ENVIRONMENT, ENERGY AND

INDUSTRIAL DEVELOPMENT AND ENVIRONMENT: CHALLENGE OR OPPORTUNITY?

In 1992, at the United Nations Conference on Environment and Development (Earth Summit) held in Rio de Janeiro, the participating States agreed on the Millennium Development Goals (MDGs), accepting that sustainable development should be included into country policies in order to preserve  environmental resources. In fact, population and economic growth are challenging the capacity of the planet to support life and there are many clear signals of the need of modifying present patterns of production and consumption. While developed countries are trying improve the overall efficiency of their economies, in the near future, developing countries will dramatically increase their use of resources to improve the living conditions of their populations.

There is still widespread belief (also in many developed countries), that environmental protection require curtailment of economic growth. While this may be so in the short-run, not investing in environment is likely to cut growth in the long term. In fact, the current growth in energy demand and utilization of resources could lead to environmental degradation which might, in due course, undermine long-term economic and social development, offsetting any short-term gains in growth and poverty reduction obtained by scrounging on investment protection.

On the other hand, other important trends must be taken into consideration. The development of new environmental standards or mechanisms, such as markets for new property rights or assets directly linked to the environment (e.g. titles of emission reductions) and greater environmental awareness have strong implications for industry. These changes are global and, have consequences on traditional business models, both in developed and developing countries. Craig Davis, CEO of JWT Worldwide, stated that  “people are worried about the fundamental challenges facing our planet and, increasingly, they want the things they buy to reflect their concerns”[1].

People are more and more convinced that, besides the classical (scarce) factors of production: capital, labour, and natural resources, present in the aggregate production function,  until recently no-one had included costs for clean air, clean water, a balanced climate, all of which were considered free goods. This was because the market failed to charge for the use of these (clean) resources. In classical economics, this was identified as a market failure, an externality, but these phenomena were thought to be rare, and relatively unimportant.  We now know (with the help of some economists recently awarded the Nobel prize) that such failures are far more common than was thought, so much so as to put in question the basic optimization solutions of the market mechanism. So, direct attention must be put on these heretofore ignored constraints, on pain of inflicting growing costs and perhaps insoluble problems to future generations. The new keyword is therefore efficiency: to produce the same amount of wealth with less energy and raw materials.

Within this general philosophy, ITPO Italy’s Energy and Environment Program contributes to sustainable industrial development in developing countries with activities to promote the transfer of technology, know-how, managerial skills, and other resources. The aim is to increase investments (local or foreign) in projects that may have a lower environmental impact than alternatives, and/or intend to supply environmentally sound or preferred  goods and/or services to the market.

Energy has been a central theme of UNIDO’s work addressing both the supply (provision of energy for industry, use of renewable energy resources) and the demand sides (improving the efficiency of power production and of industrial energy end-use ). Many UNIDO activities are aimed at solving two fundamental problems:

• Reducing the income elasticity of energy (reducing energy intensity i.e. energy per unit of GDP); and,

• Reducing the environmental impact of energy production and utilization.

In 2008, UNIDO ITPO Italy worked to reinforce the concept that environmental protection is not only a challenge but also an opportunity for companies in developing countries. This movement is often referred to as “corporate social responsibility”, another potential case of the principal/agent problem (shareholders may want profits maximized, managers want to be seen a good corporate citizens).  In this context, and taking into consideration that requirements for higher environmental standards are being set also in developing countries, the business of environmentally-preferable goods and services is showing a huge growth potential. ITPO Italy collaborated with institutions in some selected developing countries in order to give some of them the practical and methodological instruments to help SMEs in their countries deal with these new demands that present at the same time a great challenge or risk, that of being excluded from rich markets, but also a huge opportunity for both making money and improving the environment.