(This article was adapted from the 2001 Industrial College of the Armed Forces Environmental Industry Study)
The environmental industry is now at a crossroads. In the past, growth was driven by the need for compliance with regulations and focused heavily on the cleanup accomplished after the polluting occurred. Now, substantial compliance with existing regulations has been reached.
Although the regulation-induced demand for the industry's products and services is eroding, there is a growing demand for high productivity and sustainable growth. Yet, the industry has been slow to adopt the creative and technologically innovative approaches necessary to meet these new demands.
This reluctance is due, in part, to budget constraints, traditional thinking and outdated regulations that prescribe a focus on post-pollution clean-up. For the U.S. environmental industry to remain viable and to grow, government and industry leaders must develop policies that encourage simultaneous economic growth and environmental protection.
The global market for environmental products and services is worth about $520 billion per year. At approximately $205 billion, the U.S. represents 39 percent of the global revenues and ranks number one in the world. It is almost twice the size of its nearest competitor, Japan. Last year, U.S. exports of environmental technology goods and services topped $21 billion, producing a positive trade balance of $10 billion and creating about 170,000 jobs.
The environmental industry accounts for 1.4 million U.S. jobs in over 115,000 revenue-generating companies. In terms of both revenue and employment, the U.S. environmental industry is larger than many other industries, including aerospace, computer hardware, paper and allied products, petroleum refining, steel, textiles and chemicals.
Municipalities represent the largest single component of the U.S. market. More than 80,000 units of local government acquire about $65 billion of environmental technologies annually. Approximately 95 percent of the businesses are considered small, with an average of 12 employees and annual revenue just below $5 million.
The market is expected to remain flat in developed countries. Some key emerging markets are, however, growing rapidly in parts of Asia, Eastern Europe and Latin America.
Domestic growth is expected to remain at about 2.4 percent, and investment is at its lowest level in 30 years--driven by the uncertainty of the U.S. stock markets and regulatory uncertainty in the environmental industry. The sector is fragmented, represented by 170 national trade associations.
Overall, the U.S. environmental industry is now displaying classic signs of a maturing sector. Signs include decelerating growth, heightened competition, growing sophistication among its client base, greater emphasis on marketing, consolidation of market share in larger players and an increasing number of mergers and acquisitions.
The economic power of the industry is difficult to measure, because so many of its products are integrated into other industry outputs and processes. In the 1970s, the U.S. market was driven by regulation that focused on clean up and "end of pipe" solutions.
With the deregulation of utilities the market began to shift horizontally. In the 1990s, customers began demanding a wider range of products and services that were beyond "end of pipe" solutions. Customers sought competitive advantages, such as higher productivity, reduced waste of energy and materiel inputs and greater reduction of environmental residuals. For instance, the use of innovative technology such as satellite imagery to identify and resolve specific environmental problems through remediation are not captured under the current measures of the industry.
These horizontal shifts in the market make it difficult to determine the true economic health of the industry. …