European Commission DG Environment

Transcription

1 Environment and Sustainability Services European Commission DG Environment Eco-industry, its size, employment, perspectives and barriers to growth in an enlarged EU September 2006 Final report European Commission DG ENV

2 This document reflects the work of the contractors and has been prepared for use within the European Commission. It does not necessarily represent the Commission s official position.

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4 Contents Executive Summary 8 PART I Eco-industries in an enlarged EU - an overview 1.1 Introduction and definitions Eco-industry structure Size of the eco-industry Market drivers and main competitiveness factors Recommendations to support the development of eco-industries Supporting eco-industry market growth Improving the competitiveness of eco-industries 58 PART II Review of statistical data on eco-industries in 2004 a demand-side perspective 3.1 Objectives and definitions Methodological approach for data collection and processing Consequences of data quality and methodological choices on data significance Main results Assessment of the competitiveness and of the future developments of the sectors - supplyside perspective 4.1 Air Pollution Control Waste Management Remediation & Clean up of Soil and Groundwater Noise and Vibration Control Water Supply and Waste Water Treatment Environmental Monitoring & Instrumentation Renewable energy production (except wind power generation) Renewable energy production wind power generation Eco-construction Public Environmental Administration Private Environmental Management Environmental Research and Development Nature Protection Business cases 5.1 Waste management sector Water supply and wastewater management sectors Environmental monitoring and instrumentation sector Wind power generation sector Eco-construction sector 318 APPENDICES

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6 List of Figures Figure 1: Percent of Pollution Management in Eco-industry Turnover by Country, Figure 2: Turnover as a Percentage of GDP, Figure 3: Turnover per Capita, Figure 4: Pollution Management and Resource Management Sectors as a Percentage of EU-25 Ecoindustry Turnover, Figure 5: Turnover per Capita for the five Largest Eco-Industry Sectors, Figure 6: Capital versus Operating Expenditures by Sector, Figure 7: Turnover Growth by EU-15 Country (constant ), Figure 8: Eco-industry Imports and Exports by Country, Figure 9: Distribution of total turnover by pollution management activities and resource management activities, millions, EU-25, Figure 10: Breakdown of total turnover by sector for the pollution management and the resource management activities, EU-25, Figure 11: Breakdown of the total turnover between sectors and countries, absolute values Figure 12: Breakdown of the total turnover between sectors and countries, relative values, Figure 13: Comparison between updated 2004 expenditure data and 1999 expenditure data...80 Figure 14: Variation of total turnover between 1999 and 2004 by country...81 Figure 15: Variation of total turnover between 1999 and 2004 by country (in constant )...82 Figure 16: Evolution of the turnover of the largest eco-industries in France (1998 is the reference year)...84 Figure 17: Evolution of the turnover of the largest eco-industries in Germany, 1998 is the reference year...84 Figure 18: Evolution of the turnover of the largest eco-industries in the UK, 2000 is the reference year...85 Figure 19: Breakdown of turnover by resource management and pollution management by country, Figure 20: Turnover of the eco-industries expressed as a percentage of GDP in the EU-25, Figure 21: Turnover per Capita in the EU-25, Figure 22: Turnover per Capita in the EU-25, 2004 (in PPP prices)...92 Figure 23: Breakdown in millions of pollution management turnover by sector in EU-25, Figure 24: Relative contribution of the three major pollution management sectors in EU-25, Figure 25 : Environmental expenditures per capita for the three major pollution management categories in EU-25,

7 Figure 26: Breakdown of EU-25 Pollution Management expenditures by CAPEX and OPEX, Figure 27: Growth for the sectors of the pollution management in the EU Figure 28: Breakdown in millions of resource management turnover by sector in EU-25, 2004 (TOTAL: 81, 782 million) Figure 29: Breakdown of EU-25 Resource Management expenditures (without renewable energy) by CAPEX and OPEX, Figure 30: Distribution of turnover for resource management in the new member states Figure 31: Direct employment by sector in theeu-25, 2004, for Pollution Management Figure 32: Contribution of each country to the total employment of the eco-industries in the EU Figure 33: Evolution of employment figures between 1999 and 2004 for the pollution management sectors Figure 34: EU-25 Import and export figures from and to outside the EU Figure 35: Dynamic view of eco-industry imports and exports, (reference-year is year 2000 and is set equal to value 100) Figure 36: National contribution to total eco-industry exports in the EU-25 (intra EU-25 movements included) Figure 37: National contribution to total eco-industry imports in the EU-25 (intra EU-25 movements included) Figure 38: Import and Export figures for Germany, 2004 ( millions) Figure 39: Import and Export figures for France, 2004 ( millions) Figure 40: Import and Export figures for UK, 2004 ( millions) Figure 41: Import and Export figures for Belgium, 2004 ( millions) Figure 42: Import and Export figures for Italy, 2004 ( millions) Figure 43: Total Eco-industry Turnover of the 10 New Member States of the EU,

8 List of Tables Table 1 : Available Data, Table 2: Total Turnover, Pollution Management and Resource Management Expenditures by Country, Table 3: Eco-Industry Turnover by Sector by Country, Table 4 : Eco-Industry Employment by Sector, Table 5: Eco-industry Imports and Exports by Sector by Country, Table 6: Main information sources used to assess the turnover of the eco-industries...66 Table 7: Data availability for statistical works, Table 8: Trade Codes used for the Analysis of Environmental Technologies (COMEXT Database)...70 Table 9: Main expected impacts and limitations caused by the quality of available data and consequent methodological choices...71 Table 10: Turnover in millions, by pollution management and resource management and by country, Table 11: Growth of the water supply sector, Table 12: Number of direct jobs due to the total EU-25 turnover in Pollution Management, Table 13: Number of total jobs due to the total EU-25 turnover in Pollution Management Table 14: Growth of jobs in water supply and for recycled materials Table 15: Export and Import with outside EU-25 for APC, WWT and WM Table 16: Countries of destination for photovoltaic exports Table 17: Countries of origin for photovoltaic imports Table 18: Estimated Environmental Financing Needs in new Member States and Candidate Countries (total plus selected directives) Table 19: Transition periods agreed between several New Member States and the EU Table 20: Years needed to fill the compliance gap at 2004 rhythm

9 Foreword This report has been produced by Ernst & Young Environment and Sustainability Services (France) and by RDC-Environment, on behalf of the European Commission. We would like to thank the members of the Steering Committee for their guidance: Herbert Aichinger (DG Environment), Alexandre D Angelo (DG Enterprise), Catherine Fenech (DG Environment), Pierre Henry (DG Environment), Jakub Koniecki (DG Environment), Rory O Leary (DG Environment), Dominique Simonis (DG Enterprise), Nancy Steinbach (Eurostat), Jérome Veriter (DG Environment), Andrea Vettori (DG Environment), Jakub Wejchert (DG Environment), and Stephen White (DG Environment). We would also like to thank the persons contacted during the course of this study, for their availability despite their extensive professional commitments. The full list of contributors is provided in the appendices

10 Executive Summary This study was undertaken by Ernst & Young and RDC-Environnement on behalf of the European Commission between April 2005 and August 2006, with the objective of providing the Commission with a better understanding of the driving forces of the eco-industry development and of potential measures to support this development. The approach was based on analysis of data provided by Eurostat on environmental expenditure, collecting relevant information on eco-industries on the basis of interviews with representatives of industry and administrations and carrying out a selected number of case studies. What is the size of the EU eco-industry? As defined by the OECD and Eurostat, eco-industries are activities which produce goods and services to measure, prevent, limit, minimize or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems. This includes technologies, products and services that reduce environmental risk and minimize pollution and resources. The sectors fall into two general categories, pollution management and resource management. Data on eco-industries in the European Union (EU) remain incomplete for most sectors. The items presented below are based on the best available information at the time of the study as well as on estimates when necessary. Turnover The estimated total turnover of eco-industries in the EU-25 is 227 billion, of which 214,000 million corresponds to the EU-15 area. In constant prices, the turnover of the ecoindustries grew around 7% between 1999 and 2004 (for the EU-15 area). The total turnover in 2004 can be split into: billion for pollution management activities (64% of the total) and 81.8 million for resource management activities (36% of the total). The goods and services provided by eco-industries represent approximately 2.2% of GDP in the EU-25 area. The largest national markets for eco-industries are France and Germany which taken together account for 49% of total turnover in The three following countries (UK, Italy and the Netherlands) represent together another 24% of the EU-25 total expenditures. The 10 new member states represent only 5.7% of total turnover, of which half for Poland alone. The major eco-industry sectors in terms of turnover by far are water supply, waste water treatment and solid waste management (waste management and waste water treatment each represent approximately one third of the pollution management turnover). Employment The total direct and indirect employment due to eco-industries represent approximately 3.4 million full-time job equivalents, of which 2.3 million jobs are from pollution management activities. Resource management activities represent approximately 1 million full-time job equivalents. The majority (77%) of the jobs in the pollution management activities are in the waste water treatment and solid waste management sectors. 8

11 Trade Eco-industry exports for the EU-25 are estimated at 13 billion and imports are 11.1 billion. 57% of trade is within the EU-25. The three major markets (Germany, France, and the UK) are all net exporters of eco-industry goods and services. These three countries are responsible for 55% of eco-industry trade. What is the structure of eco-industry sectors? Eco-industries include a wide range of companies, from small firms specialized in one market segment to large multi-utility groups. These companies are in most cases either subsidiaries of larger corporations (especially in the waste management, water supply, waste water treatment and air pollution control sectors) or specialized small and medium sized companies, especially for legislation-driven markets which are usually more recent than the larger commodity-centred markets. European companies are leaders on several eco-industry markets, including waste management, water and waste water treatment, production of energy from renewable sources. A number of acquisitions by large groups specialized in energy, utilities management, construction or electronics contribute to a growing concentration of the sectors covered by the study. Recent trends include increasing merger strategies aimed at extending geographical coverage, increasing the range of activities, and at attaining critical size in order to bear higher research and development costs or to penetrate broader markets. What are the main drivers and trends of eco-industry markets? Growth rates of most eco-industry markets have been strong over the recent years, although a distinction should be made between: Traditional markets driven by the demand for essential commodities (such as water supply) or services (waste collection, for example), which are increasingly mature, Recent markets which are essentially based on investment needs generated by new environmental policy and legislation (referred to as legislation-driven markets). Some of these markets show high growth potential (for example, renewable energy and eco-construction). The market outlook is favourable in most cases, as emerging markets in the new member states should strongly support the demand for environmental goods and services, due to the implementation of the acquis communautaire, sometimes with the financial support of EU funds. Key market drivers identified in the course of this study are: Compliance with policy objectives and other legal requirements at EU and national levels (for example, water quality targets, production targets for the production of energy from renewable sources, and so on); Technology development and emergence of new market segments or solutions (for example, remediation of historical industrial sites in city centres, monitoring of new pollutants or media and the outsourcing of monitoring processes); 9

12 Market incentives are in some cases necessary to enable environmental technologies to compete with traditional industries. Fair pricing is a key issue as internalization of environmental externalities and costs considerably improves the competitiveness of most eco-industry sectors (renewable energy, for example). Public funding resources are often required to facilitate access to finance eco-industry investment projects and innovation capacity; Growing awareness from consumers on the availability and benefits of new environmental technologies and products. How can eco-industry activities be developed in the future? Supporting the growth of eco-industry markets Reinforcing environmental requirements and their implementation : the existing policy framework in the EU has proven crucial for the development of eco-industry sectors. It remains a key instrument to sustain growth in these sectors, by setting more ambitious targets and/or requirements, as well as by broadening the scope of existing legislation. The preparation and adoption of new legislation also helps keep European industries in a leading position on new emerging issues. In addition, further efforts should be made to ensure the implementation of the existing legislation. Establishing harmonized standards for environmental goods and services will contribute to promote the quality of outputs delivered by eco-industry and develop awareness of potential purchasers. Promoting the integration of environmental performance in construction standards can also have a strong impact in developing the demand for environmentally efficient technologies. Supporting price transparency and the internalization of environmental costs in market prices. The development of several eco-industry sectors would benefit from encouraging the fair pricing of goods and technologies, taking into account external costs of activities, in order to provide the market with better elements to judge on the integrated performance of each solution. In addition to ensuring fair pricing systems, the establishment of market incentives can significantly support the demand for environmental goods and services. The most effective market incentives (for example, tax credits, trading schemes, etc.) will probably need to be identified by market or sector in the context of further work. Providing targeted information on eco-industries to customers. Further efforts to develop awareness of consumers (households, industries, local authorities) on the availability of technologies and services offered by eco-industries, as well as on their costs and potential benefits, would be require to stimulate the demand. Several existing instruments such as eco-labels have proven effective to raise awareness and build consumer trust in the quality of the goods and services delivered. Developing financial mechanisms to ensure the implementation of eco-industry projects, mainly in the new member states. Although new member states are considered to be critical markets for the future growth of eco-industries, lack of investment capacity in some countries may slow down the expected market development. Financial mechanisms aimed at supporting the development of the demand for eco-industry goods and services should be maintained and reinforced, and if possible, focused on investments in pollution and resource management activities. 10

13 Improving the competitiveness of eco-industries Strengthening the performance of eco-industry companies and helping SMEs adapt to emerging market needs. For some market segments, the existing ecoindustries do not have the capacity to respond to emerging market needs. Possible support in these aspects could include pursuing the collection of information on the size and growth potential of eco-industry markets, developing specialized market intelligence services for SMEs (by sector) and supporting capacity-building initiatives for SMEs (training, creation of specialized networks) aimed at improving their marketentry capacities, and in particular at sharing experience and building partnerships on specific projects (developing new products, penetrating new markets, etc.). Expanding efforts to help eco-industries access export markets. As several large eco-industry markets are approaching maturity in the EU-15 area, the strongest growth opportunities for most sectors are considered to be in new member states or in fast growing emerging economies. For this reason, EU and member state initiatives to support eco-industries in understanding and accessing export markets should be pursued and expanded. In addition, EU and member state development aid can significantly support the growth of demand for environmental goods and services by increasing focus on waste and water management, renewable energy and energy efficiency and by developing technology transfers. Supporting the development of financial solutions adapted to eco-industry needs. For several eco-industry sectors, the cost and availability of finance is a crucial barrier for their business development. The specific needs of some projects, for example in the renewable energy sector, sometimes include long pay-back periods and high risk or uncertainties on the market potential which make it difficult to obtain adequate financing at limited costs. Possible solutions in this field could include supporting the development of adapted financial mechanisms such as grant facilities (and soft loan mechanisms, which can play a significant role in improving the profitability of the project and to make it more attractive for other investors; developing awareness of financial institutions on the specificities of eco-industries and developing mechanisms to finance innovative environmental products, processes and services, such as dedicated investment funds. Improving the development and access to markets of innovative environmental technologies. Innovation capacity is crucial for the competitiveness of eco-industries, as it enables them to continuously adapt to new market demands. Most of the difficulty today lies in enabling new technologies to access markets, and calls for efforts on the following aspects: o o o Improving the commercial application of environmental technologies, for example by encouraging collaboration between developers, manufacturers and end-users; Providing more information on new technologies available to end-users and etstablishing market incentives to stimulate the use of these new products and services (for example, tax credits, access to finance with improved conditions, etc.). Investing in research and development is difficult for a number of companies because they lack critical size. Encouraging the pooling of research efforts could contribute to developing the innovation capacity of eco-industries. 11

14 PART I 12

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16 1. Eco-industries in an enlarged EU - an overview 1.1 Introduction and definitions Introduction and Objectives This final report is an analysis of eco-industries in the EU, their economic impact and their growth prospects. The study was undertaken by Ernst & Young and RDC-Environnement on behalf of the European Commission between April 2005 and August Eco-industries arise from environmental protection expenditures by the private and public sector to comply with environmental regulation or improve resource management. The different types of expenditures create eco-industry sectors that contribute to economic growth, job creation and innovation. This growth assists the goals of the 2000 Lisbon Agenda and the Sustainable Development strategy. The objectives of the study are as follows: Provide data for the EU-25 area on turnover, employment, the number and size of firms, foreign trade and innovation in eco-industries from Assess the competitiveness of the sectors from the present through Analyze the economic viability and cost structure of the eco-industries at the firm level. Provide policy recommendations on how to support the development of ecoindustries and enhance their efficiency. This study uses demand-side analysis of environmental expenditures and supply-side analysis of the industry structure and firms to compare the size and turnover of each of the eco-industry sectors, employment, their growth outlook and barriers to growth. These features are particularly relevant given the recent addition of several new EU member states. The study s conclusions appear in two parts: Part one includes: A cross-comparison of eco-industry sectors that combines both demand and supply-side factors to analyze industry structure (number and size of firms), turnover, employment, trade, market outlook, market drivers and barriers to growth (chapter 1) Recommendations to support the growth of markets for eco-industries and to improve their competitiveness (Chapter 2). Part two includes: Demand-side data and estimates for turnover, direct employment and indirect employment based on operating and capital expenditures in eco-industries (Chapter 3). Supply-side details of each sector, including the integration of activities, industry leaders, technology and other competitiveness factors, regulation, market organization, market drivers, outlooks and SWOT (strengths, weaknesses, opportunities and threats) analysis (Chapter 4). Case studies on selected companies in various sectors (Chapter 5). 14

17 1.1.2 Definition of Eco-industries As defined by the OECD and Eurostat, 1 eco-industries are activities which produce goods and services to measure, prevent, limit, minimize or correct environmental damage to water, air and soil, as well as problems related to waste, noise and eco-systems. This includes technologies, products and services that reduce environmental risk and minimize pollution and resources. The sectors fall into two general categories, pollution management and resource management. The classification of eco-industries in this report is similar to the sectors in the 2002 report, Analysis of the EU Eco-Industries, Their Employment and Export Potential 2 and the environmental expenditure data in the Eurostat New Cronos database. As the previous study presents eco-industry data for 1999, the goal of this report is to provide a five-year update from 1999 to Total EU eco-industry turnover in 2004 was 227 billion, from pollution management and resource management activities. Pollution management consists of nine eco-industry sectors that manage material streams from processes managed by humans (the technosphere) to nature, typically using end of pipe technology. It also includes cleaner technologies and products, which are mentioned in the definitions as equipment. In order of turnover: Solid Waste Management & Recycling ( 52.4 billion) Waste Water Treatment ( 52.2 billion) Air Pollution Control ( 15.9 billion) General Public Administration ( 11.5 billion) Private Environmental Management ( 5.8 billion) Remediation & Clean Up of Soil & Groundwater ( 5.2 billion) Noise & Vibration Control ( 2 billion) Environmental Research & Development ( 0.11 billion) 3 Environmental Monitoring & Instrumentation 4 Resource management includes five eco-industry sectors that take a more preventive approach to managing material streams from nature to the technosphere: Water Supply ( 45.7 billion) 5 Recycled Materials ( 24.3 billion) Renewable Energy Production ( 6.1 billion) Nature Protection ( 5.7 billion) Eco-construction 6 In detail: 1 The Environmental Goods and Services Industry: Manual for Data Collection and Analysis, OECD, Analysis of the EU Eco-industries, Their Employment and Export Potential, ECOTEC for the European Commission, Only two countries provided data for this sector and this figure differs considerably from the supply-estimate of 2.5 billion. The source of the larger estimate is discussed in chapter 3. 4 Demand-side environmental expenditure data to estimate the turnover of this sector is not available. A supply-side estimate of turnover in the monitoring and instrumentation sector is 1 billion (see section 4.6 for details). 5 Water supply and recycled materials turnover are estimated using production value data, not environmental expenditure. See section 3.3. for further explanation. 6 The eco-construction sector is fully integrated into the billion general construction industry and demand-side data for only environmental activities is not available. A supply-side estimate of eco-construction turnover is 40 billion (see chapter 4). 15

18 Solid Waste Management & Recycling is defined here as the production of equipment, technology or specific materials, or the design, operation of systems, plants and sites or provision of other services for the collection (waste and scrap), separation, sorting, handling, transport, treatment (thermal, biological and chemical), storage, disposal, recovery, recycling and management of hazardous and non-hazardous solid waste, including low level, but not high level, nuclear waste. It includes outdoor sweeping and watering of streets, paths, parking lots, etc. Waste Water Treatment is the production of equipment, technology or specific materials, or the design, operation of systems, plants and sites or provision of other services for the collection, treatment, handling, transport, reuse and management of waste water, cooling water and sewage. The equipment includes pipes, pumps, valves, aeration, gravity sedimentation, chemical treatment and recovery, biological recovery systems, oil/water separation systems, screens and strainers, sewage treatment, waste water reuse, water purification and other water handling systems. Air Pollution Control is the production of equipment, technology or specific materials, or the design, operation of systems or provision of other services for the treatment and/or removal of exhaust gases and particulate matter from both stationary and mobile sources. The equipment includes air-handling equipment, dust collectors, precipitators, filters, catalytic converters, chemical treatment and recovery systems, specialised stacks, incinerators, scrubbers, odour control equipment and environmentally less-damaging specialised fuels. General Public Administration consists of national public administration teams and departments, including government departments, environmental protection agency inspection teams, environmental tax collection and administration, that bear responsibility for environmental management fields, the implementation and control of environmental regulations, monitoring of fundamental research and development efforts, reporting and follow-up on eco-industries performances and other duties. Private Environmental Management includes all activities addressing environmental management issues within the private sector, in-house or through the provision of external assistance (expertise, consulting, etc.) including environmental management system design and operation, ISO management and operation and environmental audit works. Remediation & Clean Up of Soil & Groundwater is the production of equipment, technology or specific materials, or the design, operation of systems or provision of other services to reduce the quantity of polluting materials in soil and water, including surface water, groundwater and sea water. It includes absorbents, chemicals and bio-remediators for cleaning-up, as well as cleaning-up systems (in situ or installed), emergency response and spill cleanup systems, water treatment and dredging of residues. Noise & Vibration Control is the production of equipment, technology or specific materials, or the design, operation of systems or provision of other services to reduce or eliminate the emission and propagation of noise and vibration both at source and dispersed. It includes mufflers and silencers, noise deadening material, noise control equipment and systems, vibration control equipment and systems, sound-proof screens and street covering Environmental Research & Development is the research of environmental issues (air, soil, water, energy, waste, noise, etc.) and development of end of pipe pollution treatment and clean up solutions and source prevention solutions to prevent environmental impacts, through the development of cleaner technologies and the use of renewable raw materials, analyze environmental impacts (settlement of measurement and analysis instrumentation), clean up pollution (e.g. filtering or treatment processes). Environmental Monitoring & Instrumentation includes the manufacturing, integration and distribution of components, equipment and systems for monitoring air quality, water quality, 16

19 noise, industrial emissions, radioactivity levels, etc. It also includes laboratory analysis, data acquisition and management systems. Water Supply is the production of equipment, technology or specific materials, or design, construction, installation, management or provision of other services for water supply and delivery systems (public and private) and the collection, purification and distribution of potable water to household, industrial, commercial or other users. Recycled Materials is the production of equipment, technology or specific materials, or design, construction, installation, management or provision of other services for manufacturing new materials or products, separately identified as recycled, from recovered waste or scrap, or preparation of such materials or products for subsequent use. This category covers the production of secondary raw materials but not their subsequent use. Renewable Energy is the production of equipment, technology or specific materials, or design, construction, installation, management or provision of other services for the generation, collection or transmission of energy from renewable sources, including biomass, solar, wind, tidal, or geothermal sources. Nature Protection includes the administration, training, information and education activities to conserve or maintain the natural environment, and in particular, the protection and rehabilitation of fauna and flora species, ecosystems and habitats, natural and semi-natural landscapes. Eco-construction consists of the production of equipment, technology or specific materials, or design, installation, management or provision of other services to minimize environmental impacts from building, construction and renovation, including the construction activity itself (workshop), selection of materials, consumption, emissions and other environmental impacts during use of the structure, management of construction waste. It does not include construction for an eco-activity facility. These definitions do not cover all possible activities related to integration of environment in other activities (eco-tourism, agricultural farming, etc.). They differ from the 2002 European Commission eco-industry report 7 and Eurostat in the following respects: renewable energy production and eco-construction have been added as new resource management categories the general public administration and private environmental management categories correspond to items in other secondary domains in the environmental expenditures data from Eurostat Origins and Evolution of Eco-industries Eco-industries mostly began with traditional, now mature, markets driven by the demand for essential commodities such as water supply and services like waste collection. There were also markets based on nationally specific requirements and opportunities such as incinerator flue gas treatment capacities in Germany. Recent eco-industries are based on investment needs created by new environmental legislation. For these legislation-driven markets, growth is determined by legal requirements and follows cycles depending on the time-frames given to comply with new regulatory 7 Analysis of the EU Eco-industries, Their Employment and Export Potential, ECOTEC for the European Commission,

20 standards or targets. This includes compliance with EU objectives and other national legal requirements like water quality targets and production targets for energy from renewable sources. Eco-industry companies take many sizes and forms, beginning with international multi-utilities groups, state industrial companies, public administration, R&D groups and small to medium enterprises, down to niche firms specialized in one market segment and private expert consultants. The typical firm in a sector varies and also differs across countries. The demand for eco-industry goods and services comes from the private and public (cities and municipalities, local and regional agencies, and national and international authorities) sectors. The companies operating in eco-industry markets frequently emerge from industrial manufacturing companies. In mature markets, firms tend to be subsidiaries of larger corporations, especially in the waste management, water supply, waste water treatment and air pollution control sectors. Activities such as eco-construction or noise and vibration control tend to originate with small firms. Some of those firms (and activities) are then integrated into larger firms and it is difficult to estimate the turnover generated specifically by those activities. Many of these companies have expanded their activities outside their borders to operate at European or global level and have become worldwide industry leaders in waste management, water supply, waste water treatment and wind turbine manufacturing, for example. In newer, regulatory-driven markets like environmental monitoring, there are more specialized small and medium sized companies. The entry of new EU member states and their negotiation of the acquis communautaire also create eco-industry growth and new opportunities. Mature markets exist in EU-15 countries that have installed capacity. However, capacity needs to be created in new member states, sometimes with the financial support of EU funds, for example in the following areas: incinerator flue gas treatment for air pollution control, waste treatment facilities, development and renewal of water supply and waste water networks and connections, implementation of air quality directives, eco-construction and replacement of non eco-efficient structures and renewable energy. According to various industry associations, new member states offer high growth potential in the coming years, whereas slow growth is anticipated for more mature sectors in the EU-15 area. In some sectors, there is a trend towards increasing service offerings, due to competition on manufacturing activities and higher profitability in service activities. The growing demand for services can also be explained by the increasing need for integrated solutions and by increased outsourcing of environmental management and monitoring, for example, at industrial sites and waste water treatment plants. 18

21 1.2 Eco-industry structure Size of Eco-industry Companies There are a number of eco-industry trade associations; however there are few comprehensive surveys of the exact number and size of companies in each sector. EU companies are global leaders in several eco-industries: air pollution control, water supply and waste water treatment, renewable energy, wind power and environmental monitoring. In these sectors, the top firms are mostly from France, Germany, the UK and the Netherlands (for wind power, the dominant wind power companies are essentially from Germany, Denmark and Spain). In long-standing eco-industry markets, the firms tend to be large and international. These firms are also present in new eco-industries that were not created by regulation, but are related to existing sectors, such as eco-construction. Smaller firms are more frequently found in new regulation-driven markets. As eco-industries grow, the providers consolidate, shrinking the number of competitors, but increasing their size. In traditional eco-industry markets, large corporations and their subsidiaries have a significant market position throughout the EU-25: The waste management sector consists of firms that are large, specialized in waste management, and cover 80% of the market. Their waste collection, sorting, treatment, incineration and landfill activities are locally-based (often in the form of local subsidiaries or joint-ventures), but sorting and recycling are increasingly carried out on an international scale. Water supply and waste water treatment services are typically managed by local authorities, but some have outsourced the operation of their facilities to national or international companies. In more recent markets, increasing commercial interest from large industrial companies have led to significant evolutions in the structure of the sector : the building materials and transport segments of the noise and vibration control sector are controlled by large multinationals, despite being a newer market, the wind power sector is another rapidly growing market that was originally made up of specialists and is gradually being dominated by major energy multinationals. Specialized small and medium sized companies (up to 250 employees) and larger medium-sized companies (up to 500 employees) are the other firms in eco-industry markets. This is particularly true for regulatory-driven markets. The eco-construction sector is integrated within the general construction industry, in which 97% of firms have fewer than 20 employees. These firms do not necessarily specialize in eco-construction, but employ eco-techniques and standards, given the high EU-15 demand for renovation and refurbishment of old structures. Firms that map noise exposure or do noise consulting and engineering for buildings are also small firms. The renewable energy sector is made up of hundreds of companies that are engaged in hydropower, photovoltaic, geothermal, bio energy or solar thermal energy and the sector is extremely fragmented. For example, there are 70 small scale water turbine manufacturers in the EU-15 alone. 19

22 Large company subsidiaries and small and medium sized companies coexist and cooperate in certain sectors. Though waste management is dominated by a few large firms, the remainder of the sector is made up of small firms. In soil remediation, the sector is split between small newcomers that are specialized in soil remediation and large construction companies that are present in the market due to their related building activities. Players in air pollution control are either medium-sized specialist firms or subsidiaries of multinationals. The environmental monitoring sector is extremely fragmented with few pure players, large or small, and the type of firm engaged in the activity varies with the pollutant that is being monitored. Due to the diversity of eco-industries, it is difficult to identify general trends in terms of concentration and integration of activities. However, there have been a number of acquisitions over the last years in the waste management sector, in soil remediation as well as in wind power and renewable energy by large groups specialized in energy, utilities management or electronic equipment. The integration of specialized companies into larger industrial groups suggests that the larger companies are building stakes in promising eco-industries. This type of concentration will gain speed in other sectors where both very large and very small firms are present, such as soil remediation. Other motives for industry concentration are companies desire to extend their geographical coverage, increase the range of their activities, penetrate broader markets and attain critical size in order to bear higher R&D costs Range of Activities and Scale The geographic location of eco-industry firms and their range of operations are linked. Residential eco-construction is performed by small, local companies, for example. For waste management, water supply and waste water treatment and renewable energy, the local nature of the needed resources is a constraint on the market structure and operating scale. Activities in those sectors operate mostly on a local or regional scale, despite their companies broader ownership structures. However, some mechanical waste sorting and recycling processes are increasingly done on an international scale, as the most technologically advanced processes demand a larger investment and a higher minimum scale of operation in order to reduce the relative burden of fixed costs. The scale of operations also depends on the maturity of the markets. In general, large companies have developed in older commodity-driven markets and now operate on a global scale. Although it is difficult to reflect the diversity situations within the eco-industry sectors, soil remediation, environmental monitoring and wind power specialist firms, eco-construction of office buildings by medium-sized firms or infrastructure by large firms and the manufacture of noise equipment tend to operate on a regional and national scale. The soil remediation sector and environmental R&D are also found on a European scale. Typically on a global scale, are air pollution control, consolidated water supply and waste water treatment groups, large environmental monitoring and wind power subsidiaries of multinationals and renewable energy technology suppliers, designers and manufacturers. Public and private environmental administration, nature protection and environmental R&D activities are undertaken at all geographic levels. Public administration is divided among all cities, municipalities, local and regional agencies and national and international authorities that monitor, manage and inspect environmental issues. In private environmental management, the in-house and consulting activities are performed by local, regional and global firms. The identification of sites for nature protection occurs at a national and European level, whereas eco-tourism is a more local phenomenon. R&D is found at all levels: basic research academic centres, specialized research centres, foundations, private research departments and firms specialized in new technologies, analysis or measurement. 20

23 1.2.3 Integration As mentioned, the size of eco-industry firms varies across sectors and as a consequence, integration of activities does as well. Both fully integrated and partially integrated business models are found in eco-industries. The full integration model integrates all activities in house and is prevalent among the largest waste management groups, in water supply and waste water treatment and ecoconstruction. In the air pollution control, environmental monitoring, wind power and environmental R&D sectors, firms tend to be only partially integrated: For air pollution control, design, manufacturing and operation are separate activities. In environmental monitoring, the strategic components tend to be made in-house and are then assembled into equipment with components from other suppliers. In wind power, either all of the components are made in house or purchased components are assembled into equipment. 1.3 Size of the eco-industry Turnover of Eco-industries The total turnover of eco-industries in the EU-25 in 2004 is 227 billion, making up 2.2% of GDP for the EU-25. Pollution management activities are 64% of total turnover ( billion) and the remaining 36% ( 81.8 billion) is from resource management Data and Estimation Approach A detailed presentation of the methodological approach for data collection and processing and of the consequences on results is provided in chapter 3. Turnover in 2004 for all eco-industries, by country and by sector is estimated using environmental protection expenditure data from the Eurostat New Cronos database 8. For this reason, references in this report to turnover, expenditures or spending can be considered to be equivalent. Due to constraints in available data, a specific approach has been implemented for water supply, recycled materials and renewable energy. This approach is presented in chapter 3. These demand-side data refer to spending by public authorities and consumers for environmental products and services. Environmental expenditure is defined as the money spent on all purposeful activities directly aimed at the prevention, reduction and elimination of pollution nuisances resulting from the production processes or consumption of goods and services. 8 Data on environmental expenditure are collected from the European countries through the joint OECD/Eurostat questionnaire on environmental protection expenditure and revenues. Since 1996, countries complete the questionnaire every two years on a voluntary basis. The collected data are then validated and disseminated. 21

24 Excluded are activities that, while beneficial to the environment, primarily satisfy technical needs or health and safety requirements. Environmental protection expenditures exclude expenditures on mainstream technologies and thus only take into account the additional cost of environmental protection technologies. They also exclude exports outside EU-25 but include all imports. The Eurostat environmental expenditure data were collected for the EU-25 by questionnaire during and correspond to expenditures in those years. In general, when questionnaire data aren t available, a sector s 1999 figures are updated by multiplying them by the sector s EU-15 growth factor for the period To create estimates of 2004 expenditures, the figures have been multiplied by the economic growth factor variable (rate of increase in GDP) from the Eurostat New Cronos database. However, the estimates can be distorted if there are large discrepancies between the economy s growth rate and the growth rate of the eco-industry. It is difficult to estimate the turnover of eco-industry sectors using actual company revenues in order to compare them to Eurostat figures based on public sector and consumer expenditures. Sectors such as noise and vibration control and environmental monitoring are very fragmented and the professional associations in those sectors are unable to collect data on all of the firms that are active in their fields. For some sectors, supply-side revenue data based on information from industry trade associations and interviews with industry executives 10 are available, but not disaggregated. In waste management, the global turnover figures given by the trade association FEAD are comparable to the Eurostat figures, however FEAD members do not represent all of the firms in waste management and cover only 60% of the domestic waste market and 90% of industrial waste. The Eurostat data also may not include all costs related to waste management, especially public hygiene and cleaning costs borne by municipalities. According to its trade association, the European renewable energy industry has global turnover of 10 billion, which is superior to figures obtained using model calculations on production. Other activities are integrated within other industries and activities and it is difficult to separate them to estimate supply-side revenues for a single activity. The entire EU-25 construction industry has turnover of over 1,200 billion, according to industry federations. The turnover specifically from eco-construction is much smaller, but difficult to estimate since firms ecoconstruction activities are tied up with their other building activities. The same holds for environmental R&D and public and private sector management. The shaded cells in Table 1 indicate items for which data can not be found or calculated: Environmental expenditure data are not available for Malta and it is excluded from the report s results. Data are not available on environmental expenditures on monitoring and instrumentation and eco-construction and this report s analysis of those sectors is based on supply-side data collected from industry associations and executives. 9 The questionnaire has been revised to have an accounting structure close to the Environmental Protection Expenditure Account (EPEA) which is a satellite account from national accounts. The Structural Business Statistics Regulation (Council Regulation EC No; 58/97) which applies to environmental expenditure on market activities (except agriculture) makes it easier for Member States to fill in the questionnaire. The legal reporting requirements relevant to the compilation of Environmental Expenditure data have until recently been limited to end of pipe investments. An amendment of the Regulation adopted in November 2002 (Regulation EC No. 2056/2002) expands the legal reporting requirements to include investments in integrated technologies and total current expenditure on environmental protection. 10 This information is explained in further detail in Chapter 3. 22

25 Only two countries provide data on environmental R&D expenditures, which suggests that the turnover figures for that sector are underestimated. Here, supply-side estimates also lend some insight. The most significant missing data are for the renewable energy sector. As a result, the turnover for all resource management activities is probably underestimated. However the available renewable energy data from Denmark, Spain, Finland, France and Germany include the largest producers. The data excludes exports to countries outside the EU-25. All imports, from inside and outside the EU-25, are included, which inflates the turnover figures. To ensure consistency and comparability of the data, all of the data in this study are obtained from Eurostat databases rather than from national statistics offices. This differs from the 2002 European Commission eco-industry study 11, where the figures were corrected for Austria, France, Ireland, Sweden and the UK based on data from national reports. 11 Analysis of the EU Eco-industries, Their Employment and Export Potential, ECOTEC for the European Commission,

26 Table 1 : Available Data, 2004 Solid Waste Management & Recycling Waste Water Management Air Pollution Control General Public Administration Private Environmental Management Remediation & Clean Up Environmental R&D Noise & Vibration Control Monitoring & Instrumentation Water Supply Recycled Materials Renewable Energy Nature Protection Eco-Construction Austria V V V V V V V V V V Belgium V V V V V V V V V V Cyprus V V V V V V V Czech Republic V V V V V V V V V V Denmark V V V V V V V V V V V Estonia V V V V V V V V V V Finland V V V V V V V V V V V France V V V V V V V V V V V Germany V V V V V V V V V V V Greece V V V V V V V V V Hungary V V V V V V V V V V Ireland V V V V V V V V V Italy V V V V V V V V V V Latvia V V V V V V V V V Lithuania V V V V V V V V V V Luxembourg V V V V V V V V V V Malta Netherlands V V V V V V V V V V Poland V V V V V V V V V V Portugal V V V V V V V V V V Slovakia V V V V V V V V V V Slovenia V V V V V V V V V V Spain V V V V V V V V V V V V Sweden V V V V V V V V V V UK V V V V V V V V V V 24

27 1.3.3 Turnover by Country Average eco-industry expenditure per country in the EU-25 is 9.4 billion, yet France spends as much as 45.9 billion and Germany 66.1 billion. The two countries combined turnover makes up 49% of all EU-25 expenditures. The three following countries spend 21.2 billion (UK), 19.2 billion (Italy) and 14 billion (Netherlands) and represent together another 24% of the EU-25 total expenditures. The remainder is divided between all the other countries (see Table 2), which spend from 10,1 billion (Austria) to 0,1 billion (Cyprus). The 10 new member states make up only 5.7% of total eco-industry turnover although they represent 16.3% of the EU population. As shown in Table 1, renewable energy figures are missing for certain countries and it suggests that the figures for resource management expenditures and total turnover are underestimated Also note that Denmark s figures include the share of public owned enterprises in the waste and wastewater treatment sectors when their accounting is part of public budgets, but exclude those that have their accounting done separately from public budgets. It also includes environmental subsidies and environmental aid programmes paid to other countries. Finland includes local government only. France includes waste management, street cleaning and the part of waste management financed by the local government s budget. Investments for in the air domain correspond to the network of organisations carrying out surveys on air emissions. Also, breakdowns of public and private specialised producers could not be made. For the UK, the estimates for 2002 are from public expenditure data supplied by Her Majesty s Treasury. This is actual departmental expenditure and these data represent a step change in the series and direct comparisons with earlier estimates may not be possible. Norway includes both end of pipe investments and integrated technology investments for NACE 37. For Germany, expenditures for the energy sector are only taken into account for one year (2002). 25

28 Table 2: Total Turnover, Pollution Management and Resource Management Expenditures by Country, 2004 Country Total Turnover ( million) % of EU- 25 Pollution Management ( million) % of EU- 25 Resource Management ( million) % of EU- 25 Germany 66,114 29% 44,597 31% 21,517 26% France 45,851 20% 28,264 20% 17,587 22% UK 21,224 9% 12,103 8% 9,121 11% Italy 19,269 9% 8,946 6% 10,323 13% Netherlands 14,039 6% 10,953 8% 3,086 4% Austria 10,091 4% 9,092 6% 999 1% Spain 9,044 4% 6,047 4% 2,997 4% Denmark 8,794 4% 6,542 5% 2,252 3% Poland 6,557 3% 4,444 3% 2,113 3% Belgium 5,806 3% 2,785 2% 3,021 4% Sweden 3,968 2% 3,090 2% 878 1% Finland 3,543 2% 1,414 1% 2,129 3% Portugal 2,356 1% 1,069 1% 1,287 2% Hungary 2,193 1% 1,493 1% 700 1% Greece 2,054 1% 1,266 1% 788 1% Czech Republic 1,726 1% 399 <1% 1,327 2% Ireland 1,211 1% 818 1% 393 <1% Slovenia 872 <1% 507 <1% 365 <1% Slovakia 740 <1% 409 <1% 331 <1% Lithuania 371 <1% 187 <1% 184 <1% Luxembourg 319 <1% 198 <1% 121 <1% Estonia 256 <1% 159 <1% 97 <1% Latvia 159 <1% 92 <1% 67 <1% Cyprus 139 <1% 39 <1% 100 <1% Total 226, % 144, % 81, % 26

29 The balance between pollution management and resource management (end of pipe remediation versus preventive measures) varies considerably between countries (see Figure 1). On average, 36% of total turnover comes from resource management. In the UK, Belgium and Portugal, spending is equally balanced. Resource management spending is dominant in the Czech Republic, Cyprus and Finland. However these three countries combined resource management expenditures total only 3.6 billion. In contrast, only 10% of Austrian environmental expenditures are for resource management. Figure 1: Percent of Pollution Management in Eco-industry Turnover by Country, % 90% 80% 70% Percent of Turnover 60% 50% 40% 30% 20% 10% 0% Austria Netherlands Sweden Denmark Hungary Poland Ireland Germany Spain Estonia Luxembourg France Greece Slovenia Latvia UK Slovakia Lithuania Belgium Italy Portugal Finland Cyprus Czech Republic Turnover Relative to GDP and Turnover Per Capita Eco-industries are a more significant part of the economy in some countries than in others, as seen in Figure 2. The turnover of eco-industries as a percentage of GDP 13 has an EU average of 2.3% and is highest in Denmark and Austria. Although a greater percentage of Denmark and Austria s economies consist of eco-industries, the impact of eco-industries form these countries is limited because their overall economies are much smaller than France and Germany. There is not a considerable difference in the importance of eco-industries between EU-15 and new member states. Many of the new member states (Slovakia, Estonia, Hungary, Slovenia and Poland) have a turnover in eco-industry relative to GDP that is higher than the EU average. As seen in Figure 3, turnover per capita is considerably higher in older member states. There is a more than 23-fold difference between expenditures of 69/capita in Latvia and 1635/capita in Denmark. Only Slovenia ( 437/capita) and Hungary ( 221/capita) among the 10 new member states have expenditures of more than 200/capita. 13 The GDP and population figures come from Eurostat. With respect to population, France includes metropolitan France and excludes the overseas departments. 27

30 Figure 2: Turnover as a Percentage of GDP, % 4.5% 4.0% 3.5% Resource Management Pollution Management 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Resource Management Pollution Management Denmark Austria Netherlands Germany France Luxembourg Finland Belgium Sweden Slovenia UK Italy Ireland Portugal Hungary Spain Cyprus Greece Estonia Poland Czech Republic Slovakia Lithuania Latvia Denmark Austria Poland Slovenia Germany Netherlands Estonia France Hungary Finland Slovakia Lithuania Belgium Percent of GDP Czech Republic Portugal Latvia Italy Sweden Luxembourg UK Greece Cyprus Spain Ireland Figure 3: Turnover per Capita, 2004 Euros Per Capita 28

31 1.3.5 Turnover by Sector Solid waste management and recycling; waste water treatment and water supply are by far the largest sectors (Figure 4). These three older commodity-based sectors make up 66% of total eco-industry turnover. Waste water treatment requires very large investments in order to meet the requirements acquis communautaire, particularly the Water Framework Directive (directive 2000/60/EC) adopted in Under the directive, water quality must reach satisfactory levels by As a consequence, this sector will be prominent for another 10 years. Air pollution control is growing in importance, due to emission reductions required by different EU Directives. Figure 4: Pollution Management and Resource Management Sectors as a Percentage of EU-25 Eco-industry Turnover, % 23% 23% 20% 20% 15% 10% 5% 0% 7% 5% 3% 2% 1% <1% <1% 11% 3% 3% Solid Waste Management & Recycling Waste Water Treatment Air Pollution Control General Public Administration Private Environmental Management Remediation & Clean Up Noise & Vibration Control Environmental R&D Monitoring & Instrumentation Water Supply Recycled Materials Renewable Energy Nature Protection The relative importance of the major sectors varies considerably among the member states (see Table 3 and Figure 5). Water supply and waste water treatment (WWT) are greater issues in new member states, whereas solid waste management is of equally importance in EU-15 countries. The degree of development of the activities (selective collection of solid waste, investment in WWT facilities, flue gas cleaning) varies, as national priorities determine investment sequences. In the long run, as EU Directives are effectively applied in all member states, the proportion of turnover spent in various sectors is expected to be more homogeneous. 29

32 Table 3: Eco-Industry Turnover by Sector by Country, 2004 millions Germany France UK Italy Netherlands Austria Spain Denmark Poland Belgium Sweden Finland Portugal Hungary Greece Czech Republic Ireland Slovenia Slovakia Lithuania Luxembourg Estonia Latvia Cyprus Malta Solid Waste Management & Recycling Waste Water Treatment Air Pollution Control General Public Administration Private Environmental Management Remediation & Clean Up Noise & Vibration Control Monitoring & Instrumentation Environmental R&D Water Supply Recycled Materials Renewable Energy Wind Energy Solar Energy Hydropower Biomass Nature Protection Eco-Construction Total

33 Figure 5: Turnover per Capita for the five Largest Eco-Industry Sectors, 2004 Latvia Lithuania Slovakia Czech Republic Poland Estonia Cyprus Spain Greece Portugal Hungary Ireland Italy Finland UK Sweden Slovenia Belgium Netherlands Luxembourg Germany France Austria Denmark Solid Waste Management & Recycling Water Supply Waste Water Treatment Recycled Materials Air Pollution Control Euros Per Capita 31

34 Capital versus Operating Expenditure The environmental expenditure data are divided into operating and capital expenditures. Operating expenditure reveals current expenses (largely labour) versus capital expenditure geared toward investment. In general, eco-industries require both capital intensive equipment and a skilled workforce to develop, manufacture and operate advanced technologies. The ratio of operating expenditures to capital expenditures differs considerably based on the labour or capital intensity of a sector (see Figure 6). Some new member states make large capital investments to comply with the acquis communautaire, but their overall spending is small relative to the rest of the EU and does not greatly affect the average CAPEX ratio in a sector. Eco-construction, where labour can be up to 70% of costs, is a labour intensive sector. Waste collection and sorting aspects of the waste management sector remain labour intensive although some tasks are increasingly automated. Teams dedicated to developing new applications are key to operations in the environmental monitoring sector. Waste and waste water treatment, soil remediation, water supply and renewable energy are rather capital intensive. However, ongoing improvements in technology can also reduce the cost of some investments in some cases. Despite the differences in labour and capital intensity, air pollution control is the only sector in which the capital expenditures nearly equal to operating expenditures. This is mostly due to the fact that air pollution control requires very expensive machinery and is not a very labourintensive activity. In solid waste management, capital expenditure represents less than 20%. In coming years, automation should increase the share of capital expenditure. Figure 6: Capital versus Operating Expenditures by Sector, 2004 Nature Protection Renewable Energy Recycled Materials Water Supply Capital Expenditure Operating Expenditure Environmental R&D Noise & Vibration Control Remediation & Clean Up Private Environmental Management General Public Administration Air Pollution Control Waste Water Management Solid Waste Management millions 32

35 1.3.6 Turnover Trends The total turnover for eco-industries in the EU-15 grew 7% (in constant euros) from Over the same time period, the overall EU-25 economy grew almost 10%. This difference can be partly explained by the fact that the turnover of the most dynamic ecoindustry sectors (renewable energy production, eco-construction, for example) remains small, and does not significantly influence the overall results while the larger, mature sectors (waste management, waste water treatment and water supply) still determine the general trend. The difficulty to obtain a full picture of some of the most dynamic sectors combined with the strong representation of mature sectors in the scope of activities covered by this study may lead to under-estimating the effective growth of the eco-industries total turnover. Eco-industry turnover grew fastest in Finland and in the Netherlands and France (see Figure 7). Turnover in the UK decreased, partly due decreases in real terms in some large sectors, the waste water treatment sector in particular. Figure 7: Turnover Growth by EU-15 Country (constant ), % 54% 50% 40% 30% 27% 26% Percent Growth 20% 10% 20% 14% 10% 9% 8% 6% 4% 3% 3% 2% 0% -10% Finland Ireland Netherlands Denmark Portugal Belgium France Germany Italy Austria Luxembourg Spain Sweden Greece -8% UK -20% -18% -30% 14 EU-15 turnover in 2004 was billion. In current euros, 1999 turnover for the EU-15 was billion data are not available for the new member states. 33

36 1.3.7 Comparison between Supply-Side and Demand-Side Estimates As mentioned above, Eurostat data were not available for every sector presented in this report. It was not possible to estimate turnover for the monitoring and instrumentation and eco-construction sectors based on demand-side expenditure data (see chapter 4 for more details on constraints related to data availability). Through interviews with industry leaders and trade associations, it was possible to make supply-side estimates of turnover in various sectors. The supply-side figures for the solid waste management, environmental R&D, renewable energy and nature protection sectors suggest that the expenditure data underestimate the true size of the sector. This is quite apparent for renewable energy for example, as not all countries report data for this sector, but it is not so obvious for the others. For waste water treatment and water supply, the figures from the industry associations do not include all firms in the sector, which explains why the supply-side figures are lower than the demand-side. For the monitoring and instrumentation sector, the supply-side figures suggest a turnover of 1 billion and eco-construction has a turnover of 40 billion. 34

37 1.3.8 Eco-industry Employment Total employment, direct and indirect, in eco-industries is 3.4 million, 2.35 million from pollution management activities and 1.04 million from resource management activities. Overall, eco-industry jobs account for 1.7% of EU-25 employment. Table 4 : Eco-Industry Employment by Sector, 2004 OPEX CAPEX Indirect OPEX Total Employment % of Total Employment Solid Waste Management 774,976 68, ,184 1,008,488 30% Waste Water Treatment 387, , , ,146 24% Air Pollution Control 31,718 88,113 58, ,757 5% General Public Administration 102,019 19,291 41, ,329 5% Private Environmental Management 76,098 20,419 10, ,530 3% Remediation & Clean Up 21,176 14,763 25,026 60,966 2% Noise & Vibration 20,763 9,320 3,235 33,318 1% Pollution Management Total 1,414, , ,757 2,350,533 69% Water Supply 502,000 15% Recycled Materials 439,000 13% Nature Protection 100,000 3% Resource Management Total 1,041,000 31% Total Employment 3,385, Estimation Approach Direct operating employment is created by operating expenditures (OPEX) on labour costs for the operation of environmental activities or provision of environmental services. Direct CAPEX employment is based on capital expenditures (CAPEX) on the share of labour the costs of equipment and infrastructure for the production of environmental goods or infrastructure to provide environmental services. Indirect employment is generated by other expenses (mostly OPEX) that stimulate employment in sectors that provide intermediate inputs to ecoindustries. In order to ensure comparability with 1999 figures, no new modelling assumptions were made. The analysis does not take trade flows into account. The wage rates used in the model have been updated to 2004, taking wage growth into account. The labour intensity ratios used in the 2002 European Commission eco-industry 35

38 study for each sector remain the same, although rising energy prices have probably affected labour costs share of total expenditures. Labour intensity ratios also probably differ in the new member states, but have a smaller effect in comparison to the differences in wage rates (a manufacturing industry worker from Slovakia earns 5 000/year versus in Sweden). Employment estimates for the resource management sectors are calculated differently from the other sectors. For water supply and recycled materials, environmental (OPEX and CAPEX) expenditures are not available for the sectors in order to estimate turnover and thus employment, so production value figures which are equivalent to turnover are used. 15 The growth rate of production value is calculated with the ratio of 2004 production value to 1999 production value. Assuming that production value and environmental expenditure grew at the same rate, the 2004 environmental expenditure can be estimated by multiplying existing 1999 environmental expenditure data from the 2002 study by the growth factor. The estimated 2004 environmental expenditure is then deflated. Assuming the growth rate of employment is the same as environmental expenditure, the ratio of real-adjusted 2004 expenditures to 1999 expenditures can be multiplied by 1999 employment to generate an estimate of employment in Nature protection employment is calculated like the other resource management sectors although actual 2004 expenditures are used. It is not possible to estimate employment in the environmental R&D, monitoring and instrumentation, renewable energy and eco-construction sectors using these methods because only supply-side data (neither production value nor environmental expenditure) on turnover are available. 16 Supply-side estimates of employment appear in the detailed sector descriptions in chapter 4. The difficulties of estimating employment based on supply-side figures are similar to those encountered when estimating turnover. The environmental monitoring sector is too fragmented to create reliable estimates of employment or turnover. The waste management industry association provides an employment estimate that is lower than the Eurostat estimate because it does not cover all firms and does not include public sector employment. Eco-construction and environmental R&D employment are difficult to estimate because their activities are integrated into larger industries Employment in Pollution Management Sectors 69% of all employment supported by eco-industries is in pollution management activities. 43% of employment in pollution management is in solid waste management and another 34% is in waste water treatment. Together these two domains represent 78% of the jobs in pollution management activities. Air pollution control accounts for 5% of all environmental jobs. Yet, unlike other sectors, half of the air pollution jobs are related to capital expenditure. Indirect employment corresponds in this report to the employment associated with the sectors of the economy providing intermediate inputs for the production of environmental equipment and services. On this basis, it is estimated that another 500, 000 indirect jobs are generated by pollution management sectors. 15 See section for an explanation of the difference between using environmental expenditures and production value to estimate turnover. 16 See explanation of missing turnover data in section Estimates of employment in the missing sectors that are based solely on supply-side data can be found in Table 7 of section or in the sector-specific sections of Chapter 2. 36

39 Employment in Resource Management Sectors 31% of eco-industry employment is supported by resource management activities. Nearly half of all resource management jobs are in water supply. It was not possible to estimate employment figures for renewable energy. However, a supply-side estimate of employment from the European Renewable Energy Council puts renewable energy sector employment at 200,000 people. If so, renewable energy would contribute 16% of resource management employment and 5% of overall eco-industry employment Employment Trends The estimated number of jobs in the eco-industries varied considerably between 1999 and According to the calculations made, the total employment in eco-industries has increased as follows: Pollution management activities: from 1.45 million jobs in 1999 (EU-15) to 1.85 million jobs in 2004 (EU-25); Resource management activities: from 0.6 million jobs in 1999 (EU-15) to 1.04 million jobs in 2004 (EU-25). Focusing on the EU-15 area, the evolutions between 1999 and 2004 (1999 data were limited to the EU-15 area) indicate that the number of jobs in pollution management activities decreased by 2% (from 1.45 million jobs in 1999 to 1.42 million jobs in 2004). This result should however be used cautiously, as changes in turnover, in country wage rates or in other production factors can significantly affect the results of the model. 37

40 Eco-industry Trade Eco-industry exports for the EU-25 are 13 billion and imports are 11.1 billion (see chapter 3). 57% of trade (both imports and exports) is with other EU countries. Germany, France and the UK are both the largest exporters and importers, though all three are net exporters of ecoindustry goods. None of the 10 new member states is a net exporter of eco-industry goods. Figure 8: Eco-industry Imports and Exports by Country, ,000 4,500 4,000 3,500 Total Imports Total Exports 3,000 millions 2,500 2,000 1,500 1, Germany France UK Italy Belgium Spain Netherlands Hungary Austria Sweden Poland Czech Republic Denmark Finland Portugal Slovakia Ireland Luxembourg Greece Estonia Slovenia Cyprus Lithuania Latvia Malta Data and Estimation Approach The trade data come from the Eurostat database COMEXT: Database for Environmental Technology Trade. This study uses trade codes assigned by the OECD to match imports and exports of goods between countries and through time (see chapter 3 for the list of codes). In order to ensure the comparability of data, the trade codes used here are the same as the 2002 European Commission eco-industry study. Unfortunately, the codes do not cover all of the environmental sectors in this study and do not include imports and exports of services. The trade figures here cover only air pollution control, water pollution control, waste disposal, monitoring equipment, solar thermal, photovoltaic, hydropower and other environmental equipment (gas and liquid filtering and purifying machinery and non-electric industrial and laboratory furnaces) and do not capture all ecoindustry trade 17. The export and import totals reported here do not include all trade, so a total balance of trade figure based on the totals is unreliable. 17 Trade code data for comparison with eco-industry supplier data is usually only available from strong exporter countries. This comparison suggests that 20% of total trade is captured by trade codes in Germany and Austria, for example. However, 38

41 The trades are coded either as Intra EU-25 or Extra EU-25 and the volume of eco-industry trade with an individual country is not given. For confidentiality reasons, countries do not report data for all trade codes. As a result, the sums of intra-eu imports and intra-eu exports are not equal to each other. Malta, however, did provide data and is included in these figures. It was not possible to correct the figures as there are no other aggregate data available for these sectors at this time. The World Trade Organisation is currently in the process of establishing a common list of environmental technologies. This common list will be much larger than the present list used in this study. The new list is likely to contain goods with multiple purposes beyond the environment, unlike the goods on the present list Trade by Country In general, the EU-25 countries trade primarily with each other. The UK, Belgium, Poland, Portugal and Lithuania are the only countries that export more environmental technologies to countries outside the EU than within the EU. Germany, the UK, Netherlands, Hungary and Estonia are the only countries that receive more of their imports from outside the EU. Germany, France and the UK are responsible for 55% of trade and the new member states account for 10%. Germany exports 4.8 billion and imports 3.2 billion in environmental technologies and leads the EU in exports in every category except hydropower. It is a net exporter of air pollution control and water pollution control equipment, filtering machinery and non-electric industrial and laboratory furnaces. France ( 1.5 billion in exports, 1.3 billion in imports) leads the EU in hydropower equipment exports and is a net exporter of water pollution control and waste disposal equipment. The UK exports 1.5 billion and imports 1 billion and is a net exporter of air pollution control and water pollution equipment. In general, all of the new member states are net importers of environmental technologies. However, as a group, they are net exporters in the three smallest categories by slim margins: hydropower, solar thermal and waste disposal. Slovenia has a positive balance of 20 million in hydropower, Poland ( million) in solar thermal and the Czech Republic ( 18.8 million) in waste disposal. In photovoltaic equipment, new member state imports exceed exports by 438 million. Among the new member states, only Cyprus and Lithuania are net exporters in photovoltaic equipment Trade by Sector The EU-25 as a whole is a net exporter in all but photovoltaic equipment. The largest export sectors are air pollution control ( 2.9 billion), other environmental equipment ( 2.6 billion) and water pollution control ( 1.2 billion) (see Table 5). In all three sectors, Germany is by far the largest exporter. The largest import sectors are photovoltaic equipment ( 3.3 billion), air pollution control ( 2.6 billion) and other environmental equipment ( 1.9 billion). EU-25 imports from outside the EU exceed exports by 1.5 billion in photovoltaic equipment and 434 million in water pollution control. this is highly variable across sectors. The limited evidence suggests that for air pollution control it is approximately 50%, but for wastewater treatment and waste management it is less than 20%. The ratios are also likely to vary across countries. 39

42 According to industry representatives, export markets represent significant opportunities for business development: the largest opportunities for growth in air pollution control exports are in Asia, particularly China, since the North American market is mostly mature, there are budding export opportunities in remediation and clean-up and monitoring and instrumentation. In remediation and clean up, there are few European firms active in the US or Japan, though they are major remediation markets, due to differences in the approach to work and barriers to entry to newcomers. However they are very active in Russia, Africa and Brazil and China and Australia are potential export markets. Countries like Australia and China may also become clients or potential partners for exporting know-how and technology. Since most of the globally-oriented monitoring and instrumentation manufacturers are European, exports are important. However, it has been difficult for them to penetrate the US market, due to technical requirements which act as barriers for external entrants. The EU also exports renewable energy technologies and construction elements. The top wind power producers export more than 80% of their production to markets like the US, Canada, India, Japan, China and Australia. Small hydropower opportunities are in China, Australia, Canada, India, Nepal and New Zealand Trade Trends For the EU-25, total exports have grown 25% and total imports have grown 44% since Exports grew in every sector except hydropower (-21%) and waste disposal (-0.5%). The fastest growing export sectors were other environmental equipment (44%) and monitoring equipment (41%). The fastest growing import sectors were photovoltaic equipment (106%), air pollution control (50%) and monitoring equipment (33%). As mentioned before, the EU overall is a net exporter of environmental technologies, except for in photovoltaic equipment. Photovoltaic production is dominated by Japan and the US, though there are now 44 major production plants in the EU, almost half of which are in Germany. Since 1999, production growth in Germany has averaged 50% per year. 18 In constant euros 40

43 Table 5: Eco-industry Imports and Exports by Sector by Country, 2004 Imports ( millions) APC Hydropower Monitoring Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovakia Slovenia Spain Sweden UK Total OEE Photovoltaic Solar Thermal Waste Disposal WPC Total Exports ( millions) APC Hydro power Monit oring OEE Photo voltai c Solar Therm al Waste Dispo sal Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovakia Slovenia Spain Sweden UK Total WPC Total 41

44 1.4 Market drivers and main competitiveness factors This section presents the growth trends of the eco-industry sectors as well as the elements that drive the development of eco-industry markets like environmental policy and legislation, public financing, pricing and the cost structure are examined in depth. The section concludes with a summary of the main factors that determine the competitiveness of eco-industries such as technology, access to finance and access to markets and market organisation Fastest Growing Eco-industry Sectors Growth rates of most eco-industry have been strong in recent years, although a distinction should be made between traditional markets driven by the demand for essential commodities (such as water supply) or services (waste collection, for example), which are increasingly mature and recent markets which are essentially based on investment needs generated by environmental policy (including legislation, definitions of strategies and policy frameworks, voluntary agreements and other soft-law instruments), which are referred to as legislation-driven markets : In traditional markets, additional environmental requirements will generate new subsectors to adapt to emerging market demands, as well as needs for replacement of existing equipments, For legislation-driven markets, growth is essentially determined by new policy objectives and requirements and follows cycles depending on the time-frames set for complying with the new standards or targets, although a distinction should be made between increasingly mature markets (air pollution control, soil remediation, noise and vibration control, environmental monitoring and instrumentation, environmental R&D) and high growth potential markets (renewable energy, although wind energy is more mature and close to profitability with high energy prices, and eco-construction). The development of new market segments or solutions should also drive the growth of ecoindustries. Examples are: air pollution control (monitoring of power plants), soil remediation (historical industrial sites in city centres, especially in new member states), environmental monitoring for new pollutants or new services such as complete outsourcing of monitoring processes. The long-term outlook for most sectors is favourable since the implementation of the acquis communautaire in the new member states will increase demand for environmental goods and services. The new member states will need to create capacity, sometimes with financial support from EU funds. Many sectors will benefit from moderate development in EU-15 countries that already have installed capacity. The sectors most affected are air pollution control (building of incinerator flue gas treatment); waste management (treatment plant capacity); water supply and waste water treatment (development and renewal of networks and capacities, increase service activities); environmental monitoring (implementation of air quality directives) and eco-construction (development of efficient structures and buildings). 42

45 Renewable Energy Growth in renewable and wind energy in Europe is driven mostly by EU policy. The European Commission White Paper on Energy Policy set a goal for renewable energy to have a 12% share of EU energy consumption by The Directive 2001/77/EC set a target of 21% of electricity generated from renewable energy sources by At present, only Germany, Denmark, Spain and Finland are on track to meet that target. For the EU as a whole, 10% of energy consumption and 17% of electricity generation will be from renewable energy sources in The majority of that increase will be in wind power, which has had average annual growth of approximately 30% over the past decade. Remediation and Clean-Up For the remediation and clean up sector, growth in Northern Europe will probably be moderate because the market is mature, though many sites still need to be decontaminated. One of the main drivers for market development will probably be the demand for remediation of city-centre locations, as industrial activities are pushed towards the suburbs for accessibility and safety reasons. Eastern Europe is a strong growth market as the large amount of industrial land has huge potential. Poland, Hungary and the Czech Republic are among the most dynamic markets. In Hungary, a significant proportion of hazardous waste is stored on companies' sites in temporary storage facilities because they cannot afford to pay for proper disposal. As regulations limit the amount of hazardous waste that can be stored on-site, there will be an increasing demand in Eastern Europe for site remediation, which is expected to reach approximately 1.17 billion within the next decade 19. According to some industry players, containment or dumping of polluted water and soil without treatment will dramatically decrease, as regulations tend to require treating hazardous waste prior to landfilling. Therefore, the future of the market could lie in services of thermal treatment (off-site) and mostly on-site processes, which are less time-consuming. According to industry representatives, there might also be stronger demand for new techniques combining physicalchemical treatments and in situ biological remediation processes. Recycled Materials The recycled materials sector is limited to activities related to the use of recycled materials as new materials, often as a replacement for raw materials. The growth is not directly driven by environmental policy and legislation, but the legally required collection and sorting of recyclables creates a market opportunity in their subsequent use. In addition, rising prices for raw materials on international markets contribute to increasing the competitiveness of recycled materials. Since recyclables replace raw materials in most processes, the growth in the sector may in some cases replace growth in raw materials sectors. 19 MSI Study on soil remediation in Europe,

46 1.4.2 Growth in the Largest Eco-industry Sectors Solid Waste Management Solid waste management is a commodity driven market, yet new developments, particularly in sorting and recycling activities, are driven by environmental policy. The market is mature in the EU-15 and will reach maturity even in the new member states by , according to sector professionals. Because of the local nature of waste collection, the market is polarised between very large international companies and small, local players. The two largest European waste management companies, Veolia ( 4.0 billion) and Sita ( 4.5 billion), are from France and despite their size each has only a 4% share of the EU market. The largest companies are fully integrated from collection and sorting to recycling and waste treatment. Given their expertise, these companies are also active in developing markets outside the EU, for instance by establishing local subsidiaries and joint ventures. To some extent, competition from sorting and recycling facilities locates in Asia may lead a growing share of waste streams (for example plastics, electronic waste) to be sorted and recycled in countries where labour costs are low and the demand for secondary raw materials high. However, in most cases, sorting and recycling facilities tend to remain near waste generation sites (major cities and industrial areas) so as to reduce transport costs. Water Supply The three largest water supply and sanitation service companies in the world are European (Veolia, Suez and RWE) and they generate 59% of turnover in the sector. Yet there are still a number of small municipal water suppliers, particularly in Germany and Italy. In general, water resource management is increasingly shifting towards meeting quality requirements set out in the Water Framework Directive (Directive 2000/60/EC) rather than solely providing water at the lowest cost. Demographic growth is the main driver for water supply activities. The relatively high water network connection rates in Europe lead providers to consider strategies beyond the building and maintenance of infrastructure such as services and customer relationship management (including advice on water consumption and related issues such as sustainable development). The major players already offer assistance to local areas in defining sustainable development plans for water consumption optimisation ( Agenda 21 for example), services to help them reach increasing quality requirements 20 and implement increased controls and protection of water abstraction sites. Waste Water Treatment The waste water treatment sector requires further investment to connect remaining populations and to install adequate treatment capacity. If over 90% of European citizens have piped water supply, 80-90% are connected to waste water treatment plants in Northern and Central Europe and only 30-50% in Southern Europe and the new member states. The implementation of EU legislation on waste water treatment will generate significant additional costs to build new collection and treatment capacities. Financing such large utilities project is a key issue and usually requires support fro EU financing mechanisms such as grants or long-term loans. 20 World Health Organisation guidelines, 3 rd ed. 44

47 Air Pollution Control Air pollution control is one of the four targets of the 6 th Environment Action Programme and there are a number of directives to limit and control air pollutants, including Directive 96/61/EC to reduce industrial pollution and Directive 96/62/EC on ambient air quality assessment and management. 21 Growth in incinerator flue gas treatment is expected to be weak in countries that are already equipped with waste incinerators. However, the 10 new member states are expected to invest in such technologies in the future. A number of projects are in progress and it is expected by industry representatives that about 50 incinerators will be built within the next decade. Power plants will also be a strong market for air pollution control activities, mostly in the new member states. Most European countries are far from fulfilling their obligations regarding industrial and chemical emissions, especially greenhouse gases and volatile organic compounds (VOCs) emissions, which will strengthen the APC market. For example, it is estimated that approximately 5 billion will be spent by Italy alone in order to reach full compliance with air quality legal requirements Other Sectors Industry experts believe that the noise and vibration control market is growing slowly because industrial players tend to do the minimum to meet the relatively stringent noise standards in Europe. There are potential opportunities in reducing noise from air and rail transport : increased involvement from local residents and governing authorities may create demand from airline and airport operators for quieter transport technologies and new flight path procedures, in rail transport, there is a potential market in improving break equipment to reduce noise from night cargo transportation, Noise from road transport affects the greatest number of people. In this field, the use of quieter road coating solutions could offer a less expensive alternative than building sound insulation walls. The need to comply with policy objectives and legal requirements as well as the availability of institutional funding for research drives environmental R&D. Patents for environmental technologies grew 31% between 1998 and 2002 and there is considerable financial support at the European level from the 6 th Framework Programme for Research , which allocates 2.12 billion to global change and ecosystems, sustainable energy systems and sustainable surface transport research, and the Environmental Technology Action Plan, which started in It is also possible that increasing energy costs will remain a major driver of environmental R&D since energy costs are rising and are usually higher than water or waste management expenses for most companies. Nature protection activities consist of the management and protection of designated areas with important species and habitats, including Natura 2000 sites. It is not clear why turnover in the sector declined, though it is probably due to poor data quality. The EU estimated that the cost of 21 Other air pollution control directives include Directive 99/13/CE relating to volatile organic compound emissions (VOCs), Directive 99/30/CE on limits for emissions of nitrogen and sulfur oxides, lead and particulate matter, Directive 2000/69/CE on limits for emissions of carbon monoxide and benzene, Directive 2000/76 CE on waste incineration, Directive 2001/80/CE on emissions from combustion plants, Directive 2001/81/EC on national emissions ceilings for nitrogen and sulfur oxides, VOCs and ammonia for each member state, Directive 2003/87/CE for an EU greenhouse gas emissions trading scheme and Directive 2004/107/CE on emissions limits for metals like arsenic, cadmium, nickel and poly-aromatic hydrocarbons. 22 Pollution control equipment and service in Italy, International Market Research, October

48 managing the Natura 2000 network is 6.1 billion per year, 23 underestimated due to differences in national accounting. but the figure is probably Growth in the monitoring and instrumentation sector is highly dependent on the implementation of current regulation and on the emergence of new regulatory requirements. The industrial emissions market should slow down in the EU-15 area as most sites are now compliant with Directive 2000/76/EC and the air quality monitoring market is also mature since most large cities are equipped. The implementation of air quality and air emissions directives in the new member states should support market development. In addition, there are emerging demands for monitoring new pollutants and services such as outsourcing the monitoring process. The construction sector is already the largest industrial employer in Europe and eco-construction is expected to rise due to the EU Directive on the Energy Performance of Buildings (2001/0098/COD) and tax-deductibility schemes in some member states. The schemes are incentives from national and regional authorities to save energy and water. Increasing energy costs and pressure from consumers may also support the sector s growth Market Drivers Regulation Compliance with policy objectives and legal requirements set by EU and national authorities will be the main driver of eco-industry growth in the near future. This includes for example industrial and chemicals emissions monitoring and reduction for air pollution control activities, water quality targets for water management, waste collection and recycling rates, and respective national production objectives for the production of energy from renewable sources. Eco-industries can be divided between those that are almost entirely driven by environmental policy and legislation (air pollution control, noise and vibration control, remediation and clean up, monitoring and instrumentation), commodity markets that are affected by public policies and regulations (water supply, waste water treatment, solid waste management) and emerging sectors that benefit from policy objectives (renewable energy, environmental R&D). Legislation-driven Markets Market evolutions are for some sectors mostly determined by developments in environmental policy, and mainly by the adoption of new legislation although other instruments such as policy strategies and frameworks, voluntary agreements and other soft-law initiatives also influence investment decisions and market evolutions in general. In the air pollution control sector, several directives 24 determine emission limits for a number of pollutants, including carbon monoxide, nitrogen and sulphur oxides and volatile organic compounds. Directives also cover industrial pollution (Directive 96/61/EC), air quality assessment and management (Directive 96/62/EC), waste incineration (Directive 2000/76/CE) and greenhouse gas trading (Directive 2003/87/CE). Existing soil remediation and clean up policies are mostly at the national, rather than EU level, and are in effect only in a few EU-25 countries. EU-level regulation exists, but is not necessarily comprehensive, like EU Directive 86/278/EC which covers the use of sewage sludge on 23 Final report of the Working Group established on Article 8 of the Habitats Directive 24 For example, directives 99/13/CE, 99/30/CE, 2000/69/CE, 2001/87/CE and 2004/107/CE. For more details, see presentation of the sector in chapter 4. 46

49 agricultural land but not overall soil protection. The forthcoming Soil Framework Directive, as well as Directive 2004/35/CE on the liability of actors for environmental damage, will provide an impetus for further soil remediation activities. Since environmental monitoring and instrumentation equipment are end-of-pipe technologies, they are perceived by the user mainly as a compliance cost. Stricter environmental requirements and increasing controls are therefore the main stimulus for the market for these technologies. For example, directive 2000/76/EC on the incineration of waste has generated new business opportunities in the field of emissions monitoring and has strong implications for operators of industrial installations. Commodity Markets The growth of the water supply sector is largely dependent on population growth; however developments in the sector are related to environmental policies. Additional investments will be needed to meet the objective of reaching satisfactory quality levels in 2015 set by the Water Framework Directive (2000/60/EC), which also encourages the fair pricing of water services. The EU s 6 th Environmental Action Programme includes water-specific targets including levels of water quality that do not pose a risk to human health and sustainable rates of extraction from water resources. For waste water treatment, the revised edition of the EU directive on sewage sludge is still pending and might be included in the larger process of producing a soil framework directive. The limit values which will be set for the concentration of pollutants in sewage sludge will probably imply upgrading waste water treatment facilities in a number of countries. Take back obligations, mandatory minimum recycling rates for different waste streams, limitation of landfilling of organic waste and landfill and incineration taxes all fall under the EU s waste policy, for which Waste Disposal Framework Directive (75/442/EEC) has set the main principles. Further development of selective collection and recycling will lead to increasing activities in this field, as well as to ensuring sustainable financing of such processes on the basis of the principle of extended producer s responsibility for end-of-life products. Emerging Sectors Benefiting from Policy Developments The European Commission White Paper on Energy Policy and EU Directive 2001/77/EC give considerable support to renewable energy markets. Most member states have implemented a support system for renewable energy in the form of feed-in tariffs, quota obligations and in some cases green certificates. However, coordinated biomass policies are lacking and financial support for projects in this field are limited. For wind energy, complex planning procedures in some countries cause longer delays and higher risk for investors, although Articles 6 and 7 of Directive 2001/77 call for speeding up the authorisation process. Public Funding and Financing Public funding is an important factor in the environmental R&D, water supply and renewable energy sectors. Approximately 2.12 billion are made available for environmental R&D under the 6 th Framework Programme for Research (FPRD) and the Environmental Technology Action Plan (ETAP) which aims to stimulate both the development and deployment of environmental technologies. Although development of fundamental research remains a key element, past experience shows that the difficulty met by eco-technologies lies mainly in accessing markets under the form of new commercial applications. Many renewable energy technologies are not yet economically feasible or competitive and their implementation depends on various market 47

50 incentives (price supports, feed-in tariffs, quota obligations and green certificates from public authorities). Public funding is also a key element for supporting the implementation of large waste or water management facilities, especially in countries where investment capacity is lacking (this aspect is presented in detail below). Pricing and Market Incentives Pricing matters most in the water supply, waste water treatment and renewable energy sectors. The price paid for water supply and waste water treatment varies a lot within Europe, depending on the investments made to modernize or build infrastructures and comply with environmental requirements. The pricing policies often include support schemes aimed at reducing the price paid by certain categories of users (through tax policies, for example). Transparent pricing and metering of water use are however considered as key issues with respect to the sector s growth. The renewable energy sector still needs support in order to penetrate the energy markets. Different incentive systems are currently used in the EU a fixed price system (the energy produced can be sold at a guaranteed price) or a variable price system (certificates with a minimum value guaranteed by public authorities). The competitiveness of renewable energy sources is directly related to the difference of costs with conventional energy production and there are numerous distortions in that market, including institutional and legal barriers, large subsidies and State aid to conventional players, existence of national dominant positions, barriers to third party access and limited interconnection between regional and national markets. Wind energy produced by medium sized turbines is approaching competitiveness in terms of direct costs with coal or gas electricity plants and fossil fuel prices should strengthen this trend. However, competitiveness is much weaker in countries where electricity prices remain cheap due to the high share of nuclear production (i.e. France). Renewable energy has environmental benefits as compared to conventional energy, which are not reflected in current market prices. The internalization of environmental externalities and costs would therefore considerably improve the competitiveness of renewable energy. Policy initiatives such as the Large Combustion Plant Directive as well as the European Emissions Trading Scheme for CO2 now lead the internalization of environmental costs in prices of fossil based energy. Cost Structure The cost of capital and long-term sector outlook influence the market structure in sectors that require long term investments. For example, the competitiveness of renewable energy depends on its costs relative to conventional power, which depends on fossil fuel prices. Investment in equipment is by far the main cost item, maintenance being the second. Typical conventional power generation costs are in the 2 5 cents/kwh range for baseload power, but can be considerably higher for peak power and higher still for off-grid diesel generators. In all renewable energy sectors, costs have fallen dramatically due to improved technologies : Investment costs for wind power have declined by approximately 3% each year over the last 15 years. For solar photovoltaic cells, for which demand was originated by the space programme, unit costs have fallen by a factor of 10 over the past 15 years. As a result, some renewable energy sources are almost competitive with fossil fuel energy, onshore wind, biomass based heating, hydropower and geothermal heating, while others still have a 48

51 long way to go before being able to compete with fossil fuels without any support (photovoltaic, biomass power, and biofuels). Projects in the soil remediation and monitoring and instrumentation sectors need to achieve scale economies in order to be viable. In soil remediation, industry concentration is increasing as firms merge and pool their R&D resources. Broader geographic coverage also matters for firms that need to meet the demands of multinational clients. Geography can also be a limiting factor for fixed soil remediation treatment plants, since increasing volumes of supply is critical to maintain profitability, therefore incurring high transportation costs. Other Drivers Other important determinants of eco-industry market structure are consumer demands, the need for new infrastructure and suppliers switch from goods to services. Awareness raising among consumer create growing pressure for producers to offer an environmentally sound products and solutions and to further integrate environmental impacts in product design and production, supported by policy initiatives on integrated product policy. The establishment of eco-labels at the EU and member state has also played a significant role in increasing the awareness of consumers on the benefits of eco-products and services. Increasing demand from consumers for green energy, sometimes in the framework of national targets, is also an additional driver for the development of renewable energy technologies. This trend is expected to last due to the increasing cost of fossil fuels, which will also energy efficiency products and equipments. Consumer pressure is also a driver for eco-construction. Real estate demand and land pressures are a source of growth in the soil remediation market. In the most mature markets, growth is slower, but demand is maintained due to the pressure on available land and to stringent regulatory requirements on soil protection. Increasingly, suppliers of environmental monitoring instrumentation are switching from supplying goods to supplying services. For example, manufacturers allow customers to outsource the measuring process to them and provide data on a regular basis with guarantees on the reliability of data. Such services require long-term contracts (10 to 15 years) and integration of various competencies, such as data systems. This shift from goods to services is an opportunity for ecoindustry companies to provide higher value-added support to their clients and to create new market segments Main Competitiveness Factors for Eco-industries Technology, access to finance and trends in market organisation are issues that influence ecoindustry competitiveness. In general, intrinsically profitable and mature legislation-driven markets are mostly global markets, with international competition on all continents. Here, competitiveness is driven by experience and the presence of large corporate groups in the market. European companies from mature markets have expanded their activities outside their borders and operate at a European or global level. For legislation-driven markets with high growth potential, Europe as a whole is usually the most demanding market and therefore possesses the main industrial actors. 49

52 Technology Technology development is a key in many sectors as the need for improvement is still substantial in renewable energy, eco-construction, air pollution control (dioxins and PM10 removal), environmental monitoring, waste management (recycling) and soil remediation. At present, the solid waste management sector does not use highly developed technology for most activities. A key development in coming years will be recognition and automatic sorting technology since automation will reduce costs, make it less labour intensive and could help sorting activities remain within the EU, rather than outsourced abroad. High level technology and innovation capacity, as well as the ability to provide small scale solutions, are critical competitiveness factors for air pollution control. In water supply, suppliers are differentiated by technologies that make it possible to meet higher quality requirements at reasonable cost. In the long term, the sector will need to develop technologies to use alternative sources such as seawater, brackish groundwater and treated wastewater. Hydropower, solar thermal heating and cooling (mainly small-scale), biomass heating, onshore wind energy and geothermal heating already have economically viable and competitive advanced technologies. Yet there is still room for development. For example, in geothermal energy, researchers are developing methods and equipments for the inventory of favourable zones, improving drilling techniques and optimisation of heat pumps. Upcoming challenges in wind power R&D include the production of lighter blades using new materials, increasing the size of wind energy plants although the transport infrastructure will probably be a limiting factor, developing the off-shore potential and mobile manufacturing plants. Eco-construction technology is continuously developing. Innovation in the sector aims at increased functionality and lower energy consumption. Monitoring and instrumentation R&D focuses mostly on measuring processes, such as continuous monitoring of dioxins and furans. Market leaders in soil remediation dedicate up to 5% of their revenue to R&D, as developing more effective and cheaper techniques is strategic especially for smaller, specialized firms. Overall, for environmental R&D, industrial and commercial maturity progress at the same speed as technological development. They are well synchronized because they have the same driving force, that is, regulatory pressure. However, further development is necessary since most environmental technologies have not reached technological maturity and most have not reached a stage of wide industrial and commercial application. Industry officers consider that the key to successful innovation policy lies in the rapid application of new developments in industry, in order to maintain the pace with emerging market needs and demands. The support of public authorities in disseminating new techniques is essential, as some of these innovations need to be tested, approved, and as potential end-users need to be informed on the potential benefits from these new technologies. 50

53 Access to finance For most capital-intensive sectors, financing new investments often proves difficult due to the lack of available and adapted financing resources. Financial institutions often fail to understand the specificity of these projects, which sometimes present long pay-back periods, high risk due to uncertainties over market developments and low profitability. High costs of capital therefore hinder the competitiveness of these sectors, and in particular in the sectors presented below : Water supply and waste water treatment facilities, Air pollution control equipment, Waste treatment facilities (incineration plants, composting, and biomethanisation) are capital intensive investments with relatively limited operating costs, so the cost of capital can have a strong impact on project profitability. An increase in interest rates can have a significant effect. For the other activities (collection, sorting), investment is rather limited, though this could change in the future with increased automation of collection and sorting. The implementation of new policies to promote renewable energy sources will have a considerable impact on investments made in this sector. In order to reach the 20% EU target for 2020 an investment of 443 billion in renewable energy is needed over from , according to the European Renewable Energy Council. The investment period for wind power is ten years and frameworks set up by national governments play a key role in creating investor confidence. For example, fixed price systems ( feed-in tariffs ), where operators are paid a fixed price for every unit of output, have played a decisive role in attracting wind energy investment in Germany, Spain, Denmark, and to a lesser extent in Austria and Germany. Fixed price systems provide stability in anticipated revenues and create investor confidence. This reduces the level of risk associated with projects and therefore the cost of capital. The ability to finance projects through various EU funds is therefore a critical success factor for some sectors (air pollution control, for example), especially in the new member states. An increasing number of environmental-related projects are being realized through instruments like pre-accession funds. In addition, promoting adapted financial mechanisms (in the form of grant facilities, soft loans, investment funds) is also necessary to support the development of ecoindustries. Public financers are not comfortable with innovative environmental projects because they lack maturity, in terms of stakes qualification (employment, environmental and economical benefits) and in terms of partnership. It is difficult to quantify the benefits of new eco-technologies because few studies exist on the subject. As for the lack of partnership, it is explained by the fact that source prevention projects mostly concern specific processes of companies and it is not in their interest to carry out projects in partnership with competitors. Therefore, mechanisms aimed specifically at financing innovation are required in order to maintain the capacity of eco-industries to develop new products and services. Market Organisation In the major commodity markets, market organization is the result of longstanding social, political and economic traditions. In the case of water management, the respective roles of the public and private sectors vary a lot from a country to another and state-owned operators, private firms, mutual companies, as well as municipalities are involved as owners or operators of infrastructure. France, in particular, has a hybrid model that rests between a fully-private or a fully-public organization. New member states tend to have a higher share of private management, due to the inability of public authorities to finance the necessary investments to fill in missing infrastructure or upgrade existing ones in order to comply with EU standards. This has led to large privatization movements, and to emergence of public-private partnership. This strong market evolution generates opportunities for firms to capture new market shares in utility management for public 51

54 and private bodies, as major industrial actors who built capacity but now wish to outsource these activities. In order to benefit from these opportunities, eco-industry companies must develop market intelligence and expertise to bid for such projects. This is not sufficiently the case today for small and medium sized companies, which need to be supported in order to increase their awareness of market evolutions and their business development capacity. Initiatives are also emerging in leading countries, either from government bodies or from private consultancies, in order to develop innovative knowledge for companies, government bodies and public organizations on the management of environmental issues such as water management, recycling, ecological risk assessment and buildings environmental quality. These initiatives will probably generate new demand in areas where purchase of environmental goods and services was mostly done in order to comply with environmental regulation. 52

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56 2. Recommendations to support the development of eco-industries Below are presented instruments and policies which might have the greatest effect on the development of eco-industries in the EU. These recommendations could potentially contribute to: Supporting the growth of eco-industry markets, Improving the competitiveness of eco-industries. 2.1 Supporting eco-industry market growth Regulation: reinforcing environmental requirements and their implementation Regulation is one of the main instruments of public authorities for supporting the development of eco-industries. Setting higher targets in terms of environmental performance or more stringent limit values for emissions and pollutants will have a critical influence on the further development of markets which are mainly driven by environmental regulation. These sectors cover both: Pollution management activities focused on the production of end-of-pipe solutions (for example, air pollution control and waste water treatment) which are purchased by facilities in order to be compliant with legal requirements. As these products and services do not generate any return on investment, they are often perceived by the user as a net additional cost (a compliance cost ). Strengthening environmental requirements is therefore the most effective way to stimulate the demand for these sectors. For example, the development of air pollution control is to a large extent dependent on the development and implementation of new regulation on air emissions. This sector has significantly benefited from the adoption of several air emissions directives in the recent years (such as directive 2000/76/EC on the incineration of waste, directive 2001/80/CE on SOx, NOx and dust emissions from combustion plants, directive 2001/81/EC on national emission ceilings for SO2, NOx, VOCs and ammonia). Although some industry representatives consider that the additional cost of adopting more stringent requirements may hurt their competitiveness on global markets, the continuous development of new environmental legislation in the EU over the years has also contributed to building global leaders in some sectors (renewable energy, waste water treatment, for example). The preparation and adoption of new legislation helps keep European industries in a leading position on new emerging issues, such as carbon trading for instance. Resource management activities which are not able to develop due to competition from traditional industries, such as renewable energy production or recycling. For these activities, mandatory or indicative targets defined in EU legal instruments are a key element to support the demand, as demonstrated by the directive 2001/77/EC on the promotion of electricity from renewable energy sources (which defined an EU-wide indicative target of 22% of electricity needs by 2010). Similarly, recent directives on endof-life products which set reuse and recovery targets also encourage the demand for recycled materials (for example, directive 2000/53/CE on end-of-life vehicles). In some sectors, regulation is the determining factor to modify the competitiveness of certain technologies or processes. For example, recent requirements in the field of waste management related to landfilling and incineration imply higher costs, so that recycling technologies become increasingly competitive solutions. The existing policy framework in the EU has proven crucial for the development of eco-industry sectors. It remains a key instrument to sustain growth in these sectors, by setting more ambitious targets and/or requirements, as well as by broadening the scope of existing legislation. In the ecoconstruction sector for instance, a directive on the energy performance of buildings exists but its does not apply to existing buildings for which the surface is less than 1000 m2, where a large 54

57 potential for energy conservation through environmental construction lies. In the renewable energy sector, although the share of renewable energy sources is addressed in electricity (directive 2001/77/EC) and in fuel (directive 2003/30/EC on the promotion of the use of biofuels or other renewable fuels for transport), the potential development of renewable energy in heating and cooling systems is not yet supported by a legal requirement. However, most of the industry experts and executives interviewed in the course of this study believe that regulatory efforts should also strongly focus on the implementation of existing environmental legislation and regulation, which have not yet been fully applied. Further efforts are required on the following aspects: Providing information on new legislative developments and on the deadlines for application, in advance if possible, in order to allow public authorities, control bodies and companies to be prepared for forthcoming changes, Controlling the transposition of EU directives in national legislation and in operational regulation, perhaps by implementing more severe control procedures, Supporting the national and regional authorities in charge of controlling the effective implementation of environmental requirements by developing training and capacity building initiatives for these organizations and by pursuing efforts to streamline and coordinate the process of control and compliance with environmental regulation. Standards: establishing harmonized standards for environmental goods and services and promoting the integration of environmental performance in construction standards In the framework of the Commission s efforts to promote sustainable production and consumption, the development of standards and quality labels for environmental goods and services will contribute to promote their quality and to develop markets for eco-industries. As technical standards are not systematically harmonized at EU level, some technologies face barriers when trying to penetrate new markets in the EU. Establishment by the European Standards Committee of harmonized technical standards for environmental goods and services will enable some products to develop and to access new markets. For some sectors, establishing technical standards will play a decisive role in ensuring the customer of a guaranteed level of quality. In the recycled materials sector, quality standards for secondary raw materials (used tyre by-products, for example) will improve the image of these goods and of the products manufactured from recycled materials. Integrating environmental performance requirements in production standards for the building and transport industry can strongly develop markets for eco-construction in general and for technologies related to energy efficiency, water and waste management, noise reduction and renewable energy production. 55

58 Market incentives: supporting price transparency and the internalization of environmental costs in market prices Demand in several eco-industry sectors has been limited by the cost of the equipment or services produced unless the use of the technologies was made mandatory by law. Larger markets for ecoindustry technologies could be developed if existing activities responsible for emissions of pollutants and environmental degradation were compelled to integrate external environmental costs into their operating costs. The use of market incentives such as taxes (for example, on resources, landfill, incineration, emission of pollutants into the air and water or noise) could in some cases, allow the market to judge comparable technologies based on the integrated performance of each solution, rather than only on cost. Similarly, recycling would become competitive for other waste streams, as it already is for several waste streams such as glass, metal and cardboard, if the market prices for currently preferred treatment solutions included more accurately the costs of environmental degradation. Emphasis on the fair pricing of goods and technologies should also be considered in order to support eco-industry development. Subsidies for energy, water or transport infrastructure, for example, do not allow the end user (a water management executive, for instance) to see the true cost of these activities. These market distortions create a competitive disadvantage for more resource-efficient technologies that are developed by eco-industries. For example, renewable energy and energy efficiency technologies are not competitive in markets where prices of conventional energy are subsidised. In addition to ensuring fair pricing systems, the establishment of market incentives can significantly support the demand for environmental goods and services. These incentives may include: Tax credits, for example to support the use of energy efficient technologies or of recycled materials, Soft loans and other supporting mechanisms may reduce the cost of financing for some technologies, Including environmental performance criteria for accessing grants and contracts, Developing trading markets for pollution credits, with the example of the EU Emissions Trading Scheme. The most effective market incentives will probably need to be identified by market or sector. Further work will therefore be needed to define the most adequate incentives, in cooperation with the economic actors. Awareness-raising: providing targeted information on eco-industries to customers Developing the demand for the goods and services provided by eco-industries will require further efforts to develop awareness of consumers (households, industries, local authorities) on the availability of technologies and services offered by eco-industries, as well as on their costs and potential benefits. Better information must be communicated on the comparative advantages of environmental goods and services in order to support sustainable consumption practices. These aspects have proven crucial in order to convince buyers of the advantages of investing in cleaner production technologies, for example. Depending on the priorities of the awareness-raising strategy, key targets could include households (for example through media campaigns) industries (by targeting professional organisations as well as purchasing departments) and public authorities, as well as financial institutions. For some sectors, another key instrument to promote eco-industry goods and services 56

59 and to improve their image could be the establishment of a specific quality label, either by building on sector-specific quality labels or on the experience of the Community eco-label award scheme 25. Financing mechanisms: helping new Member States comply with EU environmental regulation Because growth rates are stable in the more mature EU-15 eco-industry markets, the new member states are considered to be critical markets for the future growth of eco-industries. However, lack of investment capacity in some new member states may slow down expected development. Financial support from the EU budget is a means to help these countries upgrade their environmental infrastructure to comply with the acquis communautaire and indirectly is an incentive to develop eco-industries. Financial mechanisms aimed at supporting the development of the demand for eco-industry goods and services are usually grants or long-term loans for building new capacities. These financial instruments should be maintained and reinforced, and if possible, focused on investments in pollution and resource management activities. For some sectors (renewable energy, for example), supporting the development of local investment capacity could take the form of providing a contribution to the resources of dedicated funds at national level. 25 Adopted in 1992, the objectives of this scheme are mainly to promote the design, production, marketing and use of products which have a reduced environmental impact during their entire life cycle, and to provide consumers with better information on the environmental impact of products. 57

60 2.2 Improving the competitiveness of eco-industries Strengthening the performance of eco-industry sectors: helping SMEs adapt to emerging market needs For some market segments, the existing eco-industries do not have the capacity to respond to emerging market needs, such as integrated approaches to environmental monitoring in urban areas. This can partly be explained because a large number of eco-industry firms are small and medium enterprises and do not always have the resources to research and follow such market developments. The Commission can help eco-industries maintain their competitiveness by: Pursuing the analysis of the markets for eco-industries in the years to come, as significant gaps remain in the available information on these activities. Improved data on the EU ecoindustries is necessary for sector professionals to obtain a more accurate vision on the size of existing markets, on growth trends and on emerging market opportunities. Improving the information on market developments available to small and medium enterprises (SMEs) by developing specialized market intelligence services for some sectors or by providing support to access adequate financing possibilities as well as insight into future legislative developments, on economic and technological developments, and on global trends. Such services should focus on maintaining the capacity of EU ecoindustries to focus on shifting from providing goods and services necessary to comply with environmental requirements to offering high-value expertise and technical solutions which will enhance their clients competitiveness. Supporting capacity-building initiatives for SMEs and enhancing their competitiveness, in particular by providing training and encouraging the creation of networks of eco-industry firms, aimed at improving their market entry and development abilities. The aims of such networks could include - Providing information on market procedures which SMEs will need to gain expertise in bidding for opportunities that will develop in the new member states. - Encouraging the sharing of experience and information through this network of eco-industries should also lead to partnerships on specific projects (developing new products, penetrating new markets, etc) based on pooling resources. - Setting up focal points by sector (or by country) on the development of opportunities in the eco-industry markets would constitute a simple way to offer information (market trends, business opportunities) as well as technical advice to eco-industry companies. Export potential: expanding efforts to help eco-industries access export markets As several large eco-industry markets are approaching maturity in the EU-15 area, the strongest growth opportunities for most sectors are considered to be in new member states or in fast growing emerging economies. For this reason, EU and member state initiatives to support ecoindustries in understanding and accessing export markets should be pursued and expanded. Efforts in this field could include in particular the following aspects: Expanding existing export promotion programmes at EU and member state level, including supporting specialised trade fairs, exchanges of expertise and technology transfer programmes, assistance and advice on overseas market opportunities and tendering procedures, financing feasibility studies and market surveys, sponsoring demonstration projects of innovative technologies, etc. 58

61 Access to growing export markets for eco-industries located in the EU-15 area will require improved networking between providers of environmental goods and services to build solid partnerships for large contracts, including with local suppliers. Similarly, in order to adapt to the development of public-private partnerships in environmental utilities and services, eco-industries will need to establish stronger links with financial institutions and investors for offering integrated financing solutions for large markets. EU and member state development aid can significantly support the growth of demand for environmental goods and services in developing countries. A large proportion of exports of environmental goods and services have benefited from tied aid or non tied aid programmes. The EU financial instruments dedicated to external aid (such as MEDA, ALA, ACP-EU water facility, or European Investment Bank programmes such as FEMIP, for example) could further support the development of the export potential of ecoindustries, in particular by increasing the focus on interventions in key issues for developing countries such as environment protection, waste and water management, renewable energy and energy efficiency. These financial instruments could support the development of new market opportunities in countries outside the EU for eco-industries as well as transfers of technology. Access to finance: supporting the development of financial solutions adapted to ecoindustry needs For several eco-industry sectors, the cost and availability of finance is a crucial barrier for their business development. The specific needs of some projects, for example in the renewable energy sector, sometimes include long pay-back periods and high risk or uncertainties on the market potential which make it difficult to obtain adequate financing at limited costs. Possible initiatives in this field could include for example: Supporting the development of adapted financial mechanisms for some sectors or projects, such as grant facilities (for demonstration projects, for example, or for certain items such as feasibility studies or environmental audits, etc.) and soft loan mechanisms, which can play a significant role in improving the profitability of the project and to make it more attractive for other investors. Mechanisms for guaranteeing credit are also a key issue. Due to the perceived risks to financial institutions, the guarantees required are sometimes an obstacle to accessing project finance. Training of banks and financial intermediaries on eco-industry projects should be expanded, in order to increase knowledge on the specificities of these projects in terms of cost structure, usual return on investment rates, market growth potential, etc. Developing awareness of financial institutions is a key aspect in helping the emergence of adapted financial mechanisms for eco-industries. This may also further develop the trend towards increasing integration of environmental requirements in lending policies and procedures. Developing mechanisms to finance innovative environmental products, processes and services could lead to the establishment of investment funds dedicated to providing equity for the development of new activities, or possibly of structures aimed at incubating and supporting eco-industry start-ups in the initial phases of their development. Innovation: improving the development and access to markets of innovative environmental technologies Innovation capacity is crucial for the competitiveness of eco-industries, as it enables them to continuously adapt to new market demands. The development of new eco-industry technologies has historically suffered from the fact that investing in such research activities presents a strong financial risk due to uncertainties in the potential markets for these technologies. Financial support 59

62 for research and development efforts in eco-industries is critical to ensure continuous innovation and to maintain the sectors competitiveness. The influence of the European Commission on R&D aspects is already very high through the financial support provided to research programs and projects and through the Commission s ability to highlight potential new market opportunities. Most of the difficulty today lies in enabling new technologies to turn into commercial applications and to access markets. Efforts should therefore focus on the following aspects: Improving the commercial application of environmental technologies, most of which fail to reach the market, either because the technology is not sufficiently mature or because it does not meet the market s current needs. Focusing support on technologies that present the highest potential for market application could be an efficient way to promote the most relevant research programs such as, the elimination of incinerator flue gas residues, CO2 capture and solid waste sorting technologies. This requires a better identification of new market demands. From this perspective, increasing the relationships and collaboration between developers, manufacturers and end-users (for example through increased networking, building on the ETAP initiative, supporting the setting up of specialised activity zones, etc.) would stimulate the development of new technologies and processes, and would also ensure that these new solutions meet the needs of industry and public authorities. Providing companies, particularly SMEs, with more and better information on new commercial applications, on procedures to obtain patents, will contribute to helping them access the latest technologies. Providing more information on new technologies available should target especially manufacturers and end-users of environmental goods and services, for example via initiatives to disseminate information on recent innovation and to demonstrate the benefits of these new technologies. This could, for example, concern new applications for recycled materials, new technologies in the field of eco-construction (house automation, internal air purification, local water reuse, etc). Promoting the use of new technologies and their access to markets will require not only increased awareness of suppliers and users but also probably market incentives to stimulate demand. These incentives include, for example, tax credits for cleaner products or equipment, access to finance with improved conditions, as well as fixed feed-in tariff systems or quota systems, which have proven effective in developing renewable energy markets. Investing in research and development is difficult for a number of companies active in environmental markets because they lack critical size. The growing number of mergers is partly due to this drive to have a sufficient volume of activity in order to support large R&D investments. Encouraging the pooling of research efforts could offer increased leverage in developing the innovation capacity of eco-industries. 60

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64 PART II 62

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66 3. Review of statistical data on eco-industries in 2004 a demand-side perspective 3.1 Objectives and definitions This chapter aims at drawing a picture of the size and dynamics of the eco-industries within EU-25 based on the assessment of the demand for the goods and services produced by these industries. Economic figures on the turnover, employment and trade balance of the eco-industries presented here were processed and/ or estimated using available data from Eurostat databases. The measurement and analysis of variations observed since the last study carried out on 1999 data (Analysis of the EU Eco-Industries, their Employment and Export Potential, a study by ECOTEC for DG Environment, 2002) was set up as one of the objectives of this work. For this reason, the methodological choices made are aimed at ensuring consistency with previous data sets. The definition of eco-industries used here is the OECD/ Eurostat definition. This definition and those of the different eco-industry sectors are provided in chapter 1. Focusing on the demand for environmental goods and services, the turnover of the ecoindustries is hereafter approximated by the sum of the environmental expenditures (see definition below) by consumers (firms, households and public authorities. As a consequence, all estimates of the turnover produced on the basis of expenditure data are referred to as turnover in the following sections. The potential impact of this approach on results is presented in Table 6 (below). The employment figures correspond to the number of jobs (direct and indirect) created by or linked to eco-industries activities. The trade figures correspond to the imports and the exports of a restricted number of products (associated with specific trade codes, Table 8) known as environmental goods. 3.2 Methodological approach for data collection and processing Type and source of data Turnover Environmental protection expenditures (EPE) as defined and reported in Eurostat s New Cronos Database were used as the primary source for approximating turnover from a demand-side perspective. Environmental protection expenditures are defined as the money spent on all purposeful activities directly aimed at the prevention, reduction and elimination of pollution or nuisances resulting from the production processes or consumption of goods and services. Excluded are activities that, while beneficial to the environment, primarily satisfy technical needs or health and safety requirements. Further detailed information about that definition can be found in The Industry Data Collection Handbook (Environmental expenditure statistics, ISSN ). An example on how to calculate the environmental expenditures is given in Appendix 4. Environmental protection expenditures are reported by each member state and cover mainly the sectors related to pollution management activities: air pollution control, waste water 64

67 treatment, solid waste management, remediation and clean up of soil and groundwater, noise and vibration control, environmental research & development, public environmental administration, private environmental management and nature protection. Environmental protection expenditures for the public environmental administration and the private environmental management sectors are included in the broader category Other secondary sectors in the New Cronos Database. This category covers multiple other activities such as consultancy, education, training, information and others. It is not possible to make a complete breakdown between all of the sub-sectors due to the structure of available statistical data. The figures presented for public environmental administration and the private environmental management sectors also include other sub-sectors, so turnover and employment figures for these two categories might be overestimated. Given their definition, environmental protection expenditures are not relevant and do not exist for resource management activities except for the nature protection sector. Other source data were therefore used to approximate the turnover of the corresponding sectors. For the water supply and recycled materials sectors, updated expenditures were derived from 1999 expenditures (from the 2002 ECOTEC study for DG Environment) by applying the growth rates of the production value for the corresponding Eurostat NACE codes of industry: NACE 41 for water supply and NACE 37 for recycled materials. Production value data were extracted from Eurostat s New Cronos Database/ Economy. Production value measures the amount actually produced [ ], based on sales, including changes in stocks and the resale of goods and services. The production value is defined as turnover, plus or minus the changes in stocks of finished products, work in progress and goods and services purchased for resale, minus the purchase of goods and services for resale, plus capitalised production, plus other operating income. (European Business, Facts and Figures, ISSN ). No NACE code corresponds to the renewable energy sector so far. Updated expenditures were derived from 1999 figures (ECOTEC study) using a multiplication factor (2.5) which corresponds to the sector s growth in Europe since (this is equivalent to an average growth of 20% per year). As no 1999 homogenous expenditures exist for the new member states, the share of these countries in the global turnover of resource management activities is estimated using their relative weight in EU-25 total production value for Unless explicitly mentioned (Figure 22), the figures in this report have never been corrected by purchasing power parities 27. The following table summarizes the information used to assess the turnover of the ecoindustries: 26 Renewable Energy World, Volume 8, Number 6, November-December 2005: Global revolution: A status report on renewable energy worldwide 27 Purchasing power parities (PPPs) are the rates of currency conversion that eliminate the differences in price levels between countries. Per capita volume indices based on PPP converted data reflect only differences in the volume of goods and services produced. Comparative price levels are defined as the ratios of PPPs to exchange rates. They provide measures of the differences in price levels between countries. The PPPs are given in national currency units per US dollar. The price levels and volume indices derived using these PPPs have been rebased on the OECD average. 65

68 Table 6: Main information sources used to assess the turnover of the eco-industries Sectors Available input data Final data All Pollution Management Nature Protection Water Supply Recycled Materials (Resource Management) Renewable Energy Environmental protection expenditures from Eurostat s New Cronos Database Production value data from Eurostat s New Cronos Database/Economy for NACE codes 41 (Water Supply) and 37 (Recycled Materials). No available data in Eurostat s New Cronos Database Same as available data Updated expenditures derived from 1999 expenditures by applying the production value growth rate for the corresponding NACE codes Updated expenditures derived from 1999 expenditures by applying the sector s average growth rate Employment The employment figures presented in this chapter are calculated figures (and not reported figures). The figures are calculated using the calculation methodology used in the previous Commission study (Analysis of the EU Eco-Industries, their Employment and Export Potential, a study by ECOTEC for DG Environment, 2002) in order to ensure the best possible comparability. This calculation model requires multiple input data including: Environmental expenditure for each sector with breakdown between operating expenditure (OPEX) and capital expenditure (CAPEX), Wage costs, Gross domestic product, Number of inhabitants, Consumer price index, Exchange rates/ All source data were taken from Eurostat databases. Environmental expenditures data in particular are the ones described in the Turnover section above (Extracted from the New Cronos database). The uncertainties and limits linked to the data quality therefore also affect the employment figures. Input data were revised where necessary in order to obtain best possible estimates. The main changes concern the update of wage rates, taking inflation and wage growth into account. On the other hand, labour intensity ratios (expenditures on wage cost per total expenditures of the sector) of the previous study (Analysis of the EU Eco-Industries, their Employment and Export Potential, a study by ECOTEC for DG Environment) have been maintained, although rising energy prices have probably impacted the share of labour costs in total expenditure for some sectors and that labour intensity ratios may differ in the new member states (as these 66

69 countries account for 16% of the EU-25 population, it is believed that the results will not be significantly affected) Trade The data processed for the analysis of the eco-industries trade movements are extracted from the Eurostat database COMEXT; database for environmental technology trade using the trade codes associated with the eco-industries by the OECD 29. This dataset seemed to be quite difficult to use in the framework of the present study however (see section below on completeness) Completeness of the data (years/ sectors) All of the data processed were extracted from Eurostat s databases only and no extra data were added from national statistics offices. Instead, complementary sources of information at hand were used to test the trends observed. The aim was to ensure the consistency and comparability of the data for all countries Turnover The most recently reported available figures (2000, 2001, 2002 or 2003) were used as the primary source of information for each of the twenty-five countries. For each sector, when no 2000, 2001, 2002 or 2003 data were available in the New Cronos database for a specific country, 1999 figures were updated using the average EU-15 sectorspecific growth factor for the period estimated values are derived from the last available figures multiplied by the economic growth factor (rate of increase of GDP, extracted from the New Cronos Database). Calculating 2004 data on the basis of global GDP rates can however distort results in some cases if strong discrepancies exist between the growth rates of the economy and the growth rate of ecoindustries. Blue cells in Table 7 indicate items for which data were not identified nor could be calculated. Missing data include data for Malta, which is excluded from the results presented in this report; specific items related to turnover pollution management activities and turnover of resource management activities. 28 The calculation of the employment is done by using the model of the previous study (Analysis of the EU Eco-Industries, their Employment and Export Potential, by ECOTEC for DG Environment, 2002). This model as such has not been recalibrated. 29 These trade codes are the same as the ones selected for the previous study (Analysis of the EU Eco-Industries, their Employment and Export Potential, by ECOTEC for DG Environment, 2002). This makes it easier to make dynamic views for the export figures. 67

70 Table 7: Data availability for statistical works, 2004 Air Pollution Control Wastewater Treatment Solid Waste Management Remediation & Clean Up Noise & Vibration General Administration Environmental Management (Private) Water Supply Recycled materials Renewable Energy Nature Protection Austria V V V V V V V V V V Belgium V V V V V V V V V V Cyprus V V V V V V V Czech Republic V V V V V V V V V V Denmark V V V V V V V V V V Estonia V V V V V V V V V V Finland V V V V V V V V V V V France V V V V V V V V V V V Germany V V V V V V V V V V V Greece V V V V V V V V V Hungary V V V V V V V V V V Ireland V V V V V V V V Italy V V V V V V V V V V Latvia V V V V V V V V V Lithuania V V V V V V V V V V Luxembourg V V V V V V V V V Malta Netherlands V V V V V V V V V V Poland V V V V V V V V V V Portugal V V V V V V V V V V Slovakia V V V V V V V V V V Slovenia V V V V V V V V V V Spain V V V V V V V V V V V Sweden V V V V V V V V V V UK V V V V V V V V V V (V: available data; blue: missing data) Employment Most of the data input for the model are directly related to the analysis of turnover. Thus the limitations of the turnover data also apply to employment. Updated employment figures are calculated using the same calculation methodology as in the previous study (Analysis of the EU Eco-Industries, their Employment and Export Potential, by ECOTEC for DG Environment, 2002). This model requires data on environmental expenditure for each sector with a breakdown between operating expenditure (OPEX) and capital expenditure (CAPEX). When separate data are not available, the average EU-25 breakdown between CAPEX and OPEX for the sector has been used for these countries Trade The activities covered by available information represent only a fraction of the environmental goods and services covered by the present study. Correction was not possible as no other aggregated data for the sectors covered by the present study are available at this date. The World Trade Organisation (WTO) is currently in the process of establishing a common list of environmental technologies. This common list will be much larger than the present list used in this 68

71 study, although it will also include products with multiple purposes whereas the current list is restricted to goods used only for environmental purposes. These aggregates are based on the partial import and export data for the following sectors: Air pollution control (APC), Water pollution control (WPC), Waste disposal, Monitoring equipment, Other Environmental Equipment (OEE) Solar thermal, Photovoltaic, Hydropower. 69

72 Table 8: Trade Codes used for the Analysis of Environmental Technologies (COMEXT Database) Trade Code Product Category Sub-sector Machinery and apparatus for filtering and purifying air Machinery and apparatus for filtering and purifying gases (excluding air) by a liquid process Machinery and apparatus for filtering and purifying gases (excluding air) by an electrostatic process Machinery and apparatus for filtering and purifying gases (excluding air) by a catalytic process Machinery and apparatus for filtering and purifying gases (excluding air) (by other processes) (excluding to 75) Air Pollution Control Machinery and apparatus for filtering and purifying other liquids Activated Carbon Centrifugal Pumps submersible, single stage Furnaces and ovens for the incineration of rubbish (non electric) Parts of industrial laboratory furnaces and ovens Instrumentation for measuring and analysing liquids Gas or smoke analysis apparatus (electronic) Water Pollution Control Waste Disposal Monitoring equipment Gas or smoke analysis apparatus (non-electronic) Parts of machinery for filtering and purifying gases and liquids Other industrial and laboratory furnaces (non-electric) Other Environmental Equipment Instantaneous gas water heaters (excluding boilers or water heaters for central heating) Instantaneous or storage water heaters, non-electric (excluding instantaneous gas water heaters and boilers or water heaters for central heating) Photosensitive semiconductor devices, including photovoltaic cells whether or no assembled in modules or made up into panels; light emitting diodes (excluding photovoltaic generators) Solar thermal Photovoltaic 70

73 Trade Code Product Category Sub-sector Photosensitive semiconductor devices, including photovoltaic cells Solar cells whether or not assembled in modules or made up into panels (excluding photovoltaic generators) Parts of hydraulic turbines, water wheels including regulators (excluding those of cast iron or cast steel) Hydraulic turbines, water wheels and regulators therefore (excluding hydraulic power engines and motors of heading n 8412) Hydraulic turbines and wheels of a power 1000 kw (excluding hydraulic power engines and motors of heading n 8412) Hydraulic turbines and wheels of a power > 1000 kw and kw (excluding hydraulic power engines and motors of heading n 8412) Hydraulic turbines and wheels of a power > kw (excluding hydraulic power engines and motors of heading n 8412) Hydropower 3.3 Consequences of data quality and methodological choices on data significance Main potential impacts on results The impact on results is further discussed in each dedicated section of this report when relevant. The main potential impacts and limits caused by the quality of available data and consequent methodological choices are summarized in the table here below. Table 9: Main expected impacts and limitations caused by the quality of available data and consequent methodological choices Nature of the potential impacts Potential effect on results Impact of limits from data sources Use of environmental expenditure as primary source to approximate turnover Exclusion of expenditures for mainstream technologies and exports outside EU-25. Capture of the additional cost of environmental protection technologies only. Underestimation of the total turnover Inclusion of all imports (even the ones from outside EU- 25). Over estimation of the total turnover 71

74 Nature of the potential impacts Potential effect on results Inclusion of all other secondary sectors expenditures to cover Public Environmental Administration and Private Environmental Management Inclusion of environmental expenditures belonging to other sectors than those of the Administration and the Private Management. Over estimation of the total turnover for the sectors Environmental Management and Environmental administration but no significant effect on total Calculation of trade figures for a restricted number of trade codes, associated to environmental goods Only a restricted number of products are taken into account Imports and exports of services are excluded from the trade analysis Underestimation of the trade figures presented for the different countries and for the different sectors Impact of data incompleteness Missing data (see table 7) - Malta (all sectors), Cyprus (4 sectors), Luxembourg, Ireland, Latvia (2 sectors), Denmark (1 sector) Underestimation of the total turnover - Renewable energy (only Denmark, Spain, Finland, France, Germany provided data but they include the largest producers) Breakdown of expenditures into OPEX and CAPEX - The ratios presented between CAPEX and OPEX are partially based on averages for the sectors - The breakdown between CAPEX and OPEX has an influence on the calculation of the employment Over or underestimation of the total employment depending the over or under estimation of OPEX (the model makes OPEX more jobs-intensive than CAPEX by definition) Impact of extrapolation methods Estimation of pollution management sectors 2004 turnover figures - Application of the EU15 sectoral average growth rate to 1999 figures when none of 2000 to 2003 figures were available - Application of the GDP growth rate on the last available data to derive 2004 figure Potential under-estimation of total turnover for dynamic sectors, over-estimation for slow growth sectors Extrapolation of expenditures for the Water Supply and Recycled Materials sectors - Application of the growth rate of the production value to 1999 environmental expenditures - Estimation of NMS 1999 expenditures using their respective weight in EU-25 total production value for 2004 Over or underestimation of the total turnover depending on sector and link between environmental expenditures and production value. Extrapolation of expenditures for the Renewable Energy sector - Application of the growth rate of the sector (source: Renewable Energy World, Volume 8, Number 6, November-December 2005) - Extrapolation of employment figures for resource - Neutralisation of any productivity progress by using the Over estimation of the total 72

75 Nature of the potential impacts Potential effect on results management sectors from 1999 to 2004 using growth rate of production value production growth rate number of jobs Distribution of the expenditures between wages, energy and investments assumed equal for all the countries of the EU-25 Neutralisation of any country-specific distribution between wages, energy and investments for a specific sector Over or underestimation of the number of jobs for country/sector combination Use of 1999 labour intensity ratios to calculate the 2004 employment Neutralisation of changes in labour intensity ratios between 1999 and 2004 Over or underestimation of the number of jobs for country/sector combination Comparability The measurement and the analysis of variations observed since the last study (Analysis of the EU Eco-Industries, their Employment and Export Potential, by ECOTEC for DG Environment, 2002) were defined as one of the main objectives of this work. The methodology used in the 2002 study "Analysis of EU Eco-Industries, their Employment and Export Potential" for DG Environment of the European Commission 30 has been followed as much as possible in order to produce comparable data. In order to ensure comparability with 1999 figures, a minimum of new modelling hypotheses were made. One of the differences with the previous Commission works is that all data used in the demand-side analysis are extracted from the Eurostat New Cronos Database, which allows a better comparability of results in the future. This is a difference with the previous study by ECOTEC for DG Environment, where additional national data were used to correct expenditures values for Austria, France, Ireland, Sweden and the UK in particular. In addition, data processing approaches for environmental management and public administration present some differences, as presented in section Details on the methodology are available in: Analysis of the EU Eco-industries, their employment and export potential. ECOTEC,

76 3.4 Main results Presentation of results Pollution management / resource management The breakdown made between pollution management activities and resource management activities follows the OECD guidelines. 31 The main difference between the two types of activities is that pollution management typically relies on end of pipe-technology while resource management is associated with preventive approaches of integrating environmental issues. The Cleaner Technologies and Products are included in the pollution management aggregate however. Another way to present this distinction is to consider that pollution management relates to material streams from technosphere (processes managed by humans) to nature, while resource management relates to material streams from nature to technosphere (extraction) and from technosphere to technosphere (recycling). The ratio between pollution management efforts and resource management efforts gives a broad indication on whether the development of ecoindustries follows a curative or preventive trend. As a reminder, in the following, the pollution management sectors are: air pollution control; wastewater management; solid waste management; remediation and clean up; noise and vibration; public general administration; private environmental management. The resource management sectors are: water supply; recycled materials; renewable energy production; nature protection Breakdown by country and sector The figures are presented per country and per sector. For most of the figures the distinction is made between the EU-15 area and the 10 new member states (NMS) Round-up effect The aggregation of data for many countries (25) and multiple sectors (14) leads to rounding effects when presenting total amounts under different types of breakdown. This effect explains the differences between some totals presented in different charts and/ or tables presented hereafter. 31 OECD Environmental Goods and Services Manual,

77 3.4.2 Size of the eco-industries (turnover) Overall turnover and share of resource management activities and pollution management activities (i) Results In 2004 the total turnover 32 of the eco-industries in the EU-25 area reaches 226,697 million (Figure 9); this represents 2.2% of the EU-25 GDP ( 10,449,769 million) 33. Almost 64% of the total turnover is related to pollution management while 36% is generated from resource management activities Pollution Mgmt Resource Mgmt Figure 9: Distribution of total turnover by pollution management activities and resource management activities, millions, EU-25, The division of these two major segments into sectors shows the relative importance of the various activities and the dominant weight of waste management, waste water treatment, water supply and recycled materials (Figure 10). 32 reminder : estimated as equal to the expenditures, thus neglecting the trade balance 33 Source : New Cronos Database 75

78 Nature Protection Renewable Energy Recycled Materials Water supply MEURO Environmental Management (private) General administration (public) Environmental Research and Development Noise & vibration Remediation & Clean up Solid Waste Managmenent Wastewater Management 0 Pollution Management Resource Management Air pollution control Figure 10: Breakdown of total turnover by sector for the pollution management and the resource management activities, EU-25, 2004 The breakdown of turnover is further detailed for the EU-15, NMS, France, Germany and the UK (the three largest EU-25 economies) in Figure 11 and in Figure 12. More explanation of these figures can be found in the following sections. 76

79 Nature Protection MEURO Germany France UK EU-(15-3) 10 NMS Renewable Energy Environmental Management (private) General administration (public) Environmental Research and Development Noise & vibration Remediation & Clean up Air pollution control Recycled Materials Solid Waste Managmenent Water supply Wastewater Management Figure 11: Breakdown of the total turnover between sectors and countries, absolute values 2004 Germany and France appear to have the largest contribution: Their contribution to the water sector (wastewater management and water supply) amounts to 24% of total eco-industry turnover. Their contribution to the solid waste sector (management and recycling) amounts to 18% of total eco-industry turnover. 77

80 100% Nature Protection MEURO 90% 80% 70% 60% 50% 40% 30% 20% 10% Renewable Energy Environmental Management (private) General administration (public) Environmental Research and Development Noise & vibration Remediation & Clean up Air pollution control Recycled Materials Solid Waste Managmenent Water supply 0% Germany France UK EU-(15-3) 10 NMS Wastewater Management Figure 12: Breakdown of the total turnover between sectors and countries, relative values, 2004 Water (waste water management and water supply) and solid waste (management and recycling) activities account together for between 60-80% of the turnover among the regions. (ii) Constraints related to available data and potential impact on the results The expenditures for the water supply sector and the recycled materials sector were derived from 1999 expenditures by applying the country-specific and sector-specific growth rate of the production value (see definition given in dedicated section of this chapter). Random comparison tests between results obtained with this approach and national data for the water sector (water supply in France and UK) resulted in gaps less than 10%. Due to the lack of data on expenditure for the renewable energy sector, the total turnover for resource management activities presented in Figures above is probably underestimated. Services such as eco-design and consultancy are reported by countries either as private environmental management and/ public environmental administration expenditures or as sectorspecific expenditures when directly related to a given sector. As there is no systematic evidence of the firms or countries reporting choices, it is not possible to re-aggregate the total turnover for eco-design or environmental consultancy. This data collection process also leads to overestimating the turnover for private environmental management and public environmental administration, as it also includes part of the turnover generated by consultancy services. 78

81 3.422 Analysis of main evolutions between 1999 and 2004 (i) Results The total turnover of eco-industries in 1999 was estimated at 183,000 million 34 (for the EU-15 area). In 2004, the total turnover is estimated at nearly 227,000 million for the EU-25 area, of which 214,000 million corresponds to the EU-15 area. Compared to 1999, this result represents a 17% increase in the eco-industries turnover. In most countries, the total turnover of eco-industries has been rising (Figures 13 and 14). Some important comments on this comparison should be taken into account: The evolution (Figure 14) varies substantially from country to country in the EU- 15 area (no comparable 1999 data is available for NMS). Between 1999 and 2004, the turnover (in absolute value) of eco-industries has increased in all countries except for the UK. Once the inflation effect is neutralized results show that for some countries, the turnover of eco-industries has decreased (15). The largest players in eco-industries (Germany and France) represent almost 50% of the total turnover. During the period, turnover from eco-industries increased in these two countries. 34 The 1999 figures in these paragraphs are in current prices. They are the figures as presented in the study of ECOTEC, unless explicitly mentioned (Analysis of the EU Eco-Industries, their Employment and Export Potential, by ECOTEC for DG Environment, 2002) 79

82 Million Euro Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden UK Czech Republic Slovakia Slovenia Poland Cyprus Hungary Latvia Lithuania Estonia Figure 13: Comparison between updated 2004 expenditure data and 1999 expenditure data N.B.: Data available for the 10 NMS from the previous Analysis of the size and employment of the eco-industries of the candidate countries report are not used because here because they are incomplete or not directly comparable (differences in sources, perimeter, extrapolation method) 80

83 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% 81 Austria Belgium Denmark Finland France Germany Greece Ireland Italy Percentage change Luxembourg Netherlands Portugal Spain Sweden UK EU-15 Figure 14: Variation of total turnover between 1999 and 2004 by country

84 60% 54% 50% 40% 30% 27% 26% Percent Growth 20% 10% 20% 14% 10% 9% 8% 6% 4% 3% 3% 2% 0% -10% Finland Ireland Netherlands Denmark Portugal Belgium France Germany Italy Austria Luxembourg Spain Sweden Greece -8% UK -20% -18% -30% Figure 15: Variation of total turnover between 1999 and 2004 by country (in constant ) 82

85 (ii) Constraints related to available data and potential impacts on results When no new input data were available (in approximately 30% of cases), the overall growth factor of the eco-industries in the EU-15 was used to update the 1999 figures estimates were then obtained by applying the GDP growth to the most recent figure available for each country. For many countries, no recent data are available for the renewable energy sector. The potential net impacts on the results are difficult to calculate. The 1999 figures 35 sometimes were corrected according to national sources. This is not done in the present study, which gives a priority to comparability among countries on the basis of Eurostat reporting methods and definitions. In the case of UK, the decrease in turnover from is the result of two combined effects: An observed growth effect: Smaller and even sometimes negative growth rates for some of the largest eco-industry sectors, the waste water treatment sector in particular. A data comparability effect data presented in the previous study 36 were modified with national data, while 2004 data presented in this chapter are extracted from available Eurostat data only. (iii) Historical view: focus on the three largest pollution management sectors in the three largest economies (France, Germany, United Kingdom) This section presents raw data extracted from the Eurostat New Cronos Database, without any corrections. This change underlines reporting effects (change in reporting methods or perimeter) as is the case for the UK between 1999 and As a reminder, in other sections, 1998 and 1999 data are taken from the previous study 37 to ensure comparability and 2004 data were estimated on the basis of the most recent 2000 to 2003 available data). As consequence, Figures 16, 17 and 18 should not be compared to other figures, Figures 13, 14 and 15 in particular. Waste water treatment and waste management are by far the two largest sectors in terms of turnover for almost all countries. Because of their relative weight in total turnover, these two sectors determine the general trend. 35 Analysis of the EU Eco-Industries, their Employment and Export Potential, by ECOTEC for DG Environment, id 37 id 83

86 is reference year Air Waste Water Waste Management Figure 16: Evolution of the turnover of the largest eco-industries in France (1998 is the reference year) is reference year Air Waste Water Waste Management Figure 17: Evolution of the turnover of the largest eco-industries in Germany, 1998 is the reference year 84

87 is reference year Air Waste Water Waste Management Figure 18: Evolution of the turnover of the largest eco-industries in the UK, 2000 is the reference year As mentioned before, the gap observed for the UK between 1998 and 1999 on the one hand and 2000 to 2002 on the other is partly due to a change in reporting method and a consequent perimeter effect: The 1998 and 1999 data cover public activities only whereas the 2000 to 2002 data include corresponding private activities as well Breakdown by country (i) Results The turnover can be further divided within each country among pollution management activities and resource management activities. Figure 19 shows the relative importance of the turnover for pollution management and for resource management. For resource management, this percentage varies considerably, between 10% (Austria) and 77% (the Czech Republic). 85

88 Figure 19: Breakdown of turnover by resource management and pollution management by country, Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden UK Czech Republic Slovakia Slovenia Poland Cyprus Hungary Latvia MEURO Lithuania Estonia Resource Managment Pollution Managment

89 France and Germany together account for about one half (49%) of the pollution management and resource management turnover in the EU in 2004 (Table 10). The three following countries spend 21.2 billion (UK), 19.2 billion (Italy) and 14 billion (Netherlands) and represent together another 24% of the EU-25 total expenditures. The 10 NMS represent 6% of the total EU eco-industry turnover (although their share of the EU population is 16.3%). About half is generated by Poland alone (the Polish population also accounts for roughly one half of the population from the NMS). A more detailed view focusing on the ten new member states is available in dedicated section. Country Pollution Managment % Resource Managment % Total turnover % % Resource Germany % % % 33% France % % % 38% UK % % % 43% Italy % % % 54% Netherlands % % % 22% Spain % % % 33% Austria % 999 1% % 10% Denmark % % % 26% Poland % % % 32% Belgium % % % 52% Sweden % 878 1% % 22% Finland % % % 60% Greece % 788 1% % 38% Portugal % % % 55% Hungary % 700 1% % 32% Czech Republic 399 0,3% % % 77% Ireland 818 1% 393 0,5% % 32% Slovenia 507 0,4% 365 0,4% 872 0,4% 42% Slovakia 409 0,3% 331 0,4% 740 0,3% 45% Lithuania 187 0,1% 184 0,2% 372 0,2% 50% Luxembourg 198 0,1% 121 0,1% 319 0,1% 38% Estonia 159 0,1% 97 0,1% 256 0,1% 38% Cyprus 39 0,0% 100 0,1% 139 0,1% 72% Latvia 92 0,1% 67 0,1% 159 0,1% 42% Total % % % 36% The 3 largest % % % 36% The 4 medium % % % 33% The small % % % 33% EU % % % 36% 10 new MS % % % 41% Table 10: Turnover in millions, by pollution management and resource management and by country, The ratio of the turnover of eco-industries expressed as percentage of GDP (Figure 20) shows that the EU-25 average is 2.2%. However, there are significant differences among member states: 87

90 the turnover varies from 0.8% of GDP (Ireland) to 6 times more in Denmark (4.5%). Austria, Poland, Slovenia and Germany are also above or equal to 3%. Despite the higher percentage of GDP related to eco-industries, certain countries (Denmark, Austria, Poland) do not appear among the top players in absolute size simply because their GDP is much smaller than countries such as France and Germany. The weight of eco-industries in GDP is above the European average for many of the NMS (Slovakia, Estonia, Hungary, Slovenia, Poland). The ratio of turnover per capita is usually higher in the EU15 area than in the NMS (Figure 21). The differences are very strong among the member states, varying from 69 /capita (Latvia) up to 1635 /capita (Denmark), i.e. 24 times more. Most of the new member states are below 200 /capita (except Slovenia with 437 /capita and Hungary with 218 /capita). This fact complements the analysis of the GDP ratios: Lithuania, for example, has high turnover relative to GDP as well as one of the lowest turnovers per capita, as its GDP per capita is much smaller than other countries. 88

91 5% 4% 3% 2% 1% 0% 89 Denmark Austria Poland Slovenia Germany Netherlands Estonia France Hungary Finland Slovakia Lithuania Belgium Czech Republic Portugal Latvia Italy Sweden % of GDP Luxembourg UK Greece Cyprus Spain Ireland Resource Managment Pollution Managment Figure 20: Turnover of the eco-industries expressed as a percentage of GDP in the EU-25, 2004

92 Denmark Austria Netherlands Germany France Luxembourg Finland Belgium Sweden Slovenia UK Italy Ireland Portugal EURO/inhabitant Hungary Spain Cyprus Greece Estonia Poland Czech Republic Slovakia Lithuania Latvia Resource Managment Pollution Managment Figure 21: Turnover per Capita in the EU-25, 2004

93 Figure 22 is the correction of Figure 21 with purchasing power parities (PPP). This correction gives a view of turnover after eliminating the differences in price levels between the countries. The PPP figures come from the OECD 38. The general order of the countries does not differ between Figure 21 and Figure 22. Spain and Ireland lose a few places and end up at the lower side of the figure. 38 Main Economic indicators, July 2006; Purchasing Power Parities and Comparative Price Levels (Purchasing Power Parities for GDP) 91

94 Denmark Austria Slovenia Germany France Netherlands Finland Belgium Sweden Poland Hungary Cyprus MEURO/inhabitant (PPP corrected) Estonia Italy UK Portugal Luxembourg Slovakia Czech Republic Greece Spain Ireland Lithuania Latvia Resource Management Pollution Management Figure 22: Turnover per Capita in the EU-25, 2004 (in PPP prices)

95 (ii) Constraints related to available data and potential impacts on results As presented in Table 7, some data are missing for certain sectors and/or countries. The unavailability of data for such sectors and countries leads to an underestimate of the actual turnover. Data presented in Table 10 are also dependent on the type of information that is available in the New Cronos Database. Some differences may exist in how countries report their figures. To elaborate, the main remarks made during a meeting 39 of the working group Environment and Sustainable Development and the Working Party Economic Accounts for the Environment are presented below: Public sector o o o o Denmark includes the share of the public owned enterprises ( in waste and wastewater treatment sectors) when their accounting is part of the public budgets but exclude the share that have their accounting done separate of the public budgets. It also includes the environmental subsidies and environmental aid programmes provided to other countries. Finland reports data covering local authorities only. France reports waste management of street cleaning and the part of waste management financed by the local authorities budget. Investments for the air pollution control sector correspond to the network of organisations carrying out surveys on air quality. United Kingdom reports (since 2002) public expenditure extracted from statistical analysis from HMT. This is a major methodological change in the series which explains why direct comparisons with earlier estimates may not be possible. Public and private specialised producers o o o Denmark excludes the share of the public owned enterprises (in waste and wastewater treatment sectors) when their accounting is part of the public budgets but include the share that have their accounting done separate of the public budgets. France does not report breakdowns of public and private specialised producers for confidentiality reasons. Norway includes both end-of-pipe investments and integrated technology investments for code NACE 37 (Recycling) o Germany: expenditures from the energy sector were reported only for Breakdown by sectors: pollution management sectors (i) Results The various eco-industry sectors make very different contributions to the total economic weight of these activities. 39 Evaluation of the Joint questionnaire 2004 data collection process and data availability, Eurostat unit E5, Environment. 93

96 Looking at the respective weight of the sectors, the pollution management activities appear to include four major categories: solid waste management (36% of total pollution management turnover), waste water management (36%), air pollution control (11%); others, including: remediation and clean-up, noise and vibration control, public environmental administration 40 and private environmental management Air Pollution Control Waste Water Management Solid Waste Management Remediation & Clean Up Noise & Vibration Environmental Research and Development General Administration (public) Environmental Management (private) Figure 23: Breakdown in millions of pollution management turnover by sector in EU-25, 2004 (TOTAL: 144, 919 million 42 ) The turnover and relative importance of the three largest sectors (solid waste management, waste water treatment, air pollution control) vary considerably among the member states. The turnover for each sector is given as a percentage of the total turnover of the three sectors in Figure 24. Waste water treatment (WWT) appears to be the major issue in Finland, France, Greece, Sweden Slovenia, Poland, Hungary, Latvia and Lithuania whereas solid waste management is more important in Austria, Poland, Germany, Ireland, The Netherlands, Portugal, Spain, UK and Estonia. The degree of development of the activities (selective collection of solid waste, investment in WWT facilities, flue gas cleaning) varies between the countries, as national priorities determine investment sequences. In the long run, as EU Directives will have to be efficiently applied in all member states, one can expect to see more homogeneous figures. Figure 25 shows that Denmark spends more than 1000 /inhab.year 43, Austria more than 800 /inhab.year, Netherlands, France, Germany and Luxemburg about 400 /inhab.year. Sweden, 40 The figures presented under this label are those encoded under the chapter other (public) 41 The figures presented under this label are those encoded under the chapter other (private) 42 The gap with total presented in Fig.1 ( 144, 915 million) is caused by a difference in round-up when summing per sector instead of summing per country 43 The estimated turnover for the private sector in Denmark is estimated by multiplying the 1999 figures with the average growth of the Gross Domestic Product in Denmark. This estimation could add some uncertainties on this figure. Nevertheless in the surveys of 1994 and 1999 Denmark was also the country with the highest expenditures per capita in the Eco-Industries. 94

97 Slovenia, Finland and Belgium spend only about one-fifth as much as of Denmark (200 /inhab.year). The others are clearly less than 200 /inhab.year, down to about 25 /inhab.year. 95

98 Solid Waste Management 100% Wastewater Treatment Air Pollution Control 80% 60% 40% 20% 0% 96 Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden UK Czech Republic Slovakia Slovenia Poland Cyprus Hungary Latvia Lithuania Estonia Figure 24: Relative contribution of the three major pollution management sectors in EU-25, 2004

99 Denmark Austria Netherlands Germany France Luxembourg Sweden Belgium Finland Slovenia Ireland UK Hungary Spain Greece Poland Estonia Italy Portugal Slovakia Lithuania Cyprus Latvia Euro/inhabitant.year Czech Republic Waste Management Waste Water Treatment Air Pollution Control Figure 25 : Environmental expenditures per capita for the three major pollution management categories in EU-25, 2004

100 Air pollution control, waste water treatment and noise and vibration control are the most capital intensive. Their capital expenditures are similar to the operating expenditures. This is mainly due to the fact that they rely on very expensive machinery. For solid waste management, the investment cost accounts for only 12% of the total. These differences are very important as the CAPEX are very vulnerable to international competition while the OPEX are mostly spent on site. The activities that result from OPEX and the accompanying employment largely remain local. Since a greater share of expenditures comes from OPEX, the eco-industries generate activity that largely cannot be delocalised. 100% 90% CAPEX OPEX 80% 70% 60% 50% 40% 30% 20% 10% 0% Air Pollution Control Waste Water Treatment Solid Waste Management Remediation & Clean Up Noise & Vibration Environmental Management (private) General Administration (public) Figure 26: Breakdown of EU-25 Pollution Management expenditures by CAPEX and OPEX, 2004 For the overall pollution management expenditures there is an increase of 8% between1999 and 2004 for the EU-15, mainly due to large increases in Germany and France. 98

101 reference year 1999 = Air Pollution Control Waste Water Management Solid Waste Management Remediation & Clean Up Noise & Vibration Total Figure 27: Growth for the sectors of the pollution management in the EU-15 (ii) Constraints related to available data and impact on the results The distinction between CAPEX and OPEX is not reported for all countries and for all sectors. For some countries only aggregated data are available. In such cases the average sector-specific CAPEX/OPEX-ratio is applied to available total amounts Breakdown by sector: the resource management sectors (i) Results For resource management activities, the three largest activities are water supply, recycled materials and nature protection (Figure 28). 99

102 Water Supply Recycled Materials Renewable Energy Nature Protection Figure 28: Breakdown in millions of resource management turnover by sector in EU-25, 2004 (TOTAL: 81, 782 million) Capital costs are lower than operating costs in the three sectors. The ratio is about 1/2 for water supply and nature protection, and goes down to 1/6 for the recycled materials management, as many facilities have little automation. However, in the coming years, automation should increase the CAPEX share CAPEX OPEX MEURO Water Supply Recycled Materials Nature Protection Figure 29: Breakdown of EU-25 Resource Management expenditures (without renewable energy) by CAPEX and OPEX,

103 For most of the sectors the proportion between CAPEX and OPEX is quite stable between countries, especially for the EU-15 area. This is due to the fact that the cost structure of each sector is quite similar throughout the different countries. This is also due to the use of the average of the sector to estimate corresponding amounts for countries for which breakdown between CAPEX and OPEX was not reported. The expenditures for water supply and recycled materials are updates of the 1999 expenditures. The breakdown between CAPEX and OPEX presented above is also based on the one from In the new member states some countries invest a lot to comply with the acquis communautaire, so that the CAPEX/OPEX-balance can be quite different (more CAPEX in the first years), but this has little influence on the ratios presented in Figure 26 and Figure 29 because these states contribute a relatively small part to the total expenditures. In the EU-15, pollution management turnover is higher than resource management turnover in general. The high resource management turnover in the new member states is mainly due to the large expenditures on water supply (see Figure 30) MEURO Nature Protection Recycled materials Water supply Estonia Lithuania Latvia Hungary Cyprus Poland Slovenia Slovakia Czech Republic Figure 30: Distribution of turnover for resource management in the new member states 44 The growth of the water supply sector from is significant (33%). Table 11 shows that this growth is due to: Significant growth in the EU-15 area (22%) over the period, corresponding to an average yearly growth of approximately 4%. Addition of the 10 new member states (11%), 44 Data for renewable energy are not available in the New Cronos Database 101

104 Table 11: Growth of the water supply sector, Water Supply (MEURO) EU NMS EU N.B: the share of NMS in 1999 is estimated based on their share in 2004 (9%) so that their growth rate is artificially standardized to the sector s EU-15 growth rate for the same period. Total growth of NMS may be underestimated as a consequence. (ii) Constraints related to available data and potential impact on the results The distinction between CAPEX and OPEX can not be made for all the countries and for all the sectors. For some of them only aggregated data are available. For these countries the average sector-specific CAPEX/OPEX-ratio is applied to the total amount. See corresponding paragraph of section 3.2. for more details. 102

105 3.4.3 Employment Elements of method, potential impact on the results (i) Methodological choices This section estimates the employment generated by eco-industries for the 25 member states. The analysis focuses on direct employment associated with operating expenditure and capital investment, and is complemented by insights on indirect employment estimates. Direct employment can be split into: Employment in the operation and maintenance of equipment or in the provision of environmental goods and services. This is calculated from the operating expenditure (OPEX), and referred to as direct operating employment; Employment on the production of environmental equipment or infrastructure to provide environmental services. This is calculated from the capital expenditure (CAPEX) and referred to as direct investment employment. Analysis of the employment effects of investment also offers insights into the level of employment in those sectors of the economy supplying inputs to the environmental sector, e.g. capital goods, construction, etc. The analysis of direct employment in this section is based on the estimated levels of capital and operating environmental expenditures. The analysis does not take into account trade flows due to the structure of available statistical analysis. The following sections present estimates of employment associated with pollution management and with resources management. Indirect employment corresponds in this section to the employment associated with the sectors of the economy providing intermediate inputs for the production of environmental equipment and services. The employment for water supply and for recycled materials were calculated by applying the growth ratio of production value to 1999 employment figures, with a correction for the inflation between 1999 and 2004.Therefore the breakdown between OPEX and CAPEX is not available for these sectors (which are resource management activities). (ii) Impacts on significance of data In order to complete the available data sets, it has been assumed that the distribution of the expenditures between wages, energy and investments is equal for all member states. This is, of course, not fully accurate, but it probably has only a minor influence on the results in comparison to the effect of differences between the wage rates of the different countries (for example, a worker from the manufacturing industry earns 5,000 a year in Slovakia and about 47, 000 in Sweden 45, which was partially taken into account in the calculation). 45 Source: New Cronos Database 103

106 3.432 Main results (i) Pollution management sectors Direct employment The direct employment resulting from the operating expenditure on environmental goods and services is estimated to be 1,415,000 jobs in the EU (see Table 12) 46. Investments in EU environmental goods and services supported an additional 430,000 jobs in 2004 (see Table 12). The total direct employment in pollution management activities is estimated to be approximately 1,845,000 jobs in the EU in Around 46% of the total direct employment from pollution management is in the solid waste management sector. Another 32% are in the waste water treatment sector. Together these two sectors represent 78% of the environmental jobs from pollution management (see Figure 31). Air pollution control accounts for almost 6% of all environmental jobs. 74% of the jobs in air pollution control are investment-related Air Pollution Control Solid Waste Management Noise & Vibration General Administration (public) Waste Water Treatment Remediation & Clean Up Environmental Management (private) Figure 31: Direct employment by sector in theeu-25, 2004, for Pollution Management 46 Figures in the text are rounded up and do not exactly match the figures in the table. 104

107 OPEX employment Direct Employment CAPEX employment Total Direct Jobs Jobs % Jobs % Jobs % Air Pollution Control % % % Waste Water Treatment % % % Solid Waste Management % % % Remediation & Clean Up % % % Noise & Vibration % % % Environmental Management (private) * % % % General Administration (public) * % % % Total % % % * This category also contains the consultancy, and the category "others": they are an overestimation Table 12: Number of direct jobs due to the total EU-25 turnover in Pollution Management, 2004 Three countries are each responsible for more than 10% of direct employment: Germany (24%), France (16%) and Poland (12%) account for 52% of EU employment in pollution management (see Figure 32). The EU-15 countries account for 78% of the direct calculated employment while The 10 new member states account for the remaining 22% of employment in the pollution management activities, although their turnover represents only 6% of the total EU-25 expenditures on pollution management. 25% 20% 15% 10% 5% 0% Germany France Poland Neths UK Italy Austria Spain Hungary Denmark Slovakia Portugal Belgium Sweden Greece Slovenia Czech Republic Lithuania Finland Ireland Estonia Latvia Lux. Cyprus % of total EU-25 Pollution Management Jobs Figure 32: Contribution of each country to the total employment of the eco-industries in the EU

108 Indirect employment In line with previous study 47, the following estimates are derived from operational expenditures for non environmental intermediate goods. They represent approximately 500, 000 indirect jobs from Pollution Management activities (see Table 13). Table 13: Number of total jobs due to the total EU-25 turnover in Pollution Management Number employed - Direct and Indirect (first round) Number employed Direct CAPEX Indirect Total OPEX OPEX Air Pollution Control % % % % Waste Water Treatment % % % % Solid Waste Management % % % % Remediation & Clean Up % % % % Noise & Vibration % % % % Environmental Management (private) % % % % General Administration (public) % % % % Total Expenditure Resource management (direct and indirect aggregated) Based on the assumptions described above, the total calculated employment for resource management activities in the EU25 area amount to approximately 1.04 million jobs: water supply: approximately 502,000 jobs recycled materials: approximately 439,000 jobs nature protection: approximately 100,000 jobs renewable energy: no reliable aggregated data available The total number of jobs for the recycled materials sector is the upper bound and is probably overestimated because using the growth rate of production value neutralizes the progress made in terms of productivity and the respective efficiency of each country. 47 Analysis of the EU Eco-Industries, their Employment and Export Potential, by ECOTEC for DG Environment,

109 (ii) Total employment The total estimated employment is: 1,845,000 direct jobs in pollution management, 500,000 indirect jobs in pollution management; 1,040,000 direct and indirect jobs in resource management (upper bound). The estimated total of first round employment reaches 3,385,000 jobs. (iii) Evolutions between 1999 and 2004: The estimated number of jobs in the eco-industries varied considerably between 1999 and According to the calculations made based on the model, the total employment in eco-industries has increased as follows: Pollution management activities: from 1.45 million jobs in 1999 (EU-15) to 1.85 million jobs in 2004 (EU-25); Resource management activities: from 0.6 million jobs in 1999 (EU-15) to 1.04 million jobs in 2004 (EU-25). In order to analyse major changes, the 2004 data have been re-estimated in order to produce results for the EU-15 area, in order to compare data covering similar geographical perimeters (1999 data were limited to the EU-15 area): According to the model s results, the number of jobs in pollution management activities decreased by 2% (from 1.45 million jobs in 1999 to 1.42 million jobs in 2004) in the EU15 area. This result should however be used cautiously, as changes in turnover, in country wage rates or in other production factors can significantly affect the results of the model. For instance, at the country level the variations in the number of jobs range from 55% in the UK, (see corresponding paragraph on evolution of turnover and the effect of changes in methodology) to 45% in Ireland. Estimates of the number of jobs tend to show that the most dynamic eco-industry sectors remain small (such as renewable energy production) and do not yet influence the global employment figures, while the larger sectors (waste management, waste water treatment) have maintained a quite stable workforce and are seeking to optimise their operating costs. 107

110 60% Change in employment between 1999 and % 20% 0% -20% -40% -60% Austria Belgium Denmark Finland France Germany Greece Ireland Italy Lux. Neths Portugal Spain Sweden UK EU-15-80% Figure 33: Evolution of employment figures between 1999 and 2004 for the pollution management sectors The strong decrease seen in the estimated number of jobs in the UK is due to: The decrease in turnover of eco-industries in the UK between 1999 and 2004(as explained above, part of this decrease is due to changes in the reporting methodology). The high increase in wage costs over the period in comparison to other countries 1999 wage cost: 28,408 /year 2004 wage cost: 46,792 /year 48. The increase in jobs in water supply and in recycled materials between 1999 and 2004 is mostly due to the creation of new jobs in the EU-15. The calculation method shows a slight decrease in jobs in the water supply sector for the new member states between 1999 and This trend may seem surprising but is quite consistent with the detailed example given in the case study on the water sector. The fact that companies that were owned or operated by public actors (states, regions, cities) are increasingly managed by private operators implies more result-oriented employment policies and efforts to optimize the size of the workforce. 48 Source: Eurostat New Cronos database; theme: Population and social conditions/ Labour Market/Labour costs. 108

111 Table 14: Growth of jobs in water supply and for recycled materials Due to Extra jobs in Water Supply Extra jobs in Recycled Materials Created in the 10 NMS NMS addition Created in EU Created in EU

112 3.4.4 Trade Methodological approach and potential impact on the results (i) Methodological choices No general trade balances are presented because they do not lend extra value to this report for the following reasons: Due to confidentiality issues, data are missing for some countries on specific trade codes. This makes it difficult to present reliable trade balances and to analyse results. For example, a discrepancy will occur whenever an importer classifies his information as confidential. As a consequence, most trade figures available are probably an underestimation of actual financial streams. Possible differences in the reporting methods used at the member state level sometimes lead to difficulties in comparing figures. (ii) Impacts on significance of data The conclusions and data presented in this trade section only cover some categories of environmental goods, which correspond to the following eco-industry sectors: Air pollution control (APC), Water pollution control (WPC), Waste disposal, Monitoring equipment, Other Environmental Equipment (OEE) Solar thermal, Photovoltaic, Hydropower. They are therefore not representative of all eco-industries. It is possible that only approximately 20% of total trade is captured by the trade codes. This difficulty was already identified in previous Commission studies on eco-industries Reminder: Analysis of the EU Eco-Industries, their Employment and Export Potential, A report for DG Environment; 2001: "it is unclear what percentage of total trade in environmental goods is captured by these trade codes. Due to data limitations, it is only possible for a few countries (usually strong exporters) to make a comparison between exports measured by trade code analysis with exports reported by environment industry suppliers. This comparison suggests that only in the order of 20% of total trade is captured by trade codes in these countries (Germany and Austria). However, this ratio is highly variable across environmental categories. The limited evidence suggests that for air pollution control, it is more like 50%, but for wastewater treatment and waste 110

113 The main advantages of the trade code approach are that it provides: Updateable time series trade data, showing which markets become more (or less) important and allows a performance benchmark; Both export & import data, and also comparability across member states, which can help demonstrate the comparative advantage of countries across environmental goods; Wide-ranging analysis compared to supply side surveys, which can skew the importance of exports and markets. The main disadvantages of this approach are that it relies on: A limited number of product codes for environmental goods, and therefore only partially characterises the whole environmental market of environmental products. Product codes only, and therefore does not consider exports and imports of services, and also does not consider combined technology and service packages. Furthermore, this approach does not tell anything about the market s driving factors, nor detail the demands/preferences of the markets. All of this information would be required to develop appropriate market entry strategies Main results (i) Import/ export per sector ( ) The total trade figures provided by available data sets (see section before) are as follows: Exported within EU-25 to EU-25 7,541 million Imported within EU-25 from EU-25 6,390 million Exported from EU-25 to outside the EU-25 5,415 million Imported from outside the EU-25 to EU-25 4,658 million The exports within the EU-25 should be equal to the imports within the EU-25. The difference between these two figures is due to the demand for confidentiality from certain countries for certain trade codes. The following sections present: The total EU-25 external imports and exports, including trade movements to and from the EU-25 from the rest of the world only (movements between EU countries are excluded), are presented in Figures 34 and 35. The analysis by sector (Tables 16 & 17) covers the same perimeter. Internal import and export movements on a national scale, including both trade movements within the EU-25 countries and to the rest of the world. Figure 35 shows an overall growth for imports and exports for The main export product category in the EU-25 is monitoring equipment. It is also, together with the solar thermal management less than 20%. The ratios are also likely to vary across countries. Transferring these ratios to Candidate Country trade is likely to generate inaccurate results, although it provides an indication of the possible orders of magnitude involved." 111

114 category, the fastest growing export category. Photovoltaic equipment is the category with the highest imports and is also the fastest growing import category. The level of imports is twice as high as any other environmental goods import category. In 2003, there was a large relative increase in trade in hydropower equipment, though the figures are much less significant in absolute values (see Figure 34). For a limited number of categories, Table 15 provides an indication of the size of exports compared to the sector s turnover from section (recall that the turnover figures do not include exports, due to the methodology used in this study). These estimates are based on the limited data available and probably underestimate the export figures. Table 15: Export and Import with outside EU-25 for APC, WWT and WM Sector Estimated Turnover ( million) Exports outside EU-25 ( million) % of the turnover Imports from outside EU-25 ( million) % of the turnover Air Pollution Control Waste Water Treatment Waste Management 15, % 1, % 52, % % 52, % % 112

115 2500 MEURO Import Export Import Export Import Export Import Export Import Export Import Export Import Export Import Export APC Hydropower Monitoring eq. OEE Photovoltaics Solar thermal Waste disposal WPC Figure 34: EU-25 Import and export figures from and to outside the EU

116 300 growth (2000 figure = 100) Import Export Import Export Import Export Import Export Import Export Import Export Import Export Import Export Import Export APC Hydropower Monitoring eq. OEE Photovoltaics Solar thermal Waste disposal WPC Total Figure 35: Dynamic view of eco-industry imports and exports, (reference-year is year 2000 and is set equal to value 100) 114

117 (ii) Trade figures by sector Figure 34 shows that the EU-25 countries import a lot more photovoltaic equipment than they export. This category is quite important relative to other trade categories. The imports of photovoltaic equipment (trade code: ) mainly come from Japan, China and the United States (see Table 17). The exports of photovoltaic products go primarily to the United States, South Africa, China and Switzerland (see Table 16). Table 16: Countries of destination for photovoltaic exports Country of destination Percentage of the export of photovoltaics United States 23.7% South Africa 10.4% China,People's Republic of 7.8% Switzerland 7.0% Malaysia 6.6% Japan 5.3% Hong Kong 4.1% India 3.3% Canada 3.0% Korea,Republic of 2.5% Other countries 26.2% Table 17: Countries of origin for photovoltaic imports Country of origin Percentage of import of photovoltaics Japan 39.5% China,People's Republic of 24.9% United States 14.3% India 5.1% South Africa 3.2% Philippines 2.5% Malaysia 2.4% Taiwan 2.2% Norway 1.2% Thailand 0.7% Other countries 3.9% (iii) Trade figures by country A closer look at the relative contribution of each country to overall exports and imports in the EU- 25 (Figures 36 & 37) shows that five countries are responsible for 75% of eco-industry exports: Germany, the UK, France, Belgium and Italy. 115

118 FR 10% GB 12% BE 8% IT 7% NL 5% DE 37% SE 4% ES 4% AT 4% DK 2% Other 8% CZ 2% MT 0% PL 1% FI 1% LV 0% IE 1% PT 1% HU 1% LU 1% SI 0% SK 0% GR 0% CY 0% EE 0% LT 0% Figure 36: National contribution to total eco-industry exports in the EU-25 (intra EU-25 movements included) FR 11% BE 6% IT 7% NL 6% SE 3% ES 5% AT 4% CZ 2% PL 2% Other 8% HU 5% DK 1% FI 1% IE 1% PT 1% LU 0% SI 0% SK 1% GB 9% DE 31% MT 0% LV 0% GR 1% CY 0% EE 0% LT 0% Figure 37: National contribution to total eco-industry imports in the EU-25 (intra EU-25 movements included) 116

119 More detailed import and export figures for these five countries are given in the following figures (Figure 38, Figure 39, Figure 40, Figure 41 and Figure 42). A major portion of the imported environmental goods in Germany is in the photovoltaic sector and mostly comes from outside the EU-25. France mostly trades with other countries in the EU-25. For the other four countries there is a slightly more trade with other EU-25 countries than with the rest of the world. 117

120 EU25_INTRA EU25_EXTRA 1000 MEURO Import Export Import Export Import Export Import Export Import Export Import Export Import Export Import Export APC Hydropower Monitoring eq. OEE Photovoltaics Solar thermal Waste disposal WPC Figure 38: Import and Export figures for Germany, 2004 ( millions) 118

121 EU25_INTRA EU25_EXTRA 300 MEURO Import Export Import Export Import Export Import Export Import Export Import Export Import Export Import Export APC Hydropower Monitoring eq. OEE Photovoltaics Solar thermal Waste disposal WPC Figure 39: Import and Export figures for France, 2004 ( millions) 119

122 EU25_INTRA EU25_EXTRA 300 MEURO Import Export Import Export Import Export Import Export Import Export Import Export Import Export Import Export APC Hydropower Monitoring eq. OEE Photovoltaics Solar thermal Waste disposal WPC Figure 40: Import and Export figures for UK, 2004 ( millions) 120

123 EU25_INTRA EU25_EXTRA 250 MEURO Import Export Import Export Import Export Import Export Import Export Import Export Import Export Import Export APC Hydropower Monitoring eq. OEE Photovoltaics Solar thermal Waste disposal WPC Figure 41: Import and Export figures for Belgium, 2004 ( millions) 121

124 EU25_INTRA EU25_EXTRA MEURO Import Export Import Export Import Export Import Export Import Export Import Export Import Export Import Export APC Hydropower Monitoring eq. OEE Photovoltaics Solar thermal Waste disposal WPC Figure 42: Import and Export figures for Italy, 2004 ( millions) 122

125 (iv) Evolutions The imports and exports of environmental goods in the various trade categories have grown 20-30% between 2000 and 2004 (Figure 35). The photovoltaic sector has grown the most with respect to imports. For exports the solar thermal sector has grown the most Challenges for the eco-industries in the new member states: the compliance gap Available data One way to quantify the dynamics in the eco-industry markets in new member states is to use estimates of investments needed to close the compliance gap, which is defined as the total expenditures needed to comply with EU environmental legislation Main results Table 18 presents the compliance gap for ten new member states and candidate countries. The compliance gap is expressed as an investment value in Euros over an undefined number of years. The time horizon for the figures presented in Table 18 is the transition period for the new Member States for the different directives. These transition periods are given in Table

126 Table 18: Estimated Environmental Financing Needs in new Member States and Candidate Countries (total plus selected directives) Country Total Cost 1997 Estimate Total Cost 2001 Estimate Urban Waste Water Waste Landfill / Recycling Large Combustion Plants IPPC million million million million million million Bulgaria 15,000 8,610 2,056 2,450 1,627 3,261 The Czech Republik 13,400 6,600-9,400 1,164 1,120 1,858 3,725 Estonia 1,500 4, Hungary 13,700 4,118-10,000 1, ,761 Latvia 1,710 1,480-2, Lithuania 2,380 1, Poland 35,200 22,100-42,800 6,414 3,609 3,456 6,927 Romania 22,000 22,000 The Slovak Republik (sewerage only) 2, ,400 4, ,596 Slovenia 1,840 2, (sewerage only) Total 121,500 78, ,415 15,292 13,140 9,626 18,749 (Source: The Environmental Challenge of EU Enlargement in Central and Eastern Europe, 2001) 124

127 Table 19: Transition periods agreed between several New Member States and the EU CZ EE HU LT PL SLO Water Urban waste water treatment Drinking water Nitrates Dangerous substances Groundwater Waste Landfill Packaging Hazardous waste Incineration 2005 Shipment of waste 2012 Air quality VOC's Stage Sulphur content of e.c. fuel 2010 Quality of fuel Industrial pollution Combustion plants IPPC Major accident hazards 2004 Solvents 2010 Nature Protection Wild birds 2010 Habitats Radiation protection Medical e.c. Exposures 2006 To be able to compare these figures with the actual expenditure in these sectors, Figure 43 shows the environmental expenditures only for the ten new member states. This figure indicates that the current level of investment is far from meeting the estimated investment needs. 125

128 5000 M EURO Operating Capital Czech Republic Slovakia Slovenia Poland Cyprus Hungary Latvia Lithuania Malta Estonia Figure 43: Total Eco-industry Turnover of the 10 New Member States of the EU, 2004 The data presented in Table 20 confirm this observation by comparing the current annual CAPEX of the ten new Member States with the estimated investment need, in order to calculate the expected period necessary to complete all required investment if the pace observed in 2004 is maintained. For some countries, the investment period could be extremely long if there is no change in the current rate of investment. However, 2004 is probably not a representative year for most of these countries, as some important investment programmes had not started yet. Table 20: Years needed to fill the compliance gap at 2004 rhythm CAPEX (2004 expenditure) CAPEX (financing needs) years needed to match financing MEURO MEURO need Czech Republic Slovakia Slovenia Poland Hungary Latvia Lithuania Estonia Cyprus 17 Malta Nevertheless the European Union is investing a lot of money in the New Member States and especially in their environmental expenditures. The two main sources for those investments are the Cohesion Fund and the Structural Fund. The figures presented in the following paragraphs are 126

129 not yet published officially 50. The officially published figures will probably not be very different from those presented here. The Cohesion Fund 51 has a budget of around 63,000 million. All countries with GDP per capita lower than 90% of the EU-25 average are eligible for this fund. Practically speaking, this includes the new member states, Spain and Portugal. Around 50% of the budget of this Fund is allocated to environmental purposes. For projects supported by this Fund, the Member States have to contribute another 20% to the total budget of the project. The new member states, with Spain and Portugal, will have 37,800 MEURO available for environmental projects through the Cohesion Fund. The Structural Fund 52 has a budget of 336,000 million for all of the member states. The new member states will receive a large part of this budget for some of their projects. Of this budget 15% to 20% is to be used for environmental purposes. In general, projects supported by this fund have to receive 50% of their budget from the relevant member state and 50% of their budget from the Structural Fund. 50 Towards a new financial framework COM (2004) Inforegio n 14 Panorama: European Union regional policy 52 General provisions on the Structural Funds: 127

130 4. Assessment of the competitiveness and of the future developments of the sectors - supply-side perspective 4.1 Air Pollution Control INDUSTRY STRUCTURE 1. Industry status Main activity This sector includes companies that offer products, processes and services dedicated to the removal of pollutants from the air. The main activities covered are: Measuring, analyzing and monitoring pollutants present in the air or in flue gases (these activities are described in section 4.6 Environmental Monitoring and Instrumentation ). Providing equipment for air pollution control and treatment. Activities related to monitoring and analyzing air pollution activities are described in section 4.6 Environmental Monitoring and Instrumentation. This section will therefore focus on the production and installation of equipment for reducing and treating atmospheric pollutants. This can be divided into two major categories, based on the type of source (stationary or mobile), as presented in the table below. Sources of atmospheric pollution Air pollution control equipment (examples) Stationary sources Industries: Refineries, chemical plants, industries of cement, iron, steel, paper and pulp Power plants Waste incinerators Others (buildings) - Air/gas filtration systems - Scrubbers - Gas treatment plants (denitrification, desulphurization ) - Dust collectors - Etc. Mobile sources Air, road, sea transportation Catalytic converters for motor vehicles (cars, trucks ) Potential users of air pollution control equipment are both : The private sector, mostly composed of medium and large industrial companies in the petroleum, chemical, cement, food processing, textile and tanning industries. 128

131 The public sector, which includes municipalities, hospitals and regional agencies with the function of monitoring air pollution and / or incinerating wastes. Number & size of companies Companies active in the field of flue gas treatment include both small and medium-sized specialized companies, such as the European leader LAB (France), as well as large and international corporations which have developed a department dedicated to flue gas treatment, such as Lurgi (Germany), Deutsche-Babcock (Germany) and Alsthom (France). Producers of catalytic converters for motor vehicles are either : Business units of big groups such as Corning GmbH (Germany), Delphi (Luxembourg), Rhodia (France), Engelhard Technologies GmbH (Germany), Specialized medium-size companies (500 to 1,000 employees) like Argillon (Germany), Ibiden (Germany), Johnson Matthey PLC (UK) and Umicore (Germany). Operating scale (regional/national/inter national) Integration of activities Companies working in the field of air pollution control mostly operate at a global scale and employ people in and outside Europe. 90% of eco-industries in this sector integrate activities of design, installation and operation. These companies generally do not manufacture all equipment due to the very specialized skills required, and are more frequently integrators of different components which are purchased from different suppliers. In some cases, these companies can also operate the equipment. Conception Manufacturing Installation Operation Industry leaders In the field of flue gas treatment, European leaders are : LAB (France) : specialized in incinerator flue gas treatment, this company works mostly with local authorities but also with heavy industries (refineries, cement, steel and glass industries), Lurgi, Deutsche-Babcock (Germany), Alsthom, Rhodia (France). 129

132 2. Economics and costs In the field of catalytic converters for mobile sources, European leaders are : Delphi (multinational), Corning, Engelhard technologies, Argillon, Emitec, Ibiden, Umicore AG & Co. (Germany), Rhodia (France), Johnson Matthey PLC (UK) Turnover Cost structure Considering that the turnover of air pollution control industries is the same order of magnitude as EU-25 expenditures in this field, turnover is estimated to be 15.8 billion. No data available on cost structure. 3. Employment According to available data (see chapter 3), air pollution control represents approximately 120, 000 jobs. 130

133 MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth The air pollution control (APC) market is already mature in some North European countries, in particular with respect to incinerator flue gas treatment. In Germany, Sweden and Switzerland, 90 % of waste is incinerated and regulation is very restrictive concerning emissions. Incineration is particularly developed in France and there are about 100 plants are in operation, which is roughly equal to the total number of plants in other European countries. However, the APC market continues to develop in most European countries as recent regulation concentrates more on specific industrial and chemical atmospheric pollutants such as volatile organic compounds (VOCs) and CO 2. Reducing these emissions is therefore becoming a top priority for several European countries. As an example, the total market for APC is estimated to be 470 million in Belgium, which would represent a 12 % market share of Belgium s environmental expenditures. 53 The APC market amounts to 176 million in Finland 54 and 175 million in Portugal. 55 The APC market is also developing in the 10 new member states. For example, it is estimated to be 78 million in Hungary. 56 Outlook Concerning the incinerator flue gas treatment market, growth is expected to be weak in countries that are already equipped with incinerators. However, the 10 new member states are expected to invest in such technologies in the future. Many projects are being carried out and about 50 incinerators could be built within the next decade. Power plants are also deemed to represent a strong market for air pollution control industries, principally in the 10 new member states. Lastly, the fact that most European countries are far from fulfilling their obligations regarding industrial and chemical emissions, in particular greenhouse gases and VOC emissions, and it will strengthen the APC market. For example, it is estimated that approximately 5 billion will be spent by Italy alone in order to reach full compliance with air quality legal requirements. Export market Most development opportunities are in Asia (especially China) as the North-American market is mostly mature at present. 5. Market drivers & obstacles Regulation According to people interviewed, regulation is the main driver of this sector as it determines ceiling emissions for polluting substances. So far, regulations have been more restrictive for incinerators because they are usually managed by local communities, whereas it is more 53 Air Pollution Control equipment and services in Belgium, International Market Research, September Air Pollution Control equipment and services in Finland, International Market Research, May Air Pollution Control equipment and services in Portugal, International Market Research, July Air Pollution Control equipment and services in Hungary, International Market Research, January

134 difficult to constrain industrials. But as mentioned above, recent regulation tends to focus more on industrial and chemical emissions (namely VOCs and greenhouse gases). Regulation also imposes a minimum percentage of energy that must be produced from renewable resources. This can help to reduce pollutant emissions by decreasing fossil fuel use. In addition, regulation is also the main driver for catalytic converters since they are now required in all new cars purchased in the EU. Other market drivers Public funds are another key driver for air pollution control industries. According to players interviewed, funding for environmental projects will increasingly come from the EU s structural funds, in their various forms (ISPA, PHARE, and Sapard). 6. Key competitiveness factors In some countries (namely the 10 new member states), European financing may even become the leading source of funding for environmental projects in the coming years. Technology High level technology and innovation capacity are critical competitiveness factors, as well as the ability to provide small scale solutions. In this field, US companies are strong competitors with EU companies, as their products are generally considered to be reliable and of high quality. However, US companies are often specialized in large-scale equipment, which are sometimes over-sized and expensive, while the European market mostly demands small-scale operations. Market incentives and supporting mechanisms 7. SWOT analysis Strengths The ability to finance projects through various funds is a second major success factor, especially in the 10 new member states. Indeed, an increasing number of environmental-related projects are being realized through instruments such as pre-accession funds (ISPA, PHARE ). EU companies have a competitiveness advantage as eligibility for participation in these projects is strictly confined to companies residing in the EU-25. As EU financing might become the leading source of funding for environmental projects in coming years, US firms are adapting to this market constraint by : Creating EU-based offices and manufacturing facilities, Building alternative financing packages backed by banks or other sources of financing. Weaknesses Many specialized medium-size companies (or big groups departments) are competitive in small-scale solutions, for which there is strong demand in European Little market growth is to be expected in incinerator flue gas treatment, in western and northern Europe (market is reaching maturity). Third countries are strongly present and 132

135 countries. sometimes leader in some European countries. EU public funds support investments in air pollution control equipment. Opportunities Regulations on air pollution control are increasingly stringent. Threats Third-country competitors are creating offices in EU and building alternative financing packages. New directives focusing on industrial and chemical emissions (VOCs, CO2 ), which will enhance the APC market in most European countries. PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing policies and instruments Current regulatory requirements Air pollution control is one of the four targets of the Sixth Environment Action Programme. It has also benefited from the Clean Air For Europe (CAFÉ) programme, which aims to establish a long-term, integrated strategy to tackle air pollution and to protect against effects on human health and the environment. Several directives have been introduced in order to limit and control the concentrations of pollutants in the air : Directive 96/61/EC concerning Integrated Pollution Prevention and Control (IPPC), the main purpose of which is to reduce pollution by industry and from larger facilities Air Quality Framework Directive 96/62/EC on ambient air quality assessment and management. Other Directives specific to certain air pollutants : o o o Directive 99/13/CE relating to VOC emissions, Directive 99/30/CE fixing limits for emissions of nitrogen and sulphur oxides (NOx, SOx), lead, particulate matter, Directive 2000/69/CE fixing limits for emissions of carbon monoxide (within 2005) and benzene (within 2010). Directive 2000/76/CE on waste incineration. Directive 2001/80/CE on emissions from combustion plants (SOx, NOx, and dust). Directive 2001/81/EC on national emission ceilings, which sets upper limits for each member State for the total emissions of SO2, NOx, VOCs and ammonia by Directive 2003/87/CE establishing a greenhouse gas 133

136 emission trading scheme (EU ETS) within the European Community. Directive 2004/107/CE imposing emission limits for metals like arsenic, cadmium, nickel, and for poly-aromatic hydrocarbons (PAH) within The implementation of these recent directives throughout Europe should therefore support the further development of eco-industries active in the air pollution control (APC) field. 9. Key issues to address in order to support further development of the sector R&D Eco-industries active in the field of air pollution control require support for their Research and Development programmes. In this regard, elimination of incinerator flue gas residues is a critical element for the economic viability of these activities. Market incentives New investments in air pollution control, mostly in the new member states are hindered by the ability to finance these projects. Incentives such as subsidies or 0% loans could help implement such projects which are not always a priority in infrastructure development or environmental protection policies and programmes. Persons interviewed: Christian Bessy, Marketing and sales Director of LAB (Group CNIM) Dirk Bosteels, Executive Director of AECC (Association for Emissions Control by Catalyst) Bibliography (main documents): Pollution control equipment and services in Belgium, International Market Research, September 2003 Pollution control equipment and services in Finland, International Market Research, May 2004 Pollution control equipment and services in Italy, International Market Research, October 2003 Pollution control equipment and services in Portugal, International Market Research, July 2003 Environmental technology and equipment in Slovakia, International Market Research, April 2004 European Union s regulation on air pollution control (website). 134

137 135

138 4.2 Waste Management INDUSTRY STRUCTURE 1. Industry status Main activity The key activities can be classified as follows : Collection Sorting Recycling Elimination (incineration / landfilling) It can be further classified according to: The source: industrial and domestic waste The materials and/or products: packaging, tires, batteries, used oil, cars, organics Number & size of companies This market is mature in the EU-15 area and developing in the new member states, where mostly international actors have market share. The 2 main international actors are French: Sita and Veolia. They are specialized, integrated companies. Large actors account for about 80% of the market and small, local actors for the remaining 20%. Operating scale (regional/national/inter national) Generally speaking, there are two types of companies : Very large actors, active on the international market, Relatively small actors, active in a very limited local area (50 km). The intermediate, national companies generally do not exist. The operating scale strongly depends on the activity : Collection, first sorting and treatment are generally local. As the waste needs to be collected at the source, this activity does not benefit from any scale effect and is and will remain local. The first sorting, where the major different sub-fractions are separated and the residue is eliminated, must be carried out close to the source to avoid multiple transport. Final waste treatment (incineration, landfilling) will also remain a rather local activity (transport < 100 km) to avoid transport cost. Second sorting and recycling are increasingly carried out at an international scale. These activities, with the notable exception of plastics, are closely linked to recycled material production activity and are in the hands of international companies (producers of virgin material) which mix recycled streams and materials from ores. For ferrous metals, aluminium, paper & board and glass, the 136

139 EU production sites absorb a large part of the available recycled material. For non ferrous metals, transport costs are small compared to the material value and this is a global market. For plastics, second sorting is very labour intensive and is therefore largely implemented in countries with low labour cost (Asia). Plastics are the only material type where the recycling activity (including the production of products made from recycled materials) is almost totally independent from the virgin plastic production companies. Integration of activities All large, international actors have fully integrated activities. They collect, sort, recycle and treat waste. Local actors are mainly focused on collection and first sorting. Industry leaders The Top-Ten waste management service companies in Europe approximately have a market share of 15% of the total service market for municipal solid waste and industrial waste. The market leaders are the French companies Veolia ( 4.0 billion) and Sita ( 4.5 billion), both with a market share of 4%. RWE Umwelt ( 2.2 billion) from Germany has a market share of 2% and all other players have 1% or less. Other actors are: Cleanaway (UK, 1.3 billion), FCC (Spain, 1.1 billion), Shanks (UK, 0.8 billion), Biffa (UK, 0.7 billion), Rethmann (Germany, 0.7 billion), Alba (Germany, 0.7 billion), Essent (Netherlands, 0.54 billion). 2. Economics and costs Source : Finnish National Technology Agency, Innovative waste management survey, Technology Review 147/2003 Turnover The global turnover according to the European Federation of Waste Management and Environmental Services (FEAD) is 50 billion for their members. This figure is consistent with the estimates produced on the basis of Eurostat data (see chapter 3) which show an estimated 52.4 billion of total expenditure on waste management services. However, these figures could be underestimated because: FEAD members have a 60% market share in domestic waste and 90% in industrial waste and therefore do not represent all waste management players, Demand-site estimates calculated on the basis of Eurostat data may not include all costs related to waste management activities (especially for the public hygiene and cleanliness tasks carried out by municipalities). 137

140 Cost structure WM is a very labour intensive activity. Personnel are thus the major cost item. This is fully true for collection but the labour intensity decreases as the waste advances in the WM chain. The sorting activity used to be very labour intensive but there is a tendency towards automation, e.g. in the packaging waste sector, the sorting centres built over the last three years are almost entirely largely automated facilities. Recycling is also largely automated but still more labour intensive than the virgin material production. Final treatment generally happens in large facilities, where investment cost is the major economic issue. 3. Employment Direct employment The estimates calculated from Eurostat data indicate that approximately 843,000 people are employed in solid waste management services. This figure is significantly higher than the numbers given by FEAD, who estimate the total number of people employed by their members to be approximately 300,000 people. Part of the gap can be explained by the fact that the figures produced by FEAD do not include public employment, and are not representative of all waste players in the EU-25. MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth Outlook Export market See section 3. This activity is quite stable in EU-15 but is growing in the new member states, who will also reach in , a certain degree of maturity. There is an export market only for materials to be recycled (before or after second sorting). As this is mainly a service market, with local work, there is no export market as such. The main EU actors do invest outside Europe to develop their activities. But the activity and the employment will remain abroad. Market organization (pricing, contracting methods, etc.) A fixed price system is usually applied. 138

141 5. Market drivers & obstacles Regulation Legislation is the main market driver (see appendices for details on waste related legislation). If selective collection and recycling is further developed, the turnover will increase. Main elements which are required by regulation include : Take back obligations, Mandatory minimum recycling percentages for different waste streams, Limitation of landfilling of organic waste, Landfill and incineration taxes, which determine the competitiveness of waste treatment technologies. Technology Competition with substitution products Waste management does not use highly developed technology for the most activities. A key development is recognition and automatic sorting technology. The recycling chain is competitive compared to the virgin material chain for ferrous, non ferrous, some paper streams and glass. The recycling of industrial plastics (mainly LDPE films and HEPE and PP containers) is also competitive compared to the virgin material chain. For the other material streams (domestic plastics) and products (tires, cars, batteries, oils), the recycling activity is not competitive and is purely legislation driven (mandatory recycling percentages). Other market drivers There is a certain pressure from the consumers on the producers to offer an environmentally sound solution for the WM of their used products and packaging. Public authorities initiatives also stimulate the market (the secondhand market, selective collection, sorting, recycling, composting, biomethanisation). 139

142 6. Key competitiveness factors Technology The sorting technology will be a key issue in the coming years, as automation will reduce the cost, make it less labour intensive and could help keep sorting activity within the EU. Cost of capital Waste treatment facilities (incineration plants, composting, biomethanisation) are capital-intensive investments with limited operating costs, so the cost of finance can have a strong impact on project profitability. Therefore, an increase in interest rates could have a significant effect. For the other activities (collection, sorting), investment is rather limited. This could partly change in the future, with increased automation (collection, sorting). 7. SWOT analysis Strengths The EU is the most advanced area in selective collection and recycling. Experience can be used to gain share in developing markets abroad. Many activities are captive to a local market and cannot be delocalized. Opportunities As the price of fossil fuels increase, recycled materials become more and more competitive and increase the profitability of waste management activities. The legislation-driven waste management market could become an economically driven market. Weaknesses As efforts are made to reduce waste production, the amount to be treated will probably decrease in the coming years, even with economic growth. Labour and landfill costs (for sorting residues) are high compared to Asia. So all transferable labour intensive activities may move to Asia (second sorting, recycling of plastics). Threats Potential automation of services (collection and sorting) which could lead to a substantial decrease in sector employment Future requirements on recycling of end-oflife products. PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing policies and instruments Current regulatory requirements Recycling targets set by the current regulatory framework have played a key role in supporting the sector s growth. 140

143 9. Key issues to address in order to support further development of the sector Regulation Adapt/clarify the definition of waste in such a way that the material is considered waste up to the end of the chain. This will allow the very demanding environmental EU legislation to be applied to the full chain and will decrease competition from outside the EU, as competitors from outside the EU have difficulties to applying the more severe EU environmental legislation R&D Invest in R&D and demonstration of recognition and sorting technologies. Focus should be on sorting technologies, in particular, highly efficient material recognition. Market incentives Reduce landfill and incineration taxes on sorting residues to favour local sorting (being careful not to attract non sortable/recyclable waste into the selective waste streams). Persons interviewed: Francis Veys, Director General of BIR (Bureau of International Recycling) Bernard Hérodin, Managing Director of Pro-Europe (Packaging Recovery Organisation) Laetitia Reynaud, Policy Executive of FEAD (European Federation of Waste Management and Environmental Services) 141

144 4.3 Remediation & Clean up of Soil and Groundwater INDUSTRY STRUCTURE 1. Industry status Main activity Number & size of companies The main activities in the soil and groundwater remediation industry are as follows: Engineering, which includes environmental audits, risk assessment and the design and supervision of remediation works, Remediation work, which can be undertaken following various processes : o o o Off-site processes: earth is extracted and taken to treatment plants and/or incinerators or landfills, On-site processes: contaminated land/water is extracted and purified on site. After treatment, the earth is reused or taken for incineration or landfill, In-situ processes: earth is purified on site, without extracting the soil or water, o Containment: polluted earth is not treated but physically isolated from clean earth by using a leak proof barrier. A great variety of treatment methods exist, usually classified as thermal, chemical-physical or microbiological processes. Physicalchemical processes such as soil washing are the most used treatment techniques, as they make it possible to reuse the treated soil as a second raw material for construction. Thermal treatment is less employed because of the lack of dedicated plants and the high costs of treatment. Biological technologies are limited by the heterogeneous nature of the subsurface, which makes the monitoring of in-situ treatment very difficult. However, containment or direct landfill remain the most employed methods (instead of treating earth) because of their relatively low cost. Two main types of players are present in the soil & groundwater remediation sector : Small specialized firms, which have developed sharp expertise on one or several remediation processes. Some of these specialized firms are subsidiaries of large utilities group (for example, Sita Remediation belongs to Sita, itself part of Suez). Construction companies, which are historically players in the sector as they have both the equipment and experience to manage contracts involving moving large quantities of polluted earth. They are also involved in most phases, before demolition and after the remediation phases (development, construction and promotion). They play a key role in the market in France, Spain and especially in Germany. Price competition and merging strategies are decreasing the number 142

145 Operating scale (regional/national/inter national) Integration of activities of competitors and forcing smaller businesses out. Concentration is a strong trend for specialized remediation firms, as it allows them to: Increase their R&D capacities, Develop their geographical coverage in order to serve global clients. Increasingly, large industrial clients require global or regional suppliers in order to improve the management of their real estate assets. Large players are increasingly working abroad, at the European scale. This trend is strengthened by the fact that industry leaders originate in countries where growth is slowing down as markets reach maturity. The presence of construction firms on the remediation market is a relatively old trend. In Germany (and in the USA as well), most remediation activities are carried out by construction companies. The growing presence of builders in the sector can be highlighted by the functional chain of remediation, as presented below : Demolition Site audit and remediation Demolition firms have experience in depolluting buildings and are increasingly carrying out soil remediation as well. They are in most cases part of construction firms. Transport Construction Transportation companies are often owned by construction firms. Owners / developers Construction firms often integrate development and land promotion activities. As a result, some professionals believe that the majority of specialized firms that remain will be either taken over by construction groups or by waste management firms which control the final waste treatment solutions (such as Class 1 landfills). Industry leaders The leaders of the soil and groundwater remediation market in the EU are: Bilfinger Berger (Germany) Sita (France) Arcadis (Netherlands) Veolia Environment (France) Most of these companies originate from countries with the most stringent regulations on soil protection, strong industrial background or strong pressure on real estate. In the 10 new member states, the few local companies which operate are usually small. The market is dominated by German and French firms such as those listed above. 143

146 2. Economics and costs Turnover Cost structure Supply-side figures are not available from an industry association. According to estimates calculated on the basis of environmental protection expenditures (Source: Eurostat; see chapter 3), the total expenditure in the EU-25 for soil remediation and clean up activities reaches approximately 5.2 billion. The cost structure of soil remediation companies is mostly dependent on the nature of the activity : For fixed treatment plants, costs are mostly investment costs (CAPEX), as well as transport costs. Supply is key for these installations, which are able to lower their price once depreciated For in-situ operations, the cost structure is dominated by operational expenditure (OPEX), and mainly by work force costs. In these activities, a large part relies on the expertise of the engineers employed. The usage rate of engineers is therefore a key indicator for these companies. 3. Employment According to estimates calculated in the chapter 3 of the present report, soil remediation and cleanup activities employ approximately 35, 940 people in the EU-25. MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth The soil remediation market as a whole has witnessed double-digit growth rates over the last years, particularly due to the real-estate business boom. According to experts in the sector, strong growth should continue over the next few years, but not in all countries. The market has reached different levels of maturity in the member states, depending on pressure on real estate, industrial background and soil and aquifers protection regulation. Three main maturity levels can be identified : Markets which have reached maturity include Germany, where the market is declining, and the Netherlands, where the market is close to stagnation, but demand is maintained due to the pressure on available land and to stringent regulatory requirements on soil protection; Markets approaching maturity, such as France, the UK and Nordic countries; Dynamic markets in Southern and Eastern Europe where both the enforcement of new regulations and the management of historical contamination will drive the activities. Excavation and landfill is the most significant segment in the soil remediation market, which is partly explained by the relative low cost 144

147 of landfill. Experts believe this segment will lose ground as the storage in landfill will become less competitive but should maintain a large share of the market. Germany is considered to be the largest market for soil remediation in Europe, accounting for approximately 30% of the EU market. Large construction companies dominate the market (Bilfinger Berger, for instance), which is also composed of a great number of small regional companies (such as operators of fixed biocentres ). Some leading engineering companies like Arcadis are located in the Netherlands, as well as two main fixed centre operators, Ecotechnik (a subsidiary of Sita) and ATM. These thermic or biological installations need very large quantities of earth to remain profitable. ATM needs to be supplied each year with approximately 1 million tonnes of earth, which leads it to increase its range of supply, sometimes going as far as Ireland to collect polluted earth. France is a relatively mature market with a turnover of approximately 250 million for engineering and works. Key players of the market are Sita Remediation (Suez) and GRS Valtech (Veolia Environment). Despite its relative small size, Belgium is an important market for soil remediation (the turnover of this market is higher than the French one, for example), especially as regards Flanders. Treatment methods follow both in-situ and fixed centres. Rapid market development is expected in the two other Belgian regions (Brussels and the Walloon Region) as a result of recent severe legislation. Spain is an emerging market for soil remediation because of the serious nature of contamination of soil and the implementation of recent regulatory requirements, such as the National Plan for Recovery of Contaminated Sites ( ). In 2001, total investments in soil remediation amounted to 18 million. Among the 10 new member states, the Czech Republic has taken a unique approach in privatizing state-owned sites and reimbursing investors for the environmental liabilities. Between 1991 and 2001, 256 million in remediation costs were reimbursed. Analysis of soil contamination issues and markets should consider that situations can strongly differ depending on the type of pollution (source pollution versus diffuse pollution) and bearing in mind that historical contamination and new contamination situations have very different implications : - For new contamination situations, the polluter is more easily known and can more easily be held liable. He can therefore be forced to bear the costs of the remediation. - For historical contamination, it is often difficult to identify the polluter or hold him liable. In this case it is the public administration which bears the costs of remediation and therefore decides on the planning of work. (Sources: Interviews of experts; strategis.ic.ca, Industry Department of Canada). Outlook Key players in soil and groundwater remediation describe the market outlook as follows : 145

148 In Northern Europe, growth will probably be moderate because the market is mature, though a lot of sites still need to be decontaminated. One of the main drivers for market development will probably be the demand for remediation of city-centre locations, as industrial activities are pushed towards the suburbs for accessibility and safety reasons. Eastern Europe is a strong growth market; the large amount of industrial land represents a huge potential. As an example, the full cost of remediation of industrial and agricultural contaminated sites would amount to 4.89 EUR billion in Poland (Source: Institute of Ecology of Industrial Areas, Katowice). Hungary and the Czech Republic are currently among the most dynamic markets. In Hungary, a significant proportion of hazardous waste is stored on companies' sites in temporary storage facilities because they cannot afford to pay for proper disposal. As regulations limit the amount of hazardous waste that can be stored on-site, there will be an increasing demand for site remediation, which is expected to reach approximately 1.17 billion within the next decade. The market also demonstrates a strong potential for growth in Spain and Italy because both countries have adopted new laws inspired by German and Dutch legislation. Achieving the objectives of Spain s National Plan for Recovery of Contaminated Sites would require investments totalling an estimated 0.9 billion or more. Remediation of the 250 most serious black spots in Spain would require even more ( 1.8 billion) (Source: Strategis.ic.ca). According to some players, containment or dumping of polluted water/soil without treatment will dramatically decrease, as regulations tend to require treating hazardous waste prior to landfill them. Therefore, the future of the market lies in services of thermal treatment (off-site) and mostly on-site processes, which are less timeconsuming. There will be stronger demand for new techniques combining physical-chemical treatments and in situ biological remediation processes. Export market European firms have little activity in the US or in Japan, which are major remediation markets, due to differences in work approach or barriers to entry for newcomers. On the other hand, a number of North-American firms are present in Europe (URS, for example). The main export markets for European companies are Russia, Africa and Brazil. Countries like Australia and China may also become clients or potential partners for exporting know-how and technology. Market organisation (pricing, contracting methods, etc.) Remediation works are usually undertaken : In the case of an industrial or environmental accident, When the site s activity comes to an end, When proof of damage to a third party has been made 146

149 5. Market drivers & obstacles (aquifer pollution, for example), When there is proof of risk to human health or the environment. Pricing depends on : The type of site (small, intermediate or large), The location (urban, semi-urban, rural), The technologies used, And the type of contaminants. Even if most countries apply the polluter pays principle to a certain degree, a considerable share of remediation costs is paid by public authorities. Many countries have developed specific funding tools for the clean-up of contaminated sites. For example, in some countries, there are voluntary agreements with the petrochemical and oil industries to fund the remediation of abandoned petrol stations, financed by a fee included in the petrol price. In some cases, the soil remediation company will offer to take back the polluted site at no cost and to bear the costs of remediation. Besides, large industrial clients will increasingly demand a single global or regional provider for soil remediation services, in order to improve the management of their assets. In the case of historical contamination with no identified private polluter, work planning and management are taken care of by public authorities and depend on the availability of public funding. This represents half of the remediation cases at European scale and on average 25% of total expenses according to experts from the European Commission. Some EC-funding mechanisms (such as Interreg or the European Fund for Regional Development) may be used to fund soil remediation. They are limited though to certain regions. This seems to be all the more important as state aid systems are not always very transparent. (Source: Van-Camp, L., Bujarrabal, B., Gentile, A-R., Jones, R.J.A., Montanarella, L., Olazabal, C., and Selvaradjou, S-K (2004). Reports of the Technical Working Groups Established under the Thematic Strategy for Soil Protection. EUR EN/4, 872 p., Office for Official Publications of the European Communities, Luxembourg.) Regulation As for most environmental sectors, regulation is a key driver as it leads to greater awareness of private companies, increases public funding and tends to favour treatment processes over other methods (e.g. through landfill taxation). Soil protection Legal requirements have been mostly specified by national regulations and only a few EU 25 states have set up such legislation. Existing policies traditionally view contaminated land problems from two perspectives. The first is protection, relating to the impact of contamination on human health and environmental quality. The other is spatial planning, managing the impact of contaminated land on the way land is used, for example, 147

150 regenerating industrial areas, increasing agriculture use or creating a nature area. These perspectives influence the legal regimes used in different countries: some countries use environmental legislation as the primary means of preventing impacts from land contamination on land use, others use spatial planning legislation. (Source: Reports of the Technical Working Groups Established under the Thematic Strategy for Soil Protection. EUR EN/4) Among the member states which do have legislation, a majority follows the protection approach according to which a site is considered to be contaminated if there is a risk to human health and, in some countries, to the environment. For both approaches, risk is measured by taking into account the source, vector and potential targets/victims of the contamination. Threshold values of concentration of pollutants are used to trigger onsite risk assessment and analyse these factors. The trend in policy development is to address the two aspects (protection and spatial planning) simultaneously by adopting riskbased approaches. With respect to existing European regulations, European Directives like the Directive 86/278/EC on the use of sewage sludge on agricultural land, for example, only relate to specific aspects of soil protection. However, accession to the EU has already played a major role, especially for the 10 new member states, since they will have to comply with future EU standards. Thus, markets in the new member states are dynamic because regulations on soil are being implemented and investors have obligations to remediate industrial sites. As an example, Poland has adopted in 2001 a new law in real estate and protection of the environment that stipulates that the owner of land is responsible for its cleanup. As well, Hungary has adopted a National Environmental Remediation Programme from 1996 to However it is now widely recognized that drastic risk control, for example, cleaning up all sites to background concentrations or to level suitable for the most sensitive land use, is neither technically nor economically feasible. (Source: Reports of the Technical Working Groups Established under the Thematic Strategy for Soil Protection. EUR EN/4) In particular, the remediation of historical contamination with no identified private polluter or concerning former state-owned industries and sites poses huge financial commitments to national public authorities who may be inclined to moderate the implementation of regulations. The coming soil framework directive will provide a framework for member states to manage soil contamination and there will be a very strong drive in particular for the many member states that do not yet have any legislation on the issue. The main recommendations from the Technical Working Groups Established under the Thematic Strategy for Soil Protection follow: 148

151 Help the further development of national policies and strategic plans using the concept of Risk Based Land Management (RBLM) and harmonizing the risk assessment concepts. Organise an information exchange on a strategic approach between member states and encourage sharing of the best available technologies. Set up systems for the disclosure of information on soil contamination, at least when contamination has been proven, because such information is often owned by private parties. It is also expected that the implementation of Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental damage will influence the market. This directive specifies that the operator shall bear the costs for preventive and remedial actions taken pursuant to this directive (article 8). Water & groundwater The water framework directive provides opportunities for management of water quality and quantity at the river basin scale. It shall become an important vehicle for soil and sediment protection together with the groundwater directive (once amended to integrate the Risk Based Land Management Perspective and corresponding economical and technical feasibility criteria) as it is clear that classical tools in environmental policies for contaminating substances (stateof-the-art emission reduction techniques, setting of (eco)toxicological quality standards) fall short in view of the large-scale diffuse soil contamination. (Source: Reports of the Technical Working Groups Established under the Thematic Strategy for Soil Protection. EUR EN/4, see complete reference above.) Technology The sector is becoming more and more aware of the fact that technologies are a critical element for developing more efficient techniques. Technologies used today depend on pollutants, available time and local regulation. A number of technologies are in portfolio but still need to be tested and proved. The role of public authorities in supporting the dissemination of these new techniques is essential. Real estate market / pressure on land Industrial firms will carry out soil remediation if they are forced to by regulation, but also if they can increase the value of the land and reach a better deal for the sale of the land. The real estate market (and obviously the location of the site) is therefore a key element for soil remediation activities. Countries where the market of soil remediation is more developed are often characterized by: Strong pressure on land (in relation to population density) Strong industrial background, Attractiveness for foreign investors. 149

152 Obstacles and barriers to growth As public administrations have to pay or contribute to the funding of works for many other sites or projects, the development of the market is highly dependent on the availability of public funding and hence on the costs of remediation. New cheaper technologies will be the key breakthrough. 6. Key competitiveness factors Excavation and disposal in landfill are very cheap in some countries and it often is the first option chosen. As long as this option is available and cheap, better technologies will have difficulty increasing their share of the market. The development of the sector also depends on the willingness of industrial firms to spend on soil remediation. Market incentives such as tax credits or landfill taxation are therefore useful tools to influence market development. In some countries, regulation is not restrictive enough, while in other countries deficiencies are encountered in the implementation of the relevant regulation, because control authorities have insufficient resources. Technology Critical size Proximity to markets (fixed treatment sites) 7. SWOT analysis Strengths R&D is a key factor for the development of the sector, as developing more effective and cheaper techniques is strategic for specialized firms. Market leaders dedicate up to 5% of their revenue to R&D. Concentration is increasing in the sector as remediation firms need resources to pursue R&D efforts and seek to increase their geographical coverage, in order to adapt to the demands of multinational clients. For fixed treatment plants, the supply of large quantities of polluted earth is critical to maintain profitability. Depending on the geographical location of the treatment installation, long distances will have to be covered in some cases, which imply high transportation costs and extra damage for the environment. However, the choice of the technology used depends to a large extent on the type of contaminants and on the characteristics of the site. Weaknesses Regulatory requirements on soil protection and remediation obligations. Financial supporting schemes such as environmental funds Real estate pressure (for some countries) and land demand which lead to renovation and remediation of industrial sites. Insufficient implementation of existing regulations. Lack of harmonization between national regulations, although soil remediation leaders are international. Reluctance from industrial companies to spend on remediation unless they are forced to by regulation. Difficulty applying the polluter pays principle, as identifying all previous users of polluted sites is often complex. These cases require that local authorities or developers themselves finance the 150

153 sites remediation. Opportunities Sharing of the Risk Based Land Management concept applied on a case by case approach and of corresponding good practices through the adoption of the future soil framework directive on soil. Threats Growing maturity of traditional major markets. Penetration of US firms into the EU remediation market. Implementation of increasingly restrictive legislation on soil protection, in particular in new member states. Rising demand for new technologies designed for the remediation of specific contaminants. PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing policies and instruments Current regulatory requirements Existing market incentives and supporting mechanisms See section 5 Financial incentives, such as tax credits for remediation and for brown-field re-development, have been a successful tool in the UK. Environmental liabilities are increasingly being reviewed by auditors, under the pressure from the regulator or from investors. These evolutions encourage industrial companies to follow closely the impacts of their activities on soil, and to undertake remediation works if necessary. Depollution or environmental funds, financed by environmental taxes on industrial activities, provide financial support to remediation projects. R&D Sites have been selected through the European programme framework to experiment and validate new soil remediation techniques. 9. Key issues to address in order to support further development of the sector Regulation Development of a European vision of soil remediation on the basis of the EU soil strategy, so that new construction is built first and foremost on industrial wastelands, as is already the case in Germany. Harmonisation of regulatory requirements in terms of limit values for soil pollution. The existence of threshold values in some European countries, like the Netherlands, makes it possible to resell treated earth and facilitates risk analyses. Improvement of the implementation of regulation on soil 151

154 protection and on the environmental liabilities directive. Market incentives Tax credits for remediation and for brown-field redevelopment, which have been a successful tool in the UK. Environmental funds, which could be used instead of industrial firm funds to finance remediation of industrial land. Developing schemes for public-private partnership over remediation of industrial land R&D Support for R&D efforts on new techniques to provide more effective, faster and cheaper soil and groundwater remediation services. Research on improving the separation of polluted earth and clean earth is a key development in reducing remediation costs. A key element also lies in the dissemination of new techniques. In this respect, local authorities should be further encouraged to select the best available techniques. Persons interviewed: Pascal Roudier, Technical Director, Sita Remediation Stephanie Hottenhuis, Strategy and marketing director, Arcadis Bibliography (main documents): MSI study on soil remediation in Europe, 2004 Van-Camp, L., Bujarrabal, B., Gentile, A-R., Jones, R.J.A., Montanarella, L., Olazabal, C., and Selvaradjou, S-K (2004). Reports of the Technical Working Groups Established under the Thematic Strategy for Soil Protection. EUR EN/4, 872 p., Office for Official Publications of the European Communities, Luxembourg 152

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156 4.4 Noise and Vibration Control INDUSTRY STRUCTURE 1. Industry status Main activities The noise and vibration control sector covers a broad range of industrial and service activities including 57 : noise control equipment, measurement and control equipment, insulation materials and equipment, silencers, anti-vibration equipment, acoustic shields, analysis and control services, consulting, project management, supervision of works, legal studies, diagnosis, audits and expertise, R&D, and engineering, These activities fall into two main categories : 1. Activities contributing to the reduction of noise emissions (prevention at source), 2. Activities contributing to the acoustic insulation of exposed populations, sites and buildings (mitigation of impacts) 57 Source: Les éco-activités de l industrie et des services, SESSI,

157 Number & size of companies Manufacturing and building activities Building sector Insulation equipment and material manufacturers: large (international) groups Measurement equipment manufacturers: see environmental monitoring section Transport sector Tire manufacturers: large (international) groups Road coating manufacturers: large groups and subsidiaries Car, train, aircraft manufacturers: large groups, subsidiaries and suppliers Services Building sector Urbanism and environment sector Consulting & Engineering: small firms (less than 20 people) working for municipalities and main players in the sector. Mapping of noise exposure (EU Directive 2002/49): small to medium-size research and engineering departments Note: the share of activities of large groups (or subsidiaries) dedicated to noise reduction is difficult to identify. For example, the available data does not allow us to measure the exact difference between noise insulation activities and thermal insulation activities or to identify the share of R&D for new cars, trains or aircraft which is aimed at reducing noise emissions. Operating scale (regional/national/inter national) Noise exposure issues are local by definition. The research and engineering departments and other service providers tend to operate at local or regional scale as a consequence, working on planning and the enforcement of regulations. Manufacturers of equipment and solutions operate at a larger scale as they are often parts or subsidiaries of large groups and because the development of new technologies usually requires a minimum critical size. 155

158 Integration of activities Large companies have their own acoustics department in-house. 2. Economics and costs Small companies are increasingly becoming integrated into the supply chain of the automotive or transport sectors. A move toward the integration of consulting activities could lead to the setting of larger planning units. Turnover Due to the structure of the sector, there are no consolidated data available on the total turnover of the sector. The professional associations in this field stress that it is difficult to gather information both from specialized companies and from units of large transport and automotive corporations which play an important role in this field. According to estimates calculated on the basis of Eurostat data (see chapter 3), the total expenditure at EU level in noise and vibration control activities was approximately 1.95 billion, (around 1% of total pollution management activities expenditure in 2004). 3. Employment According to estimates calculated on the basis of Eurostat data (see chapter 3), the noise and vibration sector employed approximately 30, 000 people in MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and perspectives The markets for noise reduction activities are growing at a slow pace, as industrial companies tend to reduce costs as much as possible, which has negative consequences on investments in noise control. People interviewed during the study believe that the standard is high in Europe, but the will to invest in reducing environmental impacts is weak and industrial players tend to do the minimum. The noise planning done by local authorities also explains the stability of the market. The next step in European legislation and action programmes should speed up the development of the activities linked to noise exposure reduction. (See sections below). Manufacturers should have strong market opportunities in the new member states and also in the southern EU countries. Focus on the transport sector: 1. Air transport: Noise is increasingly perceived to be key strategic issue that could make licenses to operate more difficult to obtain from populations and governing authorities. Important public funds are granted to noise reduction programmes focused on equipment design. However, cheaper procedural and management solutions (continuous 156

159 descent approach, etc ) should also be considered and implemented as well. 2. Road transport : Is the most important sector in terms of number of people exposed. The development of road coating solutions is limited by the opposition of national economic interests and protection of respective national building industries, even if these solutions are less expensive than insulation walls. 3. Rail transport (3 rd most important issue) The main issue is the noise emissions caused by night cargo transportation. Technical solutions exist, in particular for the improvement of break equipment. An estimated 600,000 wagons could be affected, which represents a 1-3 billion market. The development of the market is limited by the small number of potential players and by the presence of state monopolies. 5. Market drivers & obstacles Regulation The enforcement of EU originated regulation is the first and major market driver (noise maps in 2007, action plans in 2008). Growing public awareness and expectations may give momentum to projects (for example, expenditure linked to noise exposure troubles is a closely watched budget line item in the French health insurance system). 157

160 6. SWOT analysis Strengths Major R&D projects ongoing for some years Available high-performing technologies Scale of operation and strength of large groups present on these markets Weaknesses The reduction of noise nuisances is often considered to be less urgent than others (air or water pollution) and is offset by security and capacity issues during the decision making process. Lack of reliable neutral data and information Impact of noise reduction programmes on the price of transport or industry works. Local nature of noise pollution issues Opportunities Growing awareness of population and industrial players with respect to noise exposure and nuisances. Noise maps to be implemented in 2007 for all major cities (larger than inhabitants) and all major transport infrastructures. Industrial development and enforcement of available new technological and procedural solutions (aircraft flight paths for examples). Threats No significant improvement in noise exposure (in terms of number of people or areas exposed) in spite of dramatic technological improvements, because of: The growth of activities (transport, leisure and tourism activities), Insufficient coordination with building policies and plans (around airports for example). PUBLIC POLICIES SUPPORTING THE INDUSTRY 7. Existing policies and instruments Current regulatory requirements 1996: Green Paper (COM (96) 540) 2000: Directive on Noise from Equipment for Use Outdoors 2000/14/EC 2002: Directive 2002/49/EC on environmental noise whose main principles are: - Monitoring noise emissions by requiring the competent authorities in member states to draw up strategic noise maps for major roads, railways, airport and agglomerations, using harmonised noise indicators L den and L night. These maps will be used to assess the number of people annoyed and sleepdisturbed respectively throughout Europe. - Informing and consulting the public about noise exposure, its effects, and the measures considered to address noise, in line with the principles of the Aahrus Convention. 158

161 - Addressing local noise issues by requiring competent authorities to draw up action plans to reduce noise where necessary and maintain environmental noise quality where it is good. The directive does not set any limit value, nor does it prescribe the measures to be used. - Developing a long term EU strategy including objectives to reduce the number of people affected by noise in the longer term. Existing directives relating to noise sources: - Road traffic noise (follow-up by EC Directorate General Enterprise): motor vehicles (70/157/EEC), motor cycles (97/24/EC), tyre for motor vehicles and their trailers and fitting (2001/43/EC), - Aircraft noise (follow-up by EC Directorate General Energy & Transport): subsonic aircraft (80/51/EEC), subsonic jet aeroplanes (89/629/EEC), limitation of the operations of aeroplanes (92/14/EEC), operating restrictions at Community airports (2002/30/EC), - Railway noise (follow-up by EC Directorate General Energy & Transport): interoperability of the Trans-European high-speed rail system (96/48/EC, 2002/735/EC, 2002/732/EC), interoperability of the conventional Trans-European rail system (2001/16/EC) Ongoing activities linked to the Environmental Noise Directive Noise policy and cost/benefit analysis (2001 workshops and 2003 position paper on noise valuation). Good practice guide for noise mapping (to assist the member states and their authorities in undertaking strategic noise mapping and producing associated data as required by the environmental noise directive. Guidelines on the interim computation methods (Official Journal L212 22/08/2003) List of projects funded by the European Commission and directly linked to the Environmental Noise Directive: - Dose-effect relations for transportation noise and sleep disturbance - Harmonisation : Harmonised Accurate and Reliable Methods for the EU Directive on the Assessment and Management of Environmental Noise (end 2001 end 2003) - CALM network - SMILE programme R&D EU expert network created in 1998 on the occasion of the Copenhagen Conference. Its mission is to provide assistance in the development of European noise policy. The various working groups issued position papers on noise indicators, on the doseeffect relations to be used for the assessment of numbers of 159

162 people annoyed by noise from transport, and on the strategies and priorities for railway noise abatement. 8. Key issues to address in order to support further development of the sector Regulation Improve the comparability of data available from all member states to assess the effective noise exposure level. The definition of more stringent limit exposure or emission values should be considered in the light of the economy s ability to bear such costs. Market incentives Funding of insulation programmes. Implementation of the polluter pays principle to address noise emissions from diffuse and collective sources (for airports, highways, etc.). Support the emergence of private actors in the railway equipment market (see focus in the section above) R&D Focus the funding budget on targeted topics and ensure a more focused follow-up on the scientific side (get more in-house expertise to ensure such a follow-up). Capacity building of engineering and consulting activities (with multiple competencies to understand both the noise issues and the connected capacities and security and climate change issues) So that public authorities and municipalities receive appropriate information And participate to enforce the best procedural and technical solutions available. Persons interviewed: David DELCAMPE, European Commission, DG-Environment, Transport & air quality and noise Joachim SCHEUREN, Former president of the European Acoustic Association, CEO of Mueller bbm GmBh Emmanuel THIBIER, ADEME 160

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164 4.5 Water Supply and Waste Water Treatment INDUSTRY STRUCTURE 1. Industry status Main activities The key activities of the water supply sector and of the waste water treatment sector can be summarized as follows : A) Water supply B) Waste water treatment Water catch systems and collection Water purification Water desalinisation Water transport & distribution Construction Waste water collection Sewage and refuse disposal Sanitation Construction Services Services The same actors, in most cases, are active in both sectors, either because they bear the responsibility of providing services (public bodies) or because their development is based on the same technical expertise (private companies). As a consequence, available data often aggregate both sectors activities. Based on those data, the following analysis often considers both sectors together. Specific issues or trends are presented separately as much as possible however. Number & size of companies The structure of the water market and the varied status of the bodies in charge of water supply and waste water treatment (see below) makes it rather difficult to estimate the total number of actors involved (public, private, partnerships, subsidiaries ) and of active private or semiprivate companies at the EU-25 level. In Germany, for example, water supply and waste water treatment remain a municipal service and the small private part of the market (15% of water supply and 9% of waste water treatment) is shared by more than 6,600 enterprises. This number was estimated to be around 8,000 enterprises in 2003 in Italy for similar reasons 58. However, a large number of small or medium-sized companies operating at a local level are often subsidiaries of a few major actors that dominate the national and even the European water market (see the following table compiling the major companies acting at a national level in a few European countries and the Industry leaders section). 162

165 Country Main private companies France Veolia (Water & Environnement), Ondeo (Suez), Saur (Bouygues) Germany RWE subsidiaries : RWE Aqua and RWE Umwelt, Eurawasser (Ondeao-Suez subsidiary), Veolia Water Deutschland, OEWA Wasser (purchased by Veolia Environnement) Italy Italgas, Ondeo (Suez), Vivendi Water, Enel Hydro, Crea-Sigesa (Saur) Spain Agbar, FCC Aqua y Entorn Urbano (subsidiary of the building group FCC of which Veolia owns over 27%), Ferroser-Ferrovial Servicios (Ferrovial), Gestagua et Aguas de Valencia (SAUR subsidiary) UK Thames Water (RWE), Severn Trent, United Utilities, Anglian Water, Yorkshire Water, Northumbrian Water, South East Water, Southern Water Source : Eurostat study The predominance of large companies is also confirmed by the analysis in terms of value added 59 : almost 2/3 of value added in the EU-25 is generated by large companies (with 250 or more people employed). EU - 25 Collection, purification and distribution of water Value added at factor cost per enterprise size-class, 2001, % of total (Eurostat) 6,4 9,4 18,6 Micro ent. Small ent. Medium-size ent. Large ent. 65,5 Moreover, the figures available at a national scale and for the EU 15 (see following graphic and table) show that this is a fairly common pattern among member states (except for Denmark and Slovenia) EU - 15 Collection, purification and distribution of water Value added at factor cost per enterprise size-class, 2001, % of total (Eurostat) 7,0 9,8 17,9 Micro ent. Small ent. Medium-size ent. Large ent. 65,3 163

166 EU - 25 Collection, purification and distribution of water (NACE Division 41): Share of size-class in value added, 2001, % of total (Eurostat) Micro ent. Small ent. Medium sized ent. Large ent. BE (1) CZ DK (2) DE (2) EE (1) EL ES (2) FR IE IT CY LV LT (2) LU HU MT NL AT PL PT SI (1) SK (1) FI SE UK (1): 1999; (2): 2000 Operating scale (regional/national/intern ational) As mentioned before, the European water sector is highly fragmented: water resources, water supply and waste water treatment have often been managed locally. As the provision of water supply in Europe has traditionally developed along ad hoc sector, regional and national lines, the private enterprises leading the water market at European scale operate through a developed network of subsidiaries with strong local roots. Integration of activities See sections above. 164

167 Industry leaders The three largest companies providing water supply and sanitation services in the world are European (Veolia, Suez, RWE). In addition, a large number of European SMEs export their expertise and equipment. French groups dominate the European market in terms of turnover and worldwide presence. This is partly due to the tradition of privatetransferred management of municipal water services that helped the firms use the long experience in domestic markets to develop abroad. Turnover of water activities (M ) Share of the total turnover (M ) Vol. distributed (M m3) Number of clients (millions) 1 Veolia FR 13, nc (1) 2 Suez FR 10, , (1) 3 RWE DE 2, nc 70.0 (1) 4 Saur FR 2, , (1) 5 Severn Trent UK 1, (3) United Utilities 2) UK 1, (3) Anglian Water UK 1, (3) Yorkshire Water UK (3) Agbar (Suez) SP nc 10.9 (3) (1): Population connected ; (2): Electricity activities included; (3): Estimated Source : Eurostat Competition is rather low in general compared to other network industries (energy, telecoms) because of the historical and local management modes and of the perception of water as a common good. 2. Economics and costs Turnover To this date, there are no fully consolidated data from the supply-side on the total turnover of the sector at European level, according to the sector s professional associations. This situation is due to the fact that the sector is composed of private sector companies as well as a number of local authorities in charge of water supply and waste water treatment. This section therefore presents the most accurate data available today for the EU-25. According to the Water Supply and Sanitation Technology Platform 60, the total turnover of the sector (including both of water supply and wastewater treatment) can be estimated in 2005 at approximately 80 billion (close to 1% of GDP) with an average growth rate of 5% per year, compared to a 2.5% per year average growth rate for the EU economy. Eurostat has also made available data on the EU-25 water supply sector (NACE 41) for 2001 (Source: European Business, Facts & Figures, Part 1: Energy, water and construction, Data , Structural Profile, European Commission, Panorama of the European Union, Edition ), which indicate that : 165

168 The total production of the water supply sector in EU-25 would reach approximately 37,8 billion in 2001 and 40, 2 in 2003, The EU-25 water supply sector generated in 2001 an estimated 17.9 billion of value added ( 16.0 billion in the EU 15) in 2001, around 0.4% of value added in the non financial business economy (NACE sections C- I and K). The 10 new member states accounted for an estimated 10.6% of the EU-25 s value added in the water supply in 2001, close to double their contribution to the manufacturing sector, for example. In value added terms, Germany and the United Kingdom dominated the water supply sector in 2000/01 with 27.2% and 23.2% shares of the EU-25 s value added. Collection, purification and distribution of water (NACE 41): largest production and value added (EUR million) Production Value added at factor cost (million ) (million ) Germany (2000 data) 8,264 4,638 United Kingdom 6,805 4,131 France 10,394 2,032 Spain 3,008 1,457 Italy 2,921 1,092 The Netherlands 1,624 0,935 Note: 2001 data for Germany, Estonia, Malta and Poland are not available Source : Eurostat, Structural Business Statistics Several of the new member states reported relatively large water supply sectors in In Estonia (1999), Lithuania and Slovakia, the water supply sector contributed 1.2% of the non financial business economy s value added, while in Hungary (1.0%), the Czech Republic (0.8%) and Slovenia (0.7%), the contribution of the water supply sector was also equal to or above the level in Portugal (0.7%), which had the highest share among the EU-15 (Source : Eurostat; Greece, Cyprus, Malta and Poland not available) 166

169 No precise data is available regarding the consolidated turnover of waste water treatment activities. Estimates calculated on the basis of Eurostat data (see chapter 3) indicate that the total EU-25 expenditure as with respect to water supply activities is approximately 45, 7 billion and approximately 52, 2 billion as with respect to waste water treatment activities. This corresponds to an overestimate of the figure provided by the Water Supply and Sanitation Technology Platform for the total turnover of the sector for both water supply and wastewater treatment (approximately 80 billion). Cost structure The EU 15 water supply sector (NACE 41, see table below) recorded apparent labour productivity of 83,700 per person employed in 2001, well above the manufacturing average 51,200. Value added was more than double the level of average costs. Production Purchase of goods and services Gross investment in tangible goods Average personnel costs Wage adjusted labour productivity Gross operating rate Unit EUR million EUR million EUR million EUR thous./ empl. % % BE 1, CZ DK DE 8,264 3,742 3, EE EL ES 3,008 1, FR 10,394 8, IT 2,921 1, CY LV LT LU HU NL 1, AT PT SI SK FI SE UK 6,805 2,222 2, BG RO According to Eurostat, particularly high wage adjusted labour productivity ratios were recorded in Latvia, the Netherlands, Finland and Sweden, where this indicator was at least twice as high in the water supply sector as the non financial business economy average (Estonia, Greece, Ireland, Cyprus, Malta, Poland and Slovenia not available; Germany, 2000). 167

170 3. Employment 310,600 people were employed in the EU-25 water supply sector in 2000 and more than 320,000 in 2001 (NACE Division 41). Nearly 2/5 of them were working in one of the 10 new member states. (Source: European Business, Facts & Figures, Part 1: Energy, water and construction, Data , Structural Profile and table 14.9, European Commission, Panorama of the European Union, Edition 2004) Collection, purification and distribution of water (NACE 41): number of people employed (thousands), BE CZ DK DE EL ES FR IE IT CY LV LT LU HU NL AT PT SK FI SE UK BG RO According to the Eurostat Employment index, employment fell between 1995 and 1999, averaging -1.2% per year over four years. Two years of 1.6% growth occurred after that, followed by a decrease of 0.3% in The larger member states experienced very different employment trends in recent years. Germany (-2.6%) and the United Kingdom (-0.9%) both recorded contractions over the period, while France averaged 1.7% employment growth in the sector over the period and Spain 5.7% per annum despite a fall in Source: Eurostat, European Business Trends Monthly and Quarterly Short Term Statistics. Some industry representatives interviewed believe that the average share of people working in the water sector represents roughly 1% of the total population. No precise consolidated employment figures are available for waste water treatment activities. Based on Eurostat data (see section 2), estimated employment in the waste water treatment sector would reach approximately 758,000 jobs in the EU-25 area. 168

171 MARKET STRUCTURE AND TRENDS 4. Market size and structure Size of the market and growth In most member states, the public water supply (as opposed to industrial or energy generation uses) accounts for 10-40% of total fresh water abstraction, with a few exceptions: Luxembourg (practically no water is used for cooling in electricity generation), Slovenia and Malta (practically all fresh water abstraction is for public water supply) and Estonia and Lithuania (where water for cooling in electricity generation is responsible for a share of fresh water abstraction). Fresh water abstraction (million m 3 per year) Source: Eurostat The water distributed through public water supply itself is then used for different purposes, especially domestic use by households. 169

172 Public water supply (million m 3 per year): information on main users, 2001 Latest year Total supply Agriculture, forestry and fishing Of which, to: Manufacturing Elec. Gen. Households BE CZ DK DE EE EL ES FR IE IT CY LV LT LU HU MT NL AT PL PT SI SK FI SE UK (Source: Eurostat; Poland: 1999; Sweden: 1997) In all, the working day adjusted production index for water supply sector in the EU-25 indicates a 4 year period of alternating moderate growth and stability from 1998 on. Source: Eurostat, European Business Trends Monthly and Quarterly Short Term Statistics. 170

173 Clients Private users (domestic use) Over 90% of European citizens are provided with piped water supply and 80-90% of the population is connected to wastewater treatment plants in Northern and Central Europe. This ratio is as low as 30-50% in Southern Europe and in new member states. Proportion of households connected to public water supply, % 80% 60% 99% 95% 90% 71% 99%100% 76% 100% 93% 81% 86% 40% 20% 0% CZ DK DE EE FR IT LT HU NL PL SE (Source: Eurostat, Poland: 1999; Sweden: 1997) Percent of the population connected to waste water system (Source: Eurostat) 171

174 Industrial users (manufacturing and electricity generation) Major water using and/or discharging industries are: pulp & paper, textile, leather, oil/gas, chemicals/pharmaceuticals, food, energy and metal (steel). These industries are of great economic importance in terms of annual turnover (> 1,500 billion ), investments (> 150 billion ) and output (20 50% of the respective world production). Water costs can reach up to 25% of the total production costs. (Source: European Water Supply and Sanitation Technology Platform). These costs will increase due to stronger product quality and safety requirements and because of increasingly stringent regulation. Agricultural users In Europe, about 30% of the abstracted freshwater is used for agricultural purposes (up to 75% in Southern Europe). Outlook To understand the outlook for the water resource management markets, the specific nature of the water must be kept in mind. As a vital commodity, good quality water must be available to everyone at any time and in such condition that its use does not lead to additional pollution. As a consequence, demographic growth will be the main driver for water supply activities. The main elements of water supply service are as follows : Provide access to good quality water, At a reasonable cost, With a reasonable coverage of the investments made to this end, Without losing control of the municipalities debt ratios. For the water supply sector, the relatively high connection rates in Europe (see section below) lead to other strategic options besides the building and maintenance of infrastructure: Services and customer relationship management, including information, advisory on water consumption and related issues such as sustainable development. The major actors already offer help defining sustainable development plans for local areas based on water consumption optimisation ( Agenda 21 for example), Services to reach the growing quality requirements (cf. 3 rd edition of the World Health Organisation guidelines, for example) and to implement increased controls (water abstraction sites protection). Monitoring and preserving the quality of resources. For the waste water treatment sector : Further investment to connect remaining populations and to install adequate treatment capacities, 172

175 Capturing market share from major industrial actors who built proper capacities but now wish to outsource these activities, Guarantee the quality of the water that is rejected by instituting increased controls ( check who rejects what ) and innovative solutions, mostly in the field of sewage sludge treatment. Water resource management is increasingly shifting towards quality requirements rather than solely providing water at the lowest cost. Export market Market organization (pricing, contracting methods, etc.) The three largest companies providing water supply and sanitation services in the world are European (Veolia, Suez, RWE). In addition, a large number of European SMEs export their expertise and equipment. The organization of European water markets is the result of longstanding social, political and economic traditions. The respective roles of public and private sectors vary a lot from one country to another with State-owned, private, and mutual companies, as well as municipalities involved in the ownership or operation of infrastructure. France, in particular, has a hybrid model that rests in between full-private and full-public organization schemes. In all, the share of private activities is relatively low in the EU-25, about 30% of both the water supply and waste water treatment sectors. UK France Germany, Italy, Greece, etc Asset Ownership Private companies Local authorities Local authorities Operations management Private companies Local authorities or delegation to private companies Local authorities Competition for operations No When operations are delegated No Regulatory Authority OFWAT (for prices) Control by local authorities Control by local authorities Source: Eurostat 173

176 Water supply: examples of respective public and privates shares of activities (Eurostaf, 2003) Germany Spain France Italie Netherlands UK Private sector Public sector Source: Eurostat Waste water treatment : examples of respective public and private shares of activities (Eurostaf, 2003) Germany Spain Private sector France Italie Netherlands Public sector UK Source: Eurostat The new member states tend to have a higher share of private management. This is due to the inability of public authorities to finance the necessary investments to fill in missing infrastructure or to upgrade the existing ones in order to comply with EU standards. This has led to large privatization trends, especially in Hungary and Czech Republic. Output prices for the supply of water in the EU-25 increased every year throughout the 1990s and through 2003, averaging 4.0% per annum during the 10 year period 1993 to These rates were higher than the manufacturing average of 1.5% per annum over the same period. (Based on Eurostat domestic output price growth) Source: Eurostat, European Business Trends Monthly and Quarterly Short Term Statistics. 174

177 5. Market drivers & obstacles The price paid for water supply and waste water treatment varies a lot within Europe, depending on the investments carried out : To modernize or to build infrastructures, To comply with environmental requirements. In the end, users often pay for operational costs and rarely for investment costs with big differences between countries. In this context, it is interesting to notice that the EU water framework directive mentions the objective of cost recovery and not of full cost recovery. Transparent pricing and the metering of water use are among the key issues for the sector s growth. Regulation European legislation on water management is very rich and has sustained the sector s activity over the past years. The EU s Sixth Environmental Action Programme 61 includes the following targets specific to water : To achieve levels of water quality that do not give rise to unacceptable impacts on, and risks to, human health; To ensure that the rates of extraction from water resources are sustainable over the long term. The EU water framework directive (directive 2000/60/EC) was adopted in This directive sets the objective of reaching satisfying quality levels in 2015 and supports the introduction of pricing regimes : To reflect the cost of water supply (including environmental costs related to the impacts of abstraction and wastewater collection, treatment and disposal), balanced against the vital nature of water and hence the need to supply consumers regardless of location, season and resources, To provide an incentive for efficient water use. The revised edition of the EU directive on sewage sludge is still pending and might be included in the larger process of producing a soil framework directive, which leaves the sludge issue unsolved though the spreading of sludge on land is increasingly criticized and restricted. Market incentives The pricing policies often include market incentives through the organization of supporting schemes aimed at reducing the price paid by certain categories of users (through tax policy for example). The local or regional scale of the markets makes it difficult to identify general principles however. 175

178 Technology Obstacles and barriers to growth New technologies and innovative solutions that will make it possible to meet higher quality requirements at reasonable cost are considered to be the most important factor that differentiates suppliers in the market. This is particularly true regarding the need for innovative decentralized solutions combined with water re-use, that is, new technologies and also new instruments for financing projects. In the long term, the technological difficulty of using alternative sources such as seawater, brackish groundwater and treated wastewater will have to be overcome. The potential obstacles and barriers to growth are: The respective roles of the public and private sectors, especially in terms of infrastructure investments, and the related funding practices. Pricing methods and policies, Taking initiative in R&D efforts. Other market drivers Population growth and movement, in urban and peri-urban areas in particular, will be the main market drivers, along with all the consequences of demographic change. There is a shortage of readily treatable water resources in some European regions (which will increase due to climate change) and pollution and competition between users. The strain on groundwater resources is already particularly acute in Greece, Spain, Italy, Southern France and Southeast England. 6. Key competitiveness factors Many parts of Europe s water supply and sanitation systems are extremely old (sometimes over one hundred years of age). The infrastructure is deteriorating faster than it is rehabilitated generating the need for major investment to create or renovate water supply and water treatment infrastructure. Market approach Technology Competitors are increasingly required to respond to market demands for new services. The ability to adapt to new standards and demands generates sub-segments which represent additional growth opportunities. The ability to combine basic research (public domain) and research on new performing industrial solutions (private research field being at the heart of the market competition) will be essential to ensure competitiveness of the European actors. 176

179 7. SWOT analysis Strengths Leadership of European companies on the water markets so far, provides availability of financial resources, and strong technical expertise. Innovative supply and sanitation concepts, technology, knowledge and skills. Cooperation with European R&D organizations. Opportunities 40% increase in domestic water use worldwide in the next 20 years. Renewal of aging infrastructure in some countries, the opening of existing markets to private actors (in the United States, for example). Growing demand for equipment needed to provide high quality services for people, industries and agriculture. Weaknesses Vulnerability of centralized systems to accidental or deliberate pollution. Pricing system which does not reflect costs of operations and investments. Complexity of the public/ private allocation of responsibilities. Threats Opening of the waste water and sanitation sectors to international actors (see 2005 EU infrastructure services revised list for WTO negotiation rounds). The perception of water as a low-cost commodity creates pressure from industrial users/ clients (the reflexive desire to have non expensive water in large quantities), which stifles private initiative (funding of partnerships, pricing cultures). PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing policies and instruments Current regulatory requirements R&D See section 5. Several research funding programmes have been set up and supported by the Commission. As an example, the ETAP programme has identified water and sanitation as a key issue, and established the Water Supply and Sanitation Technology Platform (WSSTP). 9. Key issues to address in order to support further development of the sector Regulation Implementation and enforcement of existing legislation. 177

180 Market organisation Improving the functioning of the market and encouraging unbiased competition, in particular : o Strict application of the in-house principle, o Transparency on tax policies, State aids and market protection policies. Increasing transparency in Public-Private Partnerships (more transparency in the procedures and possibilities to build publicprivate partnerships). State aid will probably remain (as the price paid by users cannot cover all costs) but with improved price transparency. R&D Support fore R&D efforts, mainly for basic research (ETAP project: smart water meters, biological solutions, membranes). Persons interviewed: Frédéric de Hemptinne, General Secretary, EUREAU Béatrice Arbelot, Market Research Manager, Suez Environment Tristan Matthieu, Syndicate of Water Distribution Operators Martine Vuillerme, Executive Technical Manager, Veolia Water Bibliography (main documents): Water, safe, strong and sustainable, European vision for water supply and sanitation in 2030, Water Supply and Sanitation Platform, June 2005 Les utilities européennes, vol.2 : Faits et commentaires, collection Perspectives stratégiques et financières, study lead by Eurostat, 2003 European Business Facts and Figures, Part 1 : Energy, water and construction, Data , Eurostat, 2003 edition European Business Facts and Figures, Chap. 14 : Water supply and sewerage, Data , Eurostat, 2004 edition 178

181 179

182 4.6 Environmental Monitoring & Instrumentation INDUSTRY STRUCTURE 1. Industry status Main activity The key activities can be summarized as follows : Manufacturing: production of components and equipment for monitoring air quality, water quality, noise, industrial emissions, radioactivity levels, etc. Integration of components in order to build environmental monitoring systems. Distribution of environmental monitoring equipment. Laboratory analysis. Increasingly, the core activity is shifting from manufacturing to integration of elements in order to provide ready-to-operate systems, with a growing share of data acquisition and management systems. Number & size of companies The sector presents a wide variety of activities, and addresses different media (air, water, industrial emissions, etc.). This partly explains the great diversity of companies active in the field. No detailed market or sector survey has been carried out on the environmental monitoring and instrumentation sector. In addition, no professional organization exists today with EU-wide coverage. As a result, aggregated data on the sector are not available. No data are available on the exact number of companies in the sector. According to sector professionals, there are probably several hundred active companies, most of which have turnover less than 1 million. The main elements that characterize the sector are presented below : Very few pure players : environmental monitoring and instrumentation is the only activity for a very limited number of companies (such as Seres and Environnement SA), All sizes of companies are represented, from very small manufacturers (less than 10 employees) of water monitoring elements to large multinational companies (Siemens, for example), 10 companies meet 80% of the market demand. 180

183 Operating scale (regional/national/inter national) The operating scale mostly depends on the size of the company and on the technology required : Small companies providing simple components or elements (for example for surface water monitoring) usually operate at a regional or national scale. Specialized companies as well as large corporations usually operate at a global level. Integration of activities Although a number of manufacturers have increasingly complex financial ownership arrangements with their suppliers, vertical integration remains limited : Most elements are assembled from different suppliers, Strategic pieces remain manufactured in-house. Manufacturers usually tend to outsource the production of components which require heavy investments and large volumes. Several mergers and acquisitions have been carried out in recent years (more than 12 since 2003), indicating a growing concentration of the sector. In a number of cases, acquisitions have been carried out in order to develop new fields of activity (an example is the acquisition of COSMA, specialized in engine gas monitoring, by Environnement SA). Diversification into new fields of expertise (for instance, ambient air quality monitoring) could therefore be a way for key players to pursue their growth. 181

184 Industry leaders As no detailed data exists on key players in the sector, the information presented below comes from a market analysis of Environnement SA, which is considered to be the market leader in Europe. This description confirms that very few pure players exist in this sector. Manufacturers Country Size (no. of employees) Share of activity on EM&I Siemens Germany > < 1% ABB Switzerland > < 1% Thermo-Thermo USA > < 5% Sick Germany > < 10% Horiba Japan > 10% Teledyne-Api USA > < 10% Casella-Monitor UK 600 < 50% Environnement SA France % Ecotech Australia % SERES France % Source : market analysis, Environnement SA In terms of number of providers, the EU is dominant, with approximately 60% of the players. Other main players are located in the US (30%) and in Asia. 2. Economics and costs Turnover No consolidated data exist concerning the turnover of the sector. In order to make an estimate, we assume that the turnover of all activities included in the sector is in the area of 1 billion. This very gross estimate is based on the following assumptions: The turnover per employee ratio ( 0.2 million/worker) of Environnement SA (turnover in 2005 is 40 million, for roughly 200 employees) applies to all companies active in the sector, The sector employs 5,000 people, which is a rough estimate (see section 3). 182

185 Cost structure According to people interviewed, the cost structure is characterized by a strong share of research and development (R&D), as estimates on the breakdown of the workforce show: 10 to 20% of the workforce are dedicated to R&D, 20 to 40% dedicated to sales and to management, 40 to 60% of the workforce is directly involved in producing components and assembling products. 3. Employment No consolidated data exist concerning the total number of employees in the sector in the EU, or on a global level. The main problems in collecting precise employment data are : The difficulty of identifying the number of people working on environmental monitoring instrumentation in multinational corporations such as Siemens or ABB, The very large number of small firms, and the fact that there exists no comprehensive listing of these firms, in the absence of a structured EU-wide professional organization. According to professionals, a low estimate would be around 5,000 people in Europe employed in the sector. 183

186 MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth Growth of the market for emissions monitoring has been slow over the recent years, however with a sharp increase in 2005 (approximately 35%). This increase is due to a large extent to the implementation of Directive 2000/76/EC on the incineration of waste. The directive has set stricter limit values for the emissions of pollutants in the atmosphere and provides for the mandatory provision of measurement systems enabling the emission limits to be monitored. As the application deadline for existing plants was set to December 28 th, 2005 (December 28 th, 2002 for new plants), a large number of installations were completed in 2004 and 2005 to comply with the new requirements. Outlook According to the professionals interviewed, the market outlook is highly dependent on the implementation of current regulation and on the emergence of new regulatory requirements. However, the following assumptions can be made at this stage : The industrial emissions market should slow down in the EU-15 area as most sites are now compliant with Directive 2000/76/EC, The air quality monitoring market is also mature in the EU-15 as most large cities are equipped, The strongest growth potential lies in the new member states, where the implementation of air quality and air emissions directives should support market development. In addition, new demands are emerging on the market, in terms of environmental issues (pollutants, media), and in terms of service offerings (for instance, contracts for outsourcing the entire monitoring process). These changes will probably generate new growth opportunities for the sector. Export market As most manufacturers at the global level are European, the export market represents an important share of the sector s output, although not quantified at this stage. There have been difficulties in penetrating the US market, due to technical requirements which are barriers to external entrants. 184

187 Market organisation (pricing, contracting methods, etc.) Clients of the sector are : Local and national authorities, in charge of environmental monitoring, mostly air and water quality, Industrial installations. According to key market players, the public and private sector each roughly represent 50% of the market. However, the share of the private sector is rising due to : New regulatory requirements on industrial emissions, And the market for ambient air quality monitoring is becoming mature in a number of countries. 5. Market drivers & obstacles Regulation Regulation is the most critical driver for the market. As environmental monitoring and instrumentation equipment are end-of-pipe technologies, they represent a cost for the client and do not allow any return on investment. Stricter environmental requirements and increasing controls are therefore the main element which will develop the market for these technologies. As an example, Directive 2000/76/EC on the incineration of waste has generated new business opportunities in the field of emissions monitoring. Such regulatory requirements have strong implications for operators of industrial installations. For example, if a waste incinerator does not provide emissions measures for more than 4 hours, operations must be stopped. These obligations provide a strong incentive to operating companies to invest in reliable measuring equipment. Technology Technological innovation and rapid industrial application are other key drivers for the market. Research and development efforts focus on measuring processes, such as continuous monitoring of dioxins and furans. Emergence of new products and services Increasingly, suppliers of environmental monitoring instrumentation are switching from supplying goods to supplying services : Manufacturers allow customers to outsource the measuring process and provide data on a regular basis with guarantees on the reliability of data. These services imply long-term contracts (10 to 15 years), and require the integration of various competencies (in data systems, for example). These contracts also generate higher revenues. 185

188 Obstacles and barriers to growth The main obstacle identified is the lack of enthusiasm of industrial companies for investing in environmental monitoring technologies, unless forced to do so. With respect to export markets, the strong exchange rate of the Euro has considerably reduced market opportunities for European firms outside the EU. 6. Key competitiveness factors Market approach As growth cycles depend mostly on the implementation of environmental regulation, spreading activities over several media (air, water, industrial emissions, etc.) will allow the sector to maintain stable growth and reduce overall risk. Technology The capacity to carry out R&D efforts is considered to be a key factor. Critical size A critical firm size (probably close to 100 people) is necessary in order to develop R& D capacity. 7. SWOT analysis Strengths Existing regulatory requirements on environmental monitoring, in the field of industrial emissions, ambient air quality, water quality. Weaknesses Environmental monitoring and instrumentation are end of pipe technologies. Investing in these solutions are a pure cost for industry and do not improve process efficiency. R&D efforts are limited by the fact that the sector is not yet sufficiently concentrated and is composed of a large number of SMEs. Difficulty in penetrating some external markets (technical barriers to the penetration of the US market, strong Euro exchange rate). Opportunities Emergence of long-term service contracts, with higher budgets associated. Implementation in new member states of the acquis communautaire regarding air emissions, air and water quality. Threats Growing maturity of historical markets in the EU, as the largest cities and industrial sites are now equipped with environmental monitoring instrumentation. Growing competition from Asian competitors. Future regulatory requirements on air and water quality. 186

189 PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing policies and instruments Current regulatory requirements Existing market incentives and supporting mechanisms R&D Most EU regulation on water quality, air quality and air emissions include requirements on monitoring of the pollutants listed. No specific market incentives were identified Several environmental agencies and industrial innovation programmes support R&D efforts in the sector. 9. Key issues to address in order to support further development of the sector Regulation Implementation of the existing air emissions regulation in all member states. New regulations on ambient air monitoring. These regulations could require for example that all cities above inhabitants are to implement an air quality scheme. Market organisation Stronger controls in order to ensure that contracts and grants in EU-funded programmes are awarded to member State firms. R&D Support for R&D efforts on monitoring processes (especially for continuous monitoring of dioxins and furans). Persons interviewed: Stéphane Adrait, Area Manager, Central, Eastern & Northern Europe, Environnement SA. Mr. Merlin Hyman, Environmental Industries Commission (EIC), European Committee of Environmental Technology Suppliers Associations (EUCETSA) Bibliography (main documents): No sector-specific bibliography identified 187

190 4.7 Renewable energy production (except wind power generation) INDUSTRY STRUCTURE 1. Industry status Main activity Renewable Energy Sources (RES) can be classified as follows : Wind energy (addressed separately in chapter 4.8) Hydropower (large and small) - Hydropower provides electricity. The small scale hydraulic field is defined as installations with capacities less than 10 MW (though certain countries continue to use notably different thresholds) and large hydropower plants have capacities larger than 10 MW. Photovoltaic energy - Photovoltaic technologies allow the transformation of solar light directly into electricity. Geothermal energy - Geothermal energy is the heat from the earth. It can be valorised in two different ways, in the form of electricity or in the form of heat. However, few European countries have the natural resources necessary for electrical valorisation of geothermal energy. Production of heat using geothermal energy can be done in two very distinct ways. The first consists of directly exploiting subterranean water tables that have temperatures between 30 C and 150 C (medium and low temperature applications). The second way makes use of geothermal heat pumps (very low temperature applications). Bioenergy (energy from biomass) - Bioenergy can be used in different forms and for different purposes : - Wood energy - mainly used in combined heat and power (CHP) installations and in wood heating units - Biogas - mostly valorised in the form of electricity. - Biofuels - can be used to generate electricity in thermal power plants or as automobile fuels (biodiesel and ethanol) Solar thermal energy - Solar thermal energy is used for heating and cooling. Solar cooling (air-conditioning systems powered by solar heat) is not yet industrially developed (only 6.3 MW are installed) but could become a significant energy source in the future. 62 Solar thermal energy is also used for producing electricity, as concentrated solar radiation serves as a high temperature energy source to produce electrical power. Solar radiation can also drive chemical reactions for the production of fuels and chemicals. Other RES - There are a number of other renewable energy technologies, such as tidal power, ocean currents, wave power, hot dry rock, ocean thermal energy conversion. The market in the European Union currently does not exist for these technologies. 188

191 In each of these sectors the key activities are: Research and development Construction of equipment Installation Operation and maintenance Number & size of companies 1. Hydropower (large and small) - There are around 70 smallscale water turbine manufacturers in the EU-15. In the new member states and candidate countries, they are less numerous (18 and 3, respectively). 2. Photovoltaic energy - There were 44 large (i.e. > 10 MW) PV production sites in operation in 2005 in the EU (21 in Germany, 6 in Spain) Geothermal - The geothermal sector consists of 3 subsectors (power generation, direct heating and heat pumps) which all include many different activities, such as borers, various equipment manufacturers (heat pumps, turbines, etc.), installers, and so on. As a consequence, hundreds of companies are active in the geothermal sector. The size of these companies is in relation to the size of the resources they use. Heat pump manufacturers and installers are often small companies while power generation is in the hands of big energy companies. 4. Bioenergy The biomass electricity industry consists of a wide range of enterprises from multinational power engineering companies in the Nordic countries to smaller companies involved in the development of fuel supply systems. Farmers could play an increasingly important part in the industry in the future if more energy crops are grown (Source: ATLAS website for renewable energies). 5. Solar thermal energy - The solar thermal sector is a relatively small sector, dominated by SMEs, some of them gradually becoming large companies due to the rapid growth of the sector (20-30% annually). Companies from neighbouring sectors are increasingly developing activities in the solar thermal sector, for example, Velux, a Danish company known for its roof windows. Operating scale (regional/national/inter national) Technology suppliers are present worldwide. The production of elements tends to be far from energy production sites while installation, maintenance and operation are local, at energy production sites and close to energy consumers. For biomass, organic material can be transported but there is a clear limit to the distance between material production and conversion sites due to transport cost and the natural biodegradation process that can spontaneously begin. Integration of activities The actors in the RES market are of all sizes and integration levels. Most of them are small companies focusing on one technology for one specific RES and even in one part of a particular RES value chain. But there are also some energy giants that are developing 189

192 activities related to different RES, such as Enel or Suez. Large oil producers and refiners are mainly active in the photovoltaic electricity generation sector. Big groups often enter a market by purchasing a smaller specialized company that is developing activities complementary to their own research programmes and spin-offs. As explained above, the companies active in the geothermal sector are numerous and often specialize in one of the activities in the sector. However, some bigger companies do integrate different elements and deliver turnkey plants. Regarding equipment manufacture, companies in the solar thermal sector produce one or more components of the system (collectors, tanks, pipes, etc.) or provide complete systems. Installation and maintenance are often carried out by local SMEs, but can also be in the hands of the system provider. In addition to these companies, there are also Energy Service Companies (ESCOs) that sell the heat while remaining the owner of the installation, like S.O.L.I.D. (Austria). Some companies active in solar thermal also develop activities in other RES sectors (e.g. Conergy from Germany in solar thermal and PV). Industry leaders Leading global companies on the RES market are Iberdrola (Spain), Suez Energie (France), Shell Renewables (UK), EHN (Spain) et Siif (France). 1. Hydropower (large and small) The most important European hydro-turbine manufacturers are: Hydro-turbine manufactures Large and small hydropower Alstom Hydro Power France GE Energy Norway VA Tech Hydro France Voith Siemens Hydro Power Generation Germany Small hydropower Cargo& Kraft Turbin Sverige AG Sweden Gilbert Gilkes & Gordon Ltd United Kingdom Gugler Hydro Energy Austria Hydrolink s.r.o. Czech Republic Koessler GES Austria Madex sp. Z.o.o Poland Mavel A.S. Czech Republic 190

193 2. Photovoltaic energy The largest producers of solar cells are in the table below: Company Production Total 2002 (MW) Production Total 2001 (MW) Growth Isofoton (Spain) % RWE Schott Solar % Photowatt (France) % BP Solar (Spain) % Q-Cells (Germany) % Ersol (Germany) % Shell Solar % Astra Solar (Spain) % Sunways (Germany) % Dunasolar (Hungary) % Total % 3. Geothermal The most important companies in geothermal energy are below: Company Country Activity Ochsner Austria Heat pumps PBV Verheyden Belgium Heat pumps Drilling DONG Denmark District heating CFG Services France Heat and electricity (whole cycle) Alstom France Turbines manufacturer Geothermie Neubrandenburg Germany Heat (survey, drilling, etc.) EWS Erdwärme Heat (survey, construction, Systemtechnik Germany etc.) UBeG Germany Heat (design, supervision) MAROTON Germany Borehole grouting material PORCIO Rt Hungary Heat (design and construction) TURBODEN Italy Design and construction power plants ENEL GreenPower Italy Exploration, production, etc. Geothermal field and plants Geotermia Podhalansha Poland operator ABB Switzerlan d Systems manufacturer 191

194 4. Bioenergy Some of the most important European companies active in biomass are presented in the table below: Company Turnover (million Employees Nolting (Germany) ) N.N. 120 HDG Bavaria N.N. 100 WVT-Bioflamm N.N. 60 Ökofen (Austria) N.N. 40 Fröling (Austria) ETA Heiztechnik 9 45 Vyncke (Belgium) N.N. 65 Kvaerner Pulping N.N. N.N. Semet (Finland) N.N. 60 Thermia (Finland) Compte R. (France) Weiss France (France) Vapo Energy (Finland) 250 * 902 * Abengoa Bioenergy N.N. N.N. KFK Bioenergy N.N. N.N. Råsjö Torv (Sweden) 63.7 ** N.N. Tall oil (Sweden) 26.8 ** N.N. Schmid S.A Industrialists (2003) Source: EurObserv ER * Figures for 2005; ** Figures for Solar thermal energy The largest producers of absorbers are in the table below: Company Absorber production 2004 in m² Greenonetec Ezinc KBB Chromagen Solahart Dimas Innovar Solar Diamant Sunstrip ESE Böhm Papaemmanouel Giordano Ruperti SET Buschbeck Fenis

195 Company Absorber production 2004 in m² Nau SunLaser Gamesa SOURCE: Sun and Wind Energy, n 1/2005, p Economics and costs Turnover The overall turnover of the European renewable energy industries (including wind energy) is 10 billion, according to EREC (the European Renewable Energy Council), but it is not broken down by sector. Wind energy has the largest market share among RES by far. 1. Hydropower (large and small) - Data are often not separated between small and large hydropower, therefore it is not possible to calculate the turnover for the two types of hydroenergy separately (Source: ESHIA). 2. Photovoltaic energy - The solar electricity sector already constitutes an annual business worth more than 1 billion. The European market is still very much centred on Germany which is clearly the leading country, which alone represents more than 80% of the grid-connected market in Europe, a direct result of the support schemes launched some years ago. 3. Geothermal energy - The sector is very scattered. Moreover, some equipment is produced by companies in other industry sectors. Therefore it is very difficult to assess the turnover of the sector. The EGEC (European Geothermal Energy Council) has not made an estimation yet. 4. Bioenergy - The biomass sector is a wide and diverse sector. As its numerous actors are not well mapped and integrated yet, it is not possible to assess the turnover of the sector (Source: EUBIA, European Biomass Industry Association). 5. Solar thermal energy - The annual turnover of the solar thermal sector is estimated by ESTIF (European Solar Thermal Industry Federation) to be more than 2 billion. Cost structure In all sectors, costs have fallen dramatically as technologies have improved. The wind and solar photovoltaic examples are striking. Investment costs for wind declined by approximately 3% per year over the last 15 years. For solar photovoltaic cells, which were originally utilised by the space programme, unit costs have fallen by a factor of 10 over the last 15 years. 64 In general, investment in equipment is by far the main cost item, and maintenance is the second one. For biomass, however, costs lie mainly in the production, transportation and handling phases. For geothermal energy, the main costs by far are in the drilling phase of a project. The production of equipment (turbines, heat pumps, etc.) comes second. Operation and maintenance costs are low. For small hydropower (SHP) projects, initial investment costs per kw 193

196 are much higher than for conventional energy production. Afterwards, operation costs are much lower since no fuel has to be bought. Two characteristics influence the relative importance of initial investments in SHP projects. Costs increase as head (pressure) decreases and similarly as scheme kw size decreases. As such, small (less than 250kW), low head (less than 15m) schemes have the highest relative costs per scheme (see figure). The solar thermal market is significant in 3 European countries (Germany, Austria and Greece) and is only beginning in others. The cost structure of a project is different depending on the state of the market. However, generally speaking, it can be estimated that around 45% of costs are spent on equipment, while the rest is spent on services (design, installation, maintenance, etc.). For services, maintenance is cheap (less than 5% of total costs) 3. Employment The global employment in the RES industry (including wind energy) is 200,000 people according to EREC. As a recent study shows, the deployment of renewable energy creates more employment, compared to other energy technologies. Generally speaking, renewable energy technologies are important for local employment and income generation which results from manufacturing, project development, servicing and in the case of biomass, rural jobs and income diversification for farmers. 65 A European study 66 concluded that the development of renewable energy should lead to the creation of about 900,000 new jobs by 2020 : About 400,000 jobs from renewable energy and 500,000 jobs in agriculture and forestry areas that supply the primary fuels. EREC forecasts a higher number of jobs (direct and indirect employment): 1,000,000 jobs in 2010 and 2,000,000 jobs in 2020 if ambitious plans are implemented. Details are given in the table below: 194

197 Net Employment growth (Jobs FTE *) Jobs biofuels biomass wind solar photovoltaic hydro geothermal thermal (small) * Full Time Equivalent Net Employment growth (Jobs Full time equivalent) biofuels % 30% biomass % 26% wind % 16% solar thermal % 14% photovoltaic % 12% hydro (small) % 1% geothermal % 0% Total % 100% Source: EREC p.xxxvi 195

198 MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth In this section, market size and growth are presented and evaluated against the targets set in the Commission White Paper on Energy Policy (hereafter called the White Paper) and Directive 2001/77/EC on the promotion of electricity produced from renewable energy sources (hereafter called the RES-E Directive). The White Paper sets a goal of having 12% of EU energy consumption come from renewable energy by The RES-E Directive aims at having 21% of electricity generated by renewable sources by National RES-E 2010 targets for member states RES-E % in 1997 RES-E % 2010 Austria Belgium Denmark Finland ,5 France Germany ,5 Greece Ireland ,2 Italy Luxembourg Netherlands Portugal Spain Sweden UK Cyprus Czech Republic Estonia Hungary Latvia Lithuania Malta Poland Slovakia Slovenia EU (Source: The share of renewable energy in the EU, 2004, Commission Staff Working Document) In spite of positive developments in the RES market, these targets will probably not be reached and 10% RES and 17-18% RES-E by 2010 are much more likely. Country reports (required by the RES-S Directive) show considerable differences between member states. The first group (Germany, Denmark, Spain, Finland) is on track to reach their national targets. The countries in the second group (Austria, Belgium, Ireland, the Netherlands, Sweden, the United Kingdom, and France) have started to implement appropriate policies. In this group there is mixed evidence on achievement of the 2010 targets. The countries in the 196

199 third group (Greece, Portugal) are not on track to achieve their national targets. Italy and Luxembourg adopted new laws in March 2004 and it is not yet possible to assess their effects. However, only limited progress can be recorded for them over the last three years. 1. Hydropower Hydropower is the second largest renewable energy source in the EU-15 in terms of primary energy production, accounting for 31.6% (27,663 ktoe) of total RES primary energy production in For electricity alone, hydropower now accounts for about 84% of electricity generation from renewable sources and for 13% of total electricity production in the EU-15. By the end of 2000, installed capacity was 94,620 MW, showing an increase of 11.2% over the period It must be stressed that the potential of large-scale plants in the European Union is already almost fully exploited. (Source: Eurostat, Renewable energy sources statistics in the EU, Iceland and Norway - Data ) For small hydropower (SHP), the EU-15 has an estimated economically feasible potential of about 110,000 GWh/year. The new member states and the candidate countries have an economically feasible potential of 6,775 GWh/year and 24,216 GWh/year, respectively. In the EU-15 more than 82% of all economically feasible potential has been exploited so far. The contribution of this renewable energy source is high but the total capacity will remain stable. However, in the new member states, particularly in Slovenia, Hungary and Lithuania, only 36% of the potential is being exploited and in candidate countries, the SHP potential exploitation rate is about 5.8%. (Source: Small Hydropower Situation in the New EU member states and Candidate Countries - Sept 2004) Large hydropower (LHP) potential is close to full use. Moreover, although LHP is included in the definition of renewable energy of the RES-E Directive, it has been tacitly agreed that large hydropower will count towards meeting the targets (national targets do take it into account) but it will not be eligible for support measures (due to its environmental impact). (Source: Total small hydraulic capacity in the EU-25 in 2004 Country MW Country MW Italy Greece 70 France Belgium 64 Spain Luxembourg 40 Germany Ireland 38 Sweden Latvia 25 Austria 950 Lithuania 19 Finland 370 Denmark 11 Portugal 320 Hungary 8 Poland 285 Estonia 4 Czech Rep 218 Netherlands 2 UK 162 Cyprus 0 Slovenia 85 Malta 0 Slovak Rep 71 Total EU

200 2. Photovoltaic Since the introduction of the German Feed-in law in 1999, European PV production grew on average by 50% per year and has reached a capacity of more than 1,000 MWp in Although PV output is still small, its EU growth rate curve almost exactly mirrors that of wind power, with a delay of approximately 12 years. European installed PV capacity doubled between 2001 and 2003, with Germany accounting for more than 70% of the total. However, PV also doubled in Spain and Austria, whereas Luxembourg achieved the highest PV power per inhabitant of 8W per capita. In a joint publication in September 2005 with Greenpeace titled "Solar Generation", the EPIA (European Photovoltaic Industry Association) estimated that the European Commission objective of 3,000 MWp for the end of the year 2010 could be widely surpassed and that 5,000 MWp capacity by then is entirely possible. Photovoltaic capacities installed in the European Union in 2004 Country MWp Country MWp Germany Belgium Netherlands Czech Rep Spain Poland Italy Cyprus France Hungary Luxembourg Ireland Austria Slovenia UK Slovak Rep Greece Lithuania Sweden Malta Finland Latvia Portugal Estonia Denmark Total EU Geothermal energy Electricity Only 5 countries possess the natural resources needed to produce electricity from geothermal energy: Italy, Portugal, France, Austria and Germany. Total installed capacities in the European Union amounted to MWe in Italy has the main high temperature geothermal deposits in the EU (790 MWe), and alone represents nearly 95% of total European capacity. Portugal is developing installations on the volcanic archipelago of the Azores, France is exploiting the Bouillante site in Guadeloupe and Germany and Austria have been developing this sector for only a short period of time. Each country involved in electricity production wants to increase their installed capacities. Their cumulated announced efforts will bring European Union capacity up to 988 MWe in 2010, which is a little less than the objective set by the European Commission (1000 MWe). Heat Most countries can produce heat from geothermal energy. In the EU- 25 at the end of 2004, medium and low temperature geothermal 198

201 energy represented a capacity of 2,059 MWth (for geothermal use of 637 ktoe) without heat pumps, which is 718 MWth more than in Hungary is the biggest user of medium and low temperature geothermal energy with installed capacity of 690 MWth, according to the Hungarian Association for Geothermal Energy. Italy is the second largest EU user of low temperature applications with capacity of 487 MWth, according to the UGI (Italian Geothermal Union) and the ENEL. France, ranked third in the EU with 292 MWth installed at the end of 2004, has developed urban heating networks more. The EU has been active in developing heat pump technology. It is estimated that there are more than 379,000 geothermal heat pump units, equivalent to 4,531 MWth (table 3). Geothermal energy use corresponding to this capacity is of the order of 0.58 Mtoe. Sweden has the largest number of heat pumps with more than 186,000 units, i.e. a cumulated capacity of MWth. It is ahead of French capacity (50,000 units/550 MWth), German capacity (49,000 units/633 MWth), Austrian capacity (31,000 units/612 MWth) and Finnish capacity (30,000 units/300 MWth). It can be reasonably assumed that the target for heat production from geothermal energy set by the Commission for 2010 (i.e MWth) will be largely exceeded with medium and low temperature capacity as high as 2,360 MWth and very low temperature capacity (heat pumps) of 8,000 MWth. The new Commission guideline, the "Sustainable Energy Europe" programme, has determined new objectives to be reached between 2005 and 2008, i.e. 250,000 new heat pumps, 15 new electric power plants and 10 new low temperature power plants. Taking current geothermal heat pump market growth into consideration (25% between 2003 and 2004), the new Commission objectives appear to be feasible and attainable. 4. Bioenergy The main reason why the 21% RES-E target is not being achieved is because the production of electricity from biomass has not been as high as initially forecasted. Between 1997 and 2001, Finland, Denmark and the UK (mainly using biogas) were the only countries where biomass electricity grew steadily. In some countries the biomass contribution grew intermittently and in others it stayed small. In general, coordinated policies are lacking and financial support is small. In 1997, the Commission expected that 68% of the growth in electricity from renewable energy sources would come from biomass, 24% would come from wind power and 8% from a mixture of hydro, geothermal and photovoltaic power. Now, the strong growth of wind power means that it will likely be responsible for 50% of the growth needed to achieve the target set by the directive. Hydro, geothermal and photovoltaic power can be expected to be responsible for 10% combined. Consequently, the target will only be achieved if biomass delivers the remaining 40%. It will need to grow from 43 TWh in 2002 to 162 TWh. This would require biomass electricity to grow by 18% per year, higher than its growth of only 7% per year over the last seven years (Source: "The share of renewable energy in the EU", 2004). 199

202 Wood energy Primary production of wood energy (including wood waste, black liquors and solid agricultural crop residues) in the European Union has clearly increased in million tons oil equivalent (Mtoe) were produced, 3 Mtoe more than the year before (5.6% growth). The share of wood energy in total EU primary energy consumption is now 3.2% in 2004 (3.0% in 2003). Use of wood and wood by-products to produce electricity is growing rapidly (23.5% in 2003 and the equivalent of 34.6 TWh in 2004) in particular due to development of combined heat and power (CHP) plants in some EU countries. Development of the wood energy industry is far from equal throughout the EU. The use of wood energy is greater in large forestry countries like Sweden, Finland and Austria, that is, countries where activity sectors linked to biomass are especially significant (furniture wood, building wood, etc.). These countries have already developed a high-tech industry (especially for combined heat and power (CHP) installations) and have already largely made use of their potential. Many other countries are only just beginning to exploit their potential (like Poland, Czech Republic, Slovak Republic and the Baltic states). EurObserv ER has determined that the wood energy share should amount to 100 Mtoe in Their projections show that the present growth is not sufficient to reach this objective. Primary energy production from wood energy in the EU in 2004 Country Mtoe Country Mtoe France Greece Sweden Hungary Finland Netherlands Germany Lithuania Spain Slovenia Poland Belgium Austria Slovak Rep Portugal Estonia Latvia Ireland UK Luxembourg Denmark Cyprus Italy Malta Czech Rep Total EU 55.4 Biogas Over the last dozen years, energy exploitation of biogas has taken a significant place in the EU. Total biogas production in 2004 was 4.12 Mtoe. United Kingdom is the leading European country for crude biogas production. UK production is estimated at 1.47 Mtoe for The largest part of this biogas is valorised in the form of electricity (4 TWh, the equivalent of 350 ktoe). It should be pointed out that three thermal units are necessary to produce one electrical unit. This explains the difference between the energy content of the total crude biogas production and electricity production. Germany is second with an overall production of 1.29Mtoe in 2004 (the valorisation is principally for electricity). In France, which is fourth, biogas is principally valorised in the form of heat (56 ktoe versus 42 for electricity). The other countries of the EU produce markedly less than 200

203 the first four. Among the new member countries, Czech Republic valorises a large part of its crude biogas production from engineered landfills and urban sewage purification plants. If the growth rate seen in 2004 is maintained until 2010, valorised crude production of biogas should be about 8.6 Mtoe. This figure is very far below the European Commission White Paper objective of 15 Mtoe. Biofuels In 2004, 2.45 Mt of biofuels were produced in the European Union versus 1.93 Mt in 2003 (including new member countries), which is 26.6% growth. Biodiesel The European Union had 11 producer countries in 2004 (see table below). Production was close to 2 Mt in 2004 versus 1.5 Mt in 2003, including new member countries, which equals 29.6% growth in a single year. Germany remained the leading EU biodiesel producer in 2004, with production above 1 Mt. This can be explained by very favourable legislation that permits a total tax exemption for biofuels, either pure or mixed with fossil fuels. France is in second place, but its production has continually decreased since In the future, the situation should evolve much more favourably in France, as the Biofuels Plan has targeted a 0.8 Mt increase in approvals for biofuels (biodiesel and bioethanol) by the year Among the new member countries, the Czech Republic is the biggest biodiesel producer. Biodiesel production in the EU in 2004 Country Tons Germany France Italy Czech Rep Denmark Austria Slovak Rep Spain UK Lithuania Sweden Total EU Bioethanol Bioethanol production intended for automobile fuel amounted to 0.49Mt in 2004 versus 0.425Mt in 2003, including new member countries, for 15.6% growth. Spain is the leading EU country for bioethanol, with a production of Mt in 2004 (0.16Mt in 2003). The success of this production can be explained in large part by Spain's choice not to collect tax on ethanol. In France, this sector will also benefit from the French Biofuels Plan with an additional approval of 0.32Mt by the year

204 Bioethanol production in the EU in 2004 Country Tons Spain France Sweden Poland Germany European Commission Total EU For biofuels as a whole, if the current trend is compared with European Commission objectives, it seems that the objective of 5.75% biofuels in the transport sector by the year 2010 will not be reached. The Joint Research Centre estimates biofuel consumption at 5.9 Mtoe in 2005 and 18.2 Mtoe in 2010, which is very close to the White Paper objective for 2010 of 18 Mtoe. However, taking current development into consideration, biofuel production is estimated at 2.8 Mtoe in 2005 and 9.4 Mtoe in Solar thermal energy The solar thermal (heating and cooling) market in the EU has more than doubled compared to the mid 1990s and is three times bigger than in the late 1980s. Between 1990 and 2001, the average yearly market growth has been 13.6% and the cumulated surface in operation tripled, growing every year by 11.6%. Since 2000, the solar thermal market has clearly passed the mark of 1 km² newly installed collectors per year. In 2004, panel installation was 1.69 km 2. The surface in operation in 2004 was above 15 km². The largest market by far is Germany. The two other large markets are Greece and Austria. In spite of this positive growth, the sector does not presently reach the growth rate needed to meet European Commission objectives. This situation is due to the fact that the European market is supported by a minority of countries. Germany, Austria, Greece and Cyprus represent 77.3% of European thermal solar capacity but only 22.5% of the EU population. The present trends lead to an estimate of EU installed surface area of 33 km 2 in 2010, which is only one third of the White Paper objective of 100 km². 202

205 Cumulative capacity of thermal solar collectors installed in the European Union in 2004 Country MWth Country MWth Germany Poland 66.2 Greece Slovak Rep 39.7 Austria Belgium 36.4 France Czech Rep 35.0 Netherlands Hungary 33.6 Italy Malta 10.8 Cyprus Finland 8.6 Spain Luxembourg 8.1 Denmark Ireland 5.3 Sweden Latvia 1.2 UK Lithuania 1.2 Portugal 76.4 Estonia 0.4 Slovenia 71.1 Total EU On a global scale, the solar thermal power market has remained stagnant since the early 1990s, when 350 MW were constructed in California due to favourable tax credits (but no centrals were present in the EU). Recently, commercial plans in Israel, Spain, and the United states have led a resurgence of interest, technology growth, and potential investment. Spain s market is emerging, with investors considering two 50 MW projects in Outlook Production As explained before, the EU RES and RES-E targets for 2010 (respectively 12% and 21%) very probably not be reached. The expected figures are 10% and 17-18% respectively. The following table shows the EU White paper targets and the outlook from EurObserv ER (Source : Website DG-TREN): Energy Sector Units White Prevision Paper % of target Bioenergy Wood energy Mtoe % Biogas Mtoe % Biofuels Mt % Wind Energy MWe % Small Hydro MWe % Geothermal Electricity MWe % Heat MWth % Solar Photovoltaic MWp % Thermal (heating and cooling) km² % 203

206 Investments According to EREC, the implementation of new policies to promote renewable energy sources will have a considerable impact on the amount of investments made in this sector. In order to reach the 20% target for 2020 (call from the European Parliament - 29/09/2005) an investment of 443 billion in renewable energy is needed over the period The necessary investments are spread across the different sources: Necessary investment (billion ) to reach 20% RES by 2020 wind solar thermal biomass photovoltaic hydro (small) geothermal Billion Share Wind % solar thermal 91 21% Biomass 89 20% photovoltaic 76 17% hydro (small) 20 5% geothermal 11 2% Total % Source : EREC p.xxxv Costs Legislation is the main market driver as RES technologies are not yet profitable. There is potential for natural profitability as a result of 5 factors (classified in 3 groups) : Increasing cost of fossil fuels due to: o Increase in fossil fuel prices o Growing internalisation of the external environmental impacts of fossil fuel burning (CO 2 tax ) Decreasing cost of RES due to: o Technology improvements and increasing efficiency o Increased scale of production Increasing demand from consumers for green products 204

207 Export market There is an export market for technologies and construction elements. The installation, maintenance and operation phases occur locally at the energy production sites and close to energy consumers and do not participate in the export market. The importance of the European market in comparison with other countries is presented below (Source: REN21, Global Status Report, 2005). SPH Small hydropower is present worldwide. More than half of the world s SHP capacity exists in China. Other countries with active efforts include Australia, Canada, India, Nepal, and New Zealand. Biomass electricity and heat production It is slowly expanding in Europe, driven mainly by developments in Austria, Finland, Germany and the United Kingdom. Among developing countries, small-scale power and heat production from agricultural waste is common, for example, from rice or sugar cane. Biofuels Ethanol Brazil has been the world leader and primary user of fuel ethanol for more than 25 years, contributing slightly less than half the world s total production. The United States is the world s second-largest consumer and producer of fuel ethanol. The growth of the U.S. market is a relatively recent trend. Other countries producing fuel ethanol include Australia, Canada, China, Columbia, the Dominican Republic, France, Germany, India, Jamaica, Malawi, Poland, South Africa, Spain, Sweden, Thailand and Zambia. Biodiesel Biodiesel production is very important in Germany. Other primary biodiesel producers are France and Italy, with several other countries producing smaller amounts, including Austria, Belgium, the Czech Republic, Denmark, Indonesia, Malaysia, and the United States. Several countries are planning to begin biodiesel production or to expand their existing capacity in the coming few years. Photovoltaic As shown in section 1 Germany is a big importer of PV technologies. Indeed, Germany is now the leading photovoltaic market in the world ahead of Japan and USA. Solar thermal heating Solar hot water/heating technologies are becoming widespread and contribute significantly to the hot water/heating markets in China, Europe, Israel, Turkey and Japan. Dozens of other countries have smaller markets. China accounts for 60 % of total installed capacity worldwide, the EU for 11 %, followed by Turkey with 9 % and Japan with 7 % (all figures are for glazed collectors only). Geothermal energy There are at least 76 countries with geothermal heating capacity and 205

208 24 countries with geothermal electricity. More than 1 GW of geothermal power was added between 2000 and 2004, including significant increases in France, Iceland, Indonesia, Kenya, Mexico, the Philippines and Russia. Most of the geothermal power capacity in developed countries exists in Italy, Japan, New Zealand and the United States. Regarding geothermal direct-heat utilisation, Iceland leads the world market. About half of the existing geothermal heat capacity exists as geothermal heat pumps, with nearly 2 million heat pumps used in over 30 countries, mostly in Europe and the United States. Market organisation (pricing, contracting methods, etc.) RES still needs support to penetrate the energy markets. Different systems can be used for this aim : Fixed price system (the energy produced from RES can be sold at a guaranteed price), 5. Market drivers & obstacles Variable price system (certificates) with a minimum value guaranteed by public authorities. Regulation 1) European level The EC White Paper (1997) and the RES-E Directive are considered to be the main drivers for the renewables market. Other instruments were also developed by the Commission to indirectly promote renewable energy : Legal instruments Directive 2003/30/EC on the promotion of biofuels (target of 5.75% in the share of biofuels in diesel and gasoline used for transport in 2010) Directive 2002/91/EC on the energy performance of buildings Directive 2004/8/EC on promotion of cogeneration based on a useful heat demand in the internal energy market Directive 2003/96/EC restructuring the Community framework for the taxation of energy products and electricity Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community Directive 2004/101/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol s project mechanisms (Linking directive) 2) Member State level Most member states have implemented a support system for renewable energy. These take the form of feed-in tariffs, quota obligations and/or green certificates. A communication from the Commission, titled "The support of 206

209 electricity from renewable energy sources" (7/12/2005), includes an assessment of the existing support systems in the member states. Competition with substitution products Fossil fuels are the main competitors for RES. Their main advantages are the maturity of their market (well-known technologies, ubiquitous presence, etc.) and their relatively cheap price. According to REN21, the fundamental uncertainty about the future competitiveness of RES relates to future fossil fuel prices, which affect conventional power costs but not the costs of renewables. The table below shows the costs associated with renewable energy as presented in the Global Status Report 2005 (REN21). These costs have to be compared with the cost of energy from fossil fuels (typical conventional power generation costs are in the 2 5 $cents/kwh range for baseload power, but can be considerably higher for peak power and higher still for off-grid diesel generators). We can see that some RES are almost competitive with fossil fuel energy already - onshore wind, biomass based heating, hydropower and geothermal heating - while others still have a long way to go before being able to compete with fossil fuels without any support (photovoltaic, biomass power, biofuels). 207

210 Characteristics and costs of RES (Source: REN21,Global Status Report 2005) Technology Typical Characteristics Typical Energy Costs (US$ cents/kwh) Cost Trends and Potential for Cost Reduction Power Generation Large hydro Plant size:10 MW 18,000 MW 3 4 Stable. Small hydro Plant size: 1 10 MW 4 7 Stable. On-shore wind Turbine size: 1 3 MW Blade diameter : m 4 6 Costs have declined by 12 18% with each doubling of global capacity. Costs are now half those of Turbine size has increased from kw a decade ago. Future reductions from site optimization, improved blade/generator design and electronics. Off-shore wind Turbine size: MW Blade diameter : m 6 10 Market still small. Future cost reductions due to market maturity and technology improvement. Biomass power Plant size: 1 20 MW 5 12 Stable. Geothermal power Plant size: MW Type: binary, single-flash, doubleflash, or natural steam 4 7 Costs have declined since the 1970s. Costs for exploiting currently economic resources could decline with improved exploration technology, cheaper drilling techniques and better heat extraction. Solar PV (module) Cell type and efficiency: single-crystal: 17%, polycrystalline: 15%, thin film: 10 12% Costs have declined by 20% for each doubling of installed capacity, or by about 5% per year. Costs rose in 2004 due to market factors. Future cost reductions due to materials, design, process, efficiency and scale. Continuing declines due to lower solar PV module costs and improvements in inverters and Rooftop solar PV Peak capacity: 2 5 kw balance-of-system components. Plant size: MW Costs have fallen from about 44 cents/kwh for the first plants in the 1980s. Future reductions Solar thermal power (CSP) (trough) Type: tower, dish, trough due to scale and technology. Hot Water/heating Biomass heat Plant size: 1 20 MW 1 6 Stable. Solar hot water/heating Size: 2 5 m2 Type: evacuated tube/flat-plate Service: hot water, space heating 2 25 Costs stable or moderately lower due to economies of scale, new materials, larger collectors and quality improvements. 208

211 Geothermal heat Biofuels Ethanol Plant capacity: MW Type: binary, single- and doubleflash, natural steam, heat pumps Feedstock: sugar cane, sugar beets, corn, or wheat (and cellulose in the future) See geothermal power, above cents/litre gasoline equivalent Declining costs in Brazil due to production efficiencies, now cents/equivalent-litre (sugar), but stable in the United states at cents (corn). Other feedstocks are higher, up to 90 cents. Cost reductions for ethanol from cellulose are projected, from 53 cents today to 27 cents post-2010; modest drops for other feedstocks. Biodiesel Feedstock: soy, rapeseed, mustard seed, or waste vegetable oils cents/litre diesel equivalent Costs could decline to cents/litre diesel equivalent post-2010 for rapeseed and soy, and remain about 25 cents (currently) for biodiesel from waste oil. 209

212 6. Key competitiveness factors Technology 7. SWOT analysis Strengths Some RES have already reached an advanced stage of technology development. This is the case for hydropower, solar thermal heating and cooling (mainly small-scale), biomass heating, on-shore wind energy and geothermal heating, which are economically viable and competitive. However, some technologies still need further development. For instance, innovations in geothermal energy are developing methods and equipment for the inventory of favourable zones, improving drilling techniques and optimisation of heat pumps. In biomass, research focuses on improving productivity and on developing new substitution products for chemicals and raw materials. Still, technology development is particularly important for RES that are not yet marketable or competitive such as photovoltaic electricity generation. There, efforts are concentrated on polymer materials and on the integration of PV in buildings. Weaknesses RES in general RES need to be developed in the long run in all scenarios. Investments will continue in any case as this is a potentially very large market. Many activities (maintenance, operation) are captive to a local market and cannot be displaced. This guarantees local job creation. Because of its "renewable" character, no shortages need to be feared. RES are sustainable. Renewable energy has an important role to play in reducing CO 2 emissions - a major European Community objective. Using RES also helps to improve the security of energy supply by reducing the Community's growing dependence on imported energy sources. SHP SHP plants have a long life span and relatively low operating and maintenance costs. Once the high up-front costs are amortized, the plant can provide power at low cost, as such systems commonly last for 50 years or more. Small hydropower potential in Europe is not yet fully exploited. Biomass Biomass is a widely available resource. RES in general For most RES technologies investment and maintenance costs are very high. The pay back period is very long. Several renewable energy technologies that could make a big contribution by 2020 need more research and development. RES are intermittent (except geothermical energy) and therefore less reliable energy sources. New technologies in the field of energy/electricity storage are necessary. RES require specific natural conditions that restrict their implementation to certain areas (different RES require different local resources). This is particularly true for geothermal electricity. Geothermal electricity Electricity generation is closely related to the characteristics of the local resource system and reservoirs and its potential in Europe is not as large as in other parts of the world. Hydropower Even if it is a renewable energy source, hydropower causes significant environmental problems (kills fish, retains sediments, visual impact, etc.). SHP reduces these impacts, but they still exist. 210

213 In most of the new member states there is important potential for the use of biomass for both electricity and heat generation. This is particular true for the widely unexploited potential for electricity generation in Hungary, the Czech Republic, Slovakia, Latvia, Lithuania, and Estonia. Use of biomass for energy purposes offers an interesting market for European agriculture. Biomass can produce electricity and unlike electricity, it can be stored simply and usually economically. Production units can range from small scale to multi-megawatt size. Solar thermal energy The geographical variation of the countries with the most solar thermal installations (Germany, Greece, Austria) shows the huge potential for solar heating systems. Solar heating systems are simple and easy to integrate in buildings and can be used for low temperature uses. Geothermal energy Geothermal electric plants can operate 24 hours per day and thus can provide baseload capacity. Power generation from geothermal is not intermittent. The energy efficiency of geothermal combined heat and power is an impressive 97%. Opportunities RES in general As the price of fossil fuel increases, renewable energy becomes more and more competitive and the legislation-driven RES market could become an economicallydriven market. The pay back period would decrease. As development of RES technologies progresses, RES are expected to become economically competitive with conventional energy sources in the medium to long term (Source: DG-TREN website). RES are CO2 neutral and will indirectly benefit from any policy aiming at the reduction of greenhouse gas emissions (emission permits, CO 2 taxes ). Threats RES in general Serious distortions still exist in the EU power market (Renewable Energy World): External (environmental) costs of fossil fuels are not fully internalised (except now for SO 2 and NO and partly for CO 2 ), making the market globally inefficient to optimize selection of energy sources (fossil fuels are cheaper). Vast funding for R&D is still given to the fossil fuel industry. RES are still very dependent on direct support measures to sufficiently penetrate the energy market. According to the Commission (EC, 2005) more than half of the member states are not giving enough support to green electricity. 211

214 There is strong demand for "green" energy from consumers. The directive on the taxation of energy products (2003/96/EC) gives member states the opportunity to implement tax exemptions and reductions for renewable energy sources (this is not yet sufficiently exploited). Renewable electricity Feed-in tariffs, which are fixed prices for green electricity and used in the majority of member states, are generally cheaper at present and more effective than so called quota systems, especially in the case of wind energy. One reason quota systems are more expensive is probably the higher risk for investors due to immature green electricity markets. Biogas Reinforcement of European regulations concerning the limitation and taxation of dumping is pushing decision-makers to find solutions to treat organic waste as soon as it is collected. In the face of this need, methanisation of organic waste is one of the most promising solutions. At the same time, biogas production can make waste treatment centres autonomous and economically valorise energy surpluses. Solar thermal energy In future, the market may extend to largescale applications of heating and cooling systems with solar energy (today, they are mainly used in single homes for water heating purposes). The European Parliament called for a European directive to promote renewable heating and cooling (February 2006). It is therefore crucial to increase legislative stability and to reduce investment risk. As RES development requires long term investments, long term targets (beyond 2020) are needed to give positive investment signals and thus enhance regulatory stability and consistency. Also, in the new member states, the duration for which policy support for RES development is available is unclear or relevant information is not readily available. This does not create the confident climate needed for long term investments (Source: ECN, 2006). Technology diversity has to be encouraged. Some support schemes tend to support only the strongest of the renewable technologies in terms of cost competitiveness. A good overall support policy for renewable electricity should preferably cover different renewable technologies. As the RES sector has the same leaders as the fossil fuel market, there is a risk that companies will want to slow down the transition towards RES in order to protect their benefits from fossil fuel reserves. Several renewable energy technologies that could make a big contribution by 2020 need more research and development. OECD data indicate that only 10% of government energy R&D budgets are related to renewable energy, in contrast with more than 50% for conventional (fossil fuel and nuclear) energy technologies. For a long time, R&D funding for renewable energy was combined with energy efficiency projects. This resulted in a decrease in funding for RES in favour of energy efficiency. Now, RES have their separated R&D programme (ALTENER). Renewable electricity There still are barriers to the development of renewable electricity. The administrative requirements should be reduced: clear guidelines, one-stop authorisation agencies, preplanning mechanisms and simpler procedures are needed. Transparent and non-discriminatory grid access must be ensured and necessary grid infrastructure development should be undertaken, with the associated costs covered by grid operators. The table gives an overview of the situation in the member states. 212

215 Member State Administrative barriers Grid barriers Austria + / Belgium / / Denmark + + Finland + + France - - Germany + + Greece - - Ireland + - Italy n.a. n.a. Luxembourg n.a. n.a. Portugal - - Spain + + Sweden + + The Netherlands - + United Kingdom / / Legend + Good conditions / Medium conditions - Insufficient / strong barriers n.a. Information not available Harmonisation. According to the Commission, it is premature to propose a harmonised European support scheme. Competing national schemes can be healthy at least during a transitional period, as the industry gains more experience. Eventually, the industry needs regulatory stability to make investments and develop renewables. In the short and medium term, member states are therefore urged to coordinate the existing schemes at European level. There should be better cooperation between countries and optimisation of national schemes. Photovoltaic There is a continuous shortage of solar-grade silicon. This is a limiting factor for PV growth. However this provides thin film technology with a unique opportunity to come out of its niche (5% in 2004) in the photovoltaic world market. 67 Hydro According to ESHA, the Water Framework Directive, which establishes a framework for European Community water policy action, could 213

216 have a negative impact on SHP development in the coming years. This shows the importance of coordination among Community initiatives (which is true for all RES). Biomass In general, for electricity produced from biomass, coordinated policies are lacking and financial support is low. (Source: EC, 2004) Biofuels The biofuels market is not like the others because its development is closely tied to its total or partial exemption from the tax on petroleum products. Moreover, a number of member countries have not yet indicated what means they are going to implement in order to abide by the directive on biofuels. PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing initiatives and instruments Current regulatory requirements The basis for much EU policy on renewable energy is the highly influential European Commission White Paper Energy for the Future: Renewable Sources of Energy (December 1997). Stemming from the White Paper, the directive on the promotion of electricity produced from renewable energy sources in the internal electricity market was adopted on the 27th September 2001 (RES-E Directive). The overall target of the directive (art.3.4) is to increase the share of renewable energy production to 12% of total energy use and of renewable electricity production to 21% of total electricity consumption in 2010 for the EU-25. The directive has targets for the share of renewable electricity production in each member state. Other directives voted by the Commission to (indirectly) promote renewable energy : Directive 2003/30/EC on the promotion of biofuels (target of 5.75% in the share of biofuels in diesel and gasoline used for transport in 2010) Directive 2002/91/EC on the energy performance of buildings Directive 2004/8/EC on promotion of cogeneration based on a useful heat demand in the internal energy market Directive 2003/96/EC restructuring the Community framework for the taxation of energy products and electricity Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community Directive 2004/101/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in 214

217 respect of the Kyoto Protocol s project mechanisms (linking directive) Next to these directives, the Commission and the Parliament use the following documents/instruments promoting the development of RES: The Biomass Action Plan (European Commission, December 2005): The plan, designed to increase the use of energy from forestry, agriculture and waste materials, outlines more than 20 actions to be taken in three sectors: heating, electricity and transport. The Commission estimates that the plan will increase the use of biomass to about 150 Mtoe[3] by 2010 (compared with 69 Mtoe in 2003), provide direct employment for ,000 people and reduce reliance on imported energy from 48% to 42%. Report of European Parliament calling on the Commission to introduce a 20% mandatory target of renewable energy as a share of all primary energy generation by 2020 (September 2005). Sustainable Energy Europe is a campaign to raise awareness and change the landscape of energy; it is a European Commission initiative in the framework of the Intelligent Energy - Europe ( ) programme. The Structural and Cohesion Funds are the EU s main instruments for supporting regional development in the EU in order to eliminate economic and social disparities. For the period , renewable energies received 800,000. R&D The EU has different R&D funding programmes : The successive Framework Programmes for RTD have played a very strong role in supporting research efforts in RES fields. Currently, the Sixth Framework Programme is going on ( ). The second European Climate Change Programme (ECCP II), launched in October 2005, explores further cost-effective options for reducing greenhouse gas emissions. Intelligent Energy Europe (IEE) supports European projects, one-off events and the setting up of local/regional energy agencies with a total budget of 250 million, covering up to 50% of the costs. There are four areas of activity. "ALTENER" supports the use of renewable energy sources. 9. Key issues to address in order to support further development of the sector Regulation While EU directives to promote renewables in the electricity and transport sectors already exist, a directive to promote RES heating and cooling is still missing. The Directive on the Energy Performance of Buildings will support RES-H development, but it is not focused enough. The Directive does not apply to existing buildings smaller than 1000 m 2, where a large potential for RES-H lies. The Water Framework Directive may hamper development of SHP. 215

218 Market organisation Harmonising the market rules at EU level (technical standards, tax credits, grid access rules, etc.) Improving transparency of the green electricity market in order to allow the customer to make informed choices. Supporting frameworks for renewable energy markets abroad R&D Reinstating a Renewable Energy Systems budget line in FP7 (see wind energy); otherwise, there is a risk that a significant part of the budget goes to energy saving actions and cleaner production (e.g. hydrogen and fuel cell technologies). Fossil and nuclear energy research accounts for about 60% of the total energy research spent in FP6. Market incentives As RES need long term investments, the market needs confidence in the long term economic benefits. As, at present, RES are not profitable and strong support signals are needed from public authorities to give the market confidence. If there is more confidence, there will be more R&D, more investments and then more confidence. This is a virtuous circle. So all other actions (regulation, Market organisation, R&D support) will have a positive impact. Improving the internalisation of external costs in energy prices through energy taxing schemes. Increasing information for customers on the benefits from RES generation. Persons interviewed: Christine Lins, Secretary General of EREC (European Renewable Energy Council). Marie Latour, Project Manager of EPIA (European photovoltaic Industry Association) Maria Laguna, Project Manager of ESHA (European Small Hydropower Association) Alexander Allan, EUBIA (European Biomass Industry Association) Philippe Dumas, EGEC (European Geothermal Energy Council) ESTIF (European Solar Thermal Industry Federation) Bibliography (main documents): Renewable Energy World, James & James Renewable Energy in Europe Building markets and capacity, EREC

219 Progress Report on the EU Renewable Electricity Directive in Accession Countries, January 2004, WWF. d_events/epo/news.cfm?unewsid=10621 FORRES 2020: Analysis of the renewable energy sources' evolution up to 2020, April The share of renewable energy in the EU Country Profiles - Overview of Renewable Energy Sources in the Enlarged European Union Joint declaration for an EU Directive to promote Renewable Heating and Cooling. More than 40 organisations were among the initial signatories of this declaration - showing the broad support from industry, environmentalists and public institutions. Why waste incineration must be kept out of the draft renewables directive - open letter to MEPs; WWF, CAN Europe; June Solar Thermal Markets worldwide, Sun & Wind Energy 2/2005 Prospects for Renewable Electricity in the New EU member states. Anca-Diana Barbu (Carl von Ossietzky University, Oldenburg), Martine Uyterlinde (ECN), Hage de Vries (ECN). ECN, February Communication from the Commission to the Council and the European Parliament. The share of renewable energy in the EU. May 2004 Communication from the Commission. The support of electricity from renewable energy sources. December

220 4.8 Renewable energy production wind power generation INDUSTRY STRUCTURE 1. Industry status Main activity The key activities can be summarized as follows : Turbine manufacturing; Wind farm development, Installation, Operation and maintenance. Number & size of companies The size and number of companies has increased over the last years: The growing scale of wind power projects and a larger market have brought new players into the market, such as General Electric (GE), Siemens, ABB and Shell. Consolidation has increased over the last 5 years, both at the EU and global levels. Several mergers have occurred, including a recent announcement of a merger between the largest and third largest manufacturers (Vestas and NEG Micon). Strategic alliances have also been built between developers. Manufacturing companies were initially independent companies. Some of them were previously specialized in other fields (for example, ship building 68 and agricultural material), but wind power generation became their main business once the industry took off. Developers were rather specialized companies at the beginning, but this has changed with newcomers from the energy sector that have become active in wind power over the last years (for example, Shell with Shell Wind Energy, Electricité de France with a 35% stake in SIIFand Iberdola in the electricity sector). Operating scale (regional/national/inter national) Manufacturers are mostly located in countries where the market for wind power generation is the most dynamic. Increasingly, developers are operating at the international level, as some national markets are becoming mature. 218

221 Integration of activities Two different approaches exist : The turbine manufacturer assembles elements from different suppliers, All elements are manufactured in-house (examples are Vestas and Enercon). Some manufacturers prefer to build most elements in-house, in order to avoid pressure from suppliers, especially for key components (blades, controller). Vertical integration between players can also generate lower costs to some extent. Industry leaders The EU is very dominant, with 85 to 90% of the market. Nine out of the 10 largest wind turbine manufacturers are based in Europe. Wind turbine manufacturers Country Market share (2002) Vestas Denmark 22,2% Enercon Germany 18,5% NEG Micon Denmark 14,3% Gamesa Spain 11,8% GE Wind USA 8,8% Bonus Denmark 7,0% Nordex Germany 7,0% Made Spain 3,4% Repower Germany 3,1% Ecotecnia Spain 1,7% Source : Wind Energy The facts, EWEA, 2004 The main developers in Europe include : Airtricity (Ireland), Elsam (Denmark), Energia Hidroelectrica de Navarra (Spain), National Wind Power (UK), Renewable Energy Systems (UK), SIIF (France) 219

222 2. Economics and costs Turnover According to EWEA (see references below: people interviewed and bibliography): The global turnover of the manufacturing activities reached 8 billion in 2004 (85% for EU manufacturers). Note that 1 MW corresponds to 1,000 of turnover for manufacturing industries. Turnover of additional services (consultancy, research, maintenance, etc.) is not clearly identified but is approximately 2 billion annually. Operating turnover is estimated to be between million per year. The average growth rate of turnover for the last six years is 22%. These growth rates reached 30-40% before. Cost structure The cost of wind generated electricity has dropped from 35 cents/kwh in 1980 to less than 5 cents/kwh in 2004 at sites with good wind speed. These costs could be as low as 3 cents/kwh by 2010, according to the EWEA. This evolution can be explained mostly by : Scale improvements, with the increase of the nominal capacity of turbines (wind turbines in 1985 reached 50 kw, compared to 5MW for the biggest turbines produced in 2005); Improved turbine efficiency, Decreasing investment costs (approximately 1,000 /kw, of which the turbine represents 80%). Operation and maintenance costs only represent 20-25% of total production costs per kwh. They include costs related to spare parts and repair, insurance, regular maintenance, administration and land rent. 3. Employment Wind power is therefore a very capital intensive technology. The cost of capital (interest rate) is therefore a critical factor for the economic performance of a wind power project. Direct employment Most jobs related to manufacturing remain concentrated in 3 countries: Germany, Spain and Denmark, which account for more than 90% of jobs in manufacturing. Direct employment in wind turbine manufacturing reached 30,000 in Europe in Direct employment in wind turbine installation (14,000 employees in the EU) depends on the country of installation. The largest part of the installation activity is construction. Direct employment related to operation and maintenance remains small (approximately 3,000 employees in the EU) but should increase with the capacities installed. 220

223 Direct employment (2002) Austria Denmark France Germany Greece Portugal Spain UK Manufacturing Installation Operation and Maintenance Source : Wind Energy The facts, EWEA, 2004 Total employment (direct and indirect) According to the European Wind Energy Association (EWEA), the total number of people employed by this industry in Europe has increased from 25,000 in 1998 to 72,000 in Direct and indirect employment in the European wind energy sector (in manufacturing, installation and maintenance) has grown rapidly and could reach 200,000 employees in 2020, according to EWEA. Calculations are made using the assumption that the total (direct and indirect) employment in manufacturing and installation is close to 12 employees per MW installed. Total employment Manufacturing Installation Operation and Maintenance 221

224 MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth The average market growth rate in Europe over the last decade has been approximately 30%. The EU represents more than 70% of the world market. Cumulative capacity installed (MW) World EU The development of offshore wind energy is emerging as a new market segment, especially in the Baltic sea, the UK and in northern Germany saw the first major offshore wind farm installed off the Danish coast. EWEA predicts that offshore wind power may reach 10,000 MW in 2010 and 70,000 MW in Capacities installed (MW), Cumulative Annual Germany Spain Denmark Netherlands Italy UK Austria Sweden Greece Portugal France Ireland Belgium Poland Finland Latvia Luxemburg Czech Republic Estonia Hungary Slovakia Cyprus Lithuania Malta Slovenia The largest markets for wind power have been Germany, Spain and Denmark, which account for almost 80% of the total wind power capacity installed in Europe. 222

225 Outlook The currently strong development of wind power should carry on in the next years. EWEA believes that total capacity installed at the EU level will reach 75,000 MW (including 10,000 MW offshore) as soon as Germany and Spain should remain the leading markets, although important markets should emerge in Italy, the UK, France, the Netherlands and Sweden. Amongst the new member states, Poland appears as the most promising market, with up to 1,000 MW planned. New markets should also develop in Asia (Japan, India, China), in Australia, Canada and South America. Export market The share of exports is high for some of the top manufacturers (for example, Vestas, NEG Micon Bonus and GE Wind export more than 80% of their production). Market organisation (pricing, contracting methods, etc.) 5. Market drivers & obstacles The strongest extra-european markets are the US, Canada, India, Japan, China and Australia. Electricity produced by wind turbines is usually sold to electricity companies (on the basis of pricing systems described in section 8). Wind power professionals note that numerous distortions exist in the conventional electricity market, such as : Institutional and legal barriers, Large subsidies and State aid to conventional players, Existence of national dominant positions, Barriers to third party access, Limited interconnection between regional and national markets. Regulation Market incentives The 2001 EU Directive on the promotion of electricity from renewable energy sources has set targets for the share of electricity to be produced from renewable energy sources by 2010 in each member State. The EU target is 22% in 2010 (compared to 14% in 1997). Frameworks set up by national governments play a key role in creating investor confidence, especially for the investment period, which is about 10 years. Fixed price systems (feed-in tariffs), where operators are paid a fixed price for every unit of output, have played a decisive role in attracting wind energy investment in Germany, Spain, Denmark, and to a lesser extent, in Austria and Germany. The main components needed to develop wind power are believed to be : Pricing system, Access to the grid Streamlined administrative procedures Public acceptance. 223

226 Technology Wind technology is evolving rapidly. Technological advances have contributed to the following achievements : A 5% annual increase in the energy yield per m2 or rotor area, A 100-fold increase in the annual energy output per turbine, A decrease in the weight and noise emissions of the wind energy generators. Historically, the 53 m diameter, 1.25 MW Smith Putnam wind turbine erected in Vermont, USA in 1939 was a landmark in technological development and run up to commercial technology. The next milestone in development was the Danish Gedser turbine (200 kw, 24 m diameter) installed with assistance from Marshall Plan post-war funding. Many technological options were later imagined and tested vertical axis, 1, 2, 3 blades, pitch versus stall, variable speed versus fixed speed - before arriving at today s, 3 bladed rotor, asynchronic generator. Though it borrowed a number of elements from other industries technologies at the outset, the wind energy industry has become a technology provider and today produces the largest rotating elements on earth. Competition with substitution products Up-coming challenges for R&D include : The production of lighter blades using new materials, Increasing the size of wind energy plants (transport infrastructure will probably be a limiting factor) Developing the off-shore potential, Mobile manufacturing plants The competitiveness of wind power is directly related to the difference of costs with conventional electricity production : Depending on the energy source (nuclear, coal, gas), wind energy produced by medium sized turbines is approaching competitiveness in terms of direct costs with coal or gas electricity plants. Rising fossil fuel prices should strengthen this trend. Competitiveness, however, is much weaker in countries where electricity prices remain low, for example, due to the high share of nuclear production as in France. However, wind energy has environmental benefits as compared to conventional energy, which are not reflected in current market prices. The internalization of environmental externalities and costs would therefore considerably improve the competitiveness of wind energy. On the European scale in particular, the Large Combustion Plant Directive as well as the European Emissions Trading Scheme for CO 2 now underpin the internalization of environmental costs in prices of fossil based electricity. 224

227 Obstacles and barriers to growth Other market drivers Main obstacles identified include: Competition with electricity produced from fossil-fuel or nuclear power plants, which have the advantage of producing with depreciated assets and in some cases benefit from subsidies. Complex planning procedures in some countries which cause longer delays and higher risks for investors. However, it should be noted that articles 6 and 7 of Directive 2001/77 call for speeding the authorisation process. Limited infrastructure with respect to grid connection can be a limiting factor in some areas (Northern Germany, new member states, etc.) as transmission systems are conventionally operated and planned on the basis of a relatively small number of generating plants. Management of intermittency due to the variable and less predictable nature of the output : o According to EWEA, even if the output of wind generation were predictable, the variability of that output would increase the difficulties of matching supply and demand. [ ]. [However] system operators only need to deal with the net output of large groups of wind farms, and so the issue is what variability needs to be planned for and on what timescales. Further analysis of worst-case variation in net power output that can be expected for a given time period on the basis of suitable data that are becoming available should help manage this issue. o Regarding predictability, forecasted information already is a requirement for some projects power purchase agreements. Important developments have been made in the recent years and improved forecasting will allow the forecast error to be both specified and reduced (Source: EWEA, Wind energy, the facts). Some projects have met strong opposition from local inhabitants. The development of wind energy in Europe has been driven mainly by market incentives and regulatory targets set to promote the production of electricity from cleaner sources. 6. Key competitiveness factors In other markets (e.g. India, China), the main driver is the shortage of electricity. Technology Market incentives The main contributors to cost reduction (as identified by the industry representatives) are technology and scale improvements. Fixed price systems provide stability in the revenues anticipated and create investor confidence. This reduces the level of risk associated with projects and therefore the cost of capital. 225

228 Cost of capital 7. SWOT analysis Strengths Wind turbines are capital-intensive investments with low operating costs, so the cost of finance can have a strong impact on project profitability. Therefore, an increase in interest rates could have a significant effect. Weaknesses Political support for cleaner production of electricity Political will to reduce import dependency Avoided external costs (in comparison to fossil fuels) Market incentives, and in particular fixed feed-in tariffs, which have been effective in attracting investments in wind power generation Opportunities Rising fossil fuel prices (and risks associated with future costs of conventional power) Growing energy and electricity demands Emerging wind power generation markets onshore and offshore. Competition with existing nuclear and fossil fuel power stations, some of which produce at marginal costs as assets have been depreciated Subsidies to mature electricity technologies based on fossil fuels or nuclear Limited willingness to pay extra for electricity produced from renewable energy sources Planning procedures which in some countries hinder the development of wind power Threats Stronger competition in the European electricity sector due to the gradual liberalization of electricity markets Insufficient distribution and transportation grid capacity might limit the development of wind power, mostly in new member states. Possible reduction of production and installation costs. Stronger case for investing in carbon neutral technologies, in the context of rising prices for CO2 certificates under the European Emissions Trading Scheme (ETS) 226

229 PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing policies and instruments Current regulatory requirements Directive 2001/77/EC on the promotion of electricity from renewable energy sources has set an EU-wide indicative target of 12% of primary energy needs and 22% of electricity needs by The directive has also determined targets of electricity produced from renewable energy sources for each member state. So far, a number of member states lag behind the targets they have accepted. Previously, the European Commission s 1997 White Paper on Renewable Sources of Energy had set the target of increasing EU renewable electricity production from 337 Twh in 1995 to 675 Twh in The target for wind power was 40,000 MW of installed capacity in 2010, producing 80 Twh of electricity. Existing market incentives and supporting mechanisms Current supporting measures include tax incentives. Several member states have implemented : Tax credits for investments using renewable energies (Austria). Possibilities for deducting investment costs (Belgium, Greece, Portugal). Other market incentives are presented below : Voluntary systems or promotion of green electricity. However, experience with such systems shows that consumers willingness to pay extra for green electricity has had limited impact on the development of renewable energy production. Fixed price systems where operators are paid a fixed price for every unit of output. Government authorities identify the price paid to the producer and let the market determine the quantity. Fixed feed-in tariff systems have proven highly effective in attracting wind power investments in various countries. In some cases, a fixed premium is added to the electricity price, instead of setting a fixed price system. Fixed quantity systems also known as quota systems that involve a decision to set the level of renewable electricity to be produced at the end of a certain period. The market forces then establish the price unless a green certificate model is implemented (tradable certificates reflect the additional cost of meeting the quota). Fixed quota mechanisms could potentially reduce subsidy levels and help achieve a better spread of development efforts throughout the EU. Investment subsidies have been used as an incentive for investors, but can prove economically inefficient if they lead to less efficient turbines. 227

230 R&D EU-funded research, mainly under the Fifth Framework Programme has considerably supported the development of wind power industry, for example by supporting demonstration projects. To some people, the fact that wind energy is becoming mature implies that EU-funded research in this sector should is creating a market distortion. The US and Japan are currently investing significant funds in research. 9. Key issues to address in order to support further development of the sector Regulation Implementing directive 2001/77/EC and making 2010 targets set out by the directive mandatory. Revision of the targets set by Directive 2001/77/EC. The next targets will possibly be fixed by sector. Setting ambitious targets for 2020 will play a key role in the further development of wind power. Market organisation Harmonising of rules of the market at the EU level (technical standards, tax credits, grid access rules, etc.). Strategic electricity grid planning at the EU level. Improving transparency of the green electricity market in order to allow the customer to make informed choices. Supporting frameworks for renewable energy markets abroad. R&D Reinstating a Renewable Energy Systems budget line in FP7, and establishing a wind chapter for research on wind power generation. Market incentives Supporting the identification of the most efficient financial leverage (a communication is currently being prepared by DG TREN on these aspects). Improving the internalisation of external costs in energy prices through energy taxing schemes. Increasing information to customers on the benefits from wind power generation. Persons interviewed: Karl Kellner, Head of Unit D2, Energy RTD research management, DG TREN, European Commission Christian Kjaer, Policy Director, European Wind Energy Association (EWEA) 228

231 Bibliography (main documents): On the future of EU support systems for the promotion of electricity from renewable energy sources, position paper, EWEA, November 2004 Wind Energy The facts, EWEA, 2004 Renewable Energy Country Attractiveness Indices, Ernst & Young,

232 4.9 Eco-construction INDUSTRY STRUCTURE 1. Industry status Main activity A distinction must be made between construction for an eco-activity and environment friendly construction of infrastructure. Construction for an eco-activity includes : Construction of WWTP69 Construction of waste treatment plant Soil remediation Other construction activities are not considered to be ecoconstruction in this study. Eco-construction is the construction of (or a part of) any infrastructure with a reduced impact on the environment compared to typical, classic construction. It covers : The construction activity itself (workshop), The selection of materials, The consumption, emissions and other environmental impacts during the use phase of the infrastructure, The management of construction waste. The construction activity can concern new construction, light renovation or heavy renovation. In the EU-15, market share of new construction is 25% and 75% for renovation. In the new member states, many existing buildings have a poor quality level and there is therefore much new construction. The market share of the different activities is presented below : House building : 26% o o o individual dwellings apartment blocks social housing schemes Non-residential : 29% o o o o o offices hospitals hotels industrial buildings educational establishments Civil Engineering : 20% o o o roads railways bridges 230

233 o o tunnels hydraulic structures Rehabilitation and maintenance : 25% Number & size of companies o repair o extension o maintenance of dwellings, non-residential buildings This market is mature in former EU-15 and developing in the new member states, as there is strong demand to replace old, inefficient buildings. There are 2.4 million construction enterprises in the EU-15 (Source : FIEC, European Construction Industry Federation), of which 97% are SMEs with fewer than 20 employees and 93% with fewer than 10 employees. They are spread across the EU as shown in the table below: Country Number of enterprises E I D F GB PL CZ TR H NL B P EL SK N DK FIN S A IRL EE CY L SLO Total RO BG CH (Source : FIEC) 231

234 Operating scale (regional/national/inter national) The scale of companies is proportional to the building scale : Mainly small companies build small construction works. A notable exception is the Netherlands where there are developments of 500 houses Medium scale companies mainly dominate the market of office buildings Large companies are the only ones capable of building large infrastructure (Bridges, WWTP, roads ) Eco-construction can apply to any scale of construction. Integration of activities Industry leaders Eco-construction is almost fully integrated into classic construction activity. There are some specialized techniques but generally any building company can construct an eco-building. Market leaders are Bouygues, HOCHTIEF Construction AG, Vinci for very large infrastructure: buildings, roads, bridges. 2. Economics and costs For smaller construction, the market is rather local and characterised by a very large number of small enterprises. Turnover There are no specific data on eco-construction. The global turnover for the whole construction sector according to FIEC is 1,004 billion for the EU-15 in EU-25 turnover for all construction activities according to the SBS in 2003 is 1,200 billion. Based on both sources, it appears the proportion of the 10 new member states is about 16%, that is, the same proportion as the population. The specific eco-construction turnover is much smaller, especially if only the specific parts of the buildings with a high environmental performance are taken into account. Cost structure Eco-construction (as well as traditional construction) is a very labour intensive activity. Personnel are thus the major cost item. As a rule of thumb, about 70% of construction cost is personnel cost and 30% is material acquisition. There is a slight trend towards some automation, where elements (e.g. window frames, tubes and even cellars) are cut, tailored and assembled at the workshop. They are transported to the building site and rapidly integrated in the construction process. 232

235 3. Employment Direct employment There are no specific data on eco-construction. Available employment data on the entire construction sector range between 14 million employees in the EU-15 (Source: FIEC) and 12 million people employed in EU-25 (Source: SBS). Based on estimates from a specific business case on the Brussels region (Source: IBGE, 2004), 2,000 jobs could be generated in the eco-construction sector. Extrapolating the ratio between eco-construction employment and population in Brussels to the EU-25 area would result in an estimation of approximately 900,000 jobs. This very rough estimate should be considered very cautiously. Total employment (direct and indirect) According to FIEC, 26 million workers in the EU depend, directly or indirectly, on the construction sector. The construction sector is therefore the biggest industrial employer in Europe. European figures are thus about twice as high as US figures and 2.4 times higher than in Japan. MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth Outlook Export market Market organization (pricing, contracting methods, etc.) The global turnover is 1,200 billion for the EU-25 (in 2003) for all types of construction (see section 2). The growth is similar to the overall economy growth. No specific data are available for coconstruction. Based on partial data, the eco-construction market could amount to 40 billion. The construction activity is quite stable in EU-15 but there are large investments in large infrastructure in the new member states. There is an intercontinental export market for the building of large infrastructure. In this case, the architectural and engineering work is performed in the EU but the manual activity (and the employment) largely remains on site where employment for EU citizens is limited to workshop management. This market is a free market with severe competition. 5. Market drivers & obstacles Regulation Market incentives Technology Legislation, economic support and image improvement are the main market drivers for eco-construction. The existing market incentives are mainly different types of support actions by national and regional authorities to save energy and water. Technology is continuously developing. There is permanent innovation towards increased functionality, lower energy consumption and simplified installation. 233

236 Competition with substitution products Eco-construction competes with classic construction. Some environmentally friendly actions are profitable (insulation) and are considered as standard in state-of-the-art construction. In practice only the non-economically profitable environment friendly actions should be regarded as eco-construction actions. Therefore, those actions cannot, by definition, compete from a technicoeconomic viewpoint. The benefits from positive environmental image must compensate or exceed the additional financial cost. Obstacles and barriers to growth Main obstacles identified include : Low profitability as compared to other sectors, When profitable, the pay back period is very long. Other market drivers Pressure from the consumers on the industry to build environmentally friendly buildings 6. Key competitiveness factors Technology 7. SWOT analysis This is an important competitive factor for many small components. But for steel and concrete, the two main building materials, technology has only limited importance. Strengths Legislative requirements on energy efficiency of buildings and CO 2 emission trading schemes favour eco-construction Weaknesses The eco-construction is by definition nonprofitable as profitable investments are state-ofthe-art. Opportunities Threats Increasing energy costs make insulation, high efficiency boilers and other energy saving actions more attractive PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing initiatives and instruments Current regulatory requirements Existing market incentives and supporting mechanisms The EU Directive on Energetic Performance of Buildings is the main piece of legislation contributing to the sector s development. Current incentives include many subsidies such as tax deductibility schemes in the different member states. 234

237 9. Key issues to address in order to support further development of the sector Regulation Impose severe construction norms, requiring high quality materials, as quality from EU production is generally better and more reliable; however, those requirements should be mainly valid for non-commercial buildings. For industrial buildings in sectors with severe competition, requirements should be less severe to avoid high investment cost and loss of competitive position in those markets. R&D There is a need to support technology development and demonstration, as this is a key factor for material and product competitiveness. This concerns all types of materials and products but generally speaking, five key activities are the most promising : Home automation (lights automatically on and off based on automatic detection of human presence, automatic and/or remote management of home temperature, fridge & freezer content management); Light-weight frontages (to allow more narrow supporting walls and less foundations); Internal air purification (benzene in urban areas, particles ); Local waste water treatment and possibly, local water reuse; Double sewage (for wastewater and rain water). Market incentives Subsidies (or increased deductibility) attract eco-construction clients for which the environmental image is not crucial, by changing the technico-economic balance. This is particularly the case for photovoltaic cells, high efficiency boilers. Construction norms can make eco-construction implicitly mandatory, by requiring for example, a high global insulation performance (factor K), rain water recovery and use or injection of excess rain water into the soil. Norms on noise also reduce the nuisances from building activity. Mandatory minimum recycling percentage of construction waste helps both its selective collection and a selection of easy-to-dismantle/recycle materials and products. Increasing information to customers on the benefits from eco-construction. Persons interviewed : Katrien Putzeys, Yan Desmyter, PRESCO 235

238 Bibliography (main documents): FIEC website (European Construction Industry Federation) European Network of Construction Companies for Research and Development (ENCORD) 236

239 237

240 4.10 Public Environmental Administration INDUSTRY STRUCTURE 1. Industry status Main activity National public administrations bear a broad range of responsibilities in environmental management fields, from the implementation and control of environmental regulations to monitoring of (fundamental) research and development efforts, including reporting and follow-up on eco-industries performance. The teams and departments dedicated to these tasks most often are either sub-parts of more important services (e.g. collection of environmental taxes is performed by tax services) or too small to make an impact on expenditure (e.g. protection agencies and inspection services). Major actors are typically the following: Government departments, Environmental protection agency inspection teams, Environmental tax collection and administration. The integration into more generic or broader public services explains why there are few available data on the size and performance of these activities. Nonetheless, they are a key link in the chain of eco-industries as they monitor the timing and rigor of the implementation of environmental regulations on one hand and of environment-related development programmes (R&D, industrial projects) on the other. Number & size of players The number of public players involved in environmental administration is not easy to estimate. Each state (EU -15 or new member state) relies on at least one ministry or department fully or partially dedicated to the management of environmental affairs and often a department specialized in the control of the enforcement of environmental requirements and regulations. The size and power of these services is highly dependent on each state s policy and on the major public body under which they are placed. Operating scale (regional/national/inter national) Environmental administrations operate at a local, regional or national level. The European Commission s DG-Environment is the main international administration operating at an international scale within Europe. 238

241 2. Economics and costs Total expenditures An estimate based on Eurostat data values EU-25 expenditures on public environmental administration at 11.5 billion in 2004 (See chapter 3 for more details on the perimeter of activities covered by this estimate). 3. Employment Direct employment In the EU-25, public environmental administration employed approximately 121, 310 people in 2004 (Source: Estimate based on Eurostat data, see chapter 3 for more details on the perimeter of activities covered by this estimate). MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth In 2002, European countries public sectors devoted 0.53% of GDP to environmental protection. This percentage is approximately the same for the EU-15 and for the EU-25. However the proportion of capital expenditure is slightly higher for the EU-25 than for the EU-15, showing the particular efforts made by the 10 new member states. Expenses for environmental protection by the public sector in ,6 0,5 in % of GDP 0,4 0,3 0, , EU-15 EU-25 Capital exp. Operational exp. (Source: 239

242 4.11 Private Environmental Management INDUSTRY STRUCTURE 1. Industry status Main activity 2. Economics and costs This sector gathers all of the activities addressing environmental management issues within the private sector. The major activities can be summarized as follows: Environmental management system design and operation, ISO management and operation, Environmental audit works. These activities are in most cases carried out on the basis of inhouse capacities and through the provision of external assistance (expertise, consulting services, etc.). Total expenditures According to available data, the EU-25 s expenditures for private environmental management amounted to 5.8 billion in 2004 (Source: Estimate based on Eurostat data). 3. Employment Direct employment: In the EU-25, private environmental management employed approximately 125,508 people in 2004 (Source: Estimate based on Eurostat data, see chapter 3). 240

243 MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth In 2002, EU-25 industrial companies dedicated 28.5 billion to environmental expenditure (approximately 0.30% of GDP). This figure corresponds to the total amount of spending on environmental goods and services provided by the various eco-industry sectors. Specific data on the exact share of expenditure dedicated to private environmental management is not available. These expenditures fall under operational expenditure which was 21.3 billion in 2002 (75% of total expenditure) for industrial companies (Source: Dépenses de protection de l environnement par l industrie dans l Union européenne, Statistiques en bref, Eurostat, Septembre 2005). Environmental expenses of European companies million 40,0 30,0 20,0 10,0 33,4 31,5 3,1 33,4 28,4 38,1 3,7 34,4 28,5 3,4 25,1 0, EU new Member States 241

244 4.12 Environmental Research and Development INDUSTRY STRUCTURE 1. Industry status Main activity Environmental research and development (R&D) activities cover all environmental issues: air, soil, water, energy, waste, noise, etc. These activities have three purposes: Preventing environmental impacts, through the development of cleaner technologies and the use of renewable raw materials, Analyzing environmental impacts (settlement of measurement and analysis instrumentation), Cleaning up pollution (e.g. filtering or treatment processes). Practically, about 80% of environmental R&D works concern end of pipe solutions (pollution treatment). Related technologies are used and applied by companies whose core activity is to clean up pollution. Therefore, these types of environmental R&D work are well identified. The remaining 20% concerns source prevention solutions. These technologies are usually developed by companies which use them in their own processes in order to reduce their environmental impact. It is much more difficult to ascertain these environmental R&D works since they are carried out by large companies not specifically active in the environment, as part of their internal R&D projects and not for commercial purposes. Environmental R&D includes more than 40 disciplines, mainly chemistry, materials, mechanical engineering and thermodynamics, and requires a wide variety of skills and competencies. 242

245 Main actors The following table shows the main actors and the roles that they play in the innovation process (conception, settlement, or production): Public actors Examples Main activities in environmental R&D Academic research centres Specialized public research centres Other public organisms National research centres: DFG (Germany), CNRS (France), CSIC (Spain) Universities UKEA (United Kingdom) and CEA (France) for atomic energy research, CEMAGREF, IFP (France) Foundations, Basic research on environmental subjects and technological responses. Some centres are quite specialized Private actors Examples Main activities in environmental R&D Research centres in big groups working in cross-disciplinary fields Specialized manufacturers Private research centres Centrica (UK), RWE (Germany), SUEZ, Véolia Environnement (France), chemical industries Eco-technologies manufacturers Analysis laboratories Operational research on environmental technologies Production of environmental technologies Analyses and measurement There are a few networks of environmental research at European scale, such as EURODEMO (soil remediation). Operating scale (regional/national/in ternational) Environmental R&D is often integrated into European projects and usually has an international dimension. 243

246 Integration of activities Environmental R&D leaders Few organisations integrate all environmental R&D issues in Europe at this stage. However, some initiatives are emerging in leading countries, either from government bodies or from private consultancies, in order to develop innovative knowledge for companies, government bodies and public organizations on the management of environmental issues such as water management, recycling, ecological risk assessment, buildings environmental quality, etc. The leading EU countries in environmental R&D are Germany, the United Kingdom, France, Italy and Spain. These countries play a strong role in the European Union s 5 th Framework Programme for research. This programme ran from 1998 to 2002 and included 2 themes specifically dedicated to environment: Quality of life and living resources management (QOL) and Energy, environment and sustainable development (EESD). The following diagram shows the first 5 countries that took part in the 5 th FPRD. As a whole, they represent 68 % of UE-15 participant teams. Though less present, the 10 new member states show more and more interest in these research projects Leader EU-15 countries in terms of participation in the environmental research themes of the 5 th Framework programme % 16 % 15 % % 9 % Germany United Kingdom France Italy Spain Estimated number of participations in QOL or EESD research themes % Percentage of UE-15 participations in QOL or EESD research themes «Participations» in the diagram above represent the number of teams and institutions from the EU-15 that took part in QOL and EESD, multiplied by the number of projects they took part in. Consequently, each research team gives rise to as many participations as the number of projects it has taken part in. 244

247 2. Economics and costs Budget devoted to environmental R&D Given the complex nature of multiple R&D funding schemes, it appears to be rather difficult to build information on total R&D expenditures by objectives. However, estimates can be calculated on the basis of existing data. Environmental R&D expenses in the private sector : In 2000, French companies dedicated 2.4% of their internal R&D expenses (GERD) to environmental issues ( 465 million) (Source: French Ministry of Research, Le Tableau de bord de l innovation et de la propriété intellectuelle en matière de technologies de l environnement, Décembre 2003). The application of this ratio to available total intramural R&D expenditure (GERD, Source: http//epp.eurostat.cec.eu.int ) allows us to build the following estimates for the private sector: Estimated share of total intramural R&D expenditure by business enterprise sector dedicated to environmental issues in million EU , , , ,16 EU , , , ,95 NMS-10 29,11 32,93 34,50 33,86 These figures must be considered to be a rough (and certainly quite optimistic) estimate of the corresponding R&D and are only aimed at providing an order of magnitude. In particular, the use of a single 2000 ratio cancels any effects of decisions and policies to foster R&D, for example, in interesting eco-industries. Environmental R&D expenses of the public sector : Based on existing data (budget appropriations or outlays on R&D GBOARDby socio-economic objectives; Source: http//epp.eurostat.cec.eu.int/extraction), a ratio of total amounts dedicated to control and care of the environment (nabs03) and production, distribution and rational utilization of energy (nabs05) to total appropriations can be identified at EU-15 scale. 245

248 Share of governmental R&D appropriations allotted to environment control and care (nabs03) and energy (nabs05) 9,0% 8,0% 7,0% 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% EU-15BE DK DE GR E S FR IE IT LU NL AT PTFI SE UK Employment Total employment (estimation) No data seem to be available for environmental R&D employment in the private sector. Therefore the jobs created by environmental R&D are estimated in this section using available data: R&D employment (environmental and non-environmental) in European countries (Source: OECD) Proportion of French private companies internal R&D expenses that were dedicated to environmental issues in 2000: 2.4 % (Source: French Ministry of Research ) Based on the following assumptions: The proportion of R&D employment dedicated to the environment can be considered to be being equal to the proportion of R&D expenses dedicated to the environment French companies R&D ratios are representative of the European Union s average situation. Thus they can be applied to the European Union s environmental R&D employment We can estimate the total number of jobs generated by environmental R&D to be approx. 33,000 jobs in the EU-25 in 2001 (full time equivalent). This corresponds to 2.4% of total R&D employment in the EU-25. Estimated employment in environmental R&D in the European Union new Member States UE

249 Breakdown of direct and indirect employment The only available data is the breakdown of R&D jobs in French private companies (Source: French Ministry of Research) : Administration 8% Workers 4% Technicians 38% Researchers 50% Researchers Technicians Workers Administration Breakdown of R&D jobs in private companies (2002) 247

250 MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth The market for innovation for the environment is quite dynamic, especially in new areas where there is not yet a clear market leader. Dynamism of environmental R&D As shown in the following diagram, more than 4,000 research projects were carried out in the 2 environmental themes of the 5 th FPRD: Participation in environmental R&D themes of the 5 th Framework Programme for research Budget (M ) Number of projects Number of participations Energy, environment and sustainable development (EESD) Quality of life and living resources management (QOL) Major topics in Environmental R&D : Energy issues give rise to more scientific publications and patents than water, air, and noise issues, whereas R&D on soil issues generates the smallest number of publications and patents. The total number of publications in environmental fields has been stable between 1998 and 2002 (9,600 articles a year). However, publications concerning energy and noise have risen by 15% and 5% respectively, whereas publications concerning other environmental issues have decreased by 2-30 %. The number of patents taken out in the European Union has increased by 31% between 1998 and 2002, as shown by the diagram and the table below. They have particularly increased in the fields of energy and air, revealing a growing preoccupation with these topics. For example, patents in energy have grown from 40% to 50% of total patents between 1998 and 2002, due to growing interest in fuel cells and hydrogen. The number of patents is stable for water, noise, waste and soil. 248

251 5000 Number of patents in EU-15 in environmental technologies energy air water waste noise soil Most patents are taken out by industrial groups and specialized research centres. Outlook The proportion of source reduction R&D projects should increase, compared to end of pipe projects. Employment in environmental R&D should also increase. Energy is likely to remain a major driver of environmental R&D as energy costs are rising and are usually higher than water or waste management expenses for most companies. 5. Market drivers & obstacles Regulation EU regulation is the main driver for environmental R&D. For example, the EU water Framework Directive requires analysis of the biological quality of water. As a result, important R&D investments are carried out to measure the presence of new polluting substances. Technology The diagram below compares environmental technologies in terms of technical development and industrial/commercial development in 2003 : 249

252 Technological, industrial and commercial maturity of environmental technologies Obstacles and barriers to growth Birth 6 Diffusion Source: French Ministry of Research. 0 3 Generalization Industrial / commercial maturity Growth Emergence Maturity Technological maturity As shown by this diagram, industrial and commercial maturity progress at the same speed as technological development. They are well synchronized because they have the same driving force (regulatory pressure). However, developments remain necessary: Most environmental technologies have not reached technological maturity (85 out of 130), Most of these technologies have not reached a stage of wide industrial and commercial application (100 out of 130). Several barriers prevent the development of environmental R&D, especially source reduction technologies. Companies often hesitate to invest in environmental R&D unless they face more stringent legal obligations that lead them to invest in R&D. The investments required are not profitable enough since environmental costs are not integrated. Consequently, they tend to improve existing equipment rather than invest in innovative technologies. Public financers are not comfortable with innovative environmental projects because they lack maturity in terms of stakes qualification (employment, environmental and economical benefits) and in terms of partnership. Qualifying the benefits of new eco-technologies is difficult because few studies exist. As for the lack of partnership, it is explained by the fact that source prevention projects mostly concern specific processes within companies. Therefore, it is not in their interest to carry out these projects in partnership with competitors. The EU environmental R&D market is split up because environmental regulation is not fully harmonized. Differences between member states result from the time taken to transpose directives and from national decrees that imply more or less stringent thresholds. 250

253 Other market drivers Financial support is the second market driver for environmental research and development. Actors who finance environmental R&D are usually institutional. At the European level, environmental and sustainable technologies are supported through : The Sixth Framework Programme for research (FPRD), running from 2002 to 2006: Through the FP6, 2.12 billion are devoted to sustainable development, i.e. 12% of the total budget, divided as follows: global change and ecosystems ( 700 million), sustainable energy systems ( 810 million) and sustainable surface transport ( 610 million). In the global change and ecosystems topic, more than 100 million has been set aside to integrate small and middle-sized enterprises in European research projects. 6. SWOT analysis Strengths The Environmental Technology Action Plan (ETAP), created in January 2004 with the aim of stimulating both the development and deployment of environmental technologies. At the industrial level, ETAP proposes implementing a technological certification system to guarantee the performance of innovations and reduce access time to the market. Under ETAP, the European Union shows its awareness that eco-technologies represent a potential boon for competitiveness and that the EU could be a leader in emerging and innovative fields. Weaknesses Environmental R&D is quite dynamic (Patents have increased by 31% between 1998 and 2002). European regulation and supporting programmes are efficient drivers. Few research networks integrate all environmental R&D issues. Environmental costs not sufficiently internalized, which makes companies hesitant to invest in environmental R&D. Opportunities Energy is likely to be the main driver, as energy costs are already high and will increase in the coming years. Threats Lack of trust from public financers in source prevention R&D (projects not mature, not enough partnerships). 251

254 PUBLIC POLICIES SUPPORTING THE INDUSTRY 7. Key issues to address in order to support further development of the sector Regulation Environmental R&D is highly dependent on environmental regulation. Thus, it seems necessary to interface environmental regulation and innovation policies, through measures that would make environmental regulation more dynamic : Favour clean technologies through more stringent regulation (e.g. tax on waste production), Reduce the cost of environmental innovation through subsidies, in order to encourage research centres to concentrate their efforts on environmental topics, Exempt from tax the companies that implement clean technologies. Market organisation Other supporting policies It would be necessary to study more precisely the market for ecotechnologies and especially source reduction technologies. The purpose would be to define several economical and social indicators (employment, public policy evaluations) in order to help public financers direct supporting programmes (methodology and indicators for each type of industries, as for ISO ). Promotion of environmental R&D in the next 10 years will also depend on the evolution of several European programmes: The 7 th Framework Programme for research, running from 2007 to 2013, The Framework Programme for Innovation and competitiveness (PIC, ), which aims at supporting innovation and the use of environmental technologies and information/communication technologies. Some sources also recommend facilitating small companies access to European patents and publishing success stories about environmental technologies in order to convince companies to use them. Persons interviewed: Philippe FREYSSINET, ANR (French Organization for Research). Bibliography (main documents): Tableau de bord des technologies dans le domaine de l environnement, synthesis report, French Ministry of Economics, Finance and Industry, December

255 Tableau de bord des technologies dans le domaine de l environnement, indicators summary, French Ministry of Economics, Finance and Industry, December 2003 Environmental research policy, European Commission DG Research web site, Analysis of European participations in the 5 th Framework Programme for research, French Observatory of Sciences and Techniques, December

256 4.13 Nature Protection INDUSTRY STRUCTURE 1. Industry status Main activity The main activities concerned are: Natura 2000: all activities to maintain protect and manage Natura 2000 sites. Eco-tourism (including Eco-museums). Natura 2000 Natura 2000 is a network of sites designated by the member states for the quality of their species and habitat that are of importance for the EU. Natura 2000 sites can be seen as the spaces where an industry/enterprise taking care of nature protection is established or can be established. In order to avoid double counting it is necessary to exclude explicitly the part of the turnover that is made by public administration. Eco-tourism The EU has not stated a clear definition yet. Professionals face difficulties in providing estimates for the sector as a result. Other major definitions are the following: - The UNEP definition : Eco-tourism involves visiting natural areas with the objectives of learning, studying or participating in activities that do not bring negative effects to the environment; whilst protecting and empowering the local community socially and economically." (Cristina, 2004) - WTO70 presents the following definitions for Eco-tourism and Sustainable Tourism: Sustainable Tourism: development that meets the needs of present tourists and hosts regions while protecting and enhancing opportunities for the future. It is envisaged as leading to management of all resources in such a way that economic, social and aesthetic needs can be fulfilled while maintaining cultural integrity, essential ecological processes, biological diversity and life support systems. Main activity (cont ) - Eco-tourism: first definition coined by Hector Caballos- Lascurian, 1983: Eco-tourism is a form of tourism that consists in travelling to relatively undisturbed or uncontaminated areas with the specific objective of studying, admiring, and enjoying the scenery and its wild plants and animals as well as any existent cultural manifestations found in these areas. Eco-museums Eco-museums can be public or private, mostly non-profit facilities (there are certain eco-museums that make significant profits to be 254

257 reinvested on nature protection projects) where plants and animals can be viewed in a natural outdoor setting. (Source: AGRENV) Eco-museums can also be indoor museums hosting exhibitions with the purpose of training and informing people about natural life. 2. Economics and costs It is important to note that Natura 2000 does not exclude the presence of human activities in the protected areas. Eco-tourism can therefore develop in such areas, as long as it respects the conditions set for this development. Still, not all Natura 2000 sites have a potential for eco-tourism. Turnover Natura 2000 By June 2004, the EU estimated the cost of managing the Natura 2000 network in the EU-25 at around 6.1 billion per year based on national estimates 71. The EU estimate is the aggregation/extrapolation of the cost estimations made by some member states. As the member states made very different estimates, the reliability of these estimates is limited. According to complementary qualitative analysis by European Commission professionals, the effective total costs may amount to double this figure. 3. Employment Natura 2000 Eco-tourism According to the WTO (World Tourism Organisation), It is necessary to have widely accepted terms of a definition for ecotourism and some consistent standards for the proper evaluation of the costs and benefits of eco-tourism. Based on Eurostat data, the total turnover of the Nature Protection sector is approx billion ( Biodiversity and Landscape items, See chapter 3 for more details on the perimeter of activities covered by this estimate). Natura 2000 management needs drive the creation of an average 3 to 5 FTE (Full Time Equivalents) jobs per site, while the revenue from spending in the site or nearby helps to create an additional job 72. In the EU-15 there were 16,706 sites in October 2003, which represents a potential 5 * 16,706 = 83,530 FTE jobs for EU-15. (No similar data is available for EU-25 so far). Based on those data, one job is created per 73,000 of turnover. This is to be compared to the construction sector where one job is created per 71,700 of turnover. Eco-tourism and Eco-museums In 1999, nearly 9 million people worked in the entire tourism sector in the EU If eco-tourism represents 0.5 to 15% (estimate, restrictive or large definition) of the tourism sector, about 45,000 to 1.5 million people could be said to work in the eco-tourism sector. 255

258 MARKET STRUCTURE AND TRENDS 4. Market size and structure Market size and growth Natura 2000 There is a growth in the network size and there is thus also growth of the market. Up to now only the market size has been estimated. There is a difference between the different estimations and this adds an extra fluctuation in the market sizes. The total turnover presented above of 6.1 billion is based on calculations with the figures in the table underneath. Natura 2000 Cost Estimates Literature review Source: Final report of the Working Group established on Article 8 of the Habitats Directive For the EU-15 we see that the costs can be quite different. Cost in million Euro, total for 10 years Country Number Area Mgt Ongoing Occasion Total cost of covered by Plannin Mgt al Capital for all Natura sites (ha) g and Actions Invt. activities 2000 Admin. and sites Incentive s Austria Belgium Denmark ( ) (51 86) ( ) Finland

259 Germany Greece Italy Netherland s Portugal Spain Sweden UK Total respondent s Total EU Market drivers & obstacles Source: Final report of the Working Group established on Article 8 of the Habitats Directive The current market size of Natura 2000 is estimated to be 6.1 billion per year. This figure is based on some estimates and on two questionnaires sent to the member states. Eco-tourism As mentioned above, the market size of the European eco-tourism is difficult to estimate due to the lack of a shared definition of ecotourism. Some specific local indicators tend to demonstrate the growth of ecotourism however. In Spain, for example, there was a strong increase of visits to National Parks by Spanish residents (176% in the decade and 26% in ). But with respect to the destinations offered, the bulk of eco-tourism sales and trips are made outside Europe (74% of sales and 71% of trips) 74. Regulation One can assume that Natura 2000 may have had a positive effect on eco-tourism. This can also be seen for example in Ireland where a project by Life-Nature worked on the topic Enhancement of Ireland s natural heritage, in particular through eco-tourism. New and candidate countries have to also make efforts to implement the Habitats and Bird Directives (the basis of Natura 2000). The nomination of a complete national list of proposed Sites of Community Importance according to Annex III of the Habitats 257

260 Directive & submission of all relevant data to the European Commission is still to come. Competition with substitution products Synergies Obstacles and barriers to growth Classical (mass) tourism Agrotourism, specialized tourism (bird watching, angling, etc) There is a need for a clear definition on what eco-tourism exactly is and for a control of claims from organizers. At present it is difficult to differentiate between classical tourism and eco-tourism, so people do not trust the sector and hesitate to opt for eco-tourism. 6. SWOT analysis Strengths There is a demand for eco-tourism coming from the need for people to enjoy nature during holidays (fewer people live in the countryside) and from growing awareness that nature needs protection. Eco-tourism respects local culture and supports local economic activities. It may also create jobs for the local population. Eco-tourism is often high quality tourism with an important added value compared to classical mass tourism (smaller groups, education to nature, more "genuine", etc.) Weaknesses The cost of eco-tourism is usually higher than classical tourism. Season-linked activity (versus all year round availability for classical tourism) Intrinsic limit to the number of visitors to avoid nature destruction/degradation (cf. Machu Picchu) Development of eco-tourism in a Natura 2000 site requires important planning with good knowledge of the carrying capacity of the site. The precautionary principle can lead to serious limits on the project if good knowledge is lacking. Opportunities Labels have not yet been adequately developed and could increase the reliability of the product. Indeed, there is a lack of a coordinated industry sector (tourism associations), little experience with ecotourism and the sector is not yet able to provide the same level of quality as it can for traditional tourism. This could increase the EU market share. In Spain, the bulk of eco-tourism sales and trips are made outside Europe (74% of sales and 71% of trips) 75. Threats Eco-tourism is very dependent on the quality of natural settings and thus is very sensitive to natural risks and conflicts. There is still a large potential for developing new forms of eco-tourism: new types (e.g. special types of accommodation), new places, etc. Natura 2000 does not exclude human activities but tries to promote sustainable development. Therefore, it goes hand in hand with the rationale behind eco-tourism 258

261 and offers wide opportunities for ecotourism. On the other side, receipts for ecotourism can be used to finance the management of the site. Development of a project for eco-tourism may include improving the knowledge of the Natura 200 site (opportunity for Natura 2000). The eco-tourism project may have as an objective participation in the conservation of the site and as such, may apply for various funds. PUBLIC POLICIES SUPPORTING THE INDUSTRY 8. Existing initiatives and instruments Current regulatory requirements Natura 2000 is based on two EU Directives (Birds and Habitats). At the moment there is no regulation for Eco-tourism. However one can assume that Natura 2000 has a positive effect on eco-tourism. 9. Key issues to address in order to support further development of the sector Regulation The sector needs better regulation or labelling of the industry and products. It is necessary to impose some minimum requirements before tourism can be sold as eco-tourism. This would remove one limitation of eco-tourism development (lack of reliability of organisers claims). 259

262 5. Business cases The vision of drivers, obstacles and future perspectives at sectors level is completed in this section by 5 case studies of companies active in different eco-industries markets. These case studies aim at completing the supply-side approach with specific field-level information on costs structure and economical viability of the activities. The basic information has been collected directly from professionals in order to provide the Commission with pragmatic insights and recommendations. The list of executives met is presented in Appendix 2/ Case studies. The selection of sectors and companies was made with the purpose of reaching a representative coverage of: Eco-industry sectors, EU Member States (EU-15/ New Member States; North/ South/ Eastern Europe), Major markets in terms of size, maturity, innovative and/ or fast growing development and/ or remarkable practices and evolutions (regulations, funding mechanisms, public-private partnerships ), Ranges of activity (from regional to multinational actors), Size of the company (in terms of number of employees), Nature of activities (Study & engineering services, Building services and operations, Equipment services, Operation services ), Type of clients (Local public bodies, industries, national authorities, individuals). Due to the strategic nature of the information involved, our presentation seeks to preserve the anonymity of the firms and professionals and to maintain the confidentiality of the data analysed, while drawing a clear picture of business development mechanisms and costs structures. This explains the following presentation rules: Location of companies activities is presented by zones (EU-15 / New Member States). Generic terms are used to identify actors involved (holding, mother company, shareholders ). Figures sometimes are the mother group s ones and always are normalized to 100 for the reference year. Earnings table are presented in a simplified form with breakdown per activities when possible. The general template and sections are adapted to the information that can be disclosed for each company. General information and statistics on the sector as a whole (corresponding NACE codes) is provided at the beginning of each case study in order to provide backgroung information and to estimate the relative importance of the companies activities. However, in most cases the corresponding NACE code relates to a wider sector than the specific eco-industry segment covered by our work. For example, data extracted from Eurostat databases for the wind power generation case study corresponds to NACE code e40 which covers Electricity, gas, steam and hot water supply. 260

263 We would also like to thank again the persons contacted during the course of these case studies, for their availability despite extensive professional commitments. 261

264 5.1 Waste management sector A - COMPANY S PROFILE 1. Identity and administrative information EU-15 / NEW MEMBER STATES NEW MEMBER STATES Eurostat data on the sector CODE NACE O (Other community, social, personal service activities) 1) Gross value added (at basic prices, Mio EUR) member Appl. Count. EU15 NMS Others Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of ) Intermediate consumptions (Mio EUR) member Appl. Count. EU15 NMS Others Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 Ownership / Shareholders Subsidiaries Short history EU-15 mother group now owns 98,32% of the capital and the home country shareholders owns the remaining 1,64%. The company has no subsidiaries. The company has been set up in Consultancy and advisory on household and industrial waste management was the main field of activity at this time. More than 500 studies and documentations have been realized for various customers such as industrial/ service companies during the first 10 years. Between 1996 and 1998, the company worked on waste organization-, finance- and management 262

265 programs in a few cities. The costs were funded by the United States Agency for International Development. Starting from the mid-90s, the company extended the field of its activities to environmental monitoring of landfills at regional scale. In 1999, the new national regulations on waste management and hazardous waste collection created a new market. The local waste collection network has been developed and the transfer station built, from which all kinds of waste are dispatched to proper treatment plants. Services on collection became essential for the company. In 2002, the company became a subsidiary of an EU-15 group. This cooperation allowed the development of the PCB s and pesticides export activities. 2. Activities & clients Main activities The company offers services in two domains: Waste collection, treatment and final disposal. Consulting and assistance : Environmental monitoring of landfills and of other waste disposal locations. Documents and files on environmental impact to be prepared for various projects and programs. Waste management. Products & services - Industrial waste - Collection - Transport - Weighing, labeling, storage (for accumulation) - Treatment, disposal and utilization - Export of waste - Pesticides - PCB containing waste Role - All activities until waste is delivered to the companies in charge of final treatment. 263

266 Consulting & assistance (monitoring and projects) Products & services - Landfills monitoring and waste analysis; soil, subsoil water, surface water and sewage analysis - Environmental impact assessments (household waste management programs, industrial waste management programs) - Professional consultancy and advisory on waste management (legal expertise) Role - Project / study management - Data monitoring and analysis (but for sophisticated and advanced laboratory analysis that are commissioned to scientific organs). In accordance with legal requirements, the company operates with the adequate permits (national standards): - permit to collect and transport waste - permit to store and transfer waste - permit to export waste; and permits to transit through neighbor states. (For lack of adequate plants in the home country, the company managed to get the permits for the export of specific hazardous wastes such as PCB containing wastes and pesticides. The waste is carried to dedicated treatment plants of the mother company in a EU-15 country. The company offers collection of a very broad range of waste including lead batteries with electronics, fluorescent lamp, high pressure lamp, solvents, paints, varnishes, galvanization waste, asbestos waste, cleaning agents, filtration mats, waste from metallurgy industry, chemical reagents, plastics, gums, electronic equipments, PCB containing waste, pesticides In the framework of new home countries law, the company takes the responsibility for all the waste handled as soon as collected. This is a very strong commercial tool that is made possible by obtaining the appropriate permits only (pure transport players cannot take that responsibility). 264

267 Waste management operations process: 1 Client sends a questionnaire or order Permit to collect waste The company takes the resp. for the waste 2 Company s truck goes to the client s site and collect waste OR the client brings the waste insite Permit to store waste 3 Waste is disposed at the company s warehouse ; the transfer document is sent to the client 3 bis - If treatment plant is near the client s or on the way, waste is directly transferred Permit to transport waste Permits to export waste 4 Transport of waste to final treatment plant or location in the home country 4 bis Export of specific waste to final treatment plants or locations abroad 5 Delivering of the certificate of proper final treatment to the client Type of clients / Main clients Main clients Waste management - Private companies - Very broad range in size: from the local bakery to chemical plants and sites. - Over 1,000 references and 500 active clients Monitoring and projects - Public actors: cities, regional councils - Private actors: chemical and industrial sites (all sizes) - More than 100 clients 265

268 3. Size of the company Turnover 1 - Volumes of waste managed Note: all figures normalized after the following hypothesis: 2000 vol. = Sales Waste collection Monitoring Projects Note: all figures normalized after the following hypothesis: 2002 sales = Breakdown of sales per activities (2004) 7% 4% 89% Waste collection Monitoring Projects 266

269 4 - Waste mgt: breakdown per geographical areas 30% 70% Region Rest of home country Comments: The company handles 2,500 to 3,500 tons of waste each year, including approximately 60% of hazardous waste, depending on the year. Employment NUMBER OF EMPLOYEES < 10 empl. 10 to 49 empl. 50 to 249 empl. > 249 empl. BREAKDOWN OF STAFF PER FUNCTIONS 33% 67% Prod. & operations Head & admin. Comments: The total headcount increased in the past years, following the volumes handled. The key human resources management issue is not to find educated and trained people in the region but rather to offer attractive working conditions (salaries, career opportunities) so that these (especially young) people stay and work here. The region is known for the relatively expensive cost of living and for relatively high unemployment and low wages. Many young educated people leave to work and settle in the nearest EU-15 states. The global economic development of the region (starting now) might bring more difficulties in a first period for small companies, as young educated people will have more better-paid job opportunities without moving. 267

270 Salaries increased after the integration to the mother company s group. The fierce competition makes it difficult to raise salaries again however. For the most experienced employees, speaking a foreign language (English) becomes another constraint (a demand from the mother company executives). Existing courses are not adapted to small companies with a few people concerned and all being at different learning steps. 4. Perspectives Development perspectives (overview) PCBs and used pesticides export market bring important development perspectives until adapted treatment capacities are available in the home country. Pre-treatment for all kinds of waste in the framework of a national organization and network to be set up is the next important development opportunity. The WEEE directive makes this project all the more relevant with the coming of new types and amounts of waste on the market. 268

271 B - MARKET STRUCTURE AND TRENDS 1. Market structure Market size Waste management activities The company is active on the industrial waste management market in its home country only. According to the figures used by the management team, the total production of waste in the home country amounted 124 millions tons in 2001, including around 1 million tons of hazardous waste. The effective market is estimated to be around 10% of the total generated hazardous waste, that is between 100,000 and 150,000 tons hazardous waste each year. The treatment of historical amounts of waste from public industrial sector represents an extension of the market of no more than 10%. Consulting and assistance activities No consolidated data available. Market trends and opportunities Market trends Market opportunities Waste mgt - Companies and industrial actors know more about waste in general, laws and responsibilities. - It has become clearer that high prices must be paid for the treatment of hazardous waste and fines are getting more frequent (awareness). - Treatment of historical stocks from public industrial sector. - Niches at national scale (PCB s and pesticides for example) - Pre-treatment activities and national network 269

272 Consulting and projects Comments: Market trends - Flat market: all permits last for ten years and many analyses have been made in the 5 past years. Moreover there is no obligation to get expert assistance for the making of it. Market opportunities - Checking of closed landfills - Closing of small landfills - Next steps of environmental studies and programs made for municipal and regional actors - Setting of integrated operating permits (incl. waste monitoring) End-of-life equipments containing PCBs have become a major market. Three companies only have the permit to export such waste although many are authorized to collect it. New regulations stated in 2003 impose biogas emissions measurement every month and waste quality analysis every 4 months for landfills. This could bring a extra monitoring activity. 2. Drivers & obstacles Key drivers for demand Effective enforcement of national or European laws and regulation on waste management and esp. final treatment (enforcement schedule, controls of effective enforcement). Average awareness of industrial actors on waste management issues. Price of the services ( illegal competition from unauthorized companies, offering cheaper prices) Key markets drivers and constraints Key market drivers 1 The main market driver is the legislation. European laws and regulation have been transposed at national scale. The schedule for law enforcement has a particularly important influence on project management and documentation activities. 2 The cost of final treatment of waste (that determines the price of the service and, as a consequence, the competitiveness against actors operating without permits). 270

273 Key market constraints 1 The national environmental policy: the means given are insufficient to ensure the right enforcement of environmental laws and regulations. 2 Illegal practices of actors operating without required permits / Insufficient inspection and control means (lack of money, equipment and people: 4 inspectors for more than one hundred private firms at regional scale) 3 Lack of modern physical and chemical treatment plants Comments: 1998 has been decisive due to new law on waste management putting new obligation on waste producers, such as: o o o Recording of all generated waste, Obligatory permit obtainment for generated waste (technological process) linked with defined, detailed treatment method for each kind of waste, Allowance of waste transfer through companies with appropriate permits only (for collection, transport, disposal ). 3. Players Key players and market position Groups position on its markets Waste management activities Local (city) market Regional market National market The company holds around 70% of this market and provides service for all types of companies (from the small bakery to industrial sites). The company holds around 10% of the market. The company is active and (co-)leader on specific niches (PCB s for example). 271

274 Main actors and competitors Waste mgt Monitoring and projects Waste management : small companies Export: 2 other companies have the permit for PCB containing waste. Small companies Individual experts Comments: The 3 main actors on the waste management market are: Sita (Suez group, FR), Remondis (Rettman group, DE) and Alba (DE). These players are more on the municipal waste market which the company does not address (but for the project and studies activities). Main characteristics of the companies of the sector Companies present on the market are from very different types and sizes. o The biggest private groups are subsidiaries of European leaders (see comment in above paragraph). o Other actors range from the individual experts (for consulting activities) to regional leaders. The competition also depends on the type of waste considered. 4. Competitiveness at international level The company s offer is specific because of the variety of waste collected and especially because of the ability to manage operations from the collection to final treatment while taking the responsibility for the waste during all along the process. The major concern lies in the creation of small companies operating without the required permits or beyond the limits fixed by the permits they hold. These companies do not guarantee a proper treatment of the waste and sometimes leave orphan amounts of waste when suddenly disappearing. Position of European industry at international scale The company is active on the industrial waste management market in its home country only. 272

275 C - FINANCIAL ANALYSIS 1. Overall financial data Simplified earnings table (11 months) SALES Cost of goods sold GROSS MARGIN EBITDA 10 9 EBIT 6 4 Note: all figures normalized after the following hypothesis: 2004 sales = 100 Cost structure analysis From sales to gross margin Costs of goods sold are the most important ones, far ahead from logistic overheads and financial costs. The two key explanatory costs are the amount paid for the treatment of waste when delivered to dedicated plants on the one hand and wages and salaries on the other hand. The cost of treatment corresponds to the payment made by the company to the plants or specific infrastructures when the waste is delivered for final treatment. This cost has a great impact on the company s final result. It is quite stable and varies with the nature and amount of waste delivered. Wages and salaries (including individual compensation for long trips) are the second most important cost. These costs grew in the past years as the company hired more employees and the salaries went up smoothly. Even if the company operates unusual long range travels (up to 1,000 km) to transport hazardous waste to specific treatment plant, the majority of the business is made at local scale and the cost of fuel is not an important issue. Clients even often bring their waste to the transfer platform themselves. From gross margin to EBITDA The most important costs are the wages and insurance for administrative staff. From EBITDA to EBIT Depreciation costs are not a heavy burden for the company and are not a key issue in comparison to the before mentioned other costs. 273

276 R&D Due to the specific nature of its activities, the company does not need to conduct important R&D projects and activities. R&D on waste management techniques is of interest however and the key issue is the building of state-of-the art treatment capacities at national scale. Import / Export (trade balance) Export potential: The waste management market is to be local because of the waste production sources are local and because of the risks and costs linked to the long range transport of (hazardous) waste. The company carries some hazardous waste abroad for treatment however because of the lack of convenient plants within the national territory. However, the market will probably evolve towards the building of local treatment capacities rather than through the development of long range transportation. Key factors of trade balance: This situation brings a (limited) financial risk linked to the exchange rate (clients pay in national currency and the company pay for final treatment in Euros). REGULATIONS & POLICIES 1. Existing funding and support opportunities Existing tools National laws relating to waste management are directly inspired from European directives and the required standards more and more level with EU-15 ones. The enforcement of existing laws is sometimes difficult because of the lack of proper treatment infrastructures. For pesticide, as an example, a small treatment plant exists in the home country but it does have the capacity to treat all the historical stock of the public industries. Export is a solution but also is contradictory with the European stipulating that waste should be treated at the closest place. Transposition of the WEEE directive in national law. 2. Relevant funding and support opportunities to set up Measures and policies to take Help raise the awareness of companies and industrial actors on waste management issues. Help fund and organize environmental inspection of waste management services and infrastructures (Environmental inspection force). Help and fund the building of waste final treatment plants and locations (landfills and sorting plants), esp. for hazardous waste 274

277 (and for municipal waste, to a smaller extent). Funding of PPP for the management of historical stocks from public sector. Help educate and train employees, based on their experience and expertise (foreign language). 275

278 5.2 Water supply and wastewater management sectors A - COMPANY S PROFILE 1. Identity and administrative information Sector EU 15 / NEW MEMBER STATES Water supply and water sanitation NEW MEMBER STATE Eurostat data on the sector: CODE NACE O (Other community, social, personal service activities) 1) Gross value added (at basic prices, Mio EUR) member Appl. Count. EU15 NMS Others Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of ) Intermediate consumptions (Mio EUR) member Appl. Count. EU15 NMS Others Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 Ownership/ Shareholders The company studied here is a joint-stock company 100% owned and operated by an international leading group. The company has been created to manage the operations and services agreed on in a contract made for the water supply and sanitation of one of the most important city of the country. 276

279 Subsidiaries Short history The company studied is the owner of a separate institute involved in the training of the group s employees at national scale. The mother group of the company started operations in the framework of first contracts won in New Member States at the end of the 1990s. The mother group of the company now is one of the important investors and private employers of the country, with a presence in almost all regions and more than 40% of the municipal water and wastewater management market. The company was established in 1998 and privatized in 2000 and 2001 as a successor of the former state companies. The State first transformed the water supply and wastewater companies into two new companies: one company to own and manage assets and infrastructures and the other one to operate it; the second one being privatized. The company has been awarded a contract for managing and operating the water and wastewater services. The company does not own (neither invest in) the infrastructures which remain the property of the municipality. 2. Activities & clients Main activities The mother group of the company studied is present worldwide and is the leader of the national water services market, with more than 6,000 employees serving around 4 million inhabitants. The company is the operator of the municipality s water management structures, the administrator of which is the city s infrastructure management society (a joint stock company, the founder and majority owner of which is the municipality). The company thus operates under a long term contract with the city s infrastructure management society, which defines its activities and responsibilities. Main activities Products & services - Treatment and supply of drinking water - Collection and treatment of wastewater - Water and wastewater network management, including: o o o o Operation of distribution network, pumping stations and water reservoirs Operation and maintenance of public sewerage network and enclosed water streams on the city s territory Dealing with failures on water distribution and sewerage network Inspection and measurement on water 277

280 distribution and sewerage networks Other activities Products & services - Monitoring of water quality - Billing and recovery - Customer service, answer to requests - Authorized metrological and repair center for water meters - Services to industry Type of clients / Main clients There are two major types of clients: contractual customers: individuals living in private houses, owners of apartment blocks and industrial firms consumers living in apartments (with no formal contractual link to the company). In addition, the company sells bulk water to adjacent municipalities. Finally the company is accountable to the city for which it operates the infrastructure under a contract. 3. Size of the company Volumes and turnover PRODUCTION OF DRINKING WATER Population supplied with drinking water More than 1.4 million Length of water supply network operated (incl. service branch pipes) More than 4,000 km Number of service branch pipes More than 90,000 Number of installed water meters Approx. 100,000 Number of pumping stations

281 TOTAL PRODUCTION OF WATER (Trend in thousand m3, 1998 value normalized to 100) The (25%) reduction of the total volume of drinking water produced results from 3 causes: (1) the improvement of management of operations (reduction of losses), (2) an increased awareness among customers as regards the importance and the scarcity of water resources and (3) the closing of some industrial companies. The water losses percentage has been cut by more than 30% in 6 years and now is comparable to the one of other EU-15 large cities WATER LOSSES (Trend in %, 1998 data normalizedto 100) ,8 82,7 81,4 77,1 69,5 64, DISPOSAL AND TREATMENT OF WASTE Population connected to the public sewerage system More than 1.1 million Length of sewerage system network operated (incl. sewerage branch service pipes) More than 4,000 km Number of sewerage branch service pipes More than 80,000 Number of pumping stations More than 150 Number of wastewater treatment plant More than 20 (incl. the central one treating 95% of volumes) 279

282 AMOUNT OF WASTEWATER TREATED (Trend in thousand m3, 1998 value normalized to 100) ,9 92,5 95,6 83,8 83, , PRODUCTION (Trend in 1000 local currency, 2002 number normalized to 100) Employment NUMBER OF EMPLOYEES < 10 empl. 10 to 49 empl. 50 to 249 empl. > 249 empl. NUMBER OF EMPLOYEES ,6 98,9 The main 93,4 87,7 strategy is to 80 81,7 76,4 work with a smaller 60 number of 40 better paid, trained and 20 motivated 0 elmployees. In , the total fluctuation was around 12%, the half of which corresponded to the important organizational changes launched the year before. The age and education structure as well as length of employment also changed as consequence, with a significant rejuvenation (some of the staffs present in the early 2000s had reached the age for retirement but still worked to add wage on the low pensions). 280

283 The social dialogue and cooperation with trade unions are basic conditions for maintaining the activities in decreasing the number of staff. Significant social measures have been taken as a result of the negotiations (incl. retirement supplementary insurance schemes and catering subsidies). At larger scale The mother group relies on local workforce in New Members States in general, even for management jobs. The percentage of managers with a different nationality than the one of the mother group is higher than 99% in this area. 4. Perspectives Development perspectives (overview) At company scale Change into a client oriented company (quality and occupational safety certification processes, enhancement of services to the clients, creation of a telephone contact center and a modern client center). Activities linked to the verification and repair of the water meters and infrastructure in general with preventive elimination of failures and interruption of service. Synergies with sister companies in the country. At larger scale: B - MARKET STRUCTURE AND TRENDS 1. Market structure Dissemination in other new Member States of the successful public-private partnership business model experienced in that country. Development of synergies with the group s other businesses. Market size Trends & opportunities Each city or regional area represents a specific market. See development perspectives section 2. Drivers & obstacles Key drivers for demand Demand for increased quality of goods and services from the customers and from public bodies. Water consumption habits and needs (private and industrial), at the moment decreasing consumption. Key markets drivers and constraints Key market drivers 1 Institutional framework and implementation mechanisms enabling Public Private Partnership, and opinions of 281

284 municipalities regarding PPP opportunities and benefits. 2 Changes in legislation on quality parameters of drinking and discharged water (following European directives). Wastewater market: State s government commitment to comply with the European directive on the wastewater treatment targets (supposedly as soon as 2010) require very large investments for WWTP and network development and renewal. 3 Outsourcing of water management operations by industrial enterprises. Key market constraints 1 Lack of funds to be invested in the building and renewal of infrastructures. 3. Players Key players and market position As for the private players part, the water market most often is structured on the basis of one specific contract (and corresponding dedicated company) for each city, area or region served. Many companies operate at national scale and compete with each other. 4 major groups share the national market. The mother group of the company is the most important with approx. 40% of the total municipal market through the different existing contracts. Main characteristics of the companies of the sector The 2 main actors at national scale are dedicated structures of major international leading groups. On top of market share and geographical locations, the 2 groups also differentiate one from each other through the level of financial participation to the operating companies set up for each contract. The mother group of the company studied always stands as majority shareholder whereas the other group rather stands as minority shareholder. 4. Competitiveness at international level The 2 other players are foreign but regional ones, both being subsidiaries of existing groups, one originating from an EU-15 state, the other one from a New Member State. One operates under the full privatized business scheme (owning the infrastructures) whereas the other one operates under the more usual semi-public business scheme. Position of European industry at international scale See the Water supply and Wastewater management section of the report. 282

285 C - FINANCIAL ANALYSIS 1. Overall financial data Simplified earnings table PRODUCTION ,5 106,9 Production consumption 70,8 70,0 69,8 Personnel expenses 15,9 16,0 15,8 OPERATING PROFIT 7,5 14,4 15,4 EBIT 9,3 14,3 16,1 Note: all figures normalized after the following hypothesis: 2002 production = 100 Cost structure analysis From production to operating profit Production The company ensures the water supply and wastewater treatment services and manages the relationship with the client. The company usually does not invest in the infrastructure and only has the responsibility for operations and maintenance (depending on the contractual requirements). Some specific and limited investments may be made along the life of the contract. The production figures sum up the amounts received from the billing of all activities and revenues (but for the second selling of meters). Production consumption The production consumption break down as follows: Raw water 8% Other 8% Repair services 12% Electricity 5% Rent paid to the city 59% Fuel 1% Equipment Chemical 5% products 2% 283

286 The rent paid to the City (as tenant and user of the infrastructure) is the most important consumption. It breaks down as follows: The repair and maintenance works operated by the company (or subcontractors) is directly subtracted of the total rent to be paid to the City. The corresponding relative share of the rent directly depends on the proper state of repair of the networks and stations (besides inflation). The other part of the rent corresponds to the financial amount paid to the City so that it can fund the necessary infrastructures renewal and new developments projects. Rent paid to the state company in charge of assets management 70% Financial value of the repair and maintenance works done by the company 30% The amount of the rent paid is set by the city each year. The total amount of the rent perceived by the City must be in accordance with the projects and investments made. An increase of this rent quite systematically implies an increase of the price of water for the end customer. This situation is a direct consequence of the water price calculation system defined by the national law. The price of water is calculated (on a monthly basis, in advance) as the sum of the cost of production and of the operator s fee. The fee is defined a fixed percentage of the production cost of one water cube meter calculated as the ratio of the total volume billed to the total costs of production. An important and constraining control system by the State Ministry of Finance, the City and the Tax Services ensures that productions costs are effective (so that the fee does not grow artificially) and the company also committed not to increase the prices of more than inflation each year (provided that the rent increases by inflation only as well). The price of water increased to a significant extent over the past 15 years (by a factor of more than 30, including inflation that amounted to 8% some years ago and around 2% in 2005), progressively integrating the cost of new technologies introduced and giving a more relevant information on the real cost of water management (on the contrary to the former prices corresponding to the idea of a free and unlimited resource). Increases are now limited to inflation,. The municipalities may sometimes be reluctant to increase the rent and consequently the price of water for political reasons. Huge renewal and development investments are to be made however and external (potentially EU) funding is critical. Personnel expenses The decrease in staff number brought by the organizational changes represented a Average gross salary and average personal costs trends of evolution 144,8 154,6 162, ,9 112, Average gross salary Average personal cost 284

287 drop of up to 6.5% in number that was fully compensated by increase of payroll. Presentation hypothesis: 2002 average gross salary normalized to 100.Average salary without effect of manager wages, average personal costs including social and health insurance paid by the employer. 1,5 1 0,5 0 Index of increase of gross salary on Index of increase of average personal costs (ratio) 1,34 1, ,92 In 2004, the average personal costs increased more rapidly than average salary. This change on previous trend followed from increase of employer s contribution to catering of employees and further from increase of contribution to retirement supplementary insurance scheme. From operating profit to EBIT The profit before tax grew by 60% from 2002 to The total production being quite stable, this trend is explained by (1) the evolution of personnel expenses, (2) the savings on raw materials and (3) the development of new activities (such as pipes branch building, repair works, searching for leakages, network digital mapping ). R&D The introduction of advanced and new techniques is a great help for the improvement of the quality of the water supplied and of the water discharged. Recent technological innovation include further automation of operations and (telemetric) control of water and wastewater pumping stations and water reservoirs. 285

288 REGULATIONS & POLICIES 1. Existing funding and support opportunities Existing tools Existing legislation, sector s platforms and funding and opportunities are known and put into force in the country. See Water and Wastewater section. 2. Relevant funding and support opportunities to set up Measures and policies to take Need for major investments for the development (and also renewal) of water supply and especially waste water treatment infrastructures and network. > Adapt (i.e. increase) the financial funds allocated to these projects. The only alternative being the increase of the prices of water, which is leads to political issues. Private players investment should neither be seen as an immediate solution as the public bodies are to remain the owners of the assets (infrastructures). However private players can provide support to municipalities with respect to financing (advance payment of the rent ). > Make the funding procedures more efficient: clearly state the screening criteria and give feedback information on the decisions taken. In particular, the effective compatibility of a funding from EU origin with existing or planned partnerships with a private player (delegation of authority to manage the water services, without investment clause) should be further clarified to all EU actors concerned by such funding mechanisms and to all applicant cities and municipalities. > Increase cities and municipalities awareness to the necessary maintenance and renewal of infrastructures and assets (to which they usually are reluctant because of the impact on the price of water and the consequent political stake attached to such a decision). Develop a global understanding of wastewater management issues (including rain water). > Further explain and help in the enforcement of existing directives. 286

289 287

290 5.3 Environmental monitoring and instrumentation sector A - COMPANY S PROFILE 1. Identity and administrative information EU 15 / NEW MEMBER STATES EU 15 Eurostat data on the sector: CODE NACE dl33 (Manufacture of medical, precision and optical instruments, watches and clocks) Number of enterprises Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 member Appl. Count. EU15 NMS Others Turnover or gross premium written member Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 Appl. Count. EU15 NMS Others Number of persons employed member Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 Appl. Count. EU15 NMS Others 288

291 Ownership/ Shareholders Subsidiaries 5 equity funds. These funds usually work with 3 to 7 years plans so that they may reconsider their participation in the coming years. The present form of the group is the result of numerous acquisitions and evolutions in the recent past years. The group now coordinates the activities of 6 firms specialized in the different operations of environmental monitoring and offices abroad, mainly: Manufacturing, System integration and operation, Management of hire (rental), Offices in Spain and in the United States. Short history The first company was founded around the end of the 18 th century. In the early years, the product ranges being exported around the world included exploration, navigation, photographic, meteorological and medical research instruments. By the 1950 s the founding company had designed and built a significant amount of dust monitoring equipment for the deep mining industry, including a number of industry standard products. Originally formed from a company specializing in the design and manufacture of computer related equipment, another major company of the group has been manufacturing instrumentation for the measurement of noise and vibration since the early 1970 s. Both companies merged in The group then experienced various evolutions and changes, notably a lot of acquisitions between 1996 and 2002 and recent sale consultancy activities. In the early 1990 s the group also set up subsidiaries in Spain and in the United States of America to ensure the distribution of its products and services in the target markets. 2. Activities & clients Main activities The group designs, manufactures, assembles, distributes and operates products and solutions to measure exposure to dust, VOCs, heat stress, vapors, noise, vibrations and radiation (with a particular focus on noise and dust). The group focuses on noise and dust exposure issues and defined two major fields of activity: working environment and natural environment monitoring. 289

292 Working environment relates to hazard and exposure issues within the personal (and often enclosed) space at work. Working environment activities Products & services - Most often hand held and battery powered equipments - Around 1,700 different line items o o o Dust & air monitoring: air sampling pumps, real time dust monitors, VOC monitor Noise monitoring: sound level meters, noise dosimeters, real time analyzers Indoor air quality: heat stress monitor, indoor climate monitor, gas detectors, bacteria sampler Activities - Designer and manufacturer - Distributor Natural environment relates to hazard and exposure issues within the public (and more often open) space. Natural environment activities Products & services - Often big built in systems with networks of captors, telemetric devices and central data management - 8 main analyzers models, o o Air quality and emissions: ambient gas analyzers, air quality stations, air quality systems and networks, data services, station hire, continuous emissions monitoring systems Meteorological: manual or automatic hydrological, ecological and industrial apparatus - Solutions usually are sold as services contracts (30 months in average) Role - System integrator (analyzers from the USA, software from Israel ) - System operator (delivering final data) 290

293 Type of clients / Main clients Main clients Working environment Natural environment - Private companies and organizations (petrochemical, manufacturing, pharmaceutical, aerospace, automotive) - Local and national governments and agencies - Internationally funded environmental programs (e.g. EU program in Romania) - Construction industry (being an important source of dust emissions) Comments: Even if small firms are not numerous, all types of companies - in terms of size and product/ services activities - are customers (incl. small consultancy structures). In most cases, the front client is a distributor. Only a very small part of the business is done through direct sales. All in all, 70% to 80% of the products manufactured by the group are sold internationally to distributors. 3. Size of the company Turnover 1 - SALES / / / 2006 Presentation hypothesis: 2003/04 sales revenues =

294 2 - BREAKDOWN OF SALES VOLUMES PER ACTIVITIES Natural envt; 45% Working envt; 55% 3 - BREAKDOWN OF SALES VOLUMES PER ZONES Rest of the world; 20,0% Americas ; 15% Rest of Europe; 25% Home country; 40,0% 3 bis - Working envt 3 ter - Natural envt Rest of the world; 20,0% Americas; 20% Rest of Europe; 25% Rest of the world; 5,0% Africa; 10% Rest of Europe; 30% Home country; 30,0% Home country; 60,0% Comments: For natural environment products which targets local authorities, the domestic markets remain dominant. Developing countries (e.g. African countries) are more interested with meteorological instrumentation while other industrial countries are more demanding for working environment products and services. 292

295 Employment NUMBER OF EMPLOYEES < 10 empl. 10 to 49 empl. 50 to 249 empl. > 249 empl. BREAKDOWN OF STAFF PAR TYPE OF ACTIVITY 2% 20% 20% 58% Manufacturing Mgt of hire System integration Intl subsidiaries Manufacturing activities: BREAKDOWN OF STAFF PER FUNCTIONS 8% Production 47% 45% Sales admin. & marketing Corporate head divisions Comments: The production staff has decreased of around 25% over the last ten years. The main factors explaining this trend are the following: o o Automation of critical steps of the production processes, notably final test and acceptance Outsourcing of some sub-assembling activities (but configuration and tests are not) For some components, suppliers now sell by batches of 1,000 or 2,000 pieces so that it may become adequate again to internalize some sub-assembling activities. In terms of recruitment in general, highly skilled and experienced people being able to adapt to different production sets and quick changes from one to another will be the more looked for. 293

296 There is no further existing information regarding indirect jobs created by the group s and/ or the sector s activities. 4. Perspectives Development perspectives (overview) The markets related to noise and dust exposure are the most promising ones, notably in France and Spain. The New Member States offer more opportunities regarding the big quality systems. Working environment is becoming more and more important (higher growth rate on more expensive products and services). All in all, Europe offers the best growth opportunities. The fragmentation of the market, the language barrier and the discrepancies between national standards (in testing in particular) still are important obstacles however. In the USA, the political climate is not favorable to supporting the development of new legislations (main driver of activities). Asia is a very difficult market to penetrate for cultural reasons and developing economies rarely support investment in environment monitoring (cf. over 1,400 non compliant coal mines in China). 294

297 B - MARKET STRUCTURE AND TRENDS 1. Market structure Market size The markets considered are relatively small ones ranging from 30 to 60 millions euros. MARKET SIZE ESTIMATES BREAKDOWN PER ZONES DUST NOISE Rest of the world 41% Europe 31% Rest of the world 35% Europe 34% USA 28% USA 31% Market trends and opportunities Market trends Market opportunities Natural environment A rather flat/ slow growing market because it is quite a mature one. Replacement market in EU-15 Strong rates of growth in the new member states. Working environment Home country market (within EU-15) is growing in line with inflation More competitors than in the past. A tougher market. The technology did not change much but the manufacturing people s salaries raised. New directive and new regulations to come E.g. : new regulation on work in flammable environment (2003) devices certified pre 2003 will be forbidden from summer 2006 on. Comments: Both markets will evolve toward the selling of integrated solutions and services (i.e. data production and analysis) to help in the monitoring and communication to a large audience. 295

298 2. Drivers & obstacles Key drivers for demand Legislations and regulations are the first and main driver of the markets and demand (as a consequence, new regulations and evolutions of existing texts are particularly important). Growing valuation of costs in terms of human health and litigations leading to establishing the costs (e.g.: asbestos) Key markets drivers and constraints Key market drivers 1 Evolutions of regulations 2 Technological performance Key market constraints 1 Legislation and regulations also are a limit as most companies and public authorities won t pay for new upgraded devices if there is no corresponding legal constraint. 2 Network systems integrate many stations with telemetry applications and computer software. Dedicated data protocols are key to these systems and no standards exist so far. This means major potential costs for the industry and leads to face barriers to trade (data protocols are different from a country and from a system to another and little effort is done to change it). This may end in a relative lack of competition and consequent high prices for the tax payer. Focus on regulatory requirements: Regulatory drivers for market development Working envt Natural envt Regulation concerning health & safety, hazardous substances to health, workplace exposure, noise exposure Regulationconcerning public spaces air quality 296

299 Comments: The regulations on personal exposure in working environment date back to the early 1900 s. On the contrary, regulations on exposure in public places and environment are only 20 to 30 years old. This explains a lot about the differences between the two main markets. Legislation is more or less almost the same in EU 15 states. The difficulty lies in the artificial differences and barriers introduced by specific national accreditation processes and or system-specific protocols. 3. Players Key players and market position Groups position on its markets Market position Working envt Market position Natural envt National market European market In the top 3 In the top 2 In the top 5 In the top 5 Rest of the world In the top 5 Marginal player Comments: The group is quite unique as it developed expertise and activities relating to many kinds of exposures and in both working and natural environments. This differentiates it from the competitors who often offer one type of services or products only. On top of that, it happens to be very difficult to build consolidated information on respective market shares in a very fragmented market (small companies most often face no obligation to make their financial and operational information public). No relevant market surveys exist (some very general ones aggregate too many different activities.) The group s market share varies a lot from a country to another, ranging from around 2% to around 20% in the noise and dust activities. Most of the competition is based in the USA, both for working and natural environment activities. 297

300 Main characteristics of the companies of the sector Autonomy (independent companies/ subsidiaries/ influent parent firms) Dust Noise Generally small companies, autonomous. Small family owned business. Not part of big groups. Noise: lot of very small companies. Very fragmented market. Comments None of these are important markets (20 to 40 millions pounds markets) big conglomerates are not interested. Range of activity Working envt. Natural envt. Other companies usually are more specialized and focus on a specific issue (noise/ dust/ VOC ) 4. Competitiveness at international level Position of European industry at international scale Position: Asian countries are progressively building capacity and experience in this field. The perception expressed by the company is that the situation is coming closer even if this is still not a problem today. The differentiator at the moment is experience and the understanding of requirements. Evolving and tighter requirements will help keeping this advantage. 298

301 C - FINANCIAL ANALYSIS 1. Overall financial data Simplified earnings table 2003/ / /2006 (budget) SALES ,7 103,1 GROSS MARGIN % 51,1 49,4 50,8 OVERHEADS % (44,5) (43,4) (42,5) EBITDA % 6,5 6,0 8,3 EBIT % 3,3 3,8 6,0 Note: all figures normalized after the following hypothesis: 2003/04 sales = 100 Cost structure analysis From sales to gross margin 1 -BREAKDOWN OF TOTAL PRODUCTION COSTS Labor cost amounts for 8% to 10% of the total production costs. It is reducing year on year for many years (it probably amounted for up to 30% of total production costs 30 years ago, but most activities were still internalized then). Components costs amount for up to 75% of the total production costs. These costs are critical and management of purchasing is key. Last years good performances are mainly due to good purchasing management and to the fact that product quality improved in other parts over the world (so that prices went down). The group deals with more than 200 suppliers out of which 50 make around of 70% of the production revenue. These are mostly small to medium firms from all around the world. Overhead s 16% Labor 8% Compone nts 76% Breakdown of purchasing per areas As a consequence, one of the main financial risks faced by the company is the USD/ EUR exchange rate and its evolution along the year. 100% 50% 0% around Home country Rest of Europe Rest of the world 299

302 2004/2005 drop of revenue is due to the USD/EUR parity evolutions. From gross margin to EBITDA The overheads considered here cover mainly management and administrative personnel costs (70%) building costs (13%), advertising costs (5,5%) and insurance costs (4,4%) From EBITDA to EBIT Depreciation costs are quite low (around 2% of sales) because the activities require few equipment in the end (also because relatively few parts are produced and assembled inhouse). The capital expenditure and the financial costs are not important either. This is due to the history of the group and the available capital from parent companies at the times when major investments were necessary. Further investments will be necessary however to move forward and keep the technological advance ensuring the activity and the ability to anticipate and valorize the market s evolutions. R&D R&D is a key competitiveness factor in the sector. The money spent for R&D amounted for around 2.5% of the groups sales in the past years. Import / Export (trade balance) Export potential: Circa 70 % of the manufactured products are sold internationally (outside the mother company home country). International exchanges inside Europe are the most growing and promising ones. The national certification requirements are a real barrier to international trade, notably in the USA, but also within Europe. Key factors of trade balance: USD/ EUR parity Divergent/ harmonized accreditation procedures and standards. REGULATIONS & POLICIES 1. Existing funding and support opportunities Existing tools The group is neither taking part in any funded project, nor receiving any direct funding from the European Union for its activities. Existing programs and contracts are understood as being attributed to the cheapest offer, according to little attention to the quality of the systems proposed. The European directive to come regarding noise mapping of major cities (more than 250,000 inhabitants) indicates the data modeling and estimation as the preferred route. The business generated will depend on the need for real reference measures to calibrate the modeling systems. Public activities sometimes fall into competition with private 300

303 2. Relevant funding and support opportunities to set up environmental services (e.g.: requirement to refer to a national public approval body to certify networks in the framework of the CAFE directive). Measures and policies to take The companies of the sector have to be 2 to 3 years in advance on new regulations to be able to supply the market with relevant products. The first 18 months of the life of a directive are strategic for that reason. > More transparency along the directive making process would certainly help adapt the industrial processes. There is too much emphasis on the administrative part of project management (refusal of bids). Should be someone stepping back from the administrative aspects and providing an advice on bids quality. > Attribute markets with other criteria than price only, ensure more transparency on the causes why a bid may be rejected. As to now, national testing and accreditation procedures and requirements lead to multiplication of costs (and are only meant to generate business at national level). > Organization of mutual recognition of standard testing and accreditation processes within Europe and between Europe and other markets, notably United States. The European market is quite open and American and Asian competitors are present. As a consequence, the EUR/ USD change rates are major financial issues. EU monetary policy has a critical role to play on this issue. Explain the true nature of requirements of the lead free directive and its consequences for the industry. The impacts in terms of stock management and reengineering of the process may be huge. 301

304 5.4 Wind power generation sector A - COMPANY S PROFILE 1. Identity and administrative information EU 15 / NMS EU 15 Eurostat data on the sector: CODE NACE e40 (Electricity, gas, steam and hot water supply) Number of enterprises Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 member Appl. Count. EU15 NMS Others Turnover or gross premium written Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 member Appl. Count. EU15 NMS Others Number of persons employed Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 member Appl. Count. EU15 NMS Others 302

305 Ownership/ Shareholders The company is included in its home country main stock market since the 2000 s. The shareholders structure now is as follows: Free float: around 46% Historical industrial funding partner: around 26% Home country major private utility: around 6% Banks and funds: around 21% Others: around 1% Subsidiaries The group is structured around 4 main business divisions, differentiated by their respective activities. The different companies are grouped into one or other of these activities: Aeronautics (1) Energy o Generation, Renewable Energy (wind farm development and recent solar spin-off activity) (2) o Manufacture of wind turbines (3) o Advanced services (4) The group recently set up a new company to operate as qualified agent for leading ordered and professional integration of renewable energy on the market. The data presented here after cover the group s entire activity, however our analysis focuses on the wind power generation business. Short history Group started operation in the 1970 s focusing on construction and sale of industrial machinery and facilities, plus all-round project management, making use of subcontracting for the manufacturing of components and concentrating on large customers through high volume, long duration business agreements. The meeting of accurately diagnosed technological opportunities and financial commitment of major partners launched the process leading to the discovery of new areas of activities (aeronautics and renewable energy): New breaking use of composites materials. Joint venture with one of the wind power market leading company (1994). The two companies then split up again in Introduction to the home country stock market. Newly investment from banks and funds (2005) 303

306 2. Activities & clients Main activities The group designs, manufactures and acts as a principal supplier of advanced products, facilities and services for the aeronautical and renewable energy industries. Renewable energy sources o Wind farm development and advanced services Products & services - Energy plant: wind farms - Recurrent sales to promoted farms - Advanced services Activities - Wind research: selection of sites, installation of measuring towers, measurement campaigns and micrositing wind studies, studies for location of wind turbines - Development: technical and administrative tasks required to turn a site that has been identified as having a wind potential into a fully operative wind farm project, ready to produce and sell electricity. - Construction: Building of wind farms on a turnkey basis, including supply and assembly of wind turbines provided by other branches of the group. - Sale - Maintenance and operation to help achieve the best possible electricity sales figures and ensure operation under optimal conditions for at least 20 years. The development business cycle is the following one: 1 - DEVELOPMENT 2 - INSTALLATION 3 - GENERATION a -Site b-wind c-permissions a-civil b-installation Operation screening meas. works 6 months 2 years 1 year 4 Months 2 to 5 months 20 + years Investment period: value creation before any generation and earnings 304

307 The project development time last for 2 to 4 years. The investments have to be made long before getting any return. As a consequence, the delays to get permissions can have a great impact on the project profitability. o Manufacturing activities Products & services - Wind turbines (nacelles, towers, blades, multipliers, electrical generators, power electronics) - Parts and components (e.g.: blades moulds and roots) Activities - Engineering and design - Manufacture - Sale The group completed a broad set of wind turbine generators, with capacity ranging from 850 kw to 2 MW. Capacity neither is the sole nor the major criteria to take into account during project definition however. Considering each site s specific wind exposure, the ratio GWh/ invested EUR is more relevant and the most important one to manage. Aeronautics Products & services - Large structural assemblies or complete sections of aircrafts - Parts and components Activities - Design - Development - Manufacturing Type of clients / Main clients Main clients Wind farm dev. and services Wind turbine manufacturing - Investors - Utilities (incl. industrial and electrical companies) - Wind farm developers (and notably the group s companies) - Wind farm operators: utilities, investors, etc 305

308 Comments: 3. Size of the company Recent trends tend to prove that investors are willing to pay a better price than utilities. They are receiving a more important share of available wind farms as a consequence. Turnover 1 - TURNOVER (all activities, incl. Aeronautics) Presentation hypothesis: 2001 turnover = bis BREAKDOWN OF TURNOVER PER ACTIVITIES (2004) Services 11% Solar 1% Aeronautics 12% WF Dev. 26% Manufacturin g 50% 2 - BREAK DOWN OF SALES VOLUMES PER ACTIVITIES (energy activities only) 100% 0% 15% 12% 80% 50% 35% 60% 61% 40% 20% 50% 50% 27% 0% Wind farm dev. Turbines manuf. Others 306

309 The relative weight of development activities varies a lot with the number of wind farms sold during the year and does not give an exact idea about the volume of projects being under development at the same time ( project pipeline ). Projects under development or constructed have final impact on manufacturing activities by driving the demand for wind turbines and other construction elements. The Others category covers mainly services and solar activities bis MANUFACTURING: BREAK DOWN OF SALES PER TYPE OF TURBINE (MW sold per year) <1 MW capacity > 1 MW capacity 64 Presentation hypothesis: 2002 <1 MW sales normalized to 100 The wind turbine capacity is rapidly growing, allowing an improved profitability of projects. 3 - WIND TURBINE MANUFACTURING: SALES PER COUNTRIES (2004) Re st of Eur ope 16% China 4% Japan 2% Others 5% Home country 73% Wind turbines manufacturing: the share of sales abroad went up from 19% in 2003 to 27% in

310 3 - bis: WF DEVELOPMENT: WF SOLD PER REGION (MW, 2005 budget) Others 15% Home coun 49% Rest of Europe 36% 3 - ter: WF DEVELOPMENT: "Project pipeline" PER REGION (potential capacity, MW) Rest of the Hom e world America & country 7% Australia 32% 18% Re st of Eur ope 43% Wind farms development and services are developing fast at the international scale. The project pipeline shows that this trend is going to get momentum in the coming years. It also ensures the stability for future developments and provides the group with visibility for its manufacturing activities. Employment NUMBER OF EMPLOYEES < 10 empl. 10 to 49 empl. 50 to 249 empl. > 249 empl. 308

311 BREAKDOWN OF STAFF PAR TYPE OF ACTIVITY Wind Other Energy Services Aeronautics Presentation hypothesis: 2003 total workforce normalized to 100 Source: Company s annual report 2004 GEOGRAPHICAL DISTRIBUTION OF WORKFORCE (All activities 2004) Rest of Europe 2,5% Americas 4,1% Australia 0,1% Home country 93,3% Comments: Along 2004, the total workforce of the group grew up by more than 19%, the greatest increases being for wind energy activities and aeronautics activities. Home country remains the most important jobs source (the internationalization of activities is just getting emphasis). For wind farms development activities, the variation of staff also follows the projects pipeline management. The group s policy is to create specific companies in each country where developing business. For example, new offices were recently set up in the USA and China. o o For these activities, local hiring is a necessity as the local culture is key in the development process to help managing the wind exposure assessment and environmental impacts studies as well as the permissions procedures. These activities create indirect local jobs for the same reasons. Environmental impacts studies often are carried out by local companies. 309

312 4. Perspectives Development perspectives (overview) 2004 marked the group s coming-of-age on the international market, with the announcement of the first industrial facilities outside the home country and Europe, notably in the United States of America and in China. The introduction of composites (carbon fiber) components continues to play an important role for the development of new wind turbine to complete the product range. B - MARKET STRUCTURE AND TRENDS 1. Market structure Market size According to BTM Consult ApS study (March 2005), the 10 largest manufacturers totaled more than 50,000 accumulated MW in The market is growing for sure. Its worldwide size will depend on the willingness of authorities to encourage and enforce the development of wind power energy on the one hand and one the progress of technical solutions to valorize sites with various wind exposure qualities (and not only the most adequate sites) on the other hand. More information on the market is available in section 5.4 of this report. Market trends and opportunities Wind farm dev. and services Market trends - Important development in the framework of national authorities commitments. - Investigation of new types of sites, the most qualitative ones being already under development. Market opportunities - The new target set by the Spanish government (13,000 MW in 2010) shall give spectacular growth opportunities within Europe. - Off-shore installations Wind turbine manufacturing - Growth of wind turbine capacity (The products are going more and more efficient). - Growth of demand for wind turbines - To optimize the EUR invested/ MW ratio and not only the absolute capacity by developing a full range of turbines to adapt efficiently to the sites specificities. Comments: As the development period is the same for all potential projects (3 to 4 years), investments go to projects offering the higher expected return on investment. As a consequence, countries with low tariff regimes and/or unstable development or tariff frameworks will not be selected at first. The optimization of authorization procedures is one of the levers these countries may use to make their sites more attractive for investors and developers. The segment of wind turbines rated at more than 1.5 MW is the fastest 310

313 2. Drivers & obstacles growing segment of the market. In 2004, this segment accounted for 43% of total market sales. Key drivers for demand Legislation and regulatory programs (tariffs) in favor of renewable energies are the first and main driver of the market. Given the growing efficiency of turbines, diversification toward a more and more profitable energy source in the framework of a global energy strategy is becoming a relevant driver. Key markets drivers and constraints Key market drivers 1 International, European and national goals regarding renewable energy sources 2 Organization of development by regional actors and institutions based on national ambition and targets 3 Efficiency and size of the wind turbines available on the market 4 Capital and funds available on the market (willingness to invest in this type of business and risk) Key market constraints 1 Permits and authorization processes going throughout a long development period 2 Changes in the tariff regime and authorization process, and consequent instability. 3 Increase in development costs and studies associated to changes mentioned in point Players Key players and market position Group s position on its markets Wind turbine manufacturing Wind farm development and services National market European markets Rest of the world Leader Among Top 3 Among Top 3 Leader Among top 5 311

314 Comments: As far as wind farms development activities are concerned, the market position differs a lot from a country to another. Main characteristics of the companies of the sector Autonomy (independent companies/ subsidiaries/ influent parent firms) The companies of the sector most often are important subsidiaries or partner of major industrial or utilities groups. 2 major business specificities explain that situation: - Wind turbine manufacturing and wind farm development are technically complex activities that required strong industrial knowledge and R&D capacities to be developed. - These activities are very capital intensive (length of the development period before receiving any revenue from selling electricity or the whole farm itself) so that their development requires the strength and stability of major industrial players. Range of activity Major players of the wind power markets not often both manufacture wind turbine and develop wind farms. Between manufacturers, along with technological approaches, some differences lie in the extent to which they outsource the manufacturing of parts and components. The choice to invest in off-shore wind farm technologies and development also differentiates the top players. 4. Competitiveness at international level Position of European industry at international scale Position: European industry is a leader on these markets with more than 70% of the total accumulated MW in American and Japanese actors are investing a lot however. 312

315 C - FINANCIAL ANALYSIS 1. Overall financial data Simplified earnings table with divisional breakdown WF M S Ae Adj Total WF M S Ae Adj Total Sales (17) (21) 112 EBITDA (2) (1) 24 Net income (1) (1) 14 Note: all figures normalized after the following hypothesis: 2003 total sales = 100 Legend: WF means Wind farms dev. activities; M means Manufacturing activities; S means Services and Ae means Aeronautics. The difference between the sum of the contribution of all activities and the total figures corresponds to adjustments (Adj.): central services activities, goodwill and SESA operations and others. Cost structure analysis From sales to gross margin BREAKDOWN OF PRODUCTION COSTS PER TYPE (Aeronautic activities incl.) BREAKDOWN OF CONSUMPTIONS PER ACTIVITIES Other expenditures 9% Personnel 18% Aeronautic 18% Other 0% Consumptions 73% Energy 82% 313

316 Consumptions costs seem to be the most important ones when reading overall figures. BREAKDOWN OF PERSONNEL COSTS PER ACTIVITIES There are great differences among business however as manufacturing activities and development activities do not require the same type of purchasing. Aeronautic 33% Other 4% On top of that, the groups activities present major specificities: Energy 63% o o The development scheme of a new project goes through the creation of a dedicated Special Purpose Company (SPC) owned by the group holding company. The new company then deals with manufacturing and WF development companies as suppliers, procuring turbines and others parts from other companies of the group. The development phase obliges to make expenses linked to wind assessment, environmental impacts studies and grid connection issues investigations. These costs are capitalized during the development phase and are given up when the Special Vehicles Companies agrees on a contract with the wind farm development company. This being said, WF development activities include specific costs such as leases and land owners agreement, environmental studies and the regulatory permissions acquisition processes. These costs vary greatly from one project to another. Regarding manufacturing activities, the internalization of all main elements (see following table) improves the company s profitability. This strategy differentiates the company from other leading groups of the sector, which outsource a larger share of parts and components, gearboxes and generators in particular. IN HOUSE / OUTSOURCED BREAKDOWN OF WIND TURBINES MANUFACTURING ACTIVITIES BLADES CONTROL GEAR GENERATO POWER TOWERS SOFTWARE BOXES RS ELEC. Design: 100% in 100% in house 40% in 400% in 40% in 100% in house house house house house Manufacturing: 100% in 100% in house 40% in 40% in house 50% in 30% in house house house house Maintenance: 100% in 100% in house 100% in 100% in 100% in 100% in house house house house house Entrance through: Organic growth Organic growth Acquisition Acquisition Acqui. Organic growth % of final price paid by the customer: 20% 5% 15% 10% 5% 20% 314

317 Personnel costs : Considering the specificities of the purchasing costs, personnel cost are considered as strategic even if apparently less important. The WF development activities require a lot high level studies and management tasks (to assess the locations potential, obtain the licenses, carry out environmental studies and sell the wind farms in the end). In the end, the relative weight of personnel costs depends mostly on the specific progress stage of the each project. Starting projects require a lot of development costs (incl. a large part of personnel costs). From EBITDA to net income Financial costs amount to around 1% of the income. The project pipeline management ensures revenues from certain WF projects that enable the group to finance other development projects. From a global point of view, mature markets activities finance developing markets activities. Considering that business model, the key strategic issue is to finance the first years of activity (until the first WF can generate electricity to be sold or can be sold as an energy plant). This is certainly one of the explanations why wind power generation companies start as spin-offs from established industrial or utilities companies. R&D R&D investments - total of the group Presentation hypothesis: 2002 datum = 100 Source: company s annual report 2004 The group s R&D activities continuously grew from 2001 on, totaling more than 3.4% of total turnover in The group uses an R&D planning based on the portfolio of projects, with a budget agreed on, using balance criteria and taking into account the risk and the maturity period for each project. This planning is of fundamental importance in a group governed by a multi-project and multifunction system, meaning that at any given time, various projects are being developed, in many cases simultaneously involving R&D staff from several companies in the group. Major projects include: 315

318 o o o Technologies for wind turbine to be used in unconventional locations, New design for multi-megawatts turbines (blade being the key part to improve wind turbine overall performances) Innovative systems for monitoring and controlling the generation of wind power (notably predict electricity output up to 72 hours in advance, thus allowing a guaranteed level of power to be offered to the power system). Import / Export (trade balance) Export potential: The group has dramatically enhanced its presence abroad in the past 2 years. The group already managed a diversification of contracts with new projects for the installation of wind farm in countries such as Egypt, Ireland, Japan, Korea, Taiwan and Morocco. The export potential is important and will depend on the ability to launch development initiatives in new countries. REGULATIONS & POLICIES 1. Existing funding and support opportunities Existing tools Directive 2001/77/EC on the promotion of electricity from renewable energy sources has set an EY-wide indicative target of 12% of primary energy needs and 22% of electricity needs by The directive has also determined indicative targets of electricity produced from each member state. Member states are currently enforcing these targets with various dynamism and means allocated. Some countries took the opportunity to give themselves even more stringent voluntary targets and structured complete industrial projects on that basis. Current supporting measures include tax incentives (tax credits for investments using renewable energies, possibilities of deducting investment costs) and market incentives such as voluntary systems to promote green electricity, fixed price systems, fixed quantities systems or investment subsidies. 2. Relevant funding and support opportunities to set up Measures and policies to take Developing wind farm is a business that concentrates many constraints and challenges: Technological complexity Need for important financial resources Long-time development period and associated uncertainties As a consequence, the development of that quite recent industry requires ambition and political will. The European Commission may help in ensuring the stability of this growing market until it is strong enough to develop itself, particularly by implementing legislations and funding initiatives. These initiatives should contribute to setting up development goals and market structuring tools (fixed feed-in prices) so as to cope with the major uncertainties faced during the development o f such activities: 316

319 Uncertainties on wind exposure of selected sites. They can disappear after technical investigations > EU could fund follow-up and studies on existing wind farms so as to analyse the link between the results of the pre-required environmental studies (to get any authorization) and the effective impacts once in operation. The final goal would be to fine tune and harmonize the level of requirements of these pre-required environmental studies within Europe. Uncertainties regarding the grid infrastructure and their development to connect wind farms. This is a both a technical and financial issue (who should pay for the development of the grid?). > EU could further fund the grid developments that are necessary to connect wind farms (already done in some cases, for instance in the framework of TEN-energy projects). Uncertainties linked to local acceptance issue. These are to be dealt with at local or regional level, through institutions and with consideration to local specificities. > EU could help in spreading effective models (Spain, Germany, Denmark) and disseminating best practices especially in NMS- and in harmonizing and accelerating authorization processes in the different countries (manage the organization of local dialogue without letting it contradict national ambitions). 317

320 5.5 Eco-construction sector A - COMPANY S PROFILE 1. Identity and administrative information EU 15 / NEW MEMBER STATES Eurostat data on the sector : NACE F(45), Construction EU NUMBER OF ENTERPRISES Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 member Appl. Count. EU15 NMS Others 2. TURNOVER OR GROSS PREMIUM WRITTEN member Appl. Count. EU15 NMS Others Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of NUMBER OF PERSONS EMPLOYED Sum of 1999 Sum of 2000 Sum of 2001 Sum of 2002 Sum of 2003 member Appl. Count. EU15 NMS Others 318

321 Ownership/ Shareholders Subsidiaries Short history The company is owned by a single person. The company has no subsidiaries. The company was founded in Its main field of activity was the production and distribution of profiles. The company then started roofing membrane production during the early 1970 s. The first concession agreement with a Japanese company was settled at the same period. In the early 1990s, the managing director took the company over. Activities expanded to the Far East. In 1999 the company created the first roofing membrane that generates electrical power thanks to integrated photovoltaic modules. 2. Activities & clients Main activities Since the foundation in 1964, the company has specialized in diverse forms of roofs and now records more than 100 millions square meters of high quality waterproof sealed roof areas installed on all five continents. The company produces ceiling materials (external layer of the roof) only and does not provide other roof s layers (isolation layer, desk). Flat roofs are adapted for all types of modern architectures: skyscrapers, halls, factories, stadiums, detached houses Roofing systems Standard systems - Central system element: polymeric waterproofing membrane, with two main types, one including PVC easier to handle for the roofers- and another one being halogen free. - Other roofing elements: Coated steel sheet, wall cappings, roof edge trims, wall flashing profiles, rainwater outlets, flat roof vents, rooflights and smoke venting systems, paving slab supports. Photovoltaic systems (PV sytems) - Central system element: polymeric waterproofing membrane with integrated flexible and lightweight photovoltaic (PV) modules. - Other roofing elements: Coated steel sheet, wall cappings, roof edge trims, wall flashing profiles, rainwater outlets, flat roof vents, rooflights and smoke venting systems, - Electrical devices: inverters and DC elements. 319

322 Activities - Design - Manufacturing of central system and other roofing elements (except for the PV modules). - Selling of all elements For the PV system, the PV modules are force-fit and waterproof laminated onto the roofing membrane surface. These modules are serially connected, have bypass diodes between all cells and are encapsulated from all sides by polymeric transparent and waterproof material. The solar cells have power generating layer systems of amorphous silicon using different wavelengths of sunlight (which ensures constant output). All electrical components, cables and connection a pre-integrated and thus protected from outside weather. The roof installer no longer needs to cut or transform the roofing membrane to insert the PV system elements. Conception, installation and maintenance services Services (selection) - Technical analysis and design (incl. flat roof diagnosis and refurbishment concepts, drawing up of specification for roof waterproofing works for new build and refurbishment, building physics calculations, etc.). - Project planning and documentation (incl. blueprint planning of roof details, implementation schemes, roof perimeter pattern and measurement, etc.) - Dedicated PV services: Preliminary and implementation planning of integrated PV systems, technical assistance during the installation of PV systems - Training courses including special PV training Role - Technical analysis, support and training - Design & Project management A majority of building physics calculation services are directly connected and compliant with relevant regulations on buildings specifications (noise, air quality, lightning, ). All technical advisory services are offered free of charge (the training courses are not). 320

323 Type of clients / Main clients Main clients Direct clients (the ones who pay for the products) - Roofers - Partner trade companies (outside home country market) Indirect clients (the ones who own or design the roof to build) - Designers - Architects - Investors Comments: Roofers are the important direct customers. The company most often deals with major national leaders. The company has partners in more than 30 countries, some for more than 20 years. These partners buy the membranes from the company. Designers, architects and investors are more interested in the services (and getting help for managing the roof building project). 3. Size of the company Volumes and turnover 1 - Solar system installed: volumes in KWpeak Presentation hypothesis: 2000 vol. =

324 2 - Turnover (in Mio ) ,1 97,7 100,5 115, ,3 1,9 4 1,9 8, ,4 All Act. PV share Presentation hypothesis: 2000 turnover = Turnover per type of product Standard systems roofing membranes PV systems Standard systems other elements 16% 24% 60% Comments: The roofing membrane is the key product of the company. The sales of this sole product amount to 60% of the total sales of the company (solar system excluded). The sales of roofing membrane solutions integrating photovoltaic modules increased dramatically in 2004 and The sales of these systems now amount to 16% of the total sales of the company (2005). The rest of the turnover corresponds to all other pieces included in the system offered, particularly the aluminum edge elements. 322

325 Employment NUMBER OF EMPLOYEES < 10 empl. 10 to 49 empl. 50 to 249 empl. > 249 empl. Other admin. & managemen t Staff: Breakdown per functions Production Export dpt. Sales support Sales The Production population corresponds to the people working on the manufacturing of all products. The Sales support population corresponds to people preparing sales documents for all sales forces. The Sales population corresponds to employees directly in touch with clients, architects and other business partners. They all are located in the home country. The sales abroad are taken care of by independent partner companies in each country. The Other administrative and management population corresponds to the technical, marketing, purchase, shipment and management jobs. Comments: The number of employees working in the company has been quite stable over the years (for the past 10 years at least). On the contrary to other competitors, the company did not reduce the sales staffs over the past years and neither does it rely on outsourced sales forces. This happens to provide a competitive advantage now. The company faces no difficulty to find and hire trained and competent people. 323

326 4. Perspectives Development perspectives (overview) The company decided to start the production and selling of its solar systems when analyzing the need of integrated materials to prevent the destruction of the roofing membrane during the installation of PV modules after the roof is finished. B - MARKET STRUCTURE AND TRENDS 1. Market structure The coming acquisition and building of new production capacities shall help make the workflow more flexible and save corresponding logistics costs (see financial section below). Other perspectives: see market opportunities section. Market size The company s main market is the home country market. The second most important market for the company is another EU-15 country where a former employee started its own business and became a partner and distributor. The total roofing activities market is estimated a 100 millions square meters a year in the company s home country. An estimated 40 millions square meters out of this total amount are a direct market for plastic roofing membranes solutions. The other 60 million square meters would correspond to concrete and bitumen roofing projects and represent a more difficult market to address for the company. On this global roofing market, the company answered a demand for PV-integrating projects planning and estimation that amounted up to 800,000 square meters of roof area in 2005, representing a potential capacity of 18.7 MW. In the end, only 2.5 MW were installed for good (because of the high cost compared to other techniques without PV systems). Market trends and opportunities Market trends Market opportunities Important growth of the home country market (national players can t even answer the entire demand for PV systems). 1 - Building of a strong and profitable industry based on the national market dynamism. 2 Exporting the technology and developing the markets abroad within the next 3 or 4 years. 324

327 2. Drivers & obstacles Key drivers for demand Existing laws and particularly feed-in prices are the first and main driver for demand. General public awareness on climate change issues and energy resources issues. Key markets drivers and constraints Key market drivers 1 National commitment and targets for the production of electricity from renewable sources (and corresponding mother EU directive, see final section below). 2 Fixed feed-in prices and the structure of the national electricity market integrating that constraint. Key market constraints 1 Threat: end of the feed-in prices system 2 Costs of advanced technology-intensive products integrating expensive components (continuous shortage on silicon market for example). 3. Players Key players and market position National market European market Rest of the world Among the 4 most important roofing membranes producers No data available No data available The systems of the company are particularly light among others, which places the products on a very narrow niche market. The company only has 2 competitors on that very specific market: one being an autonomous company from the USA and the other being a subsidiary of a Swiss group. Both joined in The owner of the company also bought out a competitor company in the past years (350 employees, 7 million sq. m installed). This company operates slightly different roofing systems and solutions so that even if competing on sales, both companies sometimes cooperate on R&D projects. 325

328 Main characteristics of the companies of the sector Autonomy The company is the only one to belong to a single private owner among the home country top players (all activities). The competitors most often are subsidiaries of big building groups. Range of activity 4. Competitiveness at international level The company is quite specific in the roofing sector because of the wide range of the products integrated and sold in the systems offered. Other actors usually focus on one single element (membrane, lights, roof capping ). The company also differentiates itself in terms of quality and its products are more expensive as the ones of its competitors on average. Position of European industry at international scale No data available C - FINANCIAL ANALYSIS 5. Overall financial data Simplified cost structure breakdown (within the company s home country) Raw materials: PV integrating membrane Raw material: other electrical equipment Other production and overheads costs incl. labor For the roofer installing the company s solar system (estimated % of total cost of 1 kwp installed) approx. 80% approx. 8% approx. 6% (Installation) For the company (estimated % of turnover) 75% 15% (incl. production, services, management & admin., energy ) Rest approx. 4 % (risk and margin) 10% (incl. interests, taxes, depreciation and investment) 326

329 Cost structure analysis From sales to gross margin Components costs The components of the company's flat roofing systems have to withstand high physical loads and constraints (rain). Longevity and functionality are key issues as a 20 years warrantee is offered. Intense research and development, modern production facilities and manufacturing technologies are required as a consequence, as well as high quality materials. - The solar modules are bought and imported from the USA. The silicon market is structurally non sufficient so that prices remain high. - The purchase of electrical parts for the manufacturing of PV systems (incl. cables, inverters, junction boxes ) amounted up to 8% of the corresponding turnover in Labor cost Given the price of the different raw materials and components, labor costs happen not to be significant costs in the end. Moreover, product quality is key for the manufacturing of the company s technology-intensive products and it requires qualified and experienced people. Manufacturing job migration is of no interest for the company as a consequence. From gross margin to EBIT The growth of PV activities led the company to building new production and storage capacities. Until 2003, the company produced PV systems on demand. In 2004 a new law in the home country (setting fixed feed-in prices for the purchasing of electricity from solar origin) hastens growth and the company organized the workflow to anticipate the demand (production in winter to answer the demand in spring and summer). R&D The company has a strong reputation of being innovative and to bring new products to the roofing market. The company introduced key innovations indeed, among which count the following ones: first multipart edge profile (1964); first thermoplastic polymeric roofing membrane made of alloy solid polymers (1971); first roofing membrane made of thermoplastic elastomer (1985); first rooflight dome with translucent thermal insulation (1991) first photovoltaic power generating polymeric roofing membrane (1999). The R&D is not in the hand of a separate direction but rather managed and discussed by the product managers, the production manager and the (quality test) laboratory manager outside any formal structure or process. Major R&D expenses or investment are directly submitted to the COO (there is no separate budget). This R&D organisation is a direct consequence of the will to promote practical innovation with a direct link with the customers needs and issues. 327

330 Import / Export (trade balance) 1 - Breakdown of sales per location: all activities (solar excl.) Rest of the world 20% Home country 80% Rest of the world 5% 2 - Breakdown of sales per location: solar products Home country 95% Home national country is the most important market for the company, especially for the solar products market (directly linked by national objectives for electricity production from renewable sources). The company is starting activities in other EU-15 area. The company has no major project outside Europe. Contacts are made in Asia. Some key (and expensive) components such as PV modules are purchased outside Europe however and exchange rates could have an impact on the global components costs. REGULATIONS & POLICIES 6. Existing funding and support opportunities Existing tools The most important regulation as regards the company s activity is EU Directive 2001/ 77/ EC for the promotion of electricity produced from renewable sources and corresponding national law and decrees. 7. Relevant funding and support opportunities to set up Measures and policies to take The system that has been set up in the home country is relevant and efficient to help in the building of a profitable and competitive PV electricity production sector: > national target for the production of electricity from renewable sources > fixed compulsory feed-in prices for the purchase of electricity > no public or semi-public player regulating the market At national scale, the weight of the market incentive for electricity production from renewable sources through the feed-in prices system 328

331 is estimated at 3% of the total final cost for the user. This share is to decrease because of the progressive down turning of these feed-in prices and the parallel increase of the global electricity costs. As the consequence, the main support action should then be to ensure the setting and follow-up of similar measures ( give the right sideparameters ) to help in the building of the PV electricity markets until they become profitable and competitive, which should be the case in some years from now. 329

332 APPENDICES 330

333 331

334 Appendix 1 Bibliography (main documents): The environmental goods and services industry manual for data collection and analysis, OECD/Eurostat, Environmental Goods and Services An Assessment of the Environmental, Economic and Development Benefits of Further Global Tradre Liberalisation, European Commission (DG Env - DG Entreprise), 2000 The EU Eco-Industry s Export Potential, European Commission, 1999 Analysis of the EU Eco-industries, their employment and export potential, European Commission, 2002 European Business Facts and Figures, Eurostat, 2004 La conjuncture des éco-entreprises, note du 1er semestre 2005, Ministère de l Ecologie et du Développement Durable, 2005 L'écotechnologie au service du développement durable, Rapport de la Commission, 2002 Eco-industries What Are They?, Patrick ten Brink, Senior Fellow & Head of Brussels Office, Institute for European Environmental, (IEEP), Green Week, Brussels, 2 June 2004 Les Comptes Economiques de l Environnement en 2002, IFEN, Synthèse Stimulating Technologies for Sustainable Development: An Environmental Technologies Action Plan for the European Union, Communication from the Commission to the Council and the European Parliament, 2004 Panorama des éco-entreprises, French Ministry of Finance and Industry, 2004 Pollution abatement and control expenditure in OECD countries, OCDE, SERIEE Environmental Protection Expenditure Accounts - compilation guide, EU- EUROSTAT, Définitions et lignes directrices concernant le calcul et la déclaration des dépenses de protection de l'environnement des entreprises, EUROSTAT, Water, safe, strong and sustainable, European vision for water supply and sanitation in 2030, Water Supply and Sanitation Platform, June 2005 Les utilities européennes, vol.2 : Faits et commentaires, collection Perspectives stratégiques et financières, study lead by Eurostat, 2003 European Business Facts and Figures, Part 1 : Energy, water and construction, Data , Eurostat, 2003 edition European Business Facts and Figures, Chapt. 14 : Water supply and sewerage, Data , Eurostat, 2004 edition 332

335 On the future of EU support systems for the promotion of electricity from renewable energy sources, position paper, EWEA, November 2004 Wind Energy The facts, EWEA, 2004 Renewable Energy Country Attractiveness Indices, Ernst & Young, 2005 Renewable Energy World, James & James Renewable Energy in Europe Building markets and capacity, EREC 2004 Progress Report on the EU Renewable Electricity Directive in Accession Countries, January 2004, WWF. o/news.cfm?unewsid=10621 FORRES 2020: Analysis of the renewable energy sources' evolution up to 2020, April The share of renewable energy in the EU Country Profiles - Overview of Renewable Energy Sources in the Enlarged European Union Joint decleration for a EU Directive to promote Renewable Heating and Cooling More than 40 organisations were amongst the initial signatories of this declaration - showing the broad support from industry, environmentalists and public institutions. Why waste incineration must be kept out of the draft renewables directive - open letter to MEPs; WWF, CAN Europe; June Solar Thermal Markets worldwide, Sun & Wind Energy 2/2005 Prospects For Renewable Electricity In The New EU Member States. Anca-Diana Barbu (Carl von Ossietzky University, Oldenburg), Martine Uyterlinde (ECN), Hage de Vries (ECN). ECN, February Communication from the Commission to the Council and the European Parliament. The share of renewable energy in the EU. May 2004 Communication from the Commission. The support of electricity from renewable energy sources. December FIEC website (European Construction Industry Federation) European Network of Construction Companies for Research and Development (ENCORD) 333

336 Pollution control equipment and services in Belgium, International Market Research, September 2003 Pollution control equipment and services in Finland, International Market Research, May 2004 Pollution control equipment and services in Italy, International Market Research, October 2003 Pollution control equipment and services in Portugal, International Market Research, July 2003 Environmental technology and equipment in Slovakia, International Market Research, April 2004 European Union s regulation on air pollution control (website). MSI study on soil remediation in Europe, 2004 Van-Camp, L., Bujarrabal, B., Gentile, A-R., Jones, R.J.A., Montanarella, L., Olazabal, C., and Selvaradjou, S-K (2004). Reports of the Technical Working Groups Established under the Thematic Strategy for Soil Protection. EUR EN/4, 872 p., Office for Official Publications of the European Communities, Luxembourg Tableau de bord des technologies dans le domaine de l environnement, synthesis report, French Ministry of Economics, Finance and Industry, December 2003 Tableau de bord des technologies dans le domaine de l environnement, indicators summary, French Ministry of Economics, Finance and Industry, December 2003 Environmental research policy, European Commission DG Research web site, Analysis of European participations in the 5th Framework Programme for research, French Observatory of Sciences and Techniques, December

337 335

338 Appendix 2 List of professionals and experts interviewed Air Pollution Control Christian Bessy, Marketing & Sales Director, LAB Dirk Bosteels, Association for Emissions Control by Catalyst, AECC. Remediation & Clean up of Soil and Groundwater Pascal Roudier, Technical Director, Sita Remediation Stephanie Hottenhuis, Strategy and marketing director, Arcadis Noise and vibration David DELCAMPE, European Commission, DG-Envt, Transport & air quality and noise Joachim SCHEUREN, Former president of the European Acoustic Association, CEO of Mueller bbm GmBh Emmanuel Thibier, noise engineer, ADEME (French Environmental Protection Agency) Waste Management Francis Veys, Director General of BIR (Bureau of International Recycling) Bernard Hérodin, Managing Director of Pro-Europe (Packaging Recovery Organisation) Laetitia Reynaud, Policy Executive of FEAD (European Federation of Waste Management and Environmental Services) Water Supply and Waste Water Treatment Frédéric de Hemptinne, General Secretary, EUREAU Béatrice Arbelot, Market Research Manager, Suez Environment Tristan Matthieu, Syndicate of Water Distribution Operators Martine Vuillerme, Executive Technical Manager, Veolia Water 336

339 Eco-construction Jan Desmyter and Katrien Putzeys, PRESCO Environmental Monitoring and Instrumentation Stéphane Adrait, Area Manager, Central, Eastern & Northern Europe, Environnement SA. Mr. Merlin Hyman, Environmental Industries Commission (EIC), European Committee of Environmental Technology Suppliers Associations (EUCETSA) Renewable energy production Karl Kellner, Head of Unit D2, Energy RTD research management, DG TREN, European Commission Christian Kjaer, Policy Director, European Wind Energy Association (EWEA) Christine Lins, Secretary General of EREC (European Renewable Energy Council). Marie Latour, Project Manager de EPIA (European photovoltaic Industry Association) Maria Laguna, Project Manager de ESHA (European Small Hydropower Association) Environmental R&D Philippe FREYSSINET, ANR (French Organization for Research). Case studies Waste management: CEO Assistant to CEO HR director COOs of main activities (2) Financial director Eco-construction COO for the solar products 337

340 Water supply and Wastewater treatment Operation director for the area (mother group) Deputy General Manager Financial director Wind power Operation and business development directors(3) Financial director HR director Director for environment Environmental monitoring CEO COO Financial director Marketing director 338

341 339

342 Appendix 3 Identification of environmental protection expenditure in the investment decision (Source: Environmental Expenditure Statistics; Industry Data Collection Handbook; ISSN ) 340

343 341

344 Decision tree for environmental expenditure accounting 342

345 343

346 Appendix 4 List of Directives on waste management GENERAL FRAMEWORK The landfill of waste Framework Directive on waste disposal Strategy on the prevention and recycling of waste Implementation of legislation on waste Waste management statistics Competitiveness of the recycling industries Supervision and control of transfrontier shipments of waste Integrated pollution prevention and control: IPPC Directive SPECIFIC WASTE Packaging and packaging waste Management of waste from the extractive industries Disposal of PCBs and PCTs Disposal of spent batteries and accumulators Disposal of waste oil End-of-life vehicles The reusing, recycling and recovering of motor vehicles Removal and disposal of disused offshore oil and gas installations Use of sewage sludge in agriculture Environmental problems of PVC Waste electrical and electronic equipment Titanium dioxide Disposal Surveillance and monitoring Programmes for the reduction of pollution INCINERATION OF WASTE Waste incineration Incineration of dangerous waste Incineration plants New incineration plants 344

347 HAZARDOUS WASTE Controlled management of hazardous waste Basel Convention on the control of transboundary movements of hazardous waste RADIOACTIVE WASTE AND SUBSTANCES Transfer of radioactive waste: supervision and control Shipments of radioactive substances Situation in 1999 and prospects for radioactive waste management Management of spent nuclear fuel and radioactive waste 345