How Protecting the Environment Impacts R&D in the United States

Article excerpt

OVERVIEW: Compliance with U.S. environmental laws and regulations is expected to lead to the expenditure of approximately $65 billion in industrial R&D by 1997. This expenditure will enable U.S. industry to capitalize on many heretofore unplanned market opportunities. These opportunities will encompass both direct (first-order) and indirect (second-and third-order) situations. The increasing use of R&D resources may well be the key to the technological solution of many of our present-day environmental concerns.

Compliance with the environmental regulation embodied in 20 national legislative acts weighs heavily on U.S. industries today, particularly if they operate in multiple locations and markets. However, in 1991 alone, leading companies created new, environmentally oriented products, eliminated others, abandoned traditional packaging, and altered long-standing business practices--and a great deal of this was not necessarily responsive to regulatory prompting!

Companies took these steps because the environment has become a potent market force--offering opportunity as well as risk. A survey of 220 executives by Booz, Allen & Hamilton, in 1991, shows clearly that managing environmental risk and opportunity will be one of the highest U.S. strategic priorities for the 1990s and, for that matter, the early part of the 21st century (1). The study was representative of a wide variety of industries, particularly electronics, consumer goods, chemicals, and automotive It revealed that:

* R&D is being heavily influenced by environmental concerns (Figure 1). (Figure 1 omitted)

* Corporations are looking for continued innovation in their future programs (Figure 2). (Figure 2 omitted)

* Corporations are finding a broad spectrum of opportunity to act upon (Figure 3). (Figure 3 omitted)

There is little doubt that most of the corporate leaders in the U.S. today recognize that environmental responsibilities are as central to business success as are the quality and costs of their products and processes. It is also obvious that the increasing utilization of R&D resources will be key to many of the necessary technological solutions to our environmental concerns. R&D is becoming a major determinant in the successful execution of "corporate America's" environmental strategy.

THE ECONOMIC IMPACT

The R&D resources currently utilized or planned are hard to assess accurately; however, it is reasonable to look at some estimates of the economic impact of U.S. environmental regulation as a whole (Figure 4). (Figure 4 omitted) The cost (in 1986 dollars) to U.S. industry of complying with environmental laws and regulations is expected to reach $119 billion in 1997. This reflects a growth rate of 4.4 percent per year from the $77 billion figure published by the Environmental Protection Agency in 1987. This means that in the U.S. alone, we will spend approximately $640 billion over the next 5 or 6 years. Buried in that number is the future dollar figure the U.S. will spend on R&D. National Science Foundation data show, for example, that industry spent $78 billion in 1991. The Industrial Research Institute (IRI) surveyed 246 member companies during 1991 and received an estimate that about 13 percent of their R&D was directed at environmental technology.

If we accept that 246 IRI members are representative of U.S. industry's R&D (IRI's membership encompasses 85 percent of the industrial R&D carried out in the U.S.), then U.S. industry is spending on the order of $10 billion per year on environmental R&D. Another $i5-6 billion can be projected between now and 1997 coming from the U.S. government. This means that over the next six years, at least $65 billion of the prior-mentioned $640 billion, or about 10 percent of the projected cost, will be R&D dollars.

To determine how these dollars may be spent, I interviewed several R&D directors around the U. …