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Environmentally relevant structural change: Empirical analysis

Environmental benefits of structural change

Before dealing with the option of accelerating environmentally benign structural change in the economy, it is necessary to consider ways to describe such processes, especially with respect to international and intertemporal comparisons.

Structural change as a continuous shift of labour, capital, and skills to more intelligent uses can also be conceived of as a process of successive delinking: the contribution of traditional factors to the national product decreases whilst the contribution of other factors increases - i.e. they tend to change or lose their function over time. This chapter is concerned with the environmentally relevant factors (sectors) in this process.

Focusing on the four factors described above, figure 1 illustrates such delinking from the growth of the gross domestic product (GDP), taking the Federal Republic of Germany as a first example. The delinking of energy and weight of freight transport from the GDP became apparent by the end of the 1970s, while for cement this process began in the early 1970s; for steel consumption, delinking had already begun in the 1960s.

In the Federal Republic of Germany, structural change generated environmentally benign effects in various ways:

- The growth of the service sector of the economy was environmentally beneficial (if transport activities are excluded from consideration), at least to the extent that it added economic value at relatively little cost in terms of energy and materials.
- The stagnating consumption of primary energy made a reduction in emissions possible, in spite of a comparatively sluggish clean-air policy in this period; the desulphurization and denitrification of the power plants came into full swing only in the second half of the 1980s. The effect of energy saving could have been even more impressive if there had not been a further increase in the consumption of electricity.
- The decrease in steel consumption accounts for a considerable reduction in emissions as far as production and processing are concerned. The drop is especially noticeable, and is partly due to an increased recycling ratio. However, such benign environmental effects may have to be compared with the harmful effects of an increased use of steel substitutes such as plastics and other materials and their inherent environmental risks.
- The fall in cement production represents a direct environmental gratis effect as far as the emissions from cement factories are concerned. With regard to the environmentally disputed construction industry, this decrease reflects a trend away from new construction towards modernization of the housing stock. (Again this trend may be reversed owing to the large construction programmes launched since the unification of Germany.)
- From the development of the weight of freight transport it can be concluded that in the period under investigation the volume of materials employed declined rather than increased, i.e. materials productivity has risen. (Germany being a transit country, the European Single Market might possibly reverse the trend again and lead to a drastic increase in freight transport.)

Fig. 1 Structural economic change in the Federal Republic of Germany, 1960 1987 (1960 = 100) (Source: Janicke et al., note 8)

Each of the sectors discussed above would of course need to be examined in greater detail, a step that cannot be undertaken here. One of the ensuing methodological questions is whether or not a different set of indicators would offer a more thorough understanding of environmentally relevant structural change in the economy. 18 The international comparison of the energy and materials side of nearly all the industrial countries, as well as the intention to establish a respective typology, however, seems to justify our concentration on the four indicators chosen for this study.

Environmental protection through resource economy

Figure 2 shows that some delinking was also taking place in the (former) German Democratic Republic (GDR), though it was different in scope and time.

Unlike the FRG, the GDR long continued to rely on the industrial sector, particularly on polluting heavy industry, as the main source of economic growth, while the development of the service sector was woefully neglected. Regarding energy and steel consumption, a slow process of delinking had begun in the early 1970s, but structural change in terms of a "materials economy" was modest. While, according to political rhetoric, increased energy and materials productivity was considered to be the "most important way of reducing the burden on the environ ment," practice fell short in implementing this concept.

Fig. 2 Structural economic change in the German Democratic Republic, 1970-1985 (1970 = 100) (Source: Jänicke et al., note 8)

In addition, the genuine relief of environmental stress can occur only if an absolute reduction in the relevant energy and materials inputs is achieved. The reduction in the GDR was not very significant, even in relative terms.

Changes in structural environmental impacts: East-West comparisons

The differing scales of GDP and of energy and materials consumption within the national economies have not yet been considered in this chapter. This, however, is important since a process of active delinking would generally be achieved more easily where energy and materials consumption were already at a high level. For active delinking, three aspects (or types) of environmental impacts of production and consumption have to be differentiated: (a) absolute environmental impact; (b) impact per capita; and (c) impact per unit of gross domestic product (GDP).

With regard to the absolute impact (a), it is the change over time that is of interest. Without reference to the size of a country, its population and output, however, the absolute impact does not lend itself to international comparisons. Such comparisons only become feasible if one uses the per capita impact (b) and/or the impact per unit of GDP (c).

In a first round, we computed an aggregated environmental impact index, consisting of the per capita impacts of consumption of primary energy and crude steel, freight transport weight and cement production for all the countries under investigation. In computing the index, equal weight was given to the four indicators, marking the deviation from the mean value of all countries for 1970 and 1985. Thus the relative position and the patterns of change of the countries can be observed. The results of the computations are presented in figures 3, 4, and 5. (The abbreviations used are the international signs for motor vehicle licences.)

As figure 3 shows, in 1970 there was a significant relationship between a country's per capita GDP and the structural impacts on its environment regarding the four selected indicators (sectors). The correlation coefficient for the aggregated environmental impact index and the per capita GDP was 0.76 for all the countries considered. This means that around 1970 the national product of the industrial countries was still strongly based on "hard" production factors (high volume production).

Fig. 3 Index of structural environmental impacts per capita* and economic performance level (1970= *) and regression line (Y = 0.000170x - 1.23615/R = 0.756) (Source: Jänicke et al., note 8)

Fig. 4 Index of structural environmental impacts per capita* and economic performance level (1985 = +) and regression line (Y = 0.000046x - 0.39506/R = 0.312) (Source: Jänicke et al., note 8)

Fig. 5 Index of structural environmental impacts per capita* and economic performance level (1970 = */1985 = +) and change (--->) (Source: Jänicke et al., note 8)

Countries with high environmental impacts per capita (see figure 3) were Sweden (S), the United States (USA), the Federal Republic of Germany (D), Czechoslovakia (CS), Canada (CDN), Norway (N), Switzerland (CH), Japan (J), Belgium (B), and even Finland (SF). In the lowest third of the scale were Hungary (H), New Zealand (NZ), Romania (R), Spain (E), Greece (GR), Ireland (IRE), Yugoslavia (YU), Portugal (P), and Turkey (TR).

During the 1970s and the early 1980s, this relationship between economic performance (GDP) and structural impacts changed considerably. The correlation coefficient in 1985 was at only 0.31, significantly below that of 1970; figure 4 shows the new picture. This means that the process of structural change in several countries reduced the importance of the "hard" factors (high volume production) in the economy.

Accordingly, the position of several countries has improved over time. This was especially true of Sweden, but also of the Federal Republic of Germany, France, the United Kingdom, and the United States. In contrast, the placing of several other countries has deteriorated. This was especially true of Greece, but also of Bulgaria, Romania, the USSR, and Czechoslovakia. The group with the highest structural environmental impacts by 1985 was led by member states of the (former) COMECON, namely Czechoslovakia, the USSR, the German Democratic Republic, and Bulgaria; Western industrialized countries showed up in the second (Canada), sixth (Greece), seventh (Finland), and eighth (USA) position, respectively. Japan, despite its improved position, was still in the top half of the scale.

The dynamics and the international pattern of structural change from 1970 to 1985 are indicated in figure 5, which is derived from figures 3 and 4. The main message here is the variation in the direction of change. In the group of low- and medium-income countries (among the industrial countries), two different patterns emerged: increasing environmental impacts, on the one hand, and stabilizing or decreasing environmental impacts on the other (see figure 5).

The fact that economically advanced Western industrial countries occupied leading positions as regards per capita environmental impacts in 1970 may not be so surprising as it seems at first glance. At that time, Sweden, the USA, and Japan, being confronted with high pollution loads and partly with environmental crisis, had to recognize the need for sweeping environmental protection measures. The fact (by contrast) that Czechoslovakia was "leading" in 1985 indicates the problematique of that country's economic structure. At that time, Czechoslovakia's energy consumption per unit of GDP was more than 50 per cent higher than in most other countries, and specific steel consumption was actually twice that of countries with comparable levels of GDP.

Typology of environmentally relevant structural change

As was explained above, the shifts in the international position of countries listed in figures 3 to 5 relate to structural per capita impacts only - i.e. no account is being taken of the individual country's economic growth rate. For example, the shift in Norway's position coincided with a high rate of economic growth (see table 2) so that the environmentally benign effects of structural change were partly neutralized. To be sure, the absolute (per capita) environmental impacts are of the utmost importance for the environmental policy debate. However, structural change in relation to the growth of the economy is also relevant for the environmental situation of a country. There may be no structural improvement in absolute (per capita) terms because high growth rates neutralize the otherwise positive effects of structural change.

To differentiate the patterns of change, the following typology may be useful:

1. Absolute structural improvement, i.e. an absolute (per capita) decline in production factors (sectors) causing high environmental impacts.
2. Relative structural improvement, i.e. a relative decline in production factors (sectors) causing high environmental impacts compared to the growth of the economy.
3. Absolute structural deterioration (which includes relative deterioration), i.e. a disproportional increase in production factors (sectors) causing high environmental impacts compared to the growth of the economy.

Environmental gratis effects may be defined as those effects that occur when (ceteris paribus) the rate of usage of those factors (sectors) having an impact on the environment remains (considerably) below the growth rate of the GDP (type 1 and 2).

In table 2 16 countries out of the whole sample of industrial countries investigated are grouped according to these three different de velopment patterns. Again, we use here the above indicators of an energyand materials-intensive mode of production, i.e. consumption of primary energy and crude steel, weight of freight transport, and cement production.

Table 2 Environmentally relevant structural change: percentage changes 1970/1985

Source: Jänicke et al. (note 8).

a. Calculation of the Gross Domestic Product percentage changes on the basis of constant (1980) US dollars. Bulgaria. Czechoslovakia, and Soviet Union data refer to percentage changes between 1970 and 1983 in the Gross National Product.

b. Transport data only take railway transport data into account.

Of all the industrial countries studied, Sweden (see figure 6) is the environmentally most positive case. Although the growth rate of industrial production was very low after 1973, Sweden increased its GDP quite considerably, primarily through an expansion of the service sector. The drastic reduction in cement production (-41.2 per cent), the decreasing consumption of crude steel (-37.9 per cent), and the decrease in the weight of freight transport (-21.4 per cent) add up to notable overall environmental gratis effects.

Also in the United Kingdom, the four structural impact factors decreased by between 2.3 per cent and 43.5 per cent but, in contrast to Sweden, these reductions were connected with, or induced by, high mass unemployment.

Fig. 6 Structural economic change in Sweden, 1970-1985 (1970 = 100) (Source: Jänicke et al., note 8)

In Denmark, too, structural change in the economy decreased the importance of the energy- and materials-intensive sectors quite considerably. Between 1970 and 1985, the GDP grew by some 40.8 per cent, while three of the four impact factors decreased by between 2.7 per cent and 33.2 per cent.

In Japan (see figure 7), the process of delinking was partly neutralized by the rapid growth in overall industrial production and thus only resulted in relative structural improvement (see group 2 in table 2). The conclusion can be drawn that a forced rate of industrial growth interferes with the environmental relief of structural change. Countries with high growth rates must therefore undertake stringent remedial environmental protection measures in order to achieve a net relief for the environment.

In Czechoslovakia (see figure 8), no real delinking of economic growth from the four impact factors took place; some of them even increased. After the oil price hike of 1979 the economy entered a crisis. The development profile of Czechoslovakia, which had undertaken no structural change at the time under investigation, was representative of the economies of Eastern Europe. Group 3 of the countries (see table 2) consists for the most part of industrial latecomers, then in an early stage of industrialization. But Czechoslovakia was a relatively old industrial economy that (in 1985) ranked at the top among the countries suffering from high structural environmental impacts per capita.

This leads at least to two specific questions: (1) do all late-comers have to go through stages of increasing environmental impacts; and (2) what prevents old industrial countries from taking an environmentally friendly development path? A third, more general, question is, of course: What is to be learned from past experience, and under what conditions can economic restructuring become a strategic variable, or point of departure, for sustainable development?

Specific conclusions

First of all, the method used in this study leaves room for refinement.21 Certain problems remain as regards data, particularly the differences in computing the national (domestic) product in East and West. The question of substitution processes (steel/plastics, for example) is of high relevance and should be further investigated.22 Additional information is needed if, for instance, industrial and not overall consumption of energy, or the specific impacts of energy production (such as lignite v. gas), are taken into consideration. The international trade in wastes and the transfer of polluting industries and technologies from developed to developing countries need further study, etc. That means that economic structural change is about not only quantity of energy and materials inputs, but also, and increasingly, about quality, transformation, and interrelations.

Fig. 7 Structural economic change in Japan, 1970-1985 (1970 = 100) (Source: Jänicke d al., note 8)

Fig. 8 Structural economic change in the CSSR, 1970-1985 (1970 = 100) (Source: Jänicke et d., note 8)

Beyond these analytical limitations, however, the advantages of comparing the development patterns of individual countries become evident:

- Restructuring, in the sense of delinking energy and materials inputs from economic growth, was significant in many of the industrial countries. In the period under investigation, less than half of these countries clung to the traditional modes of quantitative growth in physical output per se. Countries that did so were the low-income Western countries and most of the countries of Eastern Europe.
- Certain Western countries enjoyed environmental gratis effects as a result of structural change. In some cases, especially in Sweden, these beneficial effects were quite considerable.
- In other Western countries, the possibly beneficial environmental effects of structural change were levelled off by the rapid economic growth pursued. This was especially true in the cases of Japan and Norway.
- The relationship between the scale of the economy (GDP) and environmental impacts from energy- and materials-intensive production, still evident in 1970, had weakened by the 1980s. The economically advanced countries underwent fairly rapid structural change.
- In the low- and medium-income countries among the industrial countries, distinct development patterns emerged. There were cases of rapid quantitative growth and also cases of qualitative growth, i.e. economic growth with constant or decreasing energy and materials input.

All in all, it is, unfortunately, not yet possible to speak of one dominant development trend among the industrial countries towards dematerialization, recycling, improved industrial metabolism, or sustainable development.

General conclusions

The differences between these development patterns should be of particular interest for future environmental and economic policy in general, and structural policy in particular. It seems that the reasons for such differences and their consequences deserve further attention.

Economic or industrial restructuring is more than an economic phenomenon, particularly if it is understood to convey a break in energy and materials intensity and in pollution trends, that is, a shift towards a significantly different environmental impact pattern. Structure is the key to many theoretical problems; industrial restructuring can be a key to solving present and preventing future environmental problems. Structure is both a comforting and a disturbing notion; restructuring should be made a less uncomfortable, more environmentally friendly strategy.

By implication, the temporally uneven development of the economies studied (discontinuity and gradualism) manifests itself in uneven spatial and social patterns. Our concern here was with the environmental impacts involved in and induced by structural change. The better the environmental impacts of industrial structures are understood, and the earlier they are taken into consideration, the easier it should be to channel industrial development in a direction that is consonant with environmental protection, and thus to improve on industrial metabolism.23

In this sense, the "economic late-comers" need not fall into the environmental trap that most of the "economic forerunners" ended up in. By the same token, there is enough evidence that some of the "economic forerunners" could do more to escape from being "environmental latecomers." This, however, would require not only proactive structural change in the economy but also a preventative environmental strategy. This means that environmentally benign market forces would have to be stimulated by structurally innovative policies.

4. Industrial restructuring in developing countries: The case of India

Rajendra K. Pachauri, Mala Damodaran, and Himraj Dang

Industrial metabolism and sustainable development

This chapter focuses on the attainment of energy conservation and efficiency as part of a process of industrial restructuring towards sustainable development. The specific case of Indian manufacturing industry is considered in some detail to show the potential for, and implications of, restructuring in industry in developing countries in accordance with the principles of "industrial metabolism."

Since the appearance in 1987 of the World Commission on Environment and Development's report Our Common Future, sustainable development has become the objective of development strategies and policies worldwide. Yet, six years later, the factors that would contribute to sustainable development and the methods to operationalize them are still undetermined. Without doubt, the need to minimize the throughput of resources while maintaining the system of production is central to any concept of sustainable development. However, the notion that the economic subsystem may have approached the finite biophysical limits of the global ecosystem has yet to gain currency, in spite of the writings of such prominent economists and scientists as Vitousek (1986), Daly and Cobb (1989), Goodland (1991), and Meadows et al. (1992).

Two answers emerged from Our Common Future. One was "growth as usual," albeit at a reduced rate. The other was to define sustainable development as "development without growth in throughput beyond environmental carrying capacity." Daly (1990), one of the pioneers of "steadystate economics," has provided an alternative definition of sustainable development, which we think may be useful for this chapter: a process in which qualitative development is maintained and prolonged while quantitative growth in the state of the economy becomes increasingly constrained by the capacity of the ecosystem to perform over the long-run two essential functions: to regenerate the raw material inputs and to absorb the waste outputs of the human economy.

The recognition of an optimal scale of the economy is central to sustainable development as per Daly's definition. Beyond such an optimum, growth becomes "anti-economic growth." Goodland (1991) suggests that the environmental constraints to growth have already been reached: witness the high volume of human biomass appropriation (nearly 40 per cent), the looming threat of global warming, the rupture of the ozone shield, pervasive land degradation and the threat to the world's biodiversity from continued growth in the scale of the world economy . . .

The restructuring of industry towards sustainability in the developing countries would have simultaneously to take into account existing constraints and growth compulsions. For instance, for a number of reasons it may not be possible for a developing country to do away with aluminium production just because of energy scarcity, if all the other conditions requiring the establishment of the industry are satisfied. However, what may be possible is the achievement of higher energy efficiency levels in the industrial sector, reducing the throughput of raw materials and natural resources in general, and energy in particular, for a given level of output (Gross National/Domestic Product).

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