The growing challenges to Taiwan’s energy security necessitate a sharp focus on building energy storage capacity and geographically distributed power generation sources, particularly against the threat of energy supply disruption instigated by Beijing. While natural gas serves important economic and air pollution goals, it also depends on consistent shipborne fuel delivery that would be disrupted by a People’s Republic of China (PRC) blockade. Offshore wind, similarly, could fall prey to PRC maritime militias. In the face of this contingency, and alongside a tactical expansion in trade with the United States and Australia, Taiwan ought to maintain a degree of critical capacity to provide secure power through nuclear and coal-fired generation.
The State of Taiwan’s Energy Security
Taiwan’s energy security challenges have been well documented. As Sih Ting Jhou and Huei-Chu Liao wrote for the Brookings Institution in September 2013, “Taiwan has almost zero energy endowment, and relies on imports for nearly 98 percent of its consumption.” In the past decade, this status quo has held. The island still lacks a domestic energy production base capable of powering its industrial economy—and, as a result, it imported an almost identical portion of its total energy supply in 2020 (97.8 percent) as it did in the early 2010s. Given that Taiwan imports nearly all of the fuel that moves its economy, it is unusually vulnerable to the multitude of measurable energy market risks.
Taiwan relies on coal, natural gas, and nuclear energy as its major sources of electricity generation. The most recent statistics indicate that coal provides 45 percent of Taiwan’s power and natural gas provides 35.7 percent, while nuclear comes in a distant third at 11.2 percent. Imports constitute almost the entirety of Taiwan’s supply of each of these resources. No indigenous source currently contributes more than 2.2 percent of Taiwan’s power. To complicate matters, environmental considerations have prompted President Tsai Ing-wen (蔡英文) to introduce an electricity plan targeting a mix of 50 percent natural gas, 30 percent coal, and 20 percent renewables by 2025.
Meanwhile, surging industrial power demand is driving the island’s electricity consumption to unprecedented heights. In 2020, Taiwan used over 270,000 gigawatt-hours compared to 250,000 gigawatt-hours in 2015. Industrial electricity use now constitutes more than five-ninths of Taiwan’s power consumption, according to the Bureau of Energy. Taiwan’s robust industrial development has pushed year-over-year GDP growth well above 5 percent for 2021. But as Taiwan’s rolling blackouts earlier in 2021 attest, this demand surge stresses the island’s energy system and jeopardizes the Tsai Administration’s targets.
Looking beyond electricity, Taiwan’s consumption of oil products has doubled since 1990, and in 2020 Taiwan imported almost 100 percent of its oil supply. Taking electricity, transportation, industry, and other energy applications into account, crude oil and petroleum product imports make up 44.2 percent of the island’s total energy supply. All told, fossil fuels contribute 91.3 percent of Taiwan’s energy.
Taiwan’s energy import balance is similar to those of Korea and Japan. Korea, which obtains 87 percent of its total energy supply from fossil fuels, relies on imports for nearly all of its consumption. Japan also gets 87 percent of its energy from fossil fuels, importing more liquefied natural gas than any other country and ranking among the world leaders in coal and crude oil imports. Similar to Taiwan, Korea and Japan have rising renewable electricity generation targets, and are seeking to reduce coal use. Yet, following other East Asian countries’ model of energy supply would not be suitable for Taiwan’s circumstances given the acute nature of the military threat it faces.
Geopolitical Threat to Taiwan’s Energy Security: China
While geopolitical turmoil at the Strait of Hormuz, the Malacca Strait, or in the South China Sea would endanger energy security across Northeast Asia, Taiwan faces the additional, distinct, and growing risk of hostile action emanating from the PRC in the Taiwan Strait. In early November 2021, the Taiwan Ministry of National Defense issued a report detailing the possibility of a PRC blockade of Taiwan.
“At present,” the ministry warns, “[the People’s Liberation Army] is capable of performing local joint blockade against our critical harbors, airports, and outbound flight routes, to cut off our air and sea lines of communication and impact the flow of our military supplies and logistic resources.” The Brookings Institution’s Michael E. O’Hanlon, likewise, describes the risk of a “protracted Chinese blockade of the island” and details the tactical challenges it would present to the United States, should it commit to defending Taiwan.
The possibility of a PRC blockade heightens the imperative for proactive energy security planning, an objective towards which US government and private entities may be capable of forging partnerships, but that will ultimately be predicated by Taiwanese decision-making.
Amid these geopolitical stresses, the primary influence on Taiwan’s energy security will be from domestic politics . Taiwan’s democratic institutions devolve extensive direct control of public policy to the people through referenda. In opposition to Tsai’s preferences, the Taiwanese people voted in 2018 against an accelerated nuclear phaseout. Voters will return to the polls in December 2021 to weigh-in on a long list of questions. The energy-related queries include whether to remove an LNG terminal from the Taoyuan Datan Reef (桃園大潭藻礁), and whether to re-start progress on a fourth nuclear facility. Both are overt challenges to the Tsai government’s plans and could have important ramifications for energy security.
The natural gas-forward policy supported by President Tsai and the ruling-Democratic Progressive Party (DPP) rests on tenuous footing in terms of energy security. In its favor, completing the third LNG terminal (and potentially others in the future) would expand Taiwan’s power options and fuel the island’s ongoing industrial success. It would also reduce Taiwan’s coal reliance, the DPP’s main electricity power generation goal.
Yet, the Taiwan defense ministry report makes clear that Taiwan needs pragmatic strategies to withstand as long as possible the hardships that would be imposed by a PRC blockade. In the energy sector, that means building on-site storage capacity and establishing an array of distributed resources. To that end, Taiwan already places security reserve and storage capacity requirements on natural gas import enterprises. The security reserve requirement is at least 7 days as of 2021, and will be at least 14 days in 2027. The storage capacity requirement is at least 15 days as of 2021, and will be at least 24 days in 2027. Oil refinery operators and importers, similarly, are required to maintain stockpiles of no less than 60 days of supply and the government must also maintain an oil security stockpile of no less than 30 days, according to the Petroleum Administration Act (石油管理法). On this note, the US Department of Energy could assist Taiwan with its extensive institutional knowledge related to oil and natural gas storage best practices.
But for all of the advantages that natural gas presents environmentally and economically, it is difficult to argue that upping natural gas reliance would also support energy security and strategic endurance. While placing natural gas at the center of a vulnerable island’s energy system could increase US strategic interest in Taiwan, and thus raise the stakes for the PRC—it would also make Taiwan more dependent on US blockade-busting.
In this context, nuclear fuel and coal are surer bets in terms of energy security because they enable more storage. Renewable sources, of course, require no ongoing fuel imports. Unfortunately, the Tsai government’s turn away from nuclear energy exacerbates Taiwan’s energy security needs. While nuclear fuel does require import, nuclear generation requires little land relative to its power output, and is, thus, optimal when facing land constraints. Taiwan’s voting public would be wise to again issue a rebuke against Tsai’s eschewal of this vital power source when the issue is up for vote in December 2021.
In lieu of nuclear generation, the Tsai plan calls for a massive ramp-up in wind and solar generation. The appeal of these technologies for Taiwan is clear: they do not emit greenhouse gases or local air pollutants, and they do not require the ongoing import of fuels. At this time, solar photovoltaic generation far outstrips that of wind, but Taiwan has embarked on an ambitious campaign of offshore wind construction. Taiwan will have 5.5 gigawatts of capacity from offshore wind power by 2025, and an additional 15 gigawatts on paper. Should these projects be completed, Taiwan will rank second in Asia in offshore wind capacity, behind only the mainland.
In the event of a PRC move on the strait, however, the value of solar would be heightened while the value of offshore wind would be diminished. Distributed solar provides a geographic hedge and can operate at distributed locations, even if the Taiwan electricity grid is brought down by cyber or physical attack. Offshore wind, on the other hand, would be uniquely vulnerable to PRC “gray zone” tactics, such as the sabotage of turbines or cables by PLAN or maritime militia elements. Since the 1970s, the PRC has recruited nominally civilian seafaring vessels into maritime militia activity. As the Asia Maritime Transparency Initiative describes in its November 2021 report, Pulling Back the Curtain on China’s Maritime Militia, the PRC uses maritime militia to lower a “shroud of uncertainty and deniability” over its interference with its neighbors’ peaceful maritime resource enterprises. Taiwan’s offshore wind could fall prey to such tactics in the event of a PRC escalation in cross-Strait tensions.
Coal power has fallen out of favor in Taipei and, according to Tsai’s plan, will forfeit almost half of its generation share by 2025. Yet, the argument in favor of coal in the event of PRC interference with Taiwan’s imports is enhanced. Coal’s energy density is twice that of even liquefied natural gas, it can be stored either on- or off-site, and it can be dispatched as needed. These attributes could bolster Taiwan’s strategic endurance in the face of a blockade. Moreover, as with US and Australian cargoes of LNG, strengthened commercial ties through coal sales could elevate Beijing’s perception of the risk entailed by blockading or otherwise interfering with Taiwan’s trade. Maintaining coal-fired generation capacity and coal stockpiles is critical to Taiwan’s energy security, even if its role in day-to-day generation diminishes.
Time to Advance Free Energy Trade and Security for Taiwan
President Tsai’s natural gas-forward policy aligns with its broader goal of integrating Taiwan with the global economic and political order, particularly because the United States and Australia are among the world’s largest producers of natural gas. While US and Australian natural gas can move Taiwan closer to its electricity generation targets, the more important value may be the links qua links. The greater the degree of economic integration between Taiwan, the United States, and Australia, the greater would appear the risk to the PRC of taking a major escalatory step such as enacting a blockade of the island. While existing trade values are already substantial, in the context of US strategic ambiguity, each additional dollar of bilateral commerce increases the probability of a forceful US/AUKUS response to PRC trade obstruction. Thus, increasing economic interaction between the United States and Taiwan may itself help to secure Taiwan. Whether US and Australian firms have the appetite to take on more risk is an open question.
For the US government, a number of options are available to bolster Taiwan’s energy security. The most obvious option is to remove as many trade barriers as possible to incentivize American firms to make energy sales to Taiwan. One avenue that may prove useful is the Asia EDGE (Enhancing Development and Growth through Energy) program. Another would be an outright free trade agreement (FTA) that could systematically lower the cost of doing business across the Pacific. One example among the benefits this would confer is that US LNG exports to FTA countries are automatically treated as being “in the national interest.” LNG exports to non-FTA countries, conversely, are subject to a rebuttable presumption that can slow approvals.
Enhancing energy trade and security between the United States and Taiwan is a natural and constructive step. It is in the interest of policymakers both in Washington and Taipei to work together in order to ensure that America’s energy production capacity also facilitates Taiwan’s energy supply and security. To further bolster trade ties between the two countries, the United States and Taiwan should develop a forward-looking bilateral strategic energy trade initiative to ensure that no artificial barriers impede the development of a durable energy partnership.
The main point: Against the threat of a PRC blockade, Taiwan’s energy security requires optionality. Trade expansion and renewable resources can play a part, but Taiwan’s maintenance of energy-dense fuel supplies is essential.