Climate Change and PM 2.5
China is the largest CO2 emission country in the past to fuel fast economy growth. The consequence of environment damage has emerged recent years with increasing level of PM 2.5, causing serious health issues to residents in Beijing.
Fine particulate matter (PM 2.5) is an air pollutant that causes serious health concern for people when levels in air are high. The particles are able to travel deeply into the your lungs, causing effect such as eye, nose, throat and lung irritation. Long-term exposure to high level of PM 2.5 increases mortality from lung cancer and heart disease. [1]
Beijing, capital city of China, is experiencing Hazardous air quality. Based on real-time air quality index, the current PM 2.5 level in Beijing is 320, close to the maximum of 360 and indicated as Hazardous air quality.[2] So, what cause the terrible air quality in Beijing?
South of downtown Beijing located is one of China’s largest steel companies, Shougang Group. Every year, Shougang produces more than 30 million tons of crude steel in 2013[3]. Steel production is an energy intensive process and Shougang’s total CO2 emissions were over 61 million tons in 2013. [4] In provinces surrounding Beijing, hundreds of steel mills are running at full capacity to fuel fast Chinese economy growth in the last decade. The iron and steel is an industry that consumes high energy, produces high pollution. The industry has attracted deep concern of Chinese government. According to a report, CO2 emissions in the iron and steel industry accounted for approximately 12% of the total CO2 emissions in China, which almost doubled the world average ratio of 6.7% in 2010. [5]
In 2014, China issued the National Climate Change Plan (2014 – 2020), which states main objectives and key tasks to address climate change before 2020. One of the key tasks is to lower emissions of pollutants. The policy also uses maximum cap on emission of pollutants as a tool to improve environment.
Risk and Opportunity:
Chinese steel industry has experienced slower and negative growth in the past a couple of years. The Chinese economy is shifting from building infrastructures, which uses lots of steels, to focusing on developing service industry. Shougang, like many other steel companies, is facing high inventory level, short of cash flow and lower profitability. In addition to financial challenges, Shougang needs to reach its sustainability goal of reducing emission of pollutants to meet the maximum cap. The regulation rules constrain Shougang’s production capacity, disrupt production schedule, and further reduce Shougang’s sales and profitability.
The financial and regulation challenges indeed also pose some opportunities in front of Shougang. Hundreds of smaller steel mills went backrapt in the last a couple of years, resulting industry consolidation. For survivors, like Shougang, it means that they have bigger market shares to drive sales and profitablity. The company could therefore, deploy more captial into sustainability projects to improve production efficiency and supply chain improvment projects. Compared to hundreds of other smaller steel mills, who is facing potential bankruptcy duo to higher cost of air and water treatment, Shougang is acting now to address the sustainability issues by relocating campus, updating technology and improvement operation efficiency.
Shougang has spent significant capital investment to deal with sustainability. The newly built campus has high waste recycling capability and can reduce CO2 emission by 2 million ton, which is equivalent of planting 113 million of trees. In 2013, the company invested $60 million into waste recycling related projects and another 18 energy saving projects. [6] The company did a collaborative work with Toshiba on reducing emissions using carbon capture and storage (CCS system). [7] The idea is to use solvent absorption methods to capture carbon dioxide. The new CCS needs to integrated into the exiting operation system. The results demonstrated a promising solution to deal with air pollution.
Next Steps:
Shougang still faces significant challenges. The company faces increasing production costs and reducing sales given the sluggish economy. In order to continue driving technology upgrades and building waste treatment systems, Shougang needs to ensure that the benefits of its sustainability projects justify the high cost of integrating new systems. One of the potential solutions is the public–private partnership (PPP). The idea is to leverage technology and capital from private sectors to help Chinese stated owned companies to achieve sustainability goals. For example, private water treatment company could build waster water treatment systems in Shougang campus to recycle water. In return, Shougang should share some of the savings to the water treatment company.
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[1] New York State Department of Health, https://www.health.ny.gov/environmental/indoors/air/pmq_a.htm
[2] http://aqicn.org/city/beijing/
[3] Annual Sustainability Report, http://www.shougang.com.cn/shougang_cn_web/res_base/shougang_com_www/default/article/img/2014zerenbaogao.pdf
[4] https://www.globalccsinstitute.com/insights/authors/TonyZhang/2015/08/27/opportunities-ccs-chinese-steel-industry
[5] Study of CO2 emissions in China’s iron and steel industry based on economic input–output life cycle assessment, Li Li1,• Yalin Lei1• Dongyang Pan
[6] Annual report http://www.shougang.com.cn/shougang_cn_web/res_base/shougang_com_www/default/article/img/2014zerenbaogao.pdf
[7] Opportunities for CCS in the Chinese steel industry, https://www.globalccsinstitute.com/insights/authors/TonyZhang/2015/08/27/opportunities-ccs-chinese-steel-industry
Sometimes I feel sympathetic about local government as they have to resolve this super complicated air pollution issue while maintaining local economy growth. The easiest way to reduce greenhouse gas emission and pollutants emission is to shut down factories or move the factories to somewhere far away from urban area (like what Beijing local government is doing right now). However, I don’t think enough new jobs have been created to accommodate people who used to work for these traditional manufacturing industries and creating service industry jobs really take long time.
Interesting post! I agree that the heavy pollution is definitely a pressing issue in China and there are no quick solutions.
You mentioned that Shougang must ensure the benefits of the sustainability projects justifies the high implementation costs. Since Shougang is a state-owned company and these sustainability projects provide greater good for the country’s people, would the Chinese government be willing to relax profitability targets and help Shougang achieve its sustainability goals?
I think China is an interesting country in that the government intervention and influence can be very effective. I agree that there can be more collaboration between the private and public sector to share knowledge and leverage resources. It’s also impressive to see the numerous initiatives that Shougang has already started. Besides the large upfront costs of the sustainability projects, do the changes impact productivity, product quality or ongoing manufacturing costs?