summary:
To understand the carbon reduction trends in the steel and metal industry supply chain and the feasible carbon reduction practices of small and medium-sized enterprises in this industry, this article summarizes the latest developments in the EU's carbon border management mechanism, an overview of steel and metal product exports to the EU, and the trends of major steel manufacturers in promoting carbon reduction in the supply chain. It also draws on the carbon reduction experience, spirit, and practices of small and medium-sized metal fastener manufacturers in countries such as the United Kingdom and Sweden, and proposes three major response recommendations as a reference for policy implementation and program promotion.
I. EU Carbon Border Management Mechanism:
After years of discussion, the European Union finally reached agreement on the Carbon Border Adjustment Mechanism (CBAM) on May 10, 2023, completing the legislative process. According to information released by the European Commission, the CBAM will enter a transitional phase on October 1, 2023, and will officially take effect in January 2026. The Commission also stated that after the CBAM enters its transitional phase, EU importers must complete the first wave of returns by January 31, 2024.
After the CBAM enters its transition period, carbon content data will need to be reported for products such as cement, steel, aluminum, fertilizers, electricity, and hydrogen when imported into the EU. However, during the transition period, importers only need to submit carbon content data for these products, at no additional cost. The EU hopes that CBAM stakeholders (importers, manufacturers, and governments) will view the transition period as a pilot and learning period. The EU will also collect necessary information during this process to refine its carbon emissions calculation methodology.
According to the Official Journal of the European Union, products such as steel, aluminum, and hydrogen are only required to report their direct carbon emissions. Other products must report both direct carbon emissions and indirect carbon emissions from electricity use. Product carbon emissions are calculated as: carbon emissions per unit product x quantity of product.
The calculation of carbon emissions per unit of product can be further divided into simple goods and complex goods according to Annex IV of the Directive. The simple goods refer to products whose raw materials or fuels used in the manufacturing process do not contain embodied carbon emissions. For these products, only the carbon emissions generated by the production process need to be calculated. Complex goods are products manufactured using simple goods. The calculation of their carbon content must include both direct carbon emissions generated during the production process and the embodied carbon emissions of the raw materials used. However, the practical distinction between the two and the detailed calculation procedures remain to be determined by the EU.
Alternatively, if importers are unable to declare the carbon content of their products, they can use default values provided by the European Commission. The EU will publish detailed information in the implementing act for the CBAM for importers' reference.
II. Overview of my country's steel and metal product exports to the EU:
A survey reveals that over the past three years (2020 to 2021), Taiwan's exports to the EU of steel and metal products (aluminum products) under the CBAM control program have shown an upward trend. Steel exports grew from US$2 billion in 2020 to US$4.215 billion in 2021, more than doubling. Further analysis reveals that within steel exports, screws and nuts (item number 7318), located downstream of the supply chain, saw their value increase from US$1.043 billion in 2020 to US$1.677 billion in 2021, a growth of over 60%. Screw and nut exports also account for a significant portion of total steel exports (52.15% in 2020, 34.97% in 2021, and 39.78% in 2021). Aluminum exports grew from US$954 million in 2020 to US$156 million in 2021, a nearly 64% increase.
3. Carbon reduction trends in the steel and metal industry:
Small and medium-sized enterprises (SMEs) in the steel and metals industry are primarily found downstream in the supply chain, manufacturing end products (such as screw and nut manufacturers). However, upstream large steel companies, as suppliers of raw materials, still play a key role in the decarbonization of the entire supply chain. A survey of leading steelmakers, including ArcelorMittal (Luxembourg's largest by revenue), POSCO (South Korea), and Nippon Steel (Japan), revealed that upstream companies in the steel supply chain are primarily promoting carbon reduction through four key measures: energy substitution, process innovation, supplier management, and international influence.
First, by improving the energy efficiency of production lines or introducing renewable energy, we can fundamentally reduce carbon emissions from corporate operations. Second, we can invest in innovative technologies to improve existing product processes. For example, hydrogen steelmaking technology can replace coal with hydrogen, which produces only water vapor (H2O), reducing carbon emissions from steelmaking at the process level. Alternatively, we can develop carbon capture technology to capture carbon dioxide from blast furnaces for reuse. Third, through supplier management measures, we can require suppliers to set carbon reduction targets and implement carbon reduction measures. Fourth, by collaborating with international organizations (such as the World Trade Organization) to establish industry carbon reduction standards or pathways, we can drive accelerated action by our peers and promote the decarbonization of the steel industry.
IV. Carbon reduction cases of small and medium-sized enterprises in the international steel and metal industry:
(1) Apex Stainless Fasteners, UK
Founded in 1991 in Bilston, a small town in central England, Apex Stainless Fasteners (ASF) is a stainless steel fastener manufacturer specializing in customized services. With a staff of between 50 and 200, ASF prides itself on being a leading European stainless steel fastener supplier. To address net-zero emissions and corporate sustainability, ASF has implemented ISO 14001 to establish its environmental management system, supported the Science Based Targets initiative (SBTi), and developed an environmental policy with targets for climate action, recycling, and waste management by 2030. These include achieving net-zero Scope 1 and Scope 2 emissions, increasing waste recycling to 90%, and reducing waste by 20% through the introduction of renewable energy and electric vehicles.
ASF is also promoting digital transformation, hoping to improve operational efficiency and reduce paper consumption (paper consumption was reduced by 50% in 2021 compared to the previous year) through the digitization of its operations. Furthermore, ASF is collaborating with packaging suppliers to promote low-carbon packaging, replacing existing plastic packaging materials with recycled materials to comply with local regulations while also reducing the carbon footprint of its products.
(2) A. Perry Ltd., UK
Founded in 1925 and currently a fourth-generation family-owned business, A. Perry Ltd. (APL) is a fastener manufacturer specializing in hardware fasteners for agricultural machinery and buildings. To address environmental and sustainability issues, APL promotes a 4R (Reduce, Reuse, Recycle Replace) strategy, which includes reducing energy consumption, prohibiting the use of disposable products, increasing recycling rates, and implementing material substitution.
To reduce energy consumption, APL replaced all lighting in its offices and factories with LEDs, incorporating infrared sensors to ensure lighting is only activated when needed. Secondly, APL introduced automated warehousing in its factories, replacing manual labor with robots, further reducing lighting usage. Thirdly, APL installed solar panels on its factory roofs to increase renewable energy consumption for its operations. It also upgraded the insulation in its offices and factories to reduce the need for heating equipment.
In terms of material substitution, APL is actively promoting Eco Packaging, with the goal of reducing the use of plastic in packaging materials by 30% this year, and using recyclable materials (such as paper instead of tape) or recycled plastics to replace non-recyclable plastic packaging.
(3) Bumax AB, Sweden
Bumax AB is located in the steelworks community of Åshammar, 200 kilometers north of Stockholm, Sweden. It has been producing metal fasteners since 1899 and stainless steel fasteners since 1926. Bumax AB6 is a representative Swedish small- to medium-sized fastener manufacturer (employing approximately 51 to 200 people). It claims to produce the world's strongest fasteners and markets them globally under the BUMAX brand.
To promote sustainable operations, Bumax AB has established an Environmental Policy and Code of Conduct and five medium- and long-term goals, including: (1) producing or purchasing renewable energy by 2030 to reduce Scope 1 and Scope 2 emissions to zero; (2) achieving a 90% raw material recycling rate and zero waste by 2030; (3) reducing waste by 20% by 2030; (4) actively cooperating with relevant laws and policies in the operating areas; and (5) fully cooperating with REACH and RoHS policies.
Since 2011, Bumax AB has actively collaborated with Linköping University and the University of Gävle to achieve its sustainable development goals through energy conservation and carbon reduction. Specific achievements include electrification of heating equipment, transitioning to 100% renewable energy throughout the factory in 2019, and replacing outdated lighting equipment. To date, this has resulted in a carbon reduction of over 62% (compared to 2011 levels). Furthermore, supporting measures such as roof insulation, energy-saving glass, energy-saving folding factory doors, heat recovery and reuse, and outsourcing wastewater management (previously handled in-house) are reducing heat loss and providing a more comfortable working environment for employees and machinery.
V. Findings and Suggestions:
(1) The value of steel and metal product exports to the EU continues to rise, with both upstream and downstream supply chains actively promoting carbon reduction.
Import and export trade statistics show that Taiwan's exports of steel and metal products under the CBAM control program to the EU have shown an upward trend over the past three years (2020-2021). Steel product exports have more than tripled, from US$2 billion in 2020 to US$42.15 billion in 2021. Specifically, exports of fasteners such as screws and nuts have increased by over 60%, from US$1.043 billion in 2020 to US$1.677 billion in 2021. Aluminum product exports have also increased by nearly 64%, from US$954 million in 2020 to US$156 million in 2021. Furthermore, a look at both upstream international manufacturers and downstream small and medium-sized manufacturers reveals that the former are reducing carbon emissions from steelmaking through process improvements, while downstream manufacturers are responding to industry trends by formulating environmental policies.
(2) International experience shows that SMEs can also respond to the trend of carbon reduction through a variety of carbon reduction measures
Although limited by the raw materials they source from upstream steel mills, small and medium-sized manufacturers downstream in the steel industry supply chain can also reduce their Scope 1 and Scope 2 carbon emissions by formulating environmental policies, integrating renewable energy into operations and production lines, electrifying equipment (such as vehicles and heating equipment), promoting energy conservation (LED lighting and sensor devices, energy-efficient buildings, etc.), reducing and recycling waste, and adopting environmentally friendly packaging (using recycled plastics or paper, etc.). Furthermore, case studies have shown that promoting digital transformation and collaborating with third parties (or outsourcing professional services) can also help small and medium-sized metal fastener manufacturers reduce carbon emissions and respond to international sustainability and carbon reduction trends.
(3) Continue to monitor the development of international regulations and collect successful cases as a reference for response measures
Carbon reduction for SMEs is deeply influenced by international regulations and the dynamics of major industry players. This is particularly true given that the EU has not ruled out expanding the scope of regulated products, and the implementation details for calculating and verifying product carbon content have yet to be announced. Furthermore, the EU has repeatedly adjusted the scope of regulated products and the timeline for implementing the legislation during the CBAM legislative process. We must continue to monitor the development of CBAM and related regulations and provide feedback to policy planning to facilitate timely adjustments to response measures and properly support SMEs. Furthermore, we will continue to collect successful carbon reduction cases for international SMEs in the metal manufacturing industry, capturing their spirit and measures for reference by SMEs in the same industry in Taiwan.
Sources:
1.https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
2.關於各產品涵蓋之具體項目，請見附件1。
3.https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ%3AL%3A2023%3A130%3ATOC
4.資料來源：經濟部國際貿易局之中華民國進出口貿易資料庫
5.https://www.apexstainless.com/
6.https://www.bumax-fasteners.com/
7.資料取自歐盟 CBAM 最新文本：REGULATION (EU) 2023/956 OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL of 10 May 2023 establishing a carbon border adjustment mechanism (Text with EEA relevance), ANNEX II
Organizer: Ministry of Economic Affairs, SME Administration
Executing Unit: Plastics Industry Technology Development Center
