EDITORIAL: Energy policy and security

The Cabinet must present more comprehensive and transparent energy subsidy frameworks to secure legislative support for its supplementary budget of NT$180.9 billion (US$5.55 billion) for this year, some of which would go toward offsetting the massive deficits of state-owned CPC Corp, Taiwan and Taiwan Power Co (Taipower).

Since 2007, CPC and Taipower have shouldered the responsibility of stabilizing consumer prices, with proven results. The government’s broad subsidies on energy and electricity pricing policies have mitigated inflationary pressure this year, with the consumer price index in the first three quarters of this year rising 1.94 percent from a year earlier.

For the full year, consumer prices are expected to rise 2.03 percent year-on-year before easing to 1.83 percent next year, below the central bank’s warning level of 2 percent.

However, freezing energy prices has imposed a severe fiscal burden, pushing the state-owned enterprises to the brink of insolvency and potentially creating a dire energy security situation.

CPC and Taipower are projected to lose NT$56.3 billion and NT$73.28 billion respectively this year, stemming primarily from absorbing the shock of surging global crude oil and liquefied natural gas (LNG) costs. Global benchmark Brent crude has surged more than 75 percent this year to more than US$100 per barrel as hostilities in the Middle East and the Russia-Ukraine war restrict supply.

CPC’s debt-to-asset ratio was more than 94 percent at the end of last month, with cumulative losses totaling NT$91 billion after absorbing NT$674 billion in increased crude oil and LNG costs, Ministry of Economic Affairs data showed. Taipower’s cumulative losses as of late August were NT$371.2 billion, primarily driven by a NT$70 billion surge in LNG procurement costs, the data showed.

The staggering fiscal burden has prompted widespread concern, and criticism from legislators and economists, with calls for a fundamental overhaul of the nation’s energy policy.

Some legislators urged the government to embrace emerging nuclear technologies, such as small modular reactors (SMRs), to reduce its reliance on highly volatile LNG and costly green energy to secure a more stable path toward clean energy.

While the government remains open to all potential energy sources, it views the adoption of SMR technology as premature, citing challenges in commercialization, waste disposal and costs.

Some opposition lawmakers challenged the propriety of using taxpayer money to subsidize major energy consumers. That criticism lacks a solid basis. Electricity rate increases are a constant worry for energy-intensive corporations, while Taipower has frozen rates for small and medium-sized enterprises and residential households to mitigate inflationary pressures.

Some economists are concerned that excessive government intervention in the energy market risks triggering a downward financial spiral for state-owned energy and utilities providers, undermining national energy resilience.

That argument must be considered by the government when it formulates national energy policies.

Several industry representatives backed the government’s energy subsidy policies, but they urged the adoption of a more comprehensive approach to ensure that cost spikes are not unfairly passed on to enterprises. They called for the establishment of a transparent mechanism to clearly decouple the effects of surging global oil prices from internal corporate operational inefficiencies.

Temporary energy subsidies to cushion inflation are a standard global response. Taiwan, Japan and South Korea — all energy importers — have used them to protect their economies from cost shocks as energy flows are affected by geopolitical issues. The intention is to protect public welfare, not to enrich major corporations, but the real test is execution — finding a way to curb inflation without driving state utilities CPC and Taipower into financial collapse.

The government should focus on breaking the vicious cycle of subsidizing prices, absorbing losses and demanding more emergency funding. It should replace broad subsidy policies with targeted financial support, as several European countries have done. Taiwan must implement an exit mechanism to prevent the misuse of public funds.

More importantly, establishing a break-even threshold should take precedence over offering unlimited subsidies. Policymakers must continuously evaluate the national energy mix to limit energy dependence and fine-tune policies to optimize cost structures and maintain energy resilience.