Towards a green economy

2 Challenges – the risks and costs of inaction

The new economic reality for manufacturing industries today

include key structural changes such as the

globalisation of production with transnational supply and demand, strong economic growth in Asia (notably China) and an increase of raw material prices. The following analysis focuses on the challenges of natural resource scarcity, the external costs of air pollution, as well as risks associated with hazardous substances and waste.

2.1 Natural resource scarcity

Resource scarcity is an increasing threat to future economic growth and a real challenge to the manufacturing industries, especially scarcity of fresh water, oil and gas, and some metals. Secure resource provision needs to be supported by healthy ecosystems, the vitality of which depends on biodiversity. The TEEB for business report (TEEB 2012) highlights what is called the “impacts and dependencies” of the manufacturing industry

on biodiversity and ecosystem services,

reflecting the footprint of facilities and the pollution arising from production processes, as well as the role of suppliers of raw materials or semi-finished goods. These linkages are often complex and sector- specific. In the case of direct impact and dependency on biodiversity,

Agriculture % 100 Domestic Industry

the industries most implied include the pulp and paper industry as well as the textile and leather industry. If one considers high dependence on specific ecosystem services, this points to a wider range of industries. What they face is dependencies that pose risks associated with operations, markets, finance, regulations and reputation. A clear operational risk is that of increased scarcity and cost of natural resources.

Land use is mainly a problem related to agriculture and food production, rather than industrial production (UNEP 2010a). The exception may be the future production of biomass for energy and feedstock purposes in industry. But industry is likely to face a significant challenge with regard to water in some countries or regions although it is responsible for less than 10 per cent of water use globally. Agriculture dominates with 70 per cent, followed by the energy sector and domestic uses, each with 10 per cent (UNESCO 2009).

80 60

Owing to expected high growth of industrial production, water use by industry is expected to grow to over 20 per cent of global total demand by 2030 (Water Resources Group 2009). At the same time, by 2030 a potential water shortage of 40 per cent of expected demand, compared to maximum sustainable supply, is projected at the global level. The extent to which industry drives water demand is highly differentiated by region and river basin (World Bank 2008; Figure 3). The implications of this are that industries operating in regions of high water stress, and regions where industrial water demand is relatively important compared with other water demand, must improve their water productivity greatly or relocate to more water-abundant locations. This is particularly true for industries with high water use, such as the paper and pulp, textiles and leather and the steel industries.

40 20 0

East Asia &

Pacific

Europe &

Central Asia

Latin

America &

Caribbean

Middle East

& North Africa

South Asia

Sub-

Saharan Africa

Figure 3: Water demand in end-use by region Source: World Bank (2008)

Demand for water by industry (and for the electric power sector) increasingly competes with water demand by agriculture and urban consumers. In addition, all of this needs to be balanced with water demand by ecosystems and biodiversity. Water treatment is a necessary precondition for industrial (or consumer) water use. About half of industrial water use is for cooling purposes, and about a fifth of this water is lost as vapor, but much of the other four-fifths can be used downstream for other purposes (although the discharge of heated water can be harmful to aquatic ecosystems). The best way to reduce water loss for cooling large central power

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