“There is an enormous opportunity to ride on this increasing global demand for environmental improvement and turn it into the driver of economic growth, job creation and poverty reduction that is now so desperately needed,” says Mr Achim Steiner, Executive Director of the UN Environment Programme. The UNEP is targeting the environmental industry with an initiative called the “Green New Deal”, aiming to create millions of jobs, slash poverty while, at the same time, averting environmental disaster.

Threats to the environment occur at different levels, affect our lives in different ways and climate change is constantly in the news. More localised effects are seen in the air pollution in cities and the contamination of rivers and the marine environment by industrial effluents.

The businesses that make up the environmental industry supply products and services that help to measure, prevent, limit or correct these problems. The producers of renewable energy, such as wind turbines, solar panels and biofuels are, of course, part of the sector, as are water supply companies, environmental consultancy services and developers of clean technologies.

These businesses look set to benefit from major investment from governments across the world, including US President Barack Obama’s, who has made energy policies an important theme of his economic stimulus plan. With support like this, the environmental industry should be looking at a bright future.

Environmental Market Development Model

Environmental markets have grown significantly around the world in recent decades. This growth has distinct phases that relate to the stages of development of a country’s economy and infrastructure. The first is the early market phase when limited investment is made in the industry and priorities are only beginning to be set for environmental issues. Many parts of Africa, for example, are still found at this level.

The next phase is environmental infrastructure development. As a nation’s economy develops and industrialisation increases, investment is made in infrastructure such as water supply and wastewater treatment. Third, comes the regulatory enforcement phase in which governments turn their attention to the development and enforcement of environmental regulations. Many of the developing countries in Asia and Eastern Europe are passing through these middle stages of development.

The final phase is the so-called resource productivity and market based instruments phase, in which Western Europe, the USA and Japan currently find themselves. Governments introduce fiscal and economic incentives for environmental improvement and greater resource productivity, for example, through landfill taxes and tax incentives for cleaner technologies. Integrated clean technologies and eco-efficient activities, such as recycling and renewable energy, are also developed during this stage. 

As countries progress through these various phases, the environmental industry benefits. Providers of environmental infrastructure see a major growth surge during the second phase of development, while companies involved in pollution control and monitoring the environment, for example, see more steady growth in the third phase. It is the renewable energy providers and companies involved in innovation of cleaner technologies that expand most in the fourth phase of development.

Driving the markets

Related to this development model are the differing economic factors that drive the market for environmental products. For developing countries, the long-term economic development involving industrialisation and urbanisation, including investments to improve environmental infrastructure such as water and waste management, underpins the initial growth of a country’s environmental industry.

Moving on from this, the realisation that there are scarce resources like water, land and forestry to protect, along with pollution legacies and related effects on public health, drives further development of the market. Finally, the realisation that poor environmental quality can hinder economic growth, especially relating to tourism, and the arrival in the country of multi-national companies who bring a commitment to global standards of environmental performance, push the growth in the market to even higher levels.

Developed countries have other factors driving the growth of the environmental industry. With large infrastructure investments now complete and industry compliant with existing regulations, a major driver is new legislation, as governments respond to trends in public opinion and political pressure. We can expect a major change in the environmental industry of the US with the advent of Barack Obama’s accession to the White House, for example.

This legislation tends to use financial incentives as a central tool to encourage environmental improvements and is based on the need for fundamental “step changes” in resource productivity. A move to more integrated pollution control techniques, rather than “end of pipe” solutions, and increasing consumer and investor expectation for companies to adopt high environmental standards, tend to be further drivers of market growth in developed countries.

A global phenomenon

As the world’s economy becomes more and more connected, industry trends take on a global dimension. The environmental industry is no exception to this phenomenon as markets grow throughout the world and this is evidenced by the growth of global players in the industry. Through the acquisition of smaller suppliers and consultancy firms based in different regions, very large international companies have become dominant as the industry consolidates. The advantages of a large multi-national combined with the local knowledge and contacts of acquired companies, produces much more competitive entities in the industry.

Despite these global giants in the market, other niche suppliers of innovative technologies and services continue to have considerable success in all the markets, clearly demonstrating that innovation is one of the most important factors in this industry. Furthermore, indigenous suppliers are springing up in many developing countries – in particular China and Central and Eastern Europe – especially in terms of expertise and manufacture, mirroring the experience of many other industries. Partnerships between these suppliers and Western companies are producing more competitive prices for important parts of environmental infrastructure.

The privatisation of environmental activities is also having major repercussions for the large global players. For the governments of developing countries, the cost of installing water and waste management infrastructure is proving to be quite a burden. Their response has been to offer long-term contracts to private companies who often build, own and operate the facilities. The partnerships with overseas governments that result have caused leading environmental suppliers to develop innovative approaches to the funding and the delivering of these projects.

Energy independence and climate change protocols

Perhaps the most significant driver in the environmental industry at the present time is the energy issue. Climate change has remained a contentious topic among scientists, but the global community has accepted that the production of carbon dioxide and other greenhouse gases must be reduced. The Kyoto Protocol, which entered into force in 2005, set targets for industrialised countries to reduce their greenhouse gas emissions.

A further factor in this area is the goal of energy independence set by the Obama administration in the US. The idea is to reduce the dependence of the US on imported oil. President Obama is looking to scientists, businesses and workers to develop new ways of producing energy which will free both the US economy and the global economy from a dependence on fossil fuels.

These political pressures will continue to drive growth in the alternative fuel and clean-energy sectors of the environmental industry. Key to these sectors are biofuels, wind power and solar photovoltaics, which have seen remarkable growth over recent years with revenue growing as much as 50 percent between 2007 and 2008. The global production of ethanol and biodiesel reached $38.4 billion in 2008, and for the first time, market-leader Brazil obtained more than 50 percent of its total national automobile transportation fuel from biodiesel.

Wind power has also seen growth, especially in the US, where wind installations represented more than 40 percent of the total new electricity generating capacity brought online in 2008. This activity moved them ahead of Germany as the world’s leading generator of wind energy. Annual installations of solar photovoltaics reached more than four gigawatts worldwide in 2008, four times the total set just four years earlier.

The concern for energy efficiency has also caused a major rethink in the power transmission infrastructure of the major developed countries. Both the European Union and the US are looking into putting major investment into High Voltage Direct Current (HVDC) power lines. This method of transmission of energy requires fewer transmission lines and less electricity is lost than with conventional AC technology. Supporters of this technology say that continent-wide networks using this technology could result in renewables replacing oil, gas and nuclear within a couple of decades.

The protection and restoration of our environment is an issue that will never go away. The industry that has built up around the issues has shown itself to be innovative, adaptable and able to give good value wherever it gets involved. The rapid growth that the industry has seen over recent decades may vary in velocity and areas of focus, but looks set to continue, as long as the human race impacts on planet Earth.