from Taipower, people can choose where their electricity comes from, but with the electricity price subsidies in place, renewables will always play on an uneven field.

While nobody wants to pay more for something they used to get for free, it’s worth highlighting the extremely low price of electricity. The average selling price in US dollars is 9 cents per kWh. In Japan, it’s around 20 cents per kWh, in California it’s about 17.8 cents per kWh and in Germany, it’s around 34 cents. Japan, California, and Germany still manufacture goods and consequently have adopted widespread energy efficiency systems. If the price of electricity went up in Taiwan domestic industries could spring into action deploying solar panels, more efficient products, and retrofits for buildings. Most major economies have gone through harder transitions. Can’t Taiwan do the same?

Taiwan needs a carbon tax and to transform its energy system, but before it can implement that, it needs to clear out its fossil fuel subsidies. Providing subsidies for both fossil fuels and renewables makes no sense. These subsidies hamper innovation, harm human health, and continue to increase the negative effects of climate change.

The greatest tragedy? Taiwan has the technology, capital, and innovation needed to abandon subsidies. Yet the government and industry seek to squeeze out what little margins they can from the people of this island. If the subsidies are about helping the poor they could simply be reallocated to other sectors, but given the government’s lack of transparency and continued manipulation of the electricity prices, you wouldn’t be alone in thinking there were other motivations for keeping the subsidies in place.

Reprinted in full with permission: Original article on The News Lens by Nate Maynard