|March 30, 2009|
State of the Environment Industry
|The current economic downturn has exacted a heavy toll on many industry sectors. The collapse of the banking and finance system, the humbling failures of the big three North American automakers, and slowdowns in construction and housing market spending have prompted massive injections of government cash to keep the wheels of commerce turning - however slowly. |
In the U.S. the Associated Builders and Contractors expects the value of commercial and industrial construction to fall between 10 to 20 percent in 2009, while the National Association of Home Builders forecasts a 25-percent decline in total housing starts. The market for highway and bridge construction is anticipated to remain stable in 2009, due to increased federal highway spending that has offset declines in state and local expenditures.
Even in the energy sector, mega-projects have been cancelled or delayed and existing projects re-phased to conserve critical finances in the face of tighter capital supply.
While politicians and economists wrestle with multi-billion-dollar bailouts and stimulus packages, leaders of environmental and civil engineering firms - both large and small must continue to look for opportunities to keep clients coming in the door.
With their efforts come a number of questions such as which markets will experience growth? What staff expertise will be needed to take advantage of growing markets or to ensure survival when the markets do improve? What efforts are required to maintain or grow their business in an economy beset with so many problems? Also, will government stimulus spending be sufficient to keep these firms afloat?
GLOBE-Net has reached out to government and industry leaders in an attempt to find answers to these and other questions concerning the state of the environmental business sector.
Overall there is cautious optimism that things will get better, in part due to the massive stimulus plans that have been out into place, and partly due the underlying strength of the North American economies. But that optimism is tempered by concerns that if the economy fails to turn around in 2009-2010, things could become very bad indeed.
As a consequence, many environmental and engineering firms have adopted a ’wait and see’ approach and have held back on hiring or expansion plans. "As with many other sectors of the economy, many of Ontario’s environment industry firms are watching and waiting," says Alex Gill, Executive Director of the Ontario Environment Industry Association.
"Depending on the focus of the firm, some have seen their client base affected by the credit crunch or ongoing challenges facing traditional manufacturers. Others may have full order books but are holding back on hiring or restraining discretionary spending because they are cautious about what may happen in the next several months. Overall, we have an industry that is cautious, but optimistic about longer-term prospects."
While the current uncertainty is enabling many members of the Environmental Services Association of Alberta (ESSA)to address an accumulated backlog of work in the province, they are nevertheless reigning in expenditures and taking a very cautious "wait and see" approach to future directions says Joe Barraclough, ESSA’s Director of Industry & Government Relations.
Caution is the byword across the country, according to Jeff Eltom, Executive Director of the BC Environment Industry Association (BCEIA). His recent discussions with sister associations across the country confirm a general drop in new business, though work on existing or legacy projects remains strong, he noted. Most environmental services companies are cautious about the long-term effects that decreased industrial production due to the economic downturn and the collapse of commodity prices might have on their bottom lines, he said.
One sub-sector of the industry - waste management and recycling - has been particularly affected by falling commodity prices. As prices for recyclable feedstock (i.e. paper, tin, glass, metals etc.) have fallen through the floor, it is no longer profitable for Canadian companies to send recyclable feedstock overseas, notes Eltom. "In fact in some instances, recyclable feedstock is being warehoused or secretly land filled," he said.
Caution is an approach being adopted south of the border as well. "To date, there has not been much perceivable change in the level of interest in sustainable solutions," said Mark A. Swallow, president and principal of Golder Associates Inc. in response to a question on prospects for green projects in the face of the economic downturn. "Many clients are demanding it, and it is the right thing to do. Opportunities involving sustainability metrics and clean/renewable energy are anticipated to remain strong in 2009," he added.
Golder anticipates that energy services projects (i.e. providing ground engineering and environmental services for traditional power producers, as well as renewable/clean energy projects), and solid waste management projects (i.e. landfill design, contracting/construction, landfill gas management, and landfill gas-to-energy projects) will remain strong areas of business activity throughout 2009.
Swallow expects modest increases in public-sector work in 2009 driven by increased infrastructure spending as governments seek to inject additional capital into the market, and because private entities will be endeavouring to control costs.
As a consequence, the projected growth in the number of new Golder staff in 2009 will be only slightly lower than was originally projected for 2008, but some 30-percent lower than the actual growth in 2008. "We are always looking for good people in all of our core service areas, but in 2009 there will be some increased focus on recruiting staff with expertise in the energy services market," said Swallow.
Stimulus Spending will help, but....
A common theme that permeates economic stimulus spending plans both in Canada and the U.S. is get money into the economy fast for ’shovel ready’ projects to mitigate further deterioration of the economy.
Ramping up spending for infrastructure projects and other civil works should be good news for the environmental business sector already suffering from slowdowns in construction spending due to the credit crunch. But parallel measures being put in place to exempt many recovery projects from the normal environmental due diligence processes may be dampening that enthusiasm.
Many of the projects to be funded by stimulus money normally would require some form of environmental review under the National Environmental Policy Act (NEPA) in the United States or the Canadian Environmental Assessment Act (CEAA) in Canada. Similarly, the billions earmarked for the development and deployment of renewable energy projects would suggest an increased demand for environmental goods and services.
In the U.S. the NEPA requires that every "major federal action significantly affecting the quality of the human environment" must undergo lengthy environmental analysis and documentation. The provision of federal funding for stimulus projects having potentially significant environmental impacts places such projects squarely in the NEPA’s crosshairs.
There are provisions in the NEPA that allow for certain exemptions such as waivers based on grounds of national security, legislated exemptions for specific projects (i.e. energy-related projects under the Energy Policy Act of 2005) or waivers in response to natural disasters or other emergency conditions. However, proposals raised during debate on the Obama administration’s economic stimulus package for blanket exemptions for recovery projects met stiff opposition from environmental groups and environmentally sensitive legislators.
In Canada, the federal government anticipated the potential dampening impacts that the environmental assessment process might have on the pace with which money flowed into the economy. With little fanfare, regulations were passed two weeks ago that streamlined the approvals process for thousands of projects that are part of the economic recovery strategy by delegating some assessment decisions to the provinces and allowing others to proceed without any environmental assessment under CEAA.
For the next two years, many types of projects will not require a federal environmental assessment, including construction and remodelling of community buildings, water treatment and distribution systems, transit, road construction and waste management projects. Projects near environmentally sensitive areas costing less than $10 million and with environmental mitigation measures in place are also eligible for exemption.
How this will impact on the environmental services sector remains to be seen.
Clean Energy will survive - and possible grow
The clean energy industry, while not unscathed by the current recession, can look forward to growth in many sectors, according to recent reports. For example, use of smart meters - a key technology for better energy management and efficiency - is increasing at a rapid clip according to a study by ABI Research. Smart meters will benefit from the $67 billion for clean energy, energy efficiency and smart-grid technologies, the US plans to spend as part of the federal stimulus package.
"We don’t think that the economic crisis is having a significant effect," says Sam Lucero, senior analyst for ABI Research. "Utilities’ smart metering deployments are typically multi-year plans developed in the context of regulated market environments, and not terribly susceptible to short-term economic fluctuations."
Perhaps the most telling indicator of what the future holds for the sector is the change in public attitudes about the need to protect the natural environment and to improve quality of living overall. There is a much greater focus on environmental services from business and government, so consultants are in an era where wetlands restoration is as important to the bottom line as roadwork, says Kevin Welker, an associate of the London Ontario engineering firm Dillon Consulting.
Dillon built its business on engineering services ranging from roadwork to architecture. But its environmental services hold special promise, said Welker, a civil engineer. "It started out as something we needed to do but it has become its own business," he said in an interview with the London Free Press. "It is becoming integral to society."
"Our success of late is definitely the result of changes we have made to reorganize, to focus on clients. We are a service industry that provides clients with whatever they need, otherwise they are not going to want you back," said Welker.
It’s the same message conveyed by industry giant Golder Associates Inc. "We have increased external communication with clients to better evaluate their changing needs and how we can assist them. This includes informal meetings and telephone discussions, as well as formal client satisfaction surveys," said Golder President Swallow. "We are devoting additional senior resources to business and client development."
As one industry observer noted, government stimulus programs may help kick start the economic recovery, but in the final analysis, environmental technology and engineering services companies that have good relations with their clients and are capable of changing to meet new client priorities are the ones that will survive the current economic downturn.