Electricity has played a critical role in supporting industrial development and economic growth in Taiwan. In this study, input-output analysis is combined with life cycle assessment to evaluate the total environmental impacts (including direct and indirect) of the electricity sector in Taiwan. The results indicate that the environmental impacts of Taiwan’s electricity sector increased from 2001 to 2006, and 85% of these are focused on eight related sectors. In addition, “human health” suffers from the most significant environmental impact, followed by “resources”, “climate change” and “ecosystem quality”. Although direct environmental impacts are significant, especially with regard to climate change, indirect environmental impacts are gradually increasing. Because the electricity sector is linked to many other sectors, there would be an underestimation of CO2 emissions and other environmental impacts if the indirect effects from the related sectors were omitted from the calculations. These indirect impacts mainly come from the “non-metallic minerals”, “petroleum refining products” and “other metals” sectors, and the technology used in these three sectors needs to improve and become more environmentally-friendly. Other suggestions to promote the sustainable development of Taiwan’s electricity sector include upgrading energy efficiency, implementing stricter effluent regulatory standards, maximizing energy security with a higher proportion of renewable energy sources, phasing out old fossil fuel plant facilities, seeking international cooperation for CCS technology, and promoting energy-saving by providing economic incentives. This study is of value to the government and relevant industries that are working to identify the total environmental impacts of their energy policies, and to plan mitigation strategies and policy implementations to reduce CO2 emissions and control pollution.