Manufacturing
Against this background, resource-intensive sectors face a multitude of challenges. First, rapidly industrialising economies are building their infrastructure rapidly and requiring large amounts of resources. Competition over access to resources is likely to grow. Second, high quality metal ores are gradually being depleted. This leads to use of lower grade ores, which require much more energy to extract its useful metal component. Third, at local level resource extraction can have significant impacts on ecosystems and landscape. Mitigating these impacts through environmental policy or industry initiatives can also increase the cost of extraction. Fourth, there are risks of security of supply and price volatility.
Not all industrial production sectors are equally affected by these challenges, and not all materials are equally important in terms of economic or environmental impacts. This is illustrated by Figure 6 that combines information about physical material use in Europe with the life-cycle environmental impacts per kilogram of material (UNEP 2010b). Many minerals that dominate consumption by mass are of marginal importance for global warming, human toxicity, land use,
an integrated “Environmentally Weighted Material Consumption” index
(van der Voet 2005). Indeed,
environmental impacts are dominated by fossil fuels, their derivatives (such as plastics) and biotic materials (UNEP 2010b).
Resource scarcities – absolute or relative, actual or perceived – impact the prices of commodities and manufacturing inputs. Since the mid-2000s, commodity prices have shown an increasing volatility, which is mainly owing to a series of energy, financial and food crises. Economic recession, in turn, reduces demand for oil and can be followed by an equally drastic price decline that is further exaggerated by speculation. Thus, price volatility can seriously inhibit long-term green investment.
Since the early 2000s, other commodity prices, especially non-ferrous metals, have also been sensitive to short- term factors such as the boom in China coupled with recession in the US, depreciation of the US dollar (all commodities are priced in US$) and speculative activity (Figure 5). In 2008, commodity prices exceeded previous records from the 1970s. Higher prices induce investment in alternatives, but excessive volatility tends to have the opposite effect, because it prevents rational planning.
It is important to differentiate between short and long-term impacts and trends. When prices for natural resources rise because long-term trends in demand begin to exceed long-term trends in supply, or when governments internalise some of the environmental costs of natural resource extraction or use to business, the response of market participants can facilitate the
adjustment process. Manufacturers are more likely to adopt innovative technologies that can improve resource efficiency. To the extent that this is not fully sufficient to absorb the increase in costs, the selling price of their products will increase, providing an incentive for consumers to search for less costly substitutes in the market place. Meanwhile, exploration and development of additional resources will occur, and markets will reach a new equilibrium at a higher price that stimulates innovation.
2.2 The external costs of industrial air pollution
Most manufacturing processes cause, to varying degrees, air, water and soil pollution – costs to society and the environment that need to be accounted, or internalised, and reduced. In this section, the focus is on air pollution. Besides GHG emissions, industrial facilities release pollutants such as particulate matter, sulphur dioxide, nitrogen dioxide, lead, and chemicals that react to form ground-level ozone. These hazardous air pollutants can cause health and safety problems that are well known and degrade ecosystems. Some studies have sought to quantify the health and other costs of air pollution. For instance, the cost of air pollution in China, which was estimated in 2005 at 3.8 per cent of GDP, was found to be mainly driven by increasing industrialisation, which depends on coal-fired power plants and is led by an increasing urban population (World Bank 2007; Wan You and Qi 2005). Chinese coal on average contains 27 per cent ash and up to 5 per cent sulphur.
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150
100
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Figure 5: Commodity metals price index, June 1990-May 2010 (2005 = 100), includes copper, aluminum, iron ore, tin, nickel, zinc, lead, and
or
uranium price indices Source: Index Mundi (2010)
Index number Jun 90
Aug 91 Oct 92 Nov 93 Jan 95 Mar 96 May 97 Jul 98
Sep 99 Nov 00 Jan 02 Mar 03 May 04 Jul 05
Sep 06 Nov 07 Jan 09 Mar 10
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