Previous Quarterly Editions
Expropriation Risk: HK: 38 38 38 38 ► T: 38 39 39 38 ▼ Political Violence Risk: HK:48 48 48 48 ► T: 35 35 35 35 ► Terrorism Risk: HK:15 15 15 15 ► T: 15 15 15 15 ► Exchange Transfer and Trade Sanction Risk: HK:13 13 13 13 ► T: 13 13 13 13 ► Sovereign Default Risk: HK:15 15 15 15 ► T: 15 15 15 15 ►
TREND ►
Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Taiwan is not a United Nations member, so it cannot participate in the Conference of Parties (COP) summits and resulting agreements such as the Paris Agreement. Nonetheless, Taipei's constant battle for international recognition arguably puts it under even more pressure to present itself as a responsible and progressive actor globally.
Despite this, Taiwan is behind in emissions reduction: in 2020, coal supplied around 45% of its power, compared with roughly 10% in the European Union (EU) and United States.
President Tsai Ing-wen in April 2021 set the goal of achieving net-zero emissions by 2050, taking her cue from the EU, Japan and the U.S.. A 'Climate Change Response Act' is expected to go before parliament to ratify this goal.
In Taiwanese politics, the colour green does not necessarily represent the environmental movement. Rather, it usually represents the centre-left, socially liberal, pro-independence end of the political spectrum, dominated by the now-governing
Democratic Progressive Party (DPP), in contrast to the conservative, China-friendly 'blue camp'. An environmentalist Green Party does exist (and is part of the 'green camp') but its membership is tiny, and it has no parliamentary seats.
Taiwan's grassroots environmental movement has traditionally focused on opposition to nuclear power. During Taiwan's 1980s-90s democratic transition, the pro-democracy 'political greens' allied themselves closely with the environmental activist movement, since both groups were repressed by the pro-nuclear authoritarian government.
The link between the two types of 'green' has diminished since then, but nuclear power is still the most politically salient environmental issue and the DPP continues to oppose it. Nuclear currently provides around 10% of the country's power, but Tsai's government has committed to phasing it out by 2025. Referendums, which are easier to initiate in Taiwan than in most other countries, have become a battleground for environmental politics. In 2018, environmental campaigners won referenda calling for a gradual reduction in thermal power production and for stopping the construction or expansion of coal-fired power plants.
A motion to repeal the planned abolition of nuclear power passed in 2018, but a 2021 motion to restart work on nuclear plant construction failed, as did one calling for the relocation of a liquefied natural gas terminal to minimise its environmental impact.
Average temperatures in Taiwan have risen at twice the global rate over the past century. Climate change increases the risk of both flooding and drought. Last summer, the worst drought in Taiwan's recent history led the government to ration water for domestic and agricultural use, to ensure sufficient supplies for the water-intensive semiconductor industry, so that production would not be disrupted during the global chip shortage.
By 2025 the government aims to reduce coal's share of total power generation from 45% to 30% and increase renewable energy's share from 6% to 20%. The powerful winds of the Taiwan Strait are a valuable natural resource Taiwan aims to exploit in its transition to renewable energy. However, those same winds, and the rough seas they create, make the construction of offshore wind power capacity technically challenging, as do the annual typhoons and occasional powerful earthquakes.The Tsai government in 2019 set a target of building 15.5 gigawatts (GW) of offshore wind capacity by 2036, of which 5.5 GW is to be completed by 2025. This compares with 35 GW off offshore wind installed across the entire world by the end of 2020. However, COVID-19-
related disruptions have delayed construction and no additional capacity has come online since the start of the pandemic. Reports also suggest local content requirements have deterred investors. As of 2021, just 128 megawatts of capacity was operating.
Regarding Hong Kong, Chief Executive Carrie Lam's administration last year released a 'Climate Action Plan 2050', which aims to achieve carbon neutrality by 2050 with funding of HKD240 billion (USD31 billion) over the next 15-20 years. Major elements include abandoning coal for electricity generation and eliminating carbon emissions from the transportation sector. Measures include ceasing registering new fuel-propelled or hybrid cars by 2035.
Hong Kong's reduction in coal use is already impressive. Coal's share of the energy mix fell from 48% in 2015 to 24% in 2020, with natural gas taking up most of the slack. However, the 2050 plan is not yet backed up by the legislation or robust regulations necessary to implement it.
Hong Kong has a cosmopolitan culture, a strong civil society and high level of civic engagement. Activists there participate in the global network of environmental movements and the city has both indigenous groups and branches of international non-governmental organisations.
Environmental activism is unlikely to be affected by the political repression that has effectively eliminated the democracy movement since 2020, unless environmental causes somehow become a proxy for anti-government activism, as happened with nuclear power in Taiwan.
Hong Kong environmental groups have generally focused on local pollution and ecosystem conservation. The city's negligible contribution to global greenhouse gas emissions and non-participation in international climate negotiations (since it is a city, not a country) make climate change action appear less salient.
Hong Kong's subtropical coastal location makes it vulnerable to high temperatures, heavy rainfall, typhoons, storm surges and rising sea-levels. However, its high level of wealth relative to its size equips it well to install adaptation measures.
Renewables currently provide just 1% of Hong Kong's energy. The 2050 plan aims to increase the share to 7.5-10% by 2035 and then to 15%. Given Hong Kong's small size and high population density, only some types of renewables are feasible on any significant scale, namely offshore wind, waste-to-energy, and rooftop solar panels.
TREND HONG KONG ► TREND TAIWAN ▼
There is nothing to suggest significant risk of Taiwan’s government expropriating foreign assets. Taiwan is a politically stable liberal democracy with robust rule of law.
Hong Kong's government recognises foreign business is central to the city’s economy and would not want to alarm investors by expropriating foreign property.
There were initially fears that the Anti-Foreign-Sanctions Law passed in mainland China last June would be extended to Hong Kong. The law explicitly authorises the government to seize assets of individuals and organisations that participate in sanctions against China. However, China did not impose the law on Hong Kong, and does not appear poised to do so.
The protest movement that disrupted business, transport and air travel in Hong Kong for much of 2019 has been crushed, and its leaders and most extreme members arrested. Many of the less-committed protesters will be deterred from further activism. Another round of protests at some point cannot be ruled out, but they are unlikely to approach the level of disruption and destruction seen in 2019.
Taiwan is a stable liberal democracy. In 2014, a short-lived student protest movement against a trade deal with China caused disruption in the capital with large mass gathering and scuffles with police, and briefly occupied the legislature. With Taiwan's ‘anti-China’ party now in power, there is no cause likely to trigger a repeat. However, political engagement is high and protest rallies about various issues not uncommon. It is possible that a controversial issue, probably related to China, could galvanise another mass movement, but it would most likely be localised, brief and largely peaceful.
Taiwan has no known terrorist threat, either indigenous or from overseas. Were tensions with China to reach a crisis level, sabotage by Chinese operatives is plausible.
In Hong Kong, the authorities have dismantled the organisational structures that have mobilised and channelled political opposition to the government over the years. This could make some activists more susceptible to radicalisation. There is a small risk of lone-wolf or small-scale, organised attacks. These would probably be unsophisticated, given the perpetrators’ likely inexperience. Government facilities and personnel would be the preferred targets, but more accessible infrastructure and businesses perceived as pro-China are possibilities.
The Biden administration in the U.S. has maintained its predecessor’s revocation of Hong Kong’s special trade status and expanded targeted sanctions on senior officials. Hong Kong’s economy depends on international trade and on the financial sector, which in turn depends on the free flow of capital. This, along with its small size, means its government is not in a strong position to impose sanctions or capital controls on a large scale.
If mainland China's Anti-Foreign-Sanctions Law is eventually extended to Hong Kong, tit-for-tat targeted sanctions would be possible.
The sanctions risk in Taiwan relates entirely to China. Political tension poses an ever-present threat to cross-Strait trade. Beijing has a record of using undeclared, de facto trade sanctions to try to coerce other governments, including Taiwan’s, and can implement them quickly and without warning.
Taiwan’s fiscal position is strong, with public debt around 30% of gross domestic product. Foreign exchange reserves are among the highest in the world and are now at a record high of more than USD550bn.
Hong Kong has almost no public debt and its currency is fully backed by foreign exchange reserves under a currency board system.
There is nothing to suggest government entities in Taiwan would, nor easily could, withhold payment from creditors for political reasons. Hong Kong might plausibly do so if it adopts mainland China’s Anti-Foreign-Sanctions Law. Such counter sanctions are likely to be employed conservatively if at all, and imposed in a tit-for-tat, rather than escalatory, manner.
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