Will Greenhouse Gas Mitigation Policies Abroad affect the Domestic Economy? The Case of Taiwan

Summary: As the Paris Agreement nears the four-year mark and signatories prepare to account for progress to date on national pledges to reduce climate-warming greenhouse gas (GHG) emissions, it’s important to note that some countries have a much heavier lift than others. A case in point is Taiwan, where more than 95 percent of the total energy supply comes from fossil fuels, nearly all of which are imported. Fulfilling its Nationally Defined Contribution (NDC) to the Paris Agreement—to reduce its greenhouse gas emissions by 50% from the business-as-usual level (428 metric tons of carbon dioxide-equivalent emissions) by 2030—may impact Taiwan’s economy due to its heavy dependence not only on imported carbon-intensive energy sources but also on international trade. The combined effect of nearly 200 other countries’ efforts to fulfill their NDCs could alter Taiwan’s trading channels and costs, and hence its domestic economic performance. To assess the overall potential impact of the Paris Agreement on the island nation’s economy therefore requires a modeling framework that takes into account the economic effects of both domestic and international GHG reduction policies.

Overcoming the limitations of previous studies of Taiwan’s economy based on a single-country modeling framework, researchers at the MIT Joint Program on the Science and Policy of Global Change have developed and applied a global, economy-wide, computable general equilibrium (CGE) model with energy use and emissions details where Taiwan is explicitly represented. The MIT model, which provides global coverage and explicit modeling for international trade, can simulate the economic effects of foreign policies including the Paris Agreement. In a study appearing in Climate Change Economics, the researchers compared the impact on Taiwan’s economy of the Paris Agreement under two scenarios—one in which Taiwan fulfills its NDC unilaterally, the other in which Taiwan does so in the context of a global effort. The study also considered the impact on Taiwan’s economy of a third scenario in which the U.S., which recently set in motion its withdrawal from the international climate accord, partially achieves its NDC through state-level efforts.