2. Environmental governance and Taiwan’s EAF steel industry
2.3 Steel in Taiwan and private sector environmental initiatives
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Figure 13: Air quality index for Taitung (Aug. 17-18)
2.3 Steel in Taiwan and private sector environmental initiatives
To understand the pressures, incentives and resistance to make sustainable steel, it’s useful to consider the history of the industry in Taiwan. Of course, an environmental
management systems focus did not emerge worldwide until well after the Taiwan steel industry’s beginnings in the 1940s. Still, the industry’s first economic networks form the groundwork for global market pressure (macroeconomic challenges) and cross-sector influence in the present.
Furthermore, this section delves into contemporary private sector institutions and initiatives that serve as an impetus to and standard for environmentally responsible EAF steelmaking: the Taiwan Steel and Iron Industry Association (TSIIA), International Organization of
Standardization (ISO) certification and research and development alliances.
In addition, this section briefly describes some private sector programs that affect steel sector leaders and large-scale operators in Taiwan; since EAF only entails steel recycling on a relatively small scale, these firms are not directly exposed to certain macroeconomic trends (for instance, iron ore pricing27), and they also might not have as much access to capital and human resources. As such, EAF firms in Taiwan typically do not participate in more cutting-edge initiatives like the following: the Taiwan Business Council for Sustainable Development, the
27 However, this is currently a subject of debate in the industry, as an article published on Oct.
24, 2014 states, “Electric arc furnace (EAF) steelmakers no longer have the upper hand over their integrated steelmaking counterparts in terms of raw materials costs, according to Steel Dynamics Inc. (SDI) president and CEO Mark Millet.” See
http://www.steelfirst.com/Article/3393432/Plunge-in-iron-ore-cost-dulls-EAF-mills-competitive-edge-SDI-ceo-says.html
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Global Reporting Initiative (environmental disclosure, monitoring), the Dow-Jones Sustainability Index, the Carbon Disclosure Project and investor governance networks. Still, these initiatives signal trends that are taking off in global industrial EMS, trends that may one day trickle down to small- and medium-scale operations, just as the ISO 14000 series did. The following paragraphs track the rise of all these initiatives from Taiwanese steel’s humble beginnings in the ship recycling industry.
Taiwanese steel production emerged during Japanese colonization, and the first mills helped satisfy the military needs of Japan. These mills reprocessed waste steel using electric furnaces, with raw materials taken from the fallen targets of Allied bombings during WWII. In particular, bombings in Kaohsiung Harbor sunk several military vessels that would inadvertently initiate the first steel boom in Taiwan.
By the end of WWII and Japanese colonization, Taiwan came under the official control of the exiled Chinese Nationalist Party (中國國民黨). The nationalists, popularly known as the Kuomintang or KMT, set forth a plan in 1947 to salvage more downed ships in Kaohsiung Harbor to clear the port and provide the raw material for increased outputs of recycled steel.
Ship scrapping quickly became a powerhouse of domestic economic productivity, and in 1965 the KMT government released a new plan to import more old ships from elsewhere. During this time, the Taiwan Steel and Iron Association (TSIIA) emerged to bring steel plants together and develop the industry fed by so many decommissioned vessels.
TSIIA emerged in 1963 to enhance the development of the steel industry through inter-firm cooperation. Since the early years it has coordinated a number of working groups to isolate discrete aspects of steel industry operation for research, development and standardization (early working groups include the wire rod group, the pig iron group and the casting steel and tin plate group). TSIIA also acts as a bridge between public sector policymaking and industry insiders, communicating policies to its membership and negotiating new regulations with policymakers.
The organization also works to supplement steel firms’ in-house research on international steel production, sales and inventory, to attract foreign buyers to Taiwan and to organize professional development and socializing opportunities for members. On June 7, 1985 they founded the Pollution Prevention Committee, and in 1996 they established the Industry Safety and
Environmental Protection Committee. TSIIA’s current membership of 240 companies includes not only steelmaking firms but also more downstream manufacturers.
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While TSIIA was picking up steam in the ’60s, development in the steel industry was accelerating along with the national economy. By the1970s, as Taiwan’s “economic miracle”
began to attract worldwide attention, the industry had disassembled more than 200,000 tons of super tankers. They led the world in this activity, generating approximately two thirds of the global volume of disassembled ships. Ship disassembly also provoked a flood of foreign exchange into Taiwan’s economy, greasing the wheels for long-standing industrial relations internationally.
Many of Taiwan’s first successful private steel companies, including Tung Ho Steel (established in 1962) and Feng Hsin (1969), started by buying scrap metal from ship
disassemblers. To meet increasing demand over time, firms also began importing the raw materials for processing steel from ore in more advanced facilities. Between 1971 and 1991, a boom in civil construction28 created a windfall for steel companies. Transportation vehicles and infrastructure and national defense equipment were also prominent markets at the outset. Still, several firms gradually shifted their output from infrastructure components to small parts and appliances. Outspoken domestic criticism for the Taiwanese steel industry’s environmental practices was rare if it existed at all during the industry’s initial boom period. On the contrary, the industry embodied Taiwan’s ascent to global recognition for its economic miracle, and Taiwanese youth competed intensely for work opportunities in the most powerful companies.
Among these were firms emerging from the KMT-initiated Ten Major Construction Projects ( 大建設) from the 1970s. Among the ten, the nation built its first integrated steel mill equipped with a coke oven and blast furnace that was capable of producing the highest quality steel. This marked the foundation of the China Steel Corporation.
The China Steel Corporation (CSC), since its inception, has regarded itself as a step forward in Taiwan’s industrial development. In contemporary times, along with its subsidiaries, the China Steel Group competes with top international environmental management systems.29 It
28 Construction continues to be a major domestic consumer of steel to this day, especially with a real estate bubble forming in the north in spite of government action (e.g. a luxury tax and penalties for holding on to vacant properties) to quell the tide and put a halt to skyrocketing prices.
29 Wu I-Min of China Steel’s Office of Energy and the Environment states that “CSC wishes to become one of the most environment-friendly steel companies in the world … However, all
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is among the top 20 largest steel producers worldwide. Before its ascent to worldwide recognition, however, CSC paid huge sums to send Taiwan’s best and brightest abroad for training. From the initiation of the Ten Major Construction Projects in 1974, it took four years for CSC to begin production and even less time to send foreign engineering consultants back home. Moreover, in addition to CSC’s developing network of commercial ties, the company also engaged in transnational technology-sharing projects with steel plants in Indonesia,
Malaysia, and South Korea. The privately owned company transferred into public hands in 1977 and was re-privatized3018 years later.
Besides large corporations like the CSC Group, however, the steel industry boom also gave rise to more small- and medium-sized enterprises. Since the island has no domestic source of iron ore, most raw materials come in the form of end-of-life products with steel components.
The EAF technology capable of processing this raw material is also sufficiently simple and compact (relative to larger firms’ integrated steel mills that work with ore), creating a lower barrier of entry into the market for smaller competitors. While Taiwan was engaged in its first stages of development, these SMEs could primarily focus on domestic demand. As globalization took hold and domestic demand lessened, however, SMEs joined their larger steelmaking
counterparts to produce for export. Still, as companies grew to rely more and more on the global economy, they had to conform to an ever-evolving set of regulations and certification schemes.
Over time these protocols adopted more rigorous standards for corporate environmental management.
The most prominent and widespread private-sector regulatory authority is the
International Organization of Standardization (ISO). Unlike governmental regulatory bodies, the ISO operates by having representatives from national standardization bodies negotiate and promulgate an international system of expectations for all kinds of business operations. Rather investments need to consider economic, technical, and practical feasibility,” (personal
communication, June 17, 2013). He adds that all CSC Group members must earn ISO certification. The website for the World Steel Association (WSA) (formerly the International Iron and Steel Institute) promotes CSC as a case study in corporate sustainability. See
http://www.worldsteel.org/steel-by-topic/sustainable-steel/members-reports.html.
30 The ROC government still controls between 20-23% of shares. Long-standing government affiliation might even stimulate enhanced government pressure to go green; in its struggle for greater political recognition worldwide, Taiwan’s public sector would hesitate to collude with big-time polluters.
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than directly penalizing firms that fall short of standards, ISO affects corporate reputation via a certification scheme. Although formal ISO certification is voluntary, given the international legitimacy of the ISO mechanism, companies that either fail to receive or lose their certification for a set of ISO standards lose significant credibility in their industry and will likely be barred from trade due to market pressure and/or ISO-referenced government sanction. The certification process itself is decentralized from the main administrative body in Geneva, Switzerland and delegated to independent agencies in each participating country.
The ISO got its start at a multinational conference in London in the 1940s (although its predecessor, the International Federation of the National Standardizing Associations, was active between 1926 and 1942). Still, it wasn’t until 1971 that the organization convened its first committee on environmental issues (specifically air and water quality). By the mid-1970s, European ISO representatives started spreading the ethos of industrial and technological
standardization to China, Japan and elsewhere in Asia. In 1987 the ISO started implementing its quality management standards, and this preceded another process-oriented set of standards promulgated in 1996: ISO 14000.
The ISO 14000 series emerged in response to the 1992 Rio Summit on the Environment (also known as the Earth Summit, or the United Nations Conference on Environment and Development). ISO 14000 describes a set of guidelines for creating a corporate EMS, and the standards apply to industrial processes rather than merely the products they create. In this vein, ISO 14000 does not prescribe any explicit performance targets. Rather, it is up to firms to continually set new and personalized environmental targets based on their EMS protocols.31 The Plan-Do-Check-Act cycle is a common shorthand for this process. Generally speaking, ISO 14000-certified businesses must monitor and disclose their environmental impact, set goals to minimize that impact (See Table 2), comply with national environmental regulations and continually improve. Although corporate environmental goals will vary under ISO 14000, the series helped form a standard of comparison for corporations implementing EMS — whereas before the advent of the series, each organization created its own system based on its individual environmental ethos, principles and methodology. Typically, steel firms producing for export display their ISO certification prominently on building facades, websites, and public relations
31 Within the ISO 14000 series are standards for environmental auditing, life cycle assessment, environmental labeling and environmental performance evaluation.
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material.32
Table 2: Example EMS improvement objectives and targets for EAF facilities
Source: Steel Manufacturers Association: Environmental Management System Guide (U.S. Environmental Protection Agency Archive Document: May 2005), http://www.epa.gov/sectors/sectorinfo/sectorprofiles/ironsteel/02_Section_I.PDF
From a macroeconomic perspective, rising labor costs, weakening domestic demand33, increased competition worldwide and trade protectionism in key overseas markets started to shift many operations outside of Taiwan starting in the early 1990s. Taiwan’s participation in a
preferential trade agreement with China in 2010 — the Economic Cooperation Framework Agreement (ECFA) — exacerbated this problem since it became easier than ever for Taiwanese companies to escape to mainland China where labor costs were cheaper and regulations more
32 Corbett and Kirsch (2000) state that ISO’s quality and environmental certification is
sometimes criticized for being too vague and too easy to acquire, especially in Asian countries.
Referring to Taiwan as a case study, the authors contest this view by saying that although the central government has provided some subsidies to help certain SMEs cover the costs of certification, the standards are applied in Taiwan just as rigorously as in other countries.
Furthermore, the authors interview a Taiwanese industry insider who confirms that companies may obtain EMS certification relatively easily when their environmental goals are low-hanging fruit, but it is much more difficult to stay certified in the long run.
33 A 2013 working paper produced by the Ruhr-Universitat Bochum (RUB) Department of Economics in Bochum, Germany titled “Long Term Trends in Steel Consumption” found that steel demand increases in the initial stages of national economic development and then enters into a period of decline after the country hits a particular level of per capita income. The authors note that in their sample of “emerging economies,” Taiwan was the only case that had already entered a stage of declining demand. See
http://www.rwi-essen.de/media/content/pages/publikationen/ruhr-economic-papers/REP_13_415.pdf
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relaxed. Mergers and acquisitions of steel plants also became more and more common on the world stage at this time, a fact that unsettled traditional trade networks and benefitted
consolidated enterprises with more purchasing power for raw materials and larger distribution capabilities. Also, the need for Taiwanese steel firms to internationalize increased with
outsourcing (generally, the 65% of companies currently manufacturing steel are export-oriented).
Reporting on these macroeconomic trends in 201334, Secretary General of TSIIA Jerry Huang gave the following exposition:
“In the beginning of this year, our government launched several incentives to stimulate investment, such as encouraging overseas Taiwanese corporations to return and invest in Taiwan. It was expected that these incentives would stimulate domestic employment and consumer confidence and increase imports.
Unfortunately, first quarter 2013 performance did not live up to expectations.
This, by the way, is a main reason for the government’s recent revision of the GDP growth target.”
In addition, a global oversupply of steel, growing competition from China, Japan and Korea, and unstable prices for raw materials35 compound these macroeconomic trends. Shifting energy costs in competing countries (for example, decreased costs in the US after shale oil) also make for a challenging market. To combat the resulting period of relative economic stagnation, Taiwan’s steel industry has begun to implement some strategies with implications for the development of environmental management systems.
One of these strategies is the formation of research and development alliances. China Steel’s website describes the company’s affiliation with “downstream steel companies,
universities and research institutes” to enhance its production methods and end products. Some of these alliances are aimed at the proliferation of green technology in Taiwan, such as the
“R&D alliance for eco-friendly processing of wire rod.”36 Among companies using EAF
34 These remarks were taken from a prepared speech regarding steel and iron industry performance in 2012 and forecasts for 2013, delivered to international steel industry representatives at the end of the first financial quarter in 2013.
35 The Bloomberg article “Steelmakers seen hurting profits as sales chase dents prices” published Aug. 27, 2014 describes how steel firms are operating at 75-percent capacity on average
internationally (80 percent in the U.S.) in an attempt to increase sales. This strategy, however, depresses the price of steel and decreases overall profitability in an era of ebbing demand and increased Chinese exports (as of September, 2014 saw a 33-percent increase in Chinese steel exports from the year before).
36 See http://www.csc.com.tw/csc_e/ts/tsMain3.html
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technology, in 2010 Dragon Steel publicized its use of the European PRIMUS technology to recycle dust and sludge. Dragon Steel is a China Steel subsidiary. TSIIA Secretary General Huang had the following to say about research and development alliances in Taiwan.
“Our steel mills also try to do their best to foster cooperation throughout the supply chain. Steel mills are increasingly working together with downstream steel consuming manufacturers on R&D to develop high-quality steel products.
Sustainable management is also becoming a big concern to run the steel business in Taiwan. High-value special steel is an area of promising growth that is now an active focus of government, university and manufacturer R&D cooperation.”
In addition, like CSC’s early technology-sharing efforts, TSIIA notes that Taiwan is once again reaching out to Southeast Asia to collaborate in overcoming global macroeconomic challenges.37
Throughout all stages of development in Taiwan’s steel industry, continuous advances in technology brought about environmental (and economic) gains industry-wide. For example, steel plants experienced a 21-percent reduction in raw material inputs necessary to produce 100 kilograms of steel between the 1970s and 2010,38 and energy consumption has decreased by more than double that figure in the same time. Less raw materials use also translates into reduced greenhouse gas emissions. Another cause for decreased GHG emissions occurs further down the production line: new advanced and ultra high-strength steels (AHSS and UHSS) are lightweight and strong, allowing for the manufacture of vehicles that consume less fossil fuels.
Stronger grades of steel also allow for more efficient reuse.
Finally, the following paragraphs briefly describe the new wave of private sector initiatives for environmental management. China Steel has adopted each of these programs and protocols, but the initiatives have not yet penetrated the majority of small-scale EAF firms. First, the Business Council for the Sustainable Development of Taiwan (BCSD, 企業永遠續發展恊), a nonprofit, was founded in May 1997 to encourage cross-sector and multi-industry partnership to
37 See Wu and Hsu’s (2001) article “Towards a knowledge-based view of OEM relationship building: Sharing of industrial experiences in Taiwan” for a more comprehensive view on the role of transnational partnerships in Taiwan’s domestic industrial development.
38 See Yellishetty et al. (2012) “Iron resources and production: Technology, sustainability and future prospects” Available online at
http://cfsites1.uts.edu.au/find/isf/publications/yellishettyetal2012ironresourcesproduction.pdf
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promote corporate sustainability. Specifically, the BSCD has collaborated internationally39 and with the central government to put forward a set of definitions and indicators for achieving “eco-efficiency,” a strategy for GHG reduction and energy issues, corporate social responsibility schemes, environmental disclosure protocols and socially responsible investment (SRI) plans.
China steel is among the large-scale companies that publishes white papers and lobbies the government under the auspices of the BSCD, and the organization’s most recent (2010)
“Emerging 800” list of environmentally responsible businesses includes China Steel, Chung Hung Steel, Feng Hsin Iron and Steel and Tung Ho Steel.40 BCSD also maintains a database of annual environmental and sustainability reports published by steel and other industries. In 2008, the group launched the Taiwan Corporate Sustainability Forum, a platform for non-BCSD members to join members and discuss CSR best practices.
Second, the Global Reporting Initiative (GRI) is another nonprofit, corporate sector-led program that provides a blueprint for companies looking for comprehensive guidance in disclosing the environmental impact of their operations. The GRI was founded in the United
Second, the Global Reporting Initiative (GRI) is another nonprofit, corporate sector-led program that provides a blueprint for companies looking for comprehensive guidance in disclosing the environmental impact of their operations. The GRI was founded in the United