Environmental industry almost recession-proof


October 23, 1990|By Grant Ferrier | Grant Ferrier,Los Angeles Syndicate

Revised data from the government confirm that sales to consumers declined in the second quarter. What many economic analysts have been predicting for months is something most analysts now agree has occurred: America is in a recession.

Businesses in all industries are evaluating how their particular niche in the economy will be affected by the economic slowdown, and the environmental industry is no exception. Growth for a number of environmental businesses will no doubt dwindle, but some segments of the industry are insulated from the general direction of the economy.

While no sector can be labeled as totally recession-proof, solid waste companies come close. Garbage will certainly be here again tomorrow. In addition to stable demand for their services and facilities, waste management companies will continue to prosper because of a decrease in land available for disposal. The United States once had more than 9,000 landfills; now there are only 6,000. Almost half those that remain are expected to reach their capacity by 2005. The scarcity of landfill space is most apparent in the Northeast where dumping fees can run higher than $100 per ton (the national average is $30-35 per ton).

More garbage is being diverted by resource recovery each year, however. Recycling has gained some momentum. The Environmental Protection Agency has set a national goal of reducing the solid waste stream by 25 percent by 1995, and many states and municipalities have established recycling programs with more aggressive goals than the EPA's. But the fiscal problems that plague all governments threaten environmental projects of all kinds.

From the smallest town to the federal government, economic hard times will make changing the existing infrastructures an increasingly difficult and costly decision. So yes, there will be more recycling, but a prolonged recession will decelerate the process.

The water treatment sector faces a similar dynamic. Financially strapped municipalities are expected to cut back on spending for new sewage projects and water treatment facilities. Likewise the environmental remediation of public buildings, in particular asbestos abatement work, will be curtailed. Projects tied to "essential public services" such as water supply, electricity and existing sewage repair will be less threatened, but financial constraints often affect a municipality's definition of what is essential.

The public and the government will also play roles in determining environmental work in the private sector. Stephen Schweich, an environmental industry analyst with investment firm Alex. Brown & Sons Inc., says "Public sentiment in favor of environmental spending could wane" in a recession.

He says U.S. military activities in the Persian Gulf will take a bite out of the "peace dividend" that some observers had expected to benefit environmental projects. He cites indications that California's Environmental Protection Act of 1990, the voter initiative popularly known as "Big Green," is losing support. Above all, he thinks the recession may threaten some elements of the proposed federal Clean Air Act revisions that have bounced around Washington for more than a year. Schweich views the new Clean Air Act as the best indicator of regulatory trends in the current economic and political climate. He gives the measure a "better that 50/50 chance of becoming law by year end."

Regulation and litigation will continue to be the major drivers of the environmental industry. The level and quality of enforcement, as yet inconsistent, will not be improved by fiscal problems. Unfortunately, many pollution generators still find it easier to wait and be caught rather than comply with regulations in a proactive manner.

As recession hits industry and production is reduced, a corresponding drop in the volume of waste will follow. This will affect several companies set up to treat on-site waste at the point of production at industrial and manufacturing facilities. It is unclear how much the recession will affect the clean-up of the still plentiful hazardous waste at old sites. That process depends on government spending and on how tough law enforcement is.

Economic slowdowns invariably lead to fewer property transfers and therefore diminish demand for environmental site assessments, laboratory work and remediation. In general, hazardous waste and engineering companies will feel the pinch because they depend on the varying demands of industry and government.

No doubt about it, the environmental industry is not recession-proof. A number of factors do add up to a considerable protection from worsening economic conditions, however. Regulations, shortage of disposal capacity, fear of litigation and the provision of essential services give environmental firms a decided advantage over firms in many other businesses as the country copes with the slow-down.

Grant Ferrier is editor of the San Diego-based Environmental Business I Journal. 1990 Los Angeles Times Syndicate

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