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Sustainability has become a central policy priority in Taiwan following the government’s announcement of its 2050 Net Zero Pathway on 20 March 2022. Under this framework, Taiwan has committed to achieving net zero greenhouse gas (GHG) emissions by 2050, focusing on four key transition sectors – energy, industry, lifestyle and society – and supported by two foundational pillars: technological innovation and climate legislation. This policy direction reflects not only domestic climate imperatives but also Taiwan’s strategic positioning within an increasingly sustainability-driven global economy.

Among the regulatory instruments deployed to achieve this target, carbon pricing has emerged as a core mechanism, complemented by the promotion of a circular economy. At the same time, sustainability considerations are increasingly embedded in Taiwan’s external economic relations. Notably, the Taiwan-US Initiative on 21st Century Trade, launched on 22 August 2022, formally integrates environmental, social and governance (ESG) principles in bilateral trade discussions, reflecting a broader shift toward values-based trade governance and supply chain accountability.

Overview of Taiwan’s carbon fee framework

The carbon fee, introduced under the Climate Change Response Act, 2023, constitutes Taiwan’s primary regulatory tool for internalising the cost of GHG emissions. By assigning a price to emissions, the regime is intended to incentivise emission reductions and drive changes in corporate behaviour. More broadly, it signals Taiwan’s transition towards market-based climate governance, aligning with international trends while maintaining a calibrated approach to industrial competitiveness.

On 29 August 2024, the Ministry of Environment (MOENV) promulgated three key regulatory instruments – often referred to as the “three arrows” of the carbon fee framework:

1. 1. Regulations governing the collection of carbon fees;
   2. Designated GHG deduction goals for entities subject to carbon fees; and
   3. Regulations for administration of self-determined reduction plans.

At present, the carbon fee applies to electricity and gas suppliers, as well as manufacturing entities with annual Scope 1 and Scope 2 GHG emissions exceeding 25,000 metric tons of carbon dioxide equivalent (tCO2e). Entities that are direct emission sources from electricity generation may submit documentation certifying the emissions associated with electricity consumption and apply to the MOENV for a deduction of GHG emissions subject to carbon fees. This threshold-based approach reflects a policy decision to focus regulatory burdens on large emitters while minimising compliance costs for smaller enterprises.

Carbon fees are assessed annually and payable by May each year, based on the previous year’s emissions. The chargeable emissions amount is not equivalent to total annual emissions. Under the applicable regulations, it is calculated as follows:

Chargeable emissions = (annual emissions ? K value) × emissions adjustment coefficient. The K value is set at 25,000 tCO2e. Accordingly, for most regulated entities, only emissions exceeding this threshold are subject to the carbon fee, after application of the emissions adjustment coefficient. By contrast, for businesses designated as having a high carbon leakage risk (high carbon leakage businesses) the K value is zero, meaning that their full emissions are used in the calculation. This differentiation balances environmental effectiveness with competitiveness concerns.

Once the chargeable emissions amount is determined, the carbon fee payable is calculated by multiplying that amount by the applicable rate:

Carbon fee payable = chargeable emissions × applicable rate. The standard applicable rate is TWD300 (USD9.45) per tCO2e. Preferential rates of TWD100 or TWD50 may apply where a regulated entity submits a voluntary reduction plan, commits to designated reduction targets, and obtains MOENV approval. This creates a hybrid regulatory model combining mandatory pricing with performance-based incentives, encouraging early compliance and emissions reduction planning.

For high carbon leakage businesses, the emissions adjustment coefficient plays a critical role. The coefficient is designed to mitigate the risk of carbon leakage by balancing regulatory stringency with industrial competitiveness. It will be phased in over the first three years at 0.2, 0.4, and 0.6, respectively. On 12 January 2026, the MOENV designated 17 entities as high carbon leakage businesses under the relevant review guidance, including businesses in sectors such as oil and coal products, iron and steel, and computers and peripheral equipment manufacturing. This phased approach provides transitional relief while maintaining a clear trajectory towards stricter carbon cost internalisation.

With the rollout of these regulations, Taiwan has formally entered the era of carbon pricing. Carbon fee revenues are allocated to the Greenhouse Gas Management Fund and are expected to support investments in emissions reduction technologies, climate adaptation measures, and broader decarbonisation initiatives. For businesses, this signals not only a new compliance obligation but also potential opportunities for funding and technological upgrading.

Legislative shift to circular economy

Parallel to carbon pricing, Taiwan is transitioning from a linear “produce-use-dispose” model towards a circular economy. This reflects a growing recognition that emissions reduction is insufficient without addressing resource efficiency and lifecycle impacts.

On 29 May 2025, the MOENV introduced two major legislative proposals: a comprehensive revision of the Resource Recycling Act, 2009, to be renamed the Resource Circulation Promotion Act (RCPA), and amendments to the Waste Disposal Act, 1974 (WDA). These reforms aim to embed the “3R” principles – reduce, reuse, recycle – across the full product lifecycle, shifting regulatory focus from end-of-pipe waste management to upstream design and resource efficiency. The Executive Yuan, Taiwan’s executive branch of government, approved the proposed legislative amendments on 9 April 2026, and they will now proceed to the Legislative Yuan (the legislature) for deliberation.

The proposed RCPA adopts a “carrot and stick” approach, combining regulatory obligations with incentive-based mechanisms. On the regulatory side, the MOENV will be authorised to establish green design standards for products and construction projects, mandate reduction or reuse requirements for designated products, packaging and containers, and impose restrictions or bans on materials deemed environmentally harmful or energy-intensive.

The proposed RCPA also introduces incentives to encourage compliance and innovation, including certification labels for qualifying products, as well as subsidies, tax incentives and preferential financing for businesses demonstrating strong performance in resource circulation. To address greenwashing risks, unauthorised use of sustainability labels will be subject to enforcement measures.

In parallel, proposed amendments to the WDA would authorise the MOENV to mandate recycling of specified waste streams – even where not commercially viable – prioritising resource optimisation over short-term economic efficiency. Businesses engaged in recycling will face enhanced compliance obligations including reporting, material tracking and disclosure requirements. These reforms signal a shift towards a more interventionist regulatory model.

ESG in Taiwan trade policy

Taiwan’s sustainability agenda is increasingly reflected in its trade policy architecture. This underscores the growing convergence between domestic regulatory frameworks and international economic governance.

Under the Taiwan-US Initiative on 21st Century Trade, ESG considerations – particularly labour and environmental standards – were explicitly incorporated into the negotiation framework. While the initial agreement concluded in May 2023, focused primarily on traditional trade facilitation issues, it nonetheless signalled a clear policy direction towards integrating sustainability into trade governance.

This trajectory was further reinforced by the Taiwan-US Reciprocal Trade Agreement, announced on 13 February 2026, which formally embeds labour and environmental provisions into the bilateral framework. On the labour front, the agreement covers core labour rights, including freedom of association, while also addressing emerging concerns such as forced labour. The environmental provisions emphasise the promotion of resource efficiency and environmental protection, aligning closely with Taiwan’s domestic circular economy initiatives. The agreement illustrates a convergence between domestic regulatory reforms and international trade commitments, positioning ESG as an increasingly binding component of cross-border economic relations.

Companies engaged in cross-border trade will need to ensure that their supply chains, labour practices and environmental performance align not only with domestic regulations but also with evolving international standards embedded in trade agreements.

Taiwan embeds sustainability across governance

Since announcing its 2050 Net Zero Target, Taiwan has made significant progress in establishing a comprehensive sustainability framework spanning carbon pricing, resource circulation and ESG-aligned trade policy. These developments reflect a broader transformation from reactive environmental regulation to proactive governance of economic and industrial systems.

Although initiatives remain under legislative consideration, developments – like the Ministry of Labour’s issuance of the Reference Guidelines for Enterprises to Prevent Forced Labour, on the same day as the Taiwan-US Reciprocal Trade Agreement – underscore the government’s increasingly integrated approach to sustainability governance.

Businesses must recognise that sustainability is no longer a peripheral consideration but a deeply embedded legal and regulatory imperative. Compliance will require not only adherence to evolving statutory requirements but also the proactive integration of sustainability into corporate strategy, risk management and cross-border operations. In this context, early engagement with regulatory developments and investment in sustainability capabilities will be critical to maintaining competitiveness.

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