WILL GREENHOUSE GASES MITIGATION POLICIES ABROAD AFFECT THE DOMESTIC ECONOMY? THE CASE OF TAIWAN

Abstract

In this study, we examine: when Taiwan carries out its national determined contribution (NDC) for the Paris agreement, will mitigation policies abroad affect Taiwan’s economy, which participates actively in international trade activities and depends heavily on fossil fuel imports? To answer this question, we apply a global computable general equilibrium (CGE) model where Taiwan is explicitly represented and international trade is considered. We find whether Taiwan will gain from foreign mitigation efforts depends on policy stringency. Under the current NDCs, when Taiwan accomplishes its NDC as part of a global policy, Taiwan’s negative GDP impact is lowered compared with unilateral implementation because, under a global policy, producer prices for fossil fuels are suppressed, benefitting Taiwan. Nevertheless, with further emissions cut globally beyond the current NDCs, foreign mitigation efforts could hurt Taiwan, as capitalizing on lower fossil fuel prices becomes harder for Taiwan when cutting Taiwan’s fossil fuel usage turns out indispensable, and as exports of Taiwan drop due to weaker foreign demand. We also evaluate the effect of U.S. withdrawal from the Paris Agreement, and find it has minimal impacts on Taiwan’s economy compared with the global policy scenario, as changes in fossil fuel prices are small.