Environmental Technologies Industries
||Environmental Technologies Industries
|Taiwan Environmental Export Market Plan|
|Chapter 2 - Overview of Environmental Technologies Market in Taiwan |
General State of the Environment
Taiwan is widely applauded for its economic miracle, but few people outside of Taiwan appreciate the full environmental cost of the last 20 years of development. Most analysts simply look at the rapid growth in Taiwan's per capita gross national product (GNP) as proof of improved living conditions. However, while GNP demonstrates economic vigor, it does not necessarily translate into a well-protected environment.
Since 1945, deforestation has been equivalent to an area roughly 13 times the size of the island's capital city, Taipei. Over development of mountainous areas has led to significant problems with soil erosion and silt pollution of rivers. Clean drinking water has become an increasingly valuable commodity. The Taiwan Environmental Protection Administration (TEPA) estimates that 40 percent of the major rivers in Taiwan suffer from pollution, and virtually every major river along the island's heavily industrialized west coast is polluted. In addition, the island's air quality has significantly deteriorated. A recent study by National Taiwan University found that 13 percent of children growing up in major cities experience respiratory problems, a tenfold increase since 1974.
While a large portion of the basic environmental infrastructure is in place, and monitoring stations and plans for solid waste disposal facilities have been developed, Taiwan's environmental statistics still largely resemble those of a developing country. Hazardous waste disposal facilities are limited in number, and uncharacterized soil and groundwater pollution poses problems of unknown magnitude. Considerable work remains even in the basic areas of landfill and incinerator construction. These and other issues make it likely that over the next 5 to 10 years environmental pollution will continue to be a severe problem.
Taiwan's extensive environmental problems and its growing resolve to develop solutions have made Taiwan one of Asia's most dynamic environmental markets since the late 1980s. The market experienced a strong burst of growth between 1991 and 1993 as TEPA passed a flurry of laws implementing controls on effluents and emissions. Private-sector spending peaked at $1.1 billion in 1992 before declining to the $600–700 million range in the mid-1990s.
Domestic and international environmental pressure, public discontent, and the need to maintain international competitiveness have pushed TEPA to set ambitious goals for reducing air emissions, water effluents, and the amount of solid waste generated over the next five years. However, achieving these goals will require substantial funding and a high level of coordination between the central and local governments to more effectively standardize and implement environmental enforcement.
Most analysts expect the environmental market (public and private sectors combined) to continue growing throughout the rest of the decade as Taiwan implements its new policies of aggressive environmental enforcement. A recent report from the Taiwan Industrial Technology Research Institute estimates that Taiwan will spend $35 billion on environmental protection over the next eight years. In September 1997, TEPA announced a range of initiatives to help push overall environmental expenditures as a percentage of the GNP from the current level of 1.5 percent to 1.57 percent by the year 2000. In dollar terms, TEPA is targeting overall spending to reach roughly $6 billion by the year 2000 up from the current level of $4.4 billion.
Estimates of market size vary depending on the source; thus, any and all statistics should be viewed as approximations. TEPA places overall environmental expenditures in 1997 at roughly $4.4 billion. Of this, TEPA estimates government spending on environmental management at $2.6 billion, which places private-sector investment at roughly $1.8 billion. Some analysts believe this figure for private-sector spending may be on the high side, but it serves as an adequate benchmark to compare the ratio of government to private investment in the environmental market.
Most environmental technology in Taiwan has been imported from overseas providers. Based on estimates from the United States-Asia Environmental Partnership and TEPA, Germany, Japan, and the United States account for the lion's share of imports. Taiwan officials generally recognize U.S. environmental equipment providers as leaders in environmental technology. Historically, American firms with leading-edge technologies have fared better in the public sector, while Japanese competitors are preferred by the private sector because of lower prices and more accessible customer service. U.S. Department of Commerce data suggest, however, that American environmental technologies have been getting an increasing share of the industrial market in recent years, thanks to Taiwan's efforts to diversify equipment sourcing.
According to TEPA records, in the first six months of 1997, Japan had the greatest market share at 27 percent, followed by Germany at 26 percent, and the United States at 20 percent (see table 5). Japan's overall market share in 1997 grew significantly as a result of that country's success in the municipal waste incinerator market.
According to a recent TEPA survey, overall government spending on environmental protection amounted to roughly $2.6 billion in 1997, which is equivalent to less than 1 percent of Taiwan's GNP. Over 40 percent of the environmental budget went to the central government, but a considerable amount went to local governments and Taipei and Kaohsiung cities. Solid waste clearance and treatment were by far the biggest areas of government spending, most likely because of the large budgets required for municipal waste disposal. Water pollution control was the second largest budget item resulting from spending on sewer system projects and projects such as the Tamshui River cleanup. (See figure 1 for a breakdown of 1997 government expenditures on environmental protection by sector and by type of government.)
On average, TEPA's budget has been growing at an annual rate of 28.8 percent since 1988. TEPA estimates that the introduction of water and air pollution fees will generate an additional $340–550 million per year to support TEPA programs. The air pollution fee levied on fuels accounted for 55 percent of 1996 TEPA funds. Some analysts predict that legislators may suggest cuts in the annual budget as generator fee programs come on-line.
Table 5 -Environmental Pollution Prevention (EPP) Equipment Imports by Country Jan. - June 1997
(Unit: NT$ millions)
Note: Sum may not add to total due to rounding.
|EPP Equipment Imports||% of Total Imports by Country||EPP Equipment Parts||% of Total Imports by Country||Incinerators and Parts||% of Total Imports by Country|
Source: Monthly Report of Environmental Protection Statistics Taiwan Area, Republic of China, September 1997.
Industry investment has ranged between $600 million and $1 billion per year since the early 1990s (see table 6). According to TEPA and records of the Ministry of Economics Administration (MOEA), the market surged in 1992 and 1993. The jump was most likely a reaction to the passage of the Water Pollution Control Act and the Air Pollution Control Act in 1991 and 1992, respectively. Traditional big spenders have been the petroleum, food processing, textiles, paper, chemicals, and basic metals industries (see table 7). Of those industries, most tend to be dominated by small factories. Much of the spending in the early 1990s was driven by state-owned industries such as China Petroleum, Taiwan Sugar, and Taiwan Power. During the mid-1990s, private-sector investment began to catch up.
Although most foreign multinational and large local manufacturers have begun to acquire pollution control equipment, small- and medium-sized companies, which constitute the majority of Taiwan's industrial base, typically lack sufficient treatment capacity. As regulators turn their attention to these still largely unregulated companies, long-term demand for pollution control equipment and services will rise significantly.
Figure 1 - Government Environmental Expenditures for 1997
Sector ($ billion)
|Solid Waste Transportation and Disposal|
|Water Pollution Prevention|
|Air Pollution Prevention|
|R&D, Monitoring and Evaluation|
Percentage of 1997 Environmental Budget by Sector...
...% by Central, Provincial, and Local Government Spending
Forces Driving Demand for Environmental Technologies
Over the last several years, Taiwan's aggressive environmental efforts have distinguished it from other Asian countries. These have been supported by Taiwan's growing affluence and strengthening administrative capabilities.
Since the establishment of TEPA in 1987, Taiwan has developed a highly detailed set of laws and has implemented regulations covering most of the major pollution areas (the primary exception being soil and groundwater contamination). The standards promulgated are modeled on regulations used overseas and are among the strictest in the world. Regulations were the primary driver of Taiwan's environmental investments in large factories and state-owned industries from the late 1980s into the mid-1990s.
Despite this strong regulatory base, early efforts to extend Taiwan's environmental controls beyond large manufacturers and state-owned industries to smaller manufacturers were often stymied by a weak institutional base. However, over the last five years, TEPA has grown in size and strength to an organization of over 400 people. Although TEPA is often forced to struggle with other government agencies, it is slowly commanding a degree of authority and political leverage. Increasing professional staff and greater funding have allowed TEPA to significantly upgrade its administrative capabilities. Reporting and tracking systems have become more automated as TEPA establishes computer networks to link local and central-level environmental agencies.
Taiwan's economy, traditionally characterized by an abundance of small- to medium-sized industries with little excess cash to invest in environmental equipment, has reached a point where private-sector as well as public-sector funds can now be made available to invest in environmental protection. As Taiwan's annual per capita income topped $10,000, priorities in government circles also began to slowly shift toward improving quality of life rather than promoting unbridled economic growth. Taiwan's rising middle class, which has brought back strong impressions from overseas travel in highly environmentally conscious countries, has become highly vocal in demanding a higher standard of living in Taiwan. The increasing affluence and growing environmental awareness of Taiwan's citizens have given TEPA the political leverage necessary to develop an extensive series of regulations to drive environmental efforts.
As the Taiwanese Government struggles to deal with changing social priorities, the nation's industries are adjusting to a new overseas business climate being driven by more environmentally conscious overseas consumers. Large numbers of export industries have implemented ISO (International Standards Organization) 14000 out of fear of being barred from foreign markets. Throughout the region, regulatory requirements in European and North American markets are forcing exporting industries to address the environmental impact of their manufacturing processes and their products.
Table 6 - Industrial Spending by Pollution Control Sector (US$)
Note: 1991 data not available ($1=NT$27.5)
As % of Fixed Equipment Investments
Source: Yearbook of Environmental Protection Statistics, Taiwan Area, the Republic of China, 1996
Table 7 - Pollution Control Expenditures by Major Industry Category ($ thousands)
Note: 1991 data not available ($1=NT$27.5
Source: TEPA, MOEA
As pressure from overseas markets increases, TEPA has been developing economic instruments to encourage companies to improve their environmental performance. Factories are now required to pay fees based on their air and water emissions. TEPA has also begun investigating the possibility of total quantity management systems for air and water pollution through tradable permits. TEPA has already instituted a mandatory recycling program for consumer products, a program funded by manufacturers, and the agency is considering a regulatory means to encourage companies to use recycled materials to manufacture their products.
Forces Against Growth
Despite the positive signs, many political and industrial leaders in Taiwan still view environmental protection and economic development as a trade-off: one comes at the cost of the other. TEPA and the Taiwanese Industrial Development Bureau (IDB) have been working hard to promote clean production and waste minimization to cultivate the concept that being green can save money. However, there is still a widespread fear within government planning circles that rigorous enforcement of environmental regulations will damage Taiwan's economic growth.
Taiwan's recent economic “slowdown” (annual growth rates falling to just over 5.5 percent) has prompted some economic planners to reconsider the scope and direction of existing and pending environmental regulations. Relocation of leading manufacturers overseas to “better investment environments” has further fueled concerns.
Another impediment is uneven enforcement of environmental regulations. Despite major improvements in tracking systems, TEPA simply lacks the human resources to track the vast number of factories in Taiwan. Although significant progress has been made toward improving the environmental performance of Taiwan's largest manufacturers, small- to medium-sized enterprises (which account for most of Taiwan's industry) have eluded TEPA's control.
Complicating the situation is unenthusiastic enforcement by local authorities, who still view environmental protection as a burden on local industry. Most factories still cannot afford the investments necessary to meet regulatory standards, yet Taiwan's economic engine cannot afford to shut them down. The bigger problem is that many local authorities have close relations with local factories and do not evenly enforce regulations.
Currency CrisisIn September 1997, the financial world was sent reeling as the Asian economic bubble burst. Following several years of headlong growth, currency failures over the summer in Thailand led to a string of collapses across the region from as far south as Indonesia to as far north as Japan.
Between the middle of September 1997 and the middle of January 1998, the new Taiwan dollar-U.S. dollar exchange rate rose from 28.6 to as high as 34.4. While Taiwan was not hit as hard as other countries in the region, the failure has begun to drive prices up. The bigger impact has been on the import market. Overseas imports rose in price by nearly 14 percent within the span of a few weeks.
The government would like to hold the NT dollar steady, but ultimately has little control over the situation. Being an export-dependent economy, Taiwan will have to follow the path of its leading competitor--Korea. In the short term, increased import prices may cause firms to delay purchases of environmental equipment. It is still unclear what the impact will be over the long term.
Government's Environmental Priorities
In the short term, TEPA will likely focus on improving its management of the basic infrastructural needs of the environment. Improving the municipal and industrial solid waste disposal infrastructure will rank high on the list. Improving vehicle emissions and reducing sulfur compounds (SOX), nitrogen compounds (NOX), and volatile organic compounds (VOCs) from fixed sources will likely demand a great amount of attention. In the water arena, construction of the sewer systems will be the primary focus, but TEPA will continue work on controlling and reducing industrial wastewater volume through increasingly stringent standards and discharge fees. In the regulatory arena, TEPA has already laid the basic groundwork for managing pollution in Taiwan. Over the next few years, TEPA will shift its focus to expanding the base of environmental regulations to encompass more industries and to refining its tracking systems.
Medium to Long Term
Over the medium to long term, TEPA's focus will begin to shift from control of pollution discharge to cleanup of polluted sites. Hazardous waste control and remediation of soil and groundwater will become key areas. Both TEPA and IDB are aware of these problems, but are not in a position to begin addressing them. As the economic instruments used by TEPA mature, there will also likely be a fundamental shift away from end-of-pipe solutions toward clean production, waste minimization, and recycling technologies.
Overview of Market Opportunities and Potential
Economic development is still given top priority in Taiwan, but environmental stewardship is slowly being embraced. The island's increasing demand for a higher standard of living and quality of life will continue to move environmental protection forward. Taiwan will continue to develop as a strong market for U.S. environmental technologies and services.
Taiwan currently moves ahead with a massive sewer system investment plan. Limited opportunities do exist for U.S. companies interested in bidding on design contracts, but virtually all of the construction contracts have gone to local firms. While few opportunities exist in the public contracting sector, Taiwan's industrial market holds substantially better opportunities for American firms as new standards are driving the demand for advanced tertiary treatment equipment to lower chemical oxygen demand, biological oxygen demand, and suspended solids counts. Simultaneously, increasing water shortages are driving a growing demand for advanced water recycling technologies.
In the short term, the best market opportunities lie in construction of large-scale municipal waste incinerators as TEPA has embarked on an aggressive program to construct over 30 incinerators. Virtually all of the contracts have been awarded to international companies partnered with local engineering firms. Opportunities also exist in providing small-scale industrial waste incinerators and industrial waste recycling technologies. Waste hauling may eventually become an attractive market, but for the moment, high entry barriers (i.e., weak regulatory infrastructure and enforcement) make it an unattractive short-term investment for American firms.
Hazardous Waste/Soil Remediation
Hazardous waste handling and soil remediation will eventually become a burgeoning market. However, at the moment, markets have not yet begun to develop. There are niche opportunities, but not enough to support a long-term business.
Air pollution control represents one of the best market areas for American companies. Currently, there is strong demand for diesel emissions testing and control technologies. In addition, there is strong interest at both the central and local government levels in alternative-fuel technologies such as compressed natural gas or hydrogen fuel cells. TEPA has already begun funding the purchase of pilot alternative-fuel vehicles for cities interested in replacing their bus fleets. In
the industrial arena, new regulations and discharge fees are driving demand for NOX and VOC control equipment. The industrial market will likely remain strong for the next few years as TEPA implements new air pollution fees.
Consulting and engineering have traditionally been one of the toughest market areas for international firms to enter. Stiff local competition has made it difficult for international companies to gain a foothold in the market. The best opportunities lie in partnering with local companies in highly specialized areas such as soil remediation or marine ecology. There are plenty of opportunities for work in traditional areas (wastewater system engineering, etc.); however, companies must be prepared to make a long-term investment that will most likely not be profitable in the early years.
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