Interviews

Henzelmann: We have identified six key markets – environmentally friendly energy generation, energy efficiency, sustainable mobility, sustainable water management, raw-material and material efficiency, and recycling management. The global market volume today already totals 1 billion euros, with German production accounting for around 15 percent of this. The market will more than double by 2020, growing at a rate of over 5 percent a year. We expect particularly strong relative growth in environmentally friendly energy generation and technologies for improving the efficiency of raw materials and materials. The market for energy-efficient technologies will see the strongest growth of all. Both manufacturers of measurement and control technology and producers of energy-efficient household appliances will benefit.

Henzelmann: The German economy enjoys the best conditions of any industrial nation for harnessing immense benefits from climate change. The first of these is our industrial infrastructure. Unlike countries like Great Britain, we have been slower to change over to a service economy and retained significantly more of our industrial production. Our mechanical engineering companies have often responded to globalization with an approach based on innovation rather than relocation, and are now profiting from the demand from China and India for highly specialized industrial machines. The strong mechanical engineering sector is now not only a guarantee of export success, but also an excellent basis for the development of environmental technologies.

Secondly, the German political sphere was already investigating the facts when climate change was still very much in dispute worldwide.  These conditions boosted the research and development activities and company startups that are now turning Germany into a leading center for renewable energies. This too provides an excellent basis for further development.

The companies that profit most are those that are quick to harness the opportunities for innovation and cater to changing market needs. The best starting conditions are to be found in the mechanical engineering industry, but also in the electrical engineering industry, e.g. measurement and control technology. Automotive manufacturers, too, who are currently the butt of public criticism, will also benefit from climate change if they can outdo providers from other countries with innovations, as they have done so often in the past.

Henzelmann: Powerful energy storage technologies are certainly one of the core challenges for making energy use from renewable sources more flexible. Modern battery technologies are a key factor in this. However, we believe it is dangerous to tie oneself down to "core green technologies". Instead, we welcome the German federal government's approach in the Meseberg resolutions, where a broad range of measures were concluded in various areas. The same should apply in the field of research and development. But if pushed to name some further core areas in addition to energy storage technologies, I would particularly single out the following: 2nd generation biofuels (synthetic biofuels) and bioplastics, CO₂ sequestering technology, solar thermal power plants and solar refrigeration, hydrogen technology, automatic substance separation processes, decentralized water management and membrane technologies. We also investigated these fields in depth for the German federal environment ministry in the study entitled "Umweltpolitische Innovations- und Wachstumsmärkte aus Sicht der Unternehmen" (Environmental Innovation and Growth Markets from the Point of View of Businesses).

Henzelmann: Startup companies develop new markets that larger, more profitable companies do not yet see as worthwhile tapping into. This is linked to the culture of innovation within established structures and formal investment rules. Only when new companies have captured a significant share of the market do larger companies sit up and take note. This phenomenon is well documented in the book "Disruptive Innovation" and we believe it can also be observed in the energy industry. Now, however, all large companies have also started to pay attention to the issue of renewable energies. In the wind power industry, we have already seen considerable developments towards consolidation and this is due to take place in other industries, too. The large energy providers in particular will respond increasingly to the demand for green electricity and will be forced to question established business models.

Henzelmann: Political measures are fundamental in enabling the market and technologies to develop. Climate change has given rise to a classic market failure that the state has to respond to with regulatory measures. This is currently still the only way for consumers and providers to factor in the costs of climate change and act accordingly. The German environment industry has profited from foresighted policies and will continue to do so. Emissions trading is one of numerous political tools. It certainly had its weaknesses initially, but is on course to overcome these over time. Politics needs to take an even more honest approach in this regard and demonstrate that a desirable outcome is for the system to push up the price of electricity generated from fossil fuels.

Henzelmann: By 2030, we expect environmental technology to generate more sales than classic mechanical and automotive engineering, bearing in mind of course that companies in both these industries will partially transform themselves into environmental technology providers.

Dr. Torsten Henzelmann,
Partner at Roland Berger Strategy Consultants