Low Carbon and Environmental Goods and Services: an industry analysis Update for 2008/09 Innovas Solutions Ltd March 2010 In partnership with 1
Copyright Crown copyright, 2010 The views expressed within this Report are those of the authors and do not necessarily reflect those of the Department of Business, Innovation and Skills. We welcome feedback on the issues raised by this BIS commissioned study and comments should be sent to: Michael.Clark@BIS.gsi.gov.uk 2
Contents Introduction 4 1. Global Market 5 2. UK Summary 6 3. Regions 14 4. International Trade 18 Annex 1 20 3
Introduction In March 2009 BERR published a report commissioned from Innovas Solutions Ltd on the size of the Low Carbon and Environmental Goods and Services (LCEGS) Sector, in 2007/08. 1 This report looked at both UK and international markets and the forecast areas of growth for the UK. This paper provides an update to that work. It presents new data for 2008/09, updated growth forecasts, and the revisions to 2007/08 based on updated information which became available during 2009. More detail on the revisions is provided in Annex 1. The LCEGS sector is defined by Innovas as traditional environmental services and renewable energy, as well as emerging low carbon activities, such as low carbon building technologies and carbon finance. The data also includes the wider supply chain to this sector, from manufacturing and R&D to final retail and maintenance services. For a summary of the methodology on figures included in this report, please see annex 1. Annual comparisons throughout the document are between the 2008/09 figures and the revised 2007/08 figures unless otherwise stated. Table A: The low-carbon and environmental goods and service sub-sectors Environmental Air Pollution Control Environmental Consultancy Environmental Monitoring Marine Pollution Control Noise and Vibration Contaminated Land Remediation Waste Management Water Supply and Waste water Treatment Emerging Low Carbon Alternative Fuels Alternative Fuels for Vehicles Additional Energy Sources Carbon Capture and Storage Recovery and Recycling Hydro Wave and Tidal Biomass Wind Geothermal Solver PV Renewable Consulting Carbon Finance Energy Management Building Technologies 1 See Innovas (2009) commissioned by BERR Low Carbon and Environmental Goods and Services: an industry analysis available at: http://www.berr.gov.uk/files/file50253.pdf and Low Carbon Industrial Strategy Economics paper (2009) Towards a Low Carbon Economy economic analysis and evidence for a low carbon industrial strategy available at: http://www.berr.gov.uk/files/file52165.pdf 4
1. Global Market The global LCEGS sector was worth approximately 3.2 trillion in 2008/09, an 150bn increase from 2007/08 estimates. It is forecast to grow by approximately 4% per year over the next 5 years. The global sector was estimated to involve 1.4 million companies and employs over 28 million people. The emerging low carbon sector accounts for 48% of all sales, with renewables and the environmental sector accounting for 31% and 21% respectively. The three sectors break down into the sub sectors below: Fig 1.1 Global LCEGS sales by sub-sector 2008/09, bn 144, 5% 146, 5% 147, 5% 191, 6% 142, 5% 575, 17% 398, 12% 242, 8% 362, 12% 285, 9% 345, 11% Alternative Fuels Wind Geothermal Recovery and Recycling Waste Management Energy Management Additional Energy sources Building Technologies Alternative Fuel Vehicle Water Supply and Waste water Treatment Photovoltaic Biomass Carbon Finance Other The US and China account for one third of the global LCEGS market, with the top 10 countries accounting for nearly two thirds of global value. The top ten countries by market value are shown below with annual growth rates in red: Fig 1.2 Top 10 LCEGS countries by market value 2008/09 700 0.6% 600 Market Value ( m) 500 400 300 200 100 0 633 US China 1.9% 419 Japan 2.9% 197 India 1.7% 3.2% 194 132 Germany UK 4.3% 112 France 3.0% 96 Spain 2.4% 85 Brazil 5.3% 84 1.8% 83 Italy 5
2. UK summary Market Values Market value is estimated to have risen to 112 billion for 2008/09. An increase of over 5bn on previously published estimates in 2007/08 and an annual increase of 4.3% ( 4.7bn) on revised figures. The emerging low carbon sector represented just over half of all market value ( 56bn), with renewable energy 29% ( 33bn) and environmental 20% ( 23bn). The diagrams below show how the overall market value increase and growth is distributed across sectors. Fig 2.1 Environmental Subsector Values ( m) 2007/08 (Green) and 2008/09 Increase (Red) 2 9,000 8,000 7,000 3.1% 205 2.5% 1.6% 127 Market Value ( m) 6,000 5,000 4,000 3,000 2, 000 1.9% 2.6% 3.1% 3.2% 3.6% 3.7% 5 4 8 6,519 122 4,824 7,974 1, 000 0 19 24 23 960 915 747 150 120 205 Air Pollution Contaminated Land Reclamation & Remediation Environmental Consultancy and Related Services Environmental Monitoring, Instrumentation and Analysis Marine Pollution Control Noise & Vibration control Recovery and Recycling Waste Management Water Supply and Waste water Treatment Fig 2.2 Low Carbon Subsector Values ( m) 2007/08 (Yellow) and 2008/09 Increase (Red) 25,000 4.5% Market Value ( m) 20,000 15,000 10,000 5,000 0 3.6% 44 1,208 3.7% 466 572 12,646 835 18,570 4.4% 12,954 3.2% 15 468 7.9% 413 5,228 3.2% 81 2,553 Additional Energy Sources Alternative Fuel Vehicle Alternative Fuels Building Technologies Carbon Capture & Storage Carbon Finance Energy Management 2 Percentages in red refer to nominal growth between 2007/08 and 2008/09 6
Fig 2.3 Renewable Energy Subsector Values ( m) 2007/08 (Blue) and 2008/09 Increase (Red) 14,000 12,000 4.7% 6.5% 751 Market Value ( m) 10,000 8,000 6,000 4,000 2,000 0 4.5% 224 4,991 437 9,285 2.6% 13 503 5.8% 258 4,463 Biomass Geothermal Hydro Photovoltaic Renewable Consulting 2.6% 12 480 5.0% 4 74 Wave & Tidal 11,508 Wind 7
UK Employment The LCEGS sector employed an estimated 910,000 in 2008/09. This was an increase of over 28,000 jobs on previous estimates for 2007/08 and 1,675 on revised figures for 2007/08. The emerging low carbon sector accounted for just under half of total employment (445,600), with renewable energy employing 29% (266,300) and environmental 22% (197,900). Value growth was greater than growth in job estimates for 2008/09, as some companies withheld increases in their labour force even with sales increasing due to economic uncertainty. The diagrams below show how the overall employment increase is distributed across sectors. 8
Fig 2.5 Employment numbers within each sub-sector for 2008/09, annual changes shown in red Air Pollution 9,157 58 Contaminated Land Reclamation & Remediation Environmental Consultancy and Related Services 8,211 7,052 21 23 Environmental Monitoring, Instrumentation and Analysis 1,449 32 Marine Pollution Control 1,017 48 Noise & Vibration control 1,951 25 Recovery and Recycling 54,440-142 Waste Management 43,834 293 Water Supply and Waste water Treatment 70, 802 265 Additional Energy Sources 10,491-141 Alternative Fuel Vehicle 106,173-654 Alternative Fuels 167,756 654 Building Technologies 110,507 52 Carbon Capture & Storage 4,691-2 Carbon Finance 23,580 907 Energy Management 22,410-155 Biomass 46,555-953 Geothermal 78,857 205 Hydro 5,017 4 Photovoltaic 39,177 399 Renewable Consulting 4,519-75 Wave & Tidal 622 1 Wind 91,514 810 9
Companies The LCEGS sector was estimated to involve an estimated 52,260 specialist and supply chain companies in 2008/09, 91.5% of which are estimated to be SMEs. The total number of companies has fallen by 0.02% on 2007/08 and approximately 2,600 compared to pre-revision estimates for 2007/08. The revisions are due to updated information as explained in the introduction. The number of companies active within each sub-sector are shown below: 10
Fig 2.4 LCEGS Company numbers within each sub-sector for 2008/09, annual changes shown in red 11
Growth Rates Growth rates are based on a wide range of sources, including multiple industry forecasts, and, as noted in the methodology section included in Annex 1, reflect business confidence and expectations. The latest forecasts from December 2009 predict growth rates will increase from 3.2% in 2009/10 to 3.9% by 2015/16, as the market expands at a greater rate following the recession, this is shown below: Table 2.1 December 2009 LCEGS growth forecasts by sector Level 1 2008/ 09 2009/ 10 2010/ 11 2011/ 12 2012/ 13 2013/ 14 2014/ 15 2015/ 16 Environmental Sub Sectors 2.8 2.4 2.5 2.6 2.7 2.8 2.9 3.0 Low Carbon Sub Sectors 4.3 3.8 3.9 4.1 4.2 4.4 4.5 4.7 Renewables Sub Sectors 5.2 4.5 4.7 4.8 5.0 5.1 5.3 5.5 Total UK 3.6 3.2 3.3 3.4 3.6 3.7 3.8 3.9 Growth forecasts have been reduced during the recession, reflecting business confidence and uncertainty. The diagram below compares cumulative market values based on previous and current forecasts up to 2015/16: Fig 2.6 UK LCEGS Sector market value forecasts, cumulative market values 170,000 160,000 Market Value ( m) 150,000 140,000 130,000 120,000 110,000 2008/ 09 2009/ 10 2010/ 11 2011/ 12 2012/ 13 2013/ 14 2014/ 15 2015/ 16 Dec 2009 May 2009 Dec 2008 12
Overall UK growth figures are based on a weighted aggregation of forecast growth within sub-sectors. The table below shows the top 10 (of 23) high growth sub sectors and their compound growth rate and compound annual growth rate up to 2015/16: Table 2.2 LCEGS Top 10 highest cumulative growth sectors to 2015/16 2008/ 09 ( m) 2015/ 16 ( m) Compound Annual Growth Rate Compound Growth Rate Carbon Finance 5,640 9,329 7.5% 65% Wind 12,258 19,147 6.6% 56% Photovoltaic 4,721 6,936 5.6% 47% Building Technologies 13,526 19,234 5.2% 42% Wave & Tidal 78 110 5.1% 42% Geothermal 9,722 13,596 4.9% 40% Alternative Fuels 19,405 26,760 4.7% 38% Biomass 5,216 7,066 4.4% 35% Alternative Fuel Vehicle 13,113 17,635 4.3% 34% Additional Energy Sources 1,251 1,598 3.6% 28% Total UK 112,003 142,539 3.5% 27% 13
3. Regions Market Values Within the overall aggregate UK figures, there was considerable variation across regions. The map below shows the relative size of the LCEGS sector in terms of total UK sales: Map 3.1 LCEGS Market Values by Region 2008/09 London and the East Midlands showed the largest annual growth between 2007/08 and 2008/09 of 4.9% and 4.4% respectively, with other regions achieving varied growth of around 4%. The chart below shows annual value growth and regional breakdown by level 1 sectors: 14
Fig 3.1 Regional Market Value ( bn) Breakdown 2008/09 to overall sectors: Environmental (green), Low Carbon (yellow), Renewables (blue) and Total Annual LCEGS growth (red) 25.0 4.9% 20.0 6.8 Market Value ( bn) 15.0 10.0 5.0 0.0 3.8% 4.1% 2.3 2.8 3.8 4.3 3.9% 1.7 2.1 2.2 1.7 1.1 3.8% 3.9% 3.8 4.0% 4.1% 3.0 2.2 2.7 7.0 4.7 3.9 5.8 2.2 2.7 2.2 2.0 4.1% 1.1 2.7 0.6 4.1% 1.3 1.4 0.8 11.4 3.9 3.8% 2.6 5.6 2.4 4.4% 2.6 3.6 1.2 Yorks & Humber West Midlands Wales South West South East Scotland North West North East N Ireland London East of England East Midlands Regions specialise in different activities within the LCEGS sector, for example carbon finance is almost exclusively located in London. The breakdown below shows each Region s top 5 sectors by value, which made up over 60% of total value for all regions: Table 3.1 Top 5 sectors by value for each region Top 5 Sectors Region East Midlands East of England London Northern Ireland Sector Value ( bn) Employment Alternative Fuels 1.7 14,000 Wind 1.2 8,500 Building Technologies 1.0 8,300 Geothermal 0.6 5,300 Alternative Fuel Vehicles 0.5 3,800 Alternative Fuels 2.3 17,000 Alternative Fuel Vehicles 1.8 13,400 Building Technologies 1.1 8,900 Recovery & Recycling 1.0 8,000 Geothermal 0.9 6,900 Carbon Finance 5.5 22,700 Geothermal 2.4 17,600 Alternative Fuels 2.2 19,300 Wind 2.1 14,800 Building Technologies 2.0 16,100 Wind 0.5 3,800 Alternative Fuels 0.5 4,000 Geothermal 0.5 4,700 Alternative Fuel Vehicles 0.4 3,600 Building Technologies 0.3 3,000 Percentage of Top 5 for Region Total Value - 68%, Employment - 66% Value - 67%, Employment - 66% Value - 64%, Employment - 58% Value - 65%, Employment - 62% 15
North East North West Scotland South East South West Wales West Midlands Yorkshire & Humber UK Alternative Fuel Vehicles 0.9 6,900 Alternative Fuels 0.9 7,300 Building Technologies 0.6 5,500 Wind 0.4 3,000 Geothermal 0.3 2,900 Alternative Fuels 2.3 21,400 Alternative Fuel Vehicles 1.5 12,000 Building Technologies 1.4 11,300 Wind 1.3 10,400 Recovery & Recycling 0.7 5,500 Alternative Fuels 2.1 19,900 Wind 1.1 8,000 Building Technologies 1.0 8,000 Recovery & Recycling 0.7 5,800 Water Supply & Waste 0.7 6,200 Water Treatment Alternative Fuels 2.5 23,100 Building Technologies 2.3 19,600 Alternative Fuel Vehicles 1.7 14,400 Wind 1.7 13,100 Water Supply & Waste 1.0 8,400 Water Treatment Alternative Fuels 2.1 17,900 Alternative Fuel Vehicles 1.1 9,200 Building Technologies 1.1 8,600 Water Supply & Waste 0.8 7,200 Water Treatment Wind 0.8 5,500 Building Technologies 0.8 6,100 Alternative Fuels 0.7 5,900 Water Supply & Waste 0.6 5,100 Water Treatment Geothermal 0.6 4,200 Wind 0.5 3,900 Alternative Fuel Vehicles 1.6 14,200 Alternative Fuels 1.6 11,600 Wind 1.1 8,400 Water Supply & Waste 0.7 6,100 Water Treatment Building Technologies 0.7 6,000 Alternative Fuel Vehicles 1.4 10,400 Building Technologies 1.2 9,200 Water Supply & Waste 0.9 7,900 Water Treatment Wind 0.9 6,700 Geothermal 0.8 6,900 Alternative Fuels 19.4 167,800 Building Technologies 13.5 110,500 Alternative Fuel Vehicles 13.1 106,200 Wind 12.3 91,500 Geothermal 9.7 78,900 Value - 71%, Employment - 68% Value - 68%, Employment - 68% Value - 63%, Employment - 63% Value - 68%, Employment - 67% Value - 64%, Employment - 64% Value - 64%, Employment - 62% Value - 64%, Employment - 62% Value - 63%, Employment - 61% Value - 61%, Employment - 61% 16
Regional Employment Employment changes varied across regions, although the percentage changes were not large. The diagram below shows total employment in 2008/09 and annual change by region: Fig 3.2 LCEGS Employment figures 2008/09 by region and annual change (red) Yorks & Humber 67,688 1,012 West Midlands 74,069-110 Wales 40,838-225 South West 75,828 110 South East 116,913 404 Scotland 76,041 871 North West 89,671 340 North East 37,661-113 N Ireland 30,874 187 London 156,576 635 East of England 82,778-861 East Midlands 60,845-728 17
4. International Trade The UK exported 10.8bn from the LCEGS sector in 2008, 6.2% growth on 2007. 3 The UK s top 10 export destinations accounted for nearly half of all exports and are shown below: 4.1 Top 10 Export markets by value 2008, annual growth (red) 1400 6.9% 1200 Market Value ( m) 1000 800 600 400 200 0 1299 China & Hong Kong 6.1% 494 Spain 6.3% 463 South Korea 6.6% 6.9% 7.4% 5.8% 5.2% 5.5% 424 412 404 382 363 339 Malaysia India Pakistan Taiwan UAE Poland Japan 337 6.1% 3 Imports and exports are given annually rather than by financial year, therefore are not comparable to market value figures given above 18
All of the LCEGS sub-sectors had a positive net trade position, shown below with total export values: Fig 4.2 LCEGS Export by sub-sector 2008 and net trade position (red) Air Pollution Contaminated Land Reclamation & Remediation Environmental Consultancy and Related Services Environmental Monitoring, Instrumentation and Analysis Marine Pollution Control 160 58 93 45 4127 20 8 3 1 Noise & Vibration control 34 16 Recovery and Recycling 531 276 Waste Management 472 139 Water Supply and Waste water Treatment Additional Energy sources 1155 156 61 454 Alternative Fuel Vehicle 596 217 Alternative Fuels 1230 529 Building Technologies 1445 614 Carbon Capture & Storage 66 23 Carbon Finance 160 57 Energy Management 317 120 Biomass 724 275 Geothermal 873 267 Hydro 57 23 Photovoltaic 1144 511 Renewable Consulting 91 33 Wave & Tidal 8 4 Wind 1405 779 19
Annex 1: Methodology 4 Market value refers to total sales of all UK-based company involved in the production of LCEGS, including both domestic sales and exports. It includes the specialist end product, for example wind turbine manufacture, as well as the wider supply chain eg the concrete involved in the installation. It avoids double counting by subtracting sales in the supply chain from the final good or service. Where information is available employment figures are based on company profiles. However, employment figures are predominantly calculated on a pro-rata basis from company sales, therefore if 40% of a business sales activity were within LCEGS, 40% of total company employment would be attributed to the LCEGS sector. Previous job forecasts are based on the assumption that market growth will be in line with value growth within the sector. However this assumption may not necessarily hold during periods of economic uncertainty and job losses. Thus value growth was greater than growth in job estimates for 2008/09, as some companies withheld increases in their labour force even with sales increasing due to economic uncertainty. However, Innovas expect to see employment growth rise again in relation to sales growth if companies become more confident about future growth. Company numbers are estimated based on the percentage of company sales attributed to the LCEGS sector. The inclusion criterion for a company is if at least 20% of sales activity can be directly attributed to the low carbon sector whether in environmental services, renewable energy or emerging low carbon activities (as defined in this report). The activity included reflects only that proportion of their turnover which is in this sector. Therefore, the figures only capture businesses producing low carbon and environmental products, rather than all firms who have undertaken actions to reduce their environmental impact. Annual growth figures given in this report compare revised 2007/08 figures with 2008/09 unless otherwise stated. The growth is in nominal terms whereas growth projections for this report represent real growth. Growth forecasts reflect market conditions and business confidence at the time of the projections. As the change in growth figures show, the forecasts change in light of wider macro-economic conditions and overall business confidence within the sector. The revision for 2007/08 data is based upon updated information and a refinement of the existing methodology based on the new information. Similar to GDP figures, revisions may be required to earlier estimates to reflect the most accurate information available. There are no planned revisions for 2008/09 data. Department for Business, Innovation and Skills. www.bis.gov.uk Crown Copyright. Published March 2010. URN 10/795 4 For a full explanation of the Innovas methodology please refer to the original 2009 report. 20