The dragon gasps; Taiwan's growing environmental protection market

Business America, May 6, 1991 by Craig Allen

The Fifth Six-Year Plan recently passed by Taiwan's Executive Yuan states that Taiwan's major environmental problems will be addressed by 1997. The Taiwan Environmental Protection Administration (EPA) estimates that approximately US$37 billion will be spent between 1991 and 1997 in the clean-up effort.

The goal of a clean and environmentally-sound Taiwan seems very distant to many who live within the choked confines of Taipei, Kaohsiung, and other urban centers. However, Taiwan clearly has the resources and has demonstrated the will to tackle this important job. The authorities on the island have outlined a series of projects and enforcement measures to implement their mandate. These projects offer significant export opportunities for American equipment and service suppliers.

Dimensions of the Problem

The most important factor that underlies Taiwan's environmental problems is the density of people on the island. Taiwan's population of 20 million shares a land space of only 36,000 square kilometers. Taiwan has 556 people living on each square kilometer, compared to only 26 in the United States. To make matters worse, only 3.5 percent of Taiwan's residential units are hooked up to a sewage treatment system. In addition, there are 283 motor vehicles per square kilometer, compared to only 19 in the United States.

Other important factors include the intensity of manufacturing and agriculture on the land. Perhaps the best measurement of manufacturing density is a comparison of energy usage per square kilometer. Taiwan consumes over six times as many coal ton equivalents per square kilometer as does the United States. Another example is pig fanning. Pork has traditionally been a major export industry on the island. At present, there are a total of 8 million pigs, with 216 animals per square kilometer. In contrast, the United States raises only 5 pigs in the equivalent space.

As can be expected, many of Taiwan's problems are a result of policy choices made over the last several decades. Until recently, Taiwan (and the other East Asian newly industrialized economies) followed a deliberate policy that can best be described as "get rich quick, clean up later. " Manufacturers were given every incentive to maximize production and exports. They were allowed to ignore the environmental costs associated with their increased production.

Partially as a result of this policy, the manufacturing sector has succeeded in attaining world-class status. Taiwan has become an economic powerhouse and the second most wealthy economy in Asia, after Japan.

Environmental Plans

Only over the last several years has Taiwan begun to address the environmental issues associated with its economic success and densely settled population. The EPA was formed in 1987 and is only now really becoming an effective regulatory entity. In accordance with EPA plans, environmental protection and pollution control spending will peak between 1993 and 1996 at approximately 1.7 percent of GNP. Total spending over the course of the Fifth Six-Year Plan (1991-96) will equal $37 billion. After 1997, the basic infrastructure will presumably be in place and spending (in terms of GNP) will gradually level off.

The EPA breaks down estimated environmental protection investment over the next six years into three categories; official, parastatal corporations, and private sector.

Official spending is estimated at $20 billion. Approximately 25 percent of this amount, or $5 billion, is dedicated to improvement and upgrading of old facilities. This would include many projects now in the planning stages or presently under way. An additional $14 billion is earmarked for new infrastructure construction, including a large network of incinerators and a comprehensive public sewage disposal system.

In the plan, parastatal corporations are expected to play a major role in the effort to clean up the environment. These organizations would include the Taiwan Power Corporation, China Petroleum Corporation, China Steel, and many others. As a group, these companies are expected to serve as models and to lead the way to more environmentally-sound production methods. Their investments over the next six years are projected to reach $10 billion, with nearly $4 billion dedicated to improving existing facilities and $6 billion earmarked for new developments.

Estimated expenditures for the private sector are, of course, more uncertain. The Taiwan economy is presently in flux, with very large investments in productive facilities leaving the island for other destinations in Asia and the United States. Another critical determinant is the level of EPA enforcement. Given these uncertainties, the EPA suggests that total private sector investment in pollution control will surpass $8 billion, with $5 billion dedicated to new investment and $3.3 billion for improvements.

The Taiwan EPA further breaks down estimated expenditures over the next six years in the following way. Approximately $3.5 billion will be spent for consulting services, and 17.5 billion will be dedicated to engineering services. As much as $13.6 billion will be spent on purchasing equipment. Finally, expenditures on testing, analysis, and other categories are projected at approximately $2.8 billion.