Box 1: Steel production with higher components of recycled materials. Direct and indirect impacts on jobs. Estimation for the EU27:
In a 2007 study (European Commission 2007), GHK Consultants evaluated the economic significance of the environment in terms of employment, output and value added associated with the range of activities that make use of, or contribute to, environmental resources in the EU27. Input-output tables for each Member State were used to estimate the indirect and hence total economic impacts of defined activities that are linked to environmental resources. The study also considered policy interventions directed to improve resource efficiency. One of the policy scenarios examined assumes a switch of 10 per cent by value in raw material inputs to steel production from virgin materials to recycled materials. As a result of the intervention, positive total impacts are reported for output and employment. The results can be summarised as follows:
The initial direct impact is neutral as the reduction in output from one sector is met by an increase in output from another sector. However, the net indirect (including induced) impact of this substitution leads
Direct impacts Virgin material sector: loss of output and jobs Recycled material sector: gain in output jobs Net direct impact (1)
Virgin material sector: fall in demand for inputs and subsequent fall in output from suppliers to the virgin material
Recycled materials sector: Increase in demand for inputs and subsequential increase in demand from various sectors
Net direct impact (2) Total impact (3)=(1)+(2)
Industries such as steel and aluminum can expect growing demand from new markets in the form of clean-tech such as solar technologies, being an important source of materials and components required for these. These potentials can be identified by considering industries not in isolation, but as part of a broader value- chain that contains possible hidden economic opportunities. Following this approach, a study by Gereffi et al. (2008) in the USA shows the example of how solar manufacturing can replace jobs lost in automotive manufacturing. Infinia Corporation has developed a concentrating solar- dish system specifically designed to be mass-produced by Tier 1 and Tier 2 auto manufacturers in the USA. Infinia
included US auto suppliers from the very beginning in product development and design. The product can be manufactured on existing auto production lines which have high surplus production capacity. Infinia estimates each unit of auto production capacity can be retooled to produce 10 units of their Solar Power System, producing 120,000 MW of solar capacity and securing as many as 500,000 manufacturing jobs. In cases like these, where certain jobs are potentially replaced with jobs in another sector, calls have emerged for a “fair and just transition” in which those harmed by the changes are adequately assisted and the new opportunities created shared by specific groups of worker constituencies.
to an increase in output of nearly € 197 million and an extra 1,781 jobs. Adding the direct and indirect effects indicates that this substitution would add € 197 million of output and 3,641 (1,860 direct and 1,781 indirect) jobs.
The net positive impact on jobs and output is mainly owing to the supply-chain effect of the recycled materials sector. The recycled materials sector uses inputs from many other sectors, thus creating more jobs and wealth. If the substitution were to lead to an increase in the costs to the steel sector – since inputs of recycled materials cost more than virgin materials – this would be reflected in the cost of steel and paid by users of steel. Output and profits of the steel sector would be expected to fall due to higher costs of steel products. The ability to pass costs on to users will depend on factors such as the price elasticity of demand for steel. According to parameters of the model used, the steel sector could pass on 45 per cent of its unit costs to its customers and would have to absorb the rest as reduced profits.