The document analyzes the Kuokuang Petrochemical Project from an economic perspective. It finds that the project's estimated annual external costs of NT$56.9-112.1 billion related to greenhouse gases, health risks, agriculture/fisheries, and the environment exceed its benefits of NT$36.5 billion. It also finds that petrochemical industries contribute less than 4% to GDP and have low employment impacts. The document concludes that extending domestic ethylene production through this project is unnecessary if the market is overseas, and that the project should not be implemented given its costs outweigh benefits and it will increase social inequity.

1. Chi-Chung Chen Professor Department of Applied Economics, National Chung Hsing University mayjune@nchu.edu.tw [email_address] The Economic Analysis of Kuokuang Petrochemical Project ( 國光石化之經濟分析 )

12. The Annual Benefit and Cost of Kuokuang Petrochemical Project The benefit of Kuokuang Petrochemical Project is much lower than its cost. By this research report Benefit NT$ 36.5 billion External Cost NT$ 56.9 billion to NT$ 112.1 billion

14. The Analysis of the Possible Economic Contribution of Petrochemical Industries (1/3) The petrochemical industries do not contribute much to GDP According to Directorate-General of Budget, Accounting and Statistics, the whole domestic petrochemical industries contribute less than 4% of GDP . Revenue is not the economic value added of GDP The statement by the media that the revenue of petrochemical industries is over 10% of GDP is not correct. GDP is the economic value added, not the revenue. The economic value added by the No. 6 Naphtha Cracking Project is only 0.39% of GDP. Therefore, the contribution of Kuokuang Petrochemical Project will be less than 0.4% of GDP. The external cost of Kuokuang Petrochemical Project is high. Environmental Protection Administration has revised the expected external cost of greenhouse gases, health risk, agricultural and fishery products, ecology and Chinese white dolphin caused by Kuokuang Petrochemical Project upwards to NT$ 50bn. The cost calculated by the opponent groups is NT$ 58.8bn to NT$ 114bn. The externality of Kuokuang Petrochemical Project in Changhua is too high to be undertaken.

15. The Analysis of the Possible Economic Contribution of Petrochemical Industries (2/3) The total employees of the upstream and midstream petrochemical industries are 33,000, only 0.3% of the total domestic employees. The number of employees will increase at most 20,000 by Kuokuang Petrochemical Project. (According to General Manager Tsao of Kuokuang Petrochemical Technology Company) However, the project will generate at least 10,000 of unemployment in agriculture and fishery sectors. After No. 6 Naphtha Cracking Project, the number of employees in agriculture and fishery sectors in Yunlin has decreased from 38,000 to 28,000. The petrochemical industries have low contribute to employment Does Taiwan need the upstream petrochemical industries? According to the data of No. 6 Naphtha Cracking Project in 2008 and 2009, 60% of gasoline, 90% of diesel fuel and 5% of ethene were exported. That means the products of upstream petrochemical industries are mainly for export but not domestic demand. The ethene self-sufficiency rate fallacy Ministry of Economic Affair claims that the Kuokuang Petrochemical Project is for increasing the ethene self-sufficiency rate. The problem is what the benefit is from increasing ethene self-sufficiency rate. ethene is refined from imported petroleum. When the petroleum self-sufficiency rate is almost zero, it is meaningless to increase ethene self-sufficiency rate. It is misleading to emphasize the ethene self-sufficiency rate

16. The Analysis of the Possible Economic Contribution of Petrochemical Industries (3/3) The ethene product of upstream petrochemical industries has few industrial relations with other domestic industries. The ethene produced by Kuokuang Petrochemical Project is for the midstream materials of synthetic rubber, plastic, synthetic fibers and synthetic resins. According to the data from Directorate General of Customs, the exported value of those midstream products was NT$ 400bn in 2000, and it had tripled to NT$ 1200bn by 2008. That means the upstream production of ethene is for the export of midstream products. However, the petrochemical industry with more economic value added is in the downstream, which has few industrial relations with the products of Kuokuang Petrochemical Project. The development of green energy industries brings more industrial relation effects than upstream petrochemical industries. It also increases the energy self-sufficiency rate and the employment. (The green energy exposition held by Ministry of Economic Affair in late August provided more than 15,000 job opportunities.) The alternative of Kuokuang Petrochemical Project

17. The Diagram of Exported Petrochemical Products The percentage of export in all production (%)

18. The Percentage of Petrochemical Industries in Total GDP Data Resource: Macroeconomic database of Directorate-General of Budget, Accounting and Statistics Year Petrochemical Industries GDP (million NT$) Petroleum and Coal Products Chemical Materials Chemical Products Rubber Products Plastic Products GDP of Petrochemical Industries The percentage of Petrochemical Industries in total GDP 1999 135627 139263 40919 27873 116722 460404 4.77% 2000 136396 164498 40729 29225 94733 465581 4.57% 2001 161647 172917 38441 27890 100057 500952 5.04% 2002 164466 187513 39220 29652 101898 522749 5.02% 2003 181909 195862 40094 28035 96532 542432 5.07% 2004 209591 267059 42015 30672 95560 644897 5.67% 2005 227117 271866 41598 30621 82456 653658 5.57% 2006 162121 188594 46832 28573 66903 493023 4.03% 2007 220488 243474 42666 28513 59610 594751 4.61% 2008 116786 174313 42543 26347 60750 420739 3.33% 2009 178988 226555 44592 26190 60241 536566 4.30%