Small Enterprises Join the Carbon Wars

"Three or four years ago, as soon as SMEs saw that we were a unit commissioned by the government they assumed we were there to test their wastewater and particle emissions, which annoyingly caused us to often get stonewalled!" says Ma Sheng-shong, the manager of the Foundation for Taiwan Industry Service. The fact is that the Industrial Development Bureau of the Ministry of Economic Affairs has commissioned the FTIS to provide "free" diagnosis of energy consumption at companies, and offer suggestions for reducing energy use and carbon emissions, but they are often misunderstood as coming from the Environmental Protection Administration and therefore get the cold shoulder.

But recently, as the issue of carbon emissions has become more widely discussed, they are gradually finding more acceptance among SMEs. The FTIS has provided nearly 1000 sets of recommendations to firms over the past year, and actually gone into factories to directly give on-the-floor advice to more than 200 manufacturers. Their energy-saving advice goes from climate control, lighting, heat recovery and reuse, and other "factory systems" progressively to "improvements in the production process."

"Improvements in the production process can extend from using substitutes for current raw materials, upgrading equipment, and changing or simplifying the production line to wastewater treatment and reuse of waste materials-there are a hundred ways to make an impact," says Ma.

Take for example the important principle of "management at source." Many manufacturing processes include "coating" (for example spray-painting colors on the shells of mobile phones or applying photoresist or liquid crystals to glass substrates), and this process generates many "volatile organic compounds" (VOCs) which ultimately have to be sent to a wastewater treatment plant for final disposal. But the electricity consumption of wastewater treatment plants and the greenhouse gasses (such as methane) emitted by the treatment process itself are all on the "most wanted" list of carbon-emission offenders. If the gate could be closed off at the source, by substituting raw materials that produce no or at least fewer VOCs, then there would be far less carbon emissions at the end stage.

Upgrading equipment is a more complicated task, but yields correspondingly greater results.

Ma offers the case of a dyeing plant to which he provided advice. Dyeing plants not only use huge amounts of water, they also need steam and heat, so they use an extraordinary amount of energy. Moreover, using a lot of water means that there is a lot of wastewater, which requires a great deal of energy to treat. Therefore, the key to energy savings is to reduce the so-called "liquor ratio," which is to say the amount of water required to dye a given unit of cloth.

The boss of this dyeing factory (who would like to remain anonymous), whose highest academic degree was primary school, after hearing the recommendations from the FTIS, not only personally went to Germany to see an exhibition of related goods, he designed his own improved dyeing machine. By using a sheet of metal to "subdivide" the dyeing vat, so that each machine could handle two rolls of cloth at once, and then reducing the amount of water used in each vat by more than half, the ratio of cloth to water used more than quadrupled! The FTIS estimates that this will save NT$5.8 million per year in overhead for materials, water, and wastewater treatment fees, as well as cut CO2 emissions by 768 tons. Because total investment for the whole factory would come to NT$12 million, after evaluation it was decided to first change just one-third of the vats (five machines).

"Once the boss sets his or her mind to it, they can cut electricity consumption by at least 20-30% on average," says Ma. Taking the industrial sector as a whole, SMEs account for 25% of carbon emissions, so even if they cut CO2 by 30% the overall "contribution" would be limited. Nonetheless, low carbon status will affect an SME's competitiveness, and Ma feels that the government should invest more resources in assisting such firms in the future.

For example, cash flow is one of the obstacles that most needs clearing up.

Yu Teng-yaw, CEO of the Taiwan Green Productivity Foundation (TGPF), which has been commissioned by the Bureau of Energy of the Ministry of Economic Affairs to provide carbon reduction consulting for both the real-estate sector and the manufacturing sector, states that SMEs face serious problems raising capital. He therefore points to a brand-new operating model being used by energy services companies (ESCOs) as particularly suited to SMEs: Neither ESCOs nor clients need lay out any initial investment, but rather a bank provides the money to undertake energy-saving projects, and thereafter the money saved year-on-year is divided amongst the three participants according to some pre-agreed proportions.

The problem is, domestic banks have scant interest in loans of less than NT$10 million, and even less faith in SMEs. This puts a lot of obstacles in the path along which ESCOs are trying to advance.

A different problem is that there have been incidents of differences of opinion between company bosses and ESCOs over "energy saving efficacy."

For example, a certain ESCO installed upgraded equipment for a client with the promise of a 20% savings in energy bills. However, because of the economic downturn, orders fell and the owner cut production capacity, so that the credit for energy savings could not go entirely to the ESCO. Unfortunately the two sides lacked any common basis for compromise. Because of all the possible complications that exist, details have to be clearly thrashed out in advance, otherwise disputes could quickly turn into "it's just your word against mine" stalemates.

In order to deal with the abovementioned two problems, the TGPF has proposed the establishment of a third party (or perhaps fourth party would be more accurate!), namely a public agency, which would do two things. First, it would establish recognized criteria for measuring the effectiveness of energy-saving measures, in order to minimize possible conflicts between firms and ESCOs. Second, it would act as a facilitator for SMEs so that financial institutions could make loans with peace of mind.

Yu says happily that First Bank has already agreed in principle to participate in this plan, and moreover will "test-run" the scheme with its own Taipei office building, using the ESCO model to turn itself into a "low-carbon bank." When this mechanism gets on track in the future, it is conservatively estimated that the market could be as large as tens of billions of NT dollars per annum, and Yu expects that many more banks will want to get with the program.

There are currently 1.2 million small and medium enterprises in Taiwan. Given the fact that so far not many of them have started implementing reduction of greenhouse gasses, crossing over this threshold as soon as possible will have a profound and long-lasting impact on the competitiveness of individual enterprises and the country as a whole.