Taiwan's National Development Council officially announced the " Taiwan’s Pathway to Net-Zero Emissions in 2050 and Strategy Overview", and "Climate Change Response Act" (hereinafter referred to as the Climate Act) passed its third reading the following year. Article 4 clearly included the 2050 net-zero GHG emissions target into the act. The three sub-laws of the carbon fee were announced, officially entering the era of carbon pricing. Carbon fees will be collected from businesses with a total annual greenhouse gas emissions of more than 25,000 metric tonnes of CO2e at a single site starting in 2026, and the charging threshold may be lowered to 12,000 metric tonnes of CO2e in the future. The "Carbon Fee Collection Rate" was announced in October 2024. The general rate is NTD300/metric tonne of CO2e, and the charged emissions = (annual emissions - 25,000 metric tonnes of CO2e). The rate will be gradually increased in the future, and it is expected to be adjusted to NTD1,800/metric tonne of CO2e after 2031.

　　Our Sugar Business Division is one of the first to be levied carbon fees. In response to the increasingly stringent trend of levying carbon fees on enterprises, the Xiaogang Plant of the Sugar Business Division has adopted 【Opportunity 1: Transition to Low-carbon Energy and Improvement of Energy Efficiency】as its strategy and has successively implemented equipment efficiency plans including converting oil-fired boilers to natural gas ones and establishing a new oil extraction plant at the Xiaogang Plant to reduce the financial cost risks brought by carbon fees.

　　Current : According to the "Regulations Governing the Collection of Carbon Fees ", the government will start collecting carbon fees in 2026. Therefore, there was no cash outflow from operating activities in 2024 due to the increase in cost incurred by the collection of carbon fees.

　　Short term : With a carbon fee rate of NTD300 /metric tonne of CO2e, it is expected that in 2026, due to the collection of the 2025 carbon fee, there will be an increase in operating cash outflows due to the cost of expenses.

　　Medium term : With the carbon fee rate to be raised to NTD300/metric tonne of CO2e, it is expected that in 2027-2030, due to the collection of the 2026-2029 carbon fee, there will be an increase in operating cash outflows due to the cost of expenses.

　　Long term : With the carbon fee rate to be raised to NTD1,800/metric tonne of CO2e, it is expected that in 2031-2040, due to the collection of the 2030-2039 carbon fee, there will be an increase in operating cash outflows due to the cost of expenses.

Note: The calculation basis for the current, short, Medium and long term carbon fee collection is based on the GHG emissions of TSC’s Xiaogang Plant in 2021. If no countermeasures are taken, it is estimated that GHG emissions in 2025 will reach 85,020 metric tonnes of CO₂e.

　　Based on the 2021 greenhouse gas (GHG) emissions from the Xiaogang Plant of the Sugar Business Division, Risk 1【Transition Risks】Increase in greenhouse gas (GHG) emission pricing (carbon fees) is expected to raise the Company's annual costs in both the short and medium term prior to the implementation of mitigation measures. In the long term, the imposition of carbon fees is also projected to result in increased annual costs for Taiwan Sugar Corporation (TSC).

　　After implementing 【Opportunity 1: Transition to Low-carbon Energy and Improvement of Energy Efficiency】, and 【Opportunity 4: Leveraging Public Sector Incentive Programs】, which leverages public sector incentive programs, the Company anticipates a shift in impact. Although these initiatives will incur capital expenditures and associated depreciation costs, they are expected to generate cost savings through reduced energy expenses and lower carbon fee obligations. Consequently, in the short and medium term, the Company’s annual cost impact will shift from an increase to a net decrease, with similar results expected in the long term.

　　All capital and operational cash outflows across these periods will be financed through TSC’s internal funds. While these expenditures will have a minor impact on operations and cash flows, the effect is considered negligible. The initiatives are not expected to have a significant impact on financing availability or the cost of capital.

　　According to "Taiwan’s Pathway to Net-Zero Emissions 2050 and Strategy Overview” announced by National Development Council, the vehicle electrification strategy includes increasing the market share of electric vehicles; for large buses, the goal of full electrification of urban buses will be achieved by 2030, and subsidies for vehicle purchases, batteries and charging equipment will be provided to operators through special projects. The annual sales volume of new electric passenger cars will reach 30%, 60% and 100% of the annual sales volume of all passenger cars by 2030, 2035 and 2040 respectively. The annual sales volume of new electric motorcycles will account for 35%, 70% and 100% of the annual sales volume of all motorcycles by 2030, 2035 and 2040 respectively. According to the Ministry of Transportation and Communications’ "Key Strategic Action Plan for Carbon-free and Electric Vehicles”, the penetration rate of electric passenger cars will be: 1.4% in 2025; 7.3% in 2030; 20.3% in 2035; and 43.2% in 2040.

　　Current : The revenue and profit of gasoline and diesel of the Company's Petroleum Business Division have not yet been impacted by the Government’s "Electrification Strategy". The operating cash flow from gasoline and diesel revenue in 2024 increased and the gross profits were also higher than those in 2023.

　　Short term : According to the Ministry of Transportation and Communications’ "Key Strategic Action Plan for Carbon-free and Electric Vehicles”, the penetration rate of electric passenger cars is expected to be 1.4%. TSC's gross profit will decrease in 2026 compared to 2023 due to the decrease in operating cash flow from gasoline and diesel revenue.

　　Medium term :  The penetration rate of electric passenger cars is expected to reach 7.3% by 2030. From 2027 to 2030, based on the gross profit level in 2026, a yearly gross profit decline rate of 1.825% (i.e., 7.3% ÷ 4) is applied. As a result, the Company's gross profit will decrease in 2030 compared to 2023 due to the decrease in operating cash flow from gasoline and diesel revenue.

　　Long term : The penetration rate of electric passenger cars is expected to reach 20.3% by 2035. From 2031 to 2035, based on the gross profit level in 2026, a yearly gross profit decline rate of 2.6% (i.e., (20.3%-7.3%) ÷ 5) is applied. As a result, the Company's gross profit will decrease in 2035 compared to 2023 due to the decrease in operating cash flow from gasoline and diesel revenue.

　　The penetration rate of electric passenger cars is expected to reach 43.2% by 2040. From 2036 to 2040, based on the gross profit level in 2026, a yearly gross profit decline rate of 4.58% (i.e., (43.2%-20.3%) ÷ 5) is applied. As a result, the Company's gross profit will decrease in 2040 compared to 2023 due to the decrease in operating cash flow from gasoline and diesel revenue.

Note: The increase or decrease in gross profit (sales revenue - the cost of purchasing oil from CPC) generated by gasoline and diesel revenue in the current, short, medium and long term is estimated based on the operating cash flow gross profits of gasoline and diesel revenue of the Company's Petroleum Business Division in 2023. The expected impact on the availability of financing and the cost of funds will not be significant.

　　Based on the 2023 gross profit of the Petroleum Business Division, Risk 2[Transition Risks]Substitution of Existing Products with Lower Emissions Options due to the government's transportation electrification policy—is expected to impact gasoline and diesel revenue and gross profit (i.e., sales revenue minus procurement cost from CPC Corporation). Compared to the 2023 profit level, this transition is projected to result in annual gross profit reductions over the short, medium, and long term. As a response, the Company has adopted a strategy of outsourcing the installation of EV charging stations. This approach entails no capital expenditure-related cash outflows under investing activities, nor operational cash outflows related to charging infrastructure costs, thereby partially offsetting gross profit losses across all timeframes. The policy is not expected to have a significant impact on financing availability or the cost of capital.

　　Scientists point out that rising global temperatures, changes in rainfall patterns, and human-caused GHG emissions have led to higher concentrations of carbon dioxide at the Earth’s surface. These changes will make corn more difficult to grow in tropical regions. If effective countermeasures are not taken, by 2050, climate change will cause global food production capacity to drop by 5% to 30%, which will in turn create the risk of rising raw material costs for the Company. Statistics on the average corn futures prices from 2015 to 2024 show that, excluding the excessive cost fluctuations caused by the epidemic and war from 2021 to 2023, corn futures prices have grown by about 2% each year. Since feed factories purchase corn in the form of futures, it is estimated that the future use cost will increase by 2% each year with the rice in futures price. Starting from 2025, the feed factory of the Livestock Business Division is expected to purchase 100,000 metric tonnes of corn each year.

　　TSC adopts the strategy of “replacing corn with "white rice (purchased from the Agriculture and Food Agency) as feed" to cope with the risk of rising corn costs, with a replacement rate of 10% (due to the consideration that the nutrients are not exactly the same, it cannot be completely replaced). On the other hand, when the cost of feed rice as a substitute is not enough to offset the increase in corn costs, we will "adjust the selling price" to offset the increased feed costs to maintain the existing profits.

　　Current : In 2024, the price of corn, the main raw material, has not yet impacted the cost of the Company's Livestock Business Division, so there is no cash outflow from operating activities due to the increase in raw material costs caused by the increase in corn prices.

　　Short term : Due to climate change, in the future, the price of corn, the main raw material, is estimated to increase by 2% with the futures price compared with the previous year. Therefore, in 2026, compared with 2024, the increase in the procurement costs of corn will generate cash outflow from operating activities.

　　Medium term : In the future, the price of corn, the main raw material, is estimated to increase by 2% with the futures price compared with the previous year. Therefore, in 2030, compared with 2024, the increase in the procurement costs of corn will generate cash outflow from operating activities.

　　Long term : In the future, the price of corn, the main raw material, is estimated to increase by 2% with the futures price compared with the previous year. Therefore, in 2040, compared with 2024, the increase in the procurement costs of corn will generate cash outflow from operating activities.

Note: Due to increased costs of purchasing corn, cash outflows from operating activities in the short, medium and long term will be paid with the Company's own funds, which will not have impacts on the operations and will not cause cash flow risks.The expected impact on the availability of financing and the cost of funds will not be significant.

　　Risk 3【Transition Risks】Increased Cost of Raw Materials are expected to impact the procurement cost of corn and profitability in the Livestock Business Division. Compared to 2023, this risk is projected to lead to increased annual costs over the short, medium, and long term. As a mitigation measure, the Company has adopted the use of rice (procured from the Agriculture and Food Agency) as a substitute for corn in feed, along with price adjustments for its products. This strategy involves no capital expenditure-related cash outflows under investing activities and no additional operating cash outflows related to raw material replacement. As a result, the impact of rising material costs has not affected annual profitability during the short-, medium-, or long-term periods. This risk is not expected to significantly affect financing availability or the cost of capital.

　　According to the National Science and Technology Council and the Ministry of Environment's " Climate Change in Taiwan: National Scientific Report 2024: Phenomena, Impacts and Adaptation- Science Highlights of Chapters 1 to 3" briefing, Page 48: In the future, the number of typhoons affecting Taiwan each year may decrease, with 4 to 5 typhoons occurring most frequently per year, 3 to 4 in the middle of the 21st century, and 1 to 2 at the end of the 21st century. Based on this estimate, the probability of typhoons occurring each year is >60%, with 4 typhoons occurring each year in the short and medium term and 3 typhoons occurring each year in the long term.

　　In addition, according to the worst-case scenario (SSP5-8.5) of the IPCC Sixth Assessment Report, in the middle of the 21st century, the number of typhoons affecting Taiwan will decrease by about 15%, the proportion of strong typhoons will increase by about 100%, and the typhoon rainfall change rate will increase by about 20%. Based on this strong typhoon ratio, the estimated degree of damage will be 100% from 2025 to 2030 (the same as the current situation). In the worst-case scenario, the intensity of Taiwan's maximum one-day rainstorm has a trend of increase. The average annual maximum one-day rainstorm intensity will increase by about 20% and 41.3% in the middle and late 21st century respectively.

　　Current : In 2024, the Company's cash outflow from operating activities increased due to losses caused by extreme weather such as typhoons, floods and torrential rains.

　　Short term : In 2026, the Company's cash outflow from operating activities increased due to losses caused by extreme weather such as typhoons, floods and torrential rains.

　　Medium term : In 2030, the Company's cash outflow from operating activities increased due to losses caused by extreme weather such as typhoons, floods and torrential rains.

　　Long term : In 2040, the Company's cash outflow from operating activities increased due to losses caused by extreme weather such as typhoons, floods and torrential rains.

Note : Cash outflows from operating activities resulting from losses caused by extreme weather such as typhoons, floods and torrential rains in the current, short, medium and long term will be paid with the Company's own funds.The expected impact on the availability of financing and the cost of funds will not be significant.

　　Risk 4【Transition Risks】Extreme Weather Events such as typhoons and Floods may cause disaster-related losses and lead to increased expenses for the Company. Compared to 2023, these events are expected to result in higher annual costs over the short, medium, and long term.To mitigate this risk, the Company has adopted a risk transfer strategy by purchasing typhoon and flood insurance. Insurance premiums are paid during each period, and compensation is received when applicable. Nonetheless, the overall financial impact is expected to be an increase in annual costs across all timeframes. This risk is not anticipated to significantly affect the availability of financing or the cost of capital.

　　In response to the international trend of net zero emissions and to achieve the national net zero emission target by 2050, the Ministry of Economic Affairs has not only continued to increase the efficiency standards of public equipment to prevent inefficient equipment from entering the market; it has also provided guidance to large energy users to meet the annual average electricity saving requirement of 1%. In addition to reviewing and improving the target in a timely manner, it has also proposed a 2x2 net-zero transition structure of "Low carbon- Zero carbon" and "Energy-Industry". The industrial sector will take "reducing emissions first, then net zero emissions" as the promotion strategy.

　　The main promotion measures are as follows:
(1) Accelerate the replacement of industrial equipment: including process improvement and equipment replacement, waste heat and waste cold recovery technology application, and gradually introduce new equipment and innovative energy-saving technologies.
(2) Energy saving and digitalization: including the establishment of a smart energy management system, the introduction of a smart energy monitoring system, and the use of digital management technology to reduce CO2e emissions. In the short term, the main focus is on expanding the use of natural gas and biomass fuels.

　　In the long term, it is stepping toward 100% use of green electricity and carbon-free energy applications. The three main promotion measures are as follows:
(1) Natural gas: expand the use of natural gas in general boilers, promote the use of natural gas in steam and power boilers,natural gas + carbon capture and storage, and purchase carbon-neutral natural gas.
(2) Biomass energy: including expanding the use of biomass fuels in the cement and paper industries.
(3) Green electricity: encouraging companies to achieve RE100 Targets.

　　TSC's Biotechnology Business Division has adopted energy-saving measures such as replacing diesel-fired boilers with natural gas boilers and installing inverters and small air compressors. The Leisure Business Division has adopted energy-saving measures such as updating lighting equipment and updating energy-saving air-conditioning equipment. The Agriculture Business Division has adopted strategies such as adding heat pump systems to heating equipment to obtain financial opportunities for energy conservation and reducing GHG gas emissions

　　TSC is implementing measures of Opportunity 1【Climate-Related Opportunity】Transition to Low-carbon Energy and Improvement of Energy Efficiency In the Biotech Business Division, fuel oil-fired boilers have been converted to natural gas, and energy-saving equipment such as variable-frequency drives and small-scale air compressors has been installed. In the Leisure Business Division, energy efficiency is being enhanced through the replacement of LED lighting and energy-efficient air conditioning systems. In the Precision Agriculture Business Division, heat pump systems have been installed to supplement existing heating equipment, thereby reducing energy costs.

　　Overall, this opportunity is expected to result in annual cost reductions over the short, medium, and long term. All capital and operational cash outflows related to these measures will be funded through TSC’s internal resources, with no adverse impact on operations or cash flow risks. The opportunity is not expected to significantly affect financing availability or the cost of capital.

　　Taiwan's carbon trading has entered a new era with the first batch of domestic reduction project quotas on sale. The price of each metric tonne of reduction project ranges from the maximum NTD4,000 to the lowest NTD2,500, far higher than the carbon fee starting price of NTD300 per metric tonne of CO2e. The Ministry of Environment pointed out that the six reduction project quotas that have been applied for and put on the market are all traded in a fixed-price manner, including the China Steel Corporation's Energy-Saving Offset Project for Hot Charging of Slabs or Billets into Furnaces, the Use of High-efficiency Light Sources in the Taipei 101 Parking Lot, the Hanbo Agricultural Renewable Energy Project, the Hanbo Biogas Power Generation of the Phase III Agricultural and Livestock Wastewater Treatment Plant Project, the Chi Mei Corporation’s Replacement of Heavy Oil with Natural Gas Offset Project, and the Han-cheng Bus Traffic Company’s Electric Bus Offset Project. The total amount of quotas put on the market is 6,080 metric tonnes of CO2e, with prices ranging from NTD2,500 to NTD4,000 per metric tonne of carbon dioxide equivalent. In 2023, the Ministry of Environment issued the " Regulations for Voluntary Emission Reduction Project Management" in accordance with the Climate Change Response Act to continue the offset projects. In addition to the experience of implementing the offset projects in the past and the principles of international review, it also simplified the administrative procedures to improve efficiency and take into account the quality of the reduction results. As of April 2025, a total of 16 applications for voluntary emission reduction projects have been registered and approved. To enable the reduction quotas to be provided to businesses as greenhouse gas increments or deductions for carbon fees, the Ministry of Environment issued the "Management Measures for the Auction and Transfer of Reduction Quotas" and officially commissioned the Carbon Exchange in September of the same year to build a "Domestic Reduction Quotas Trading Platform" to handle the reduction quota trading and auction business to complete the country's carbon pricing mechanism. The Company adopts a strategic approach to secure financial opportunities by undertaking a research project to apply for voluntary carbon reduction programs, including forest carbon sinks under the Erlin project and investments in biogas-related initiatives.

　　The Company adopts a strategic approach to secure financial opportunities by undertaking a research project to apply for voluntary carbon reduction programs, including forest carbon sinks under the Erlin project and investments in biogas-related initiatives.

　　TSC is implementing measures of Opportunity 2【Climate Opportunity】Participation in the Carbon Trading Market by leveraging forest carbon sinks and biogas-related emission reduction credits. Although initial investments will increase costs related to research and personnel, revenue is expected to be generated through the sale of emission reduction credits, with an estimated price of NTD$300 to NTD320 per metric tonne in the short to medium term. Overall, this opportunity is projected to result in a slight annual decrease in profit during the short and medium term.

　　Starting from 2031, the price per metric tonne of emission reduction credits is expected to rise to NTD1,200, leading to annual profit increases in the long term—specifically in 2034, 2037, and 2040.

　　There will be no capital expenditure-related cash outflows during any period. Operational cash outflows associated with this initiative will be funded through TSC’s internal resources, with no impact on operations and no cash flow risks.

　　To promote the use of renewable energy, increase energy diversification, improve energy structure, reduce GHG emissions, improve environmental quality, drive related industries and promote national sustainable development, Taiwan passed the "Renewable Energy Development Act" in 2009 and the "Implementation Regulations Governing Renewable Energy Certificates" in 2017. Renewable energy refers to energy generated by solar energy, biomass energy, geothermal energy, ocean energy, wind power, non-pumped hydropower, or other energy sources recognized as sustainable by the central competent authority. Among them, biomass energy refers to energy generated by direct use or treatment of agricultural and forestry plants, biogas and domestic organic waste. Renewable energy certificates (RECs) refer to certificates issued by the issuing unit after the inspection of renewable energy power generation equipment and power generation verification. If the applicant's power generation equipment meets the requirements after on-site inspection by the certificate center, the applicant will be issued a certificate equipment inspection report and the power generation equipment will be registered as a certified equipment. The certificated electricity volume for independent direct supply and self-generation for self-use shall be accumulated from the date when the power generation equipment is verified for compliance. The certificate transfer shall be based on a single certificate. The transferee shall first obtain an account on the National Renewable Energy Certificate Center platform. The transferor shall submit an application to the National Renewable Energy Certificate Center digitally and attach a transfer application form and transfer documents for the Certificate Center to log in. The National Renewable Energy Certificate Center may disclose the relevant transfer information on the Certificate Center platform.

　　According to the "Implementation Regulations Governing Renewable Energy Certificates", the agricultural waste biomass power generation facilities at our Shanhua and Huwei Sugar Factories can apply for renewable energy certificates, which is our strategy to enter the new renewable energy certificate trading market.

　　TSC is implementing measures of Opportunity 3【Climate-Related Opportunity】Access to New Markets through its biomass energy generation facilities at the Shanhua and Huwei Sugar Factories, which are eligible to apply for Renewable Energy Certificates (RECs). Although the initiative will incur initial costs such as consultancy fees and administrative expenses for the application process, it is expected to generate revenue from the sale of biomass green electricity certificates, with each REC estimated to be priced at NTD3,000.

　　Overall, this opportunity is projected to increase the Company’s annual profits starting in 2025, with positive impacts sustained over the short, medium, and long term. There will be no capital expenditure-related cash outflows during these periods. All related operational expenses will be funded through TSC’s internal resources, with no impact on business operations or cash flow risks.

　　In response to the international trend of carbon reduction, to enhance Taiwan's energy independence and to improve the quality of people's living environment in Taiwan, the government launched energy transition scheme in May 2016, with the policy goal of "reducing coal power generation, increasing gas power generation, and developing green energy and non-nuclear”, fully outlining the path and strategy for the development of Taiwan's renewable energy. The policy clearly sets the target of 29 GW (1 billion watts) of renewable energy installation capacity by 2025, with solar PV (20 GW) and offshore wind power (5.6 GW) as the main axes of promotion. At the same time, it actively planned forward-looking energy development (such as geothermal, biomass, ocean energy, hydrogen energy, etc.), and amended the " Renewable Energy Development Act" in 2019 and 2023 respectively, optimizing and promoting the legal environment to ensure stable power supply, take into account the reduction of air pollution and carbon reduction, and accelerate Taiwan's vision of achieving net zero transformation. To implement energy transformation, in recent years, the government and the private sector have made full efforts to diversify the development of renewable energy, and have achieved considerable results in stable power supply, green power construction and air pollution improvement. In the future, we will continue to pursue the well-defined pathways for achieving renewable energy targets, maximize the development of solar PV installations, offshore wind power, and emerging green energy sources. At the same time, we will combine measures such as diversified energy storage and strengthening the resilience of the power grid to ensure the timely and high-quality realization of the 29 GW policy target by 2025, thereby achieving the broader goal of energy transition.

　　TSC’s renewable energy strategy involves leasing land to solar power partners, from which we generate revenue development royalties (rental income) + operating royalties (revenue sharing), and solar power sales revenue, including both self-built and co-developed projects.

　　TSC is implementing measures of Opportunity 5【Climate-Related Opportunity】Participation in Renewable Energy Projects by leasing land to solar photovoltaic (PV) partners and earning development rights royalties, in addition to revenue from solar power sales through both self-built and co-developed PV installations. While this initiative will incur additional costs—such as land value taxes, personnel expenses, revenue-sharing with co-development partners, and depreciation and maintenance costs for self-built systems—it will generate multiple income streams, including rental and development royalties, profit-sharing royalties, and solar power feed-in tariff (FiT) revenues.

　　Taking into account a projected annual 1% decline in solar PV generation, this opportunity is expected to contribute to annual profit increases for the Company beginning in 2024, and continuing over the short, medium, and long term. All related expense outflows will be funded through TSC’s internal resources, with no adverse impact on operations and no cash flow risks.