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    The Environmental Services Business: Big and Growing


    © International Trade Centre, International Trade Forum - Issue 2/2001

    Though hardly known to the general public, environmental technologies, products and services have, in 20 years, grown to match the aerospace and pharmaceutical industries in size - a US$ 450 billion global market in 2000. By 2010 it is expected to expand to US$ 640 billion. Developing and emerging markets represent over 15% of this total.

    Industry is hard to define...

    In the first place, what are environmental industries? According to the Organisation for Economic Co-operation and Development (OECD), "the environmental industry consists of activities which produce goods and services to measure, prevent, limit and minimize or correct environmental damage to water, air and soil, as well as problems related to waste, noise, and eco-systems". This sector deals with waste management, air pollution, water and waste, along with environmental services and equipment. But the structure of the industry is rapidly growing and changing, and it suffers from a lack of clear identity and poor representation as a sector in its own right. Canada, Japan and the United States have adopted broad definitions of the environment industry. Italy, Germany and Norway, on the other hand, have chosen narrow ones. Such differences are bound to affect any data collected on the industry.

    ...making liberalization difficult

    Even more important, the unclear definition of the industry may cause confusion in the application of World Trade Organization (WTO) agreements. There are separate WTO agreements dealing with goods and services, but this distinction is by no means clear in the environmental industry, for example, sewerage and waste-water treatment or solid waste management. This creates potential difficulties in liberalizing international trade in environmental industries, although the problems are now widely recognized. Various discussion papers were prepared in advance of the General Agreement on Trades and Services (GATS) 2000 negotiations. All these papers recognize that future trade negotiations should acknowledge the integration of trade in environmental goods and services.

    Growth strongest in developing countries

    The current market is dominated by developed countries in North America, Western Europe and Japan. However, developing and emerging markets in Asia and Latin America are growing rapidly as protection of the environment becomes a higher priority. Developing countries with growing populations and fast-paced development need environmental goods and services. In addition, aid agencies are placing a greater emphasis on sustainable development and environmental performance in their funding support programmes.

    Market share to grow quickly

    The 15% estimate for the developing and emerging markets' share of the environmental industry in the 21st century compares with an estimate of less than 10% in 1995, an indication of the speed with which these countries are expected to expand their environmental services. Over the decade to 2010, the United Kingdom's Joint Environmental Markets Unit predicts that developing and transition countries will expand their environmental business by 10% a year, producing a market of

    US$ 178 billion, compared with a 3% to 5% growth in developed economies, which will still hold the lion's share of the market (perhaps US$ 773 billion).

    Factors driving growth

    Statutory requirements

    In North America, the impact of the North American Free Trade Agreement (NAFTA) and the demand for environmental services on the United States-Mexico border will be key driving forces for the market. Changes in environmental legislation and environmental standards required by consumers worldwide (ISO 14000) also mean opportunities for both foreign and domestic firms in the environmental services field. The European Union (EU), split between a generally mature system in the North and a developing infrastructure in the South, recently emphasized that EU candidate countries also need to take measures to harmonize existing legislation with EU environmental legislation.

    Public pressure

    In Asia, national and local governments are increasingly feeling growing public pressure to take concerted action. Improvements have been made in the past decade in the corporate sector with approaches such as the adoption of environmental management systems. This trend is expected to continue as companies perceive these environmental credentials as beneficial to their export strategies.

    Infrastructure development

    In China, environmental agencies face skills shortages and difficulties in enforcing compliance within a largely state-owned industrial sector. With continuing industrialization and government environmental protection initiatives, however, it is estimated that the Chinese market will grow by 10% - faster than in other developing countries - to reach US$ 15 billion in 2010 from US$ 5 billion in 2000.

    In India new laws have been enacted in recent years, but the regulatory framework remains weak. The main market driver in India is therefore expected to be infrastructure development in the municipal and energy sectors. In all, the environmental services market is expected to be worth US$ 7 billion in India by 2010.

    In South America, Brazil and Chile have the most advanced regulatory frameworks, but the enforcement framework is still developing. Future growth is expected to be led by infrastructure and privatization projects, along with stronger enforcement of environmental legislation. Current estimates put the regional market at US$ 15 billion by 2010.

    Privatization and reform

    Central and East European countries report that environmental degradation has been falling since the start of transition to market economies, even in the most polluted areas. Further development of the environmental industry is currently limited by lack of funding. By 2010, the market is expected to reach US$ 23 billion. The market drivers include continuing reforms in legislative and administrative frameworks, continuing privatization, major investment in the environmental infrastructure, industrial and energy sectors, and the availability of funding through various aid programmes.

    Services offer high potential

    Environmental services, as distinct from the equipment or resources market, account for about 50% of the total market: solid waste management accounts for 22.6%, water treatment services for 14.3%, consulting and engineering for 5.9%, and remediation and industrial services, 3.3%. Given the increasing demands on industry to improve its environmental management, this whole sector is expected to grow by 7% to 10% a year.

    Looking at the sector more closely, the United States generates about 80% of worldwide hazardous waste, and is therefore the largest market for hazardous waste equipment and systems. Those most in demand include treatment chemicals, and incineration and processing equipment.

    The recycling market has been growing at 7% to 13% a year over the last decade and this rate is expected to continue. Technologies showing increasing demand include ultra-filtration for reducing oil- and paint-solvent usage, vibratory cleaning in microelectronics for reducing sludge production, and processes such as neutralization, detoxification and evaporation. Market drivers include the enforcement of environment legislation and the obligation to meet higher recycling targets set by European countries, the United States and Japan.

    In water and waste-water management - which accounts for up to 40% of the total environmental market, depending on the market definition used - the strongest demand is expected to be for automatic systems, secondary and tertiary treatment facilities, and waste-water technologies, particularly computer monitoring systems, aerobic systems for removing contaminants, and air injection for groundwater clean-up systems.

    Air pollution control has developed rapidly over the past 20 to 30 years. However, there is little international trade and the sector is dominated by a handful of large firms. The highest growth rates in the next decade are expected for technologies such as microbial cleaning processes, electro-membrane technologies, catalytic converters, flue gas desulphurization, and wet and flue gas scrubbers. The main industrial sectors driving this increase in demand will be the petrochemical, steel, car and energy industries.

    For the future

    In 1998, OECD produced a report on "The Global Environmental Goods and Services Industry", listing the factors likely to influence future competitiveness:

    - Technological innovation. It has been estimated that 50% of the environmental goods that will be in use in 15 years do not currently exist.

    - Quality and service performance. The ability to adapt to clients' needs and to produce effective and easily managed products.

    - Marketing and export strategies. These will need to respond to increasing globalization and new market opportunities.

    - Flexibility in production. As regulatory requirements are modified, rapid and low-cost changes in products will be required.

    Conventional economies of scale and cost are less important as factors. Large firms with wide competence are increasingly necessary. Tailor-made solutions dependent on performance and innovation can be more important than price.

    The adoption of worldwide environmental standards will expand international markets. Privatization and deregulation of utilities such as water and electricity will expand the opportunities for foreign firms to participate. Consolidation of the industry and increasing firm size will also increase internationalization.

    Though industries from Germany, Japan and the United States have the largest shares of most international markets, small countries such as Finland and Norway have very internationally-oriented industries that export some 50% of their production. Australia, Canada and the United Kingdom are now increasing their efforts to expand environmental exports.

    This article is based on ITC's publication, Implications of World Trade Organization Agreements for International Trade in Environmental Industries. The book's conclusions emerged from ITC's Business Round Tables held during 1997 and 1998 in India, Malaysia, Pakistan, the Philippines and Thailand. For more information, contact Nicolai Sémine, ITC Focal Point on Environmental Concerns, at semine@intracen.org

    Companies and the environment: WIMBY and NIMBY

    It is often not clear why a company moves its operations from one country to another, no matter what it says. "Real" reasons such as cheap labour, weak labour unions, unenforced health and safety regulations, low environmental regulations and standards may all be cited by critics. The idea that industries would move to other countries to escape regulations at home and find an open door elsewhere has been dubbed the "WIMBY" (Welcome In My Back Yard) phenomenon, as distinct from "NIMBY" (Not In My Back Yard).

    Before the mid-1990s several WIMBY cases were documented. More responsible businesses conversely use their investments in developing countries to transfer knowledge and technology that comply with the highest environmental standards:

    - General Motors (GM), through its Delphi subsidiary, has invested more than US$ 1 billion in Mexico, employing 75,000 people. Following three years of voluntary audits in all its plants to monitor environmental best practices and compliance with Mexico's health and safety regulations, the company received a "clean enterprise" award from the Mexican Government.

    - Most of the GM plants treat their waste waters to a standard that enables the water to be recycled and reused by manufacturing processes or for agricultural irrigation.

    - Other materials (plastics, cardboard, solvents and other chemicals) are recycled. The company follows its own environmental guidelines, which are often tougher than those required by Mexican law.

    - In 1997, GM launched a pilot project with local authorities in Mexico to keep track of all hazardous waste products, using a computerized system to prompt companies to arrange for the correct disposal of hazardous wastes.

    - Following industrial investments by multinational companies around the world, end-of-pipe technologies have been exported to developing countries.

    - Companies in various industrial sectors are adopting Corporate Environmental Reporting: they range across electricity-generating and distribution companies, government departments, water supply and sewerage companies, aviation companies, industrial conglomerates, engineering and construction firms and food retailing businesses.

    These trends create business opportunities for the environmental services sector.