The Taiwan Banker

“Before carbon pricing, when companies reduced their emissions, it seemed like they were just doing charity work, with no practical benefits or financial returns.” Carbon pricing not only allows Taiwan to take a big step forward in promoting net zero emissions, but also highlights the role of finance, as Environmental Minister Peng Chi-ming explained in an exclusive interview with the Taiwan Banker. With finance, the road to carbon reduction will be even more powerful. Following Minister Peng’s logic, this month’s issue analyzes carbon pricing from two perspectives. The first is the environment. By controlling total emissions, and through carbon emission price mechanisms, we can slow down temperature increases, thereby avoiding the ravages of extreme climate, i.e. “doing good.” Meanwhile, the second, more practical level is the financial incentives which arise from pricing and trading, arising from cooperation between the real and financial sectors. On October 23, 2024, Taiwan entered the era of carbon pricing, as the Ministry of Environment implemented a fee of NT$300 per metric ton of carbon dioxide. Going forward, the externalities mentioned in economics textbooks in the past will no longer be free of charge, but will be incorporated into production costs, and passed on into profits. In the process, they will also become an important metric for banks when making financing decisions. In other words, finance will play a role in sustainability. For B2B financing, banks can apply lending incentives for carbon reduction, especially for borrowers in transition. If they do reduce their emissions, the lender also reduces their Scope 3 emissions (i.e. those generated through investment and financing). For B2C, in the past, if Taiwanese retail investors wished to buy securities related to carbon reduction, because Taiwan did not implement carbon pricing and the carbon exchange lacked trading of domestic carbon rights, they could only purchase foreign ETFs through multiple entrustment. Starting from October, however, the financial industry will have more opportunities to design its own related products, allowing local investors to keep their money in Taiwan. This is just the first step in carbon finance, and many countries have proceeded further along this path. Minister Peng, who single-handedly promoted carbon pricing, reflects a new kind of thinking. I also hope that Taiwan’s financial industry can design more products suitable for the Taiwanese people, giving full play to its “second-mover” advantage.