GHG Management Policies

1. FENC Greenhouse Gas Management Operating Procedures
   All FENC production sites comply with the FENC Greenhouse Gas Management Operating Procedures and conduct annual GHG inventory based on the standards of ISO 14064-1:2018 or Greenhouse Gas Protocol (GHG Protocol). Scope 3 emissions should be identified based on the principle of materiality and classified into the 15 categories in the GHG Protocol, such as purchased goods and services, fuel-related activities, upstream and downstream transportation, and employee commuting. Data credibility is ensured through third-party verification, which has become a yearly practice since 2023.
2. Internal Carbon Pricing System
   To accelerate the pace of decarbonization within the Company and complete the net-zero transition, FENC incorporated the internal carbon pricing system in 2023 as a management tool. FENC reviewed international carbon pricing trends and reports such as “World Energy Outlook” from the International Energy Agency (IEA) and “State and Trends in Carbon Pricing” published by the World Bank, examined internal and external carbon costs from its global production site, and consulted the pricing approaches and strategies within the industry to arrive at NT$1,500/tCO₂e as the internal carbon pricing for developed economies, and NT$1,000/tCO₂e for emerging economies, effective in 2024 after the Board review. The carbon pricing system is implemented through two approaches. First, the system is included as a criterion that improves carbon efficiency during the review of carbon reduction projects to incentivize decarbonization (use the internal carbon pricing model to assess energy-saving investments. This data facilitates buyer-supplier engagement to identify carbon reduction targets and serves as a reference for decision-making).  Second, Internal Carbon Pricing is used to calculate carbon costs and profit & loss, including carbon costs, for each business group in monthly reports as stress test investment information for decision-making.

GHG Emissions in 2023

Direct and Energy Indirect GHG Emissions

Unit: ktCO₂e

Unit: ktCO₂e

Direct and Energy Indirect GHG Emissions per Unit of Production

Unit: tCO₂e / metric ton of production

In 2023, direct and energy indirect GHG emissions from scopes 1 and 2 were down by 10% compared to the previous year, and the GHG emissions per unit of production was reduced by 6%. The substantial decrease demonstrates the effectiveness of the Company's GHG reduction projects. In 2023, all business units re-examined the production and sales structures and reduced direct emissions by 140 ktCO₂e through equipment improvement and fuel alternatives. Indirect energy emissions were cut by 60 ktCO₂e by implementing energy conservation measures and increasing the use of renewable energy. Among them, GHG emissions per unit of production from the Textile Business dropped by 10% compared to the previous year, which is mainly attributed to the increase of renewable electricity use.

Other Indirect GHG Emissions (Scope 3)

Unit: ktCO₂e

Avid Support for Governmental Policies

1. Climate Change Response Act, Taiwan
   On February 15, 2023, the Climate Change Response Act was promulgated in Taiwan, laying out regulations governing carbon fees as one of the means to help Taiwan march towards net zero by 2050 and push corporations to take action against carbon emissions in advance. FENC’s production sites in Taiwan have been engaging in various emission-reducing actions. Xinpu Chemical Fiber Plant, for instance, added a solar power generation system, Kuanyin Chemical Fiber Plant replaced coal-water slurry boilers with natural gas models, and Plant 2 of OPTC introduced a back-pressure steam turbine generator unit. To alleviate the burden imposed by the carbon fee, FENC will install additional renewable energy facilities, purchase Taiwan Renewable Energy Certificates and improve energy efficiency. The Company will also submit voluntary reduction plans to the authorities to win preferential rates.
2. Decree 06/2022/ND-CP Regulations on Reduction of Greenhouse Gas Emissions and Protection of the Ozone Layer, Vietnam
   In 2022, Vietnam enacted Decree 06/2022/ND-CP, which governs the reduction of GHG emissions, protection of the ozone layer and the development of carbon market. FEPV is among the enterprises on the control list and must start submitting an annual GHG inventory report in 2025 and a GHG reduction plan prior to the end of 2025. The plant has the capability to conduct its own GHG inventory and has been doing so annually since 2021. The plant also has multiple emission reduction projects in the pipeline, including the replacement of coal with biomass fuels and adding solar power generation facilities.
3. Interim Regulations for the Management of Carbon Emission Trading and the carbon quota provisions under Trial Measures for Shanghai Municipality on Carbon Emission Management, mainland China
   On May 1, 2024, the Interim Regulations for the Management of Carbon Emission Trading, which governs the national carbon trading system in mainland China, went into effect, and since 2013, FEIS-Petrochemical Business and Polyester Business have been subject to the carbon quota provisions under Trial Measures for Shanghai Municipality on Carbon Emission Management. The plants ensure compliance with governmental mandates through various emission reduction projects and control measures with annual energy and carbon reduction targets established at the end of each year. Monthly meetings are held to track and review energy consumption and carbon emissions with proposals for improvement measures and the designation of departments responsible for implementation. FEIS also established the carbon emission management team, carbon trading decision-making team, carbon trading capital trading team, and carbon trading confirmation team to track the daily fluctuation of carbon pricing, and present the report at the monthly energy conservation meetings to monitor the entire carbon trading process.
   
   In mainland China, governments use the carbon quota allocation to mandate carbon reduction among corporate entities, and the allocation is decreasing by the year. In anticipation of a 15% cut in the 2023 carbon quota and in response to the tightening allowance, FEIS-Petrochemical Business replaced the low-pressure cooling water pump within the same year to reduce energy consumption, and the plant will tap into its unused carbon emission balance to replenish the margin over the cap of emission quota. FEIS-Polyester Business retrofitted multiple pieces of equipment to reduce energy consumption and transformed adsorption dryers into zero-loss adsorption dryers. In the future, the plant will cut energy consumption further through an integrated energy station equipped with the cogeneration technology. Prior to 2025, the plant will build a solar power station with 26,300kW in capacity for self-use.
    

Carbon Quotas and Emissions of FEIS

Unit: ktCO₂e

Value Chain Collaboration

1. Carbon Reduction Alliance with Value Chain Partners
   In response to Coca-Cola's emission reduction initiative, FENC has been participating in a series of courses from Supplier Leadership on Climate Transition (Supplier LOCT) since 2022 and obtained the certificates and badges. The courses cover GHG inventory and the establishment of carbon reduction pathway. The ultimate goal is to join the Science-Based Targets Initiative (SBTi) and set GHG reduction targets based on the 1.5°C pathway to curb industry chain emissions through partnerships with industry leaders. FEIS also signed a letter supporting the initiative formed by the China Bottlers Procurement Consortium (CBPC) and Swire Coca-Cola on June 26, 2023, committing to establishing a green and low-carbon supply chain with industry peers. With 2018 as the base year, the target is to reach 30% reduction in annual scopes 1 to 3 emissions by 2030.
   
   The Textile Business was invited by Nike to participate in the Manufacturer Climate Action Program (MCAP) developed by the Sustainable Apparel Coalition (SAC). The plant has submitted science-based scopes 1 and 2 reduction targets, joining the global textile industry to tackle climate change.
   
   OTIZ devotes tremendous efforts to customer engagement. Its collaborative endeavors gave birth to the 100% rPET tire cord fabric, which reduces carbon footprints by 28% compared to that of the virgin tire cord fabric. OTIZ responds to SBTi by establishing its carbon reduction targets and committing to net zero based on the 1.5°C pathway. Its emission reduction progress is also disclosed on CDP. Meanwhile, OTIZ identifies and partners with key suppliers responsible for larger shares of carbon emissions to implement emission reduction projects and reduce product carbon footprints. The goal is to reach for the overall carbon reduction targets in the automotive industry.

1. Regular Tracking of Carbon Reduction Performance by Brand Customers
   FENC conducts product life cycle assessments on its major products and provides the results, including product carbon content, to downstream customers in order to guide them towards low-carbon products. To reduce product carbon footprints, FENC provides solutions that embody full circularity by converting recycled and biomass materials to meet the emission reduction needs of value chain customers. The Company also reports GHG reduction targets and progress on platforms established by CDP, Ecovadis, and its brand customers. For instance, the Textile Business is required by customers, such as Nike and adidas, to report data, such as monthly energy consumption, and develop carbon reduction strategies. Each quarter, the plant confirms the progress towards carbon reduction targets, and ensures tracking, management and inspection.