The Ecology of Industry. 1998 Pp. 1-12
Washington, DC: National Academy Press
Overview and Perspectives
The ecological analogy for industry, like any analogy, is not perfect. There are striking similarities and obvious differences between natural and industrial systems.1 In this overview, the term "ecology of industry" is used descriptively. Hence, industry's ecology is defined by the metabolism of materials (the flow of materials through industrial systems, including their transformations during flow); the use of energy, labor, and capital; and the application of information or knowledge. A characteristic of ecological systems is that they evolve. The evolution of industrial systems and their use (and storage) of resources are affected by the introduction of new technologies, decisions made in design, preferences of consumers, regulatory dictates, and the like. The idea of industry having an ecological structure is not new. The application of this concept, however, is receiving greater scrutiny2 as, for example, publications have emerged that explore the various dimensions of industrial ecology. Indeed, "industrial ecology" has become jargon for describing systems of production and consumption networks that have a minimal impact on the environment as a primary objective and have an overarching objective of environmentally sustainable economic expansion.
This volume builds on earlier efforts of the National Academy of Engineering (NAE) in the area of technology and the environment.3 It presents industrial perspectives on opportunities and challenges in improving environmental efficiencies through better design and management in five industries: mining, materials processing, manufacturing, electric utilities, and pulp and paper. The accompanying papers result from sectoral workshops on industrial best practices convened as part of a 1994 NAE International Conference on Industrial Ecology in Irvine, California. This overview also draws on four other NAE workshops: two
that examined the impact of the services sector on the environment, held in October 1994 and June 1995; one that examined the impact of synthetic polymers on the environment, held in August 1996; and one that explored the implications of information technology for the environment, held in July 1997.
This overview and perspective considers the stimuli that lead a firm to take environmental action, the role of technology in effecting change in industrial systems, the interconnections between production and consumption activities, and the role of information and knowledge in improving environmental efficiencies.
Firm Motivation and External Stimuli
Much progress has been made over the last decade in integrating environmental considerations into the mainstream of business decision making. In the process, the ecology of industry has changed. The impetus for the change can be attributed to four interrelated factors. The first is corporate well-being, which is determined by profits and growth. Hence, it is not unusual to find that the principal factor driving environmental efficiency improvements in industry has been the recognition that inefficiently run production systems result in waste generation and energy losses, which if minimized can lead to cost savings. It was sobering for some companies to realize that the cost of environmental compliance was equal to their entire research and development budget (Carberry, 1997). The rising cost of compliance has provided impetus to companies to develop and implement cleaner technologies that do not emit regulated emissions or that use substitutes for regulated substances to cut the cost of compliance. That approach has also led to the creation of new profit centers in companies that market the cleaner technologies to other firms with similar emissions problems.
The second factor is consumer demand. Demand revolves around the performance and cost of a product or service, as well as the image and social acceptability of a product, service, or company. As consumers place more value on environmental attributes, corporations with cost-cutting environmental strategies are able to market their environmental image in addition to other desirable features of their products or services. Depending on the type of product or service and corporate strategy, consumers can also be involved in the company's environmental efforts. A hotel that encourages its customers to have their towels and sheets changed every other day rather than daily saves on energy and water used for cleaning, while providing an environmental value that customers might seek. In addition, the hotel engages in public education through the decals and notices in rooms about the program and its impacts on water and energy use. Similar benefits result from programs that encourage consumers to return spent printer cartridges to the manufacturer for reprocessing and recycling. In the example of the hotel, there is clear cost savings to the hotel. However, in the case of the printer cartridge, recovery may be driven by product recovery laws, as it is in Germany, and involves additional costs. Some of the additional costs can be avoided if product recovery
considerations are incorporated in design and management decisions. Nevertheless, in most cases, although consumers say they want environmentally friendly products, they have not voted with their pocketbooks (Laudise and Graedel, this volume; Simon and Woodell, 1997). This poses a challenge to government and industry: Government needs to encourage the development of more environmentally preferable products; government and industry need to develop and provide the incentives to consumers to buy the products; and industry needs to find ways to improve production and lower product costs.
The third factor influencing the ecology of industry is government. Through regulations and laws, government dictates the bounds of industrial operations. Armstrong et al. (this volume) and Chiaro and Joklik (this volume) point to some of the effects of environmental regulation on the pulp and paper and mining industries, respectively. The rules set by government, however, affect a diverse set of industrial operations: finance (through, for example, the Securities and Exchange Commission and antitrust regulations); labor and workplace practices (through such agencies as the Occupational Safety and Health Administration and the National Labor Relations Board); and consumer protection (through such agencies as the Environmental Protection Agency and the Food and Drug Administration).
Sometimes the rules are in conflict. For example, consumer protection laws that classify products with refurbished parts as secondhand (even if they perform to the same standards as new products) send a wrong signal when it comes to promoting reuse or recycling. Through subsidies, governments also send signals about the importance of certain industrial operations or materials, which would not fare as well in an economy without the subsidies.
In addition, companies with global operations have to increasingly abide by the rules and dictates of many nations. The diversity of environmental rules has given rise to the need for harmonization. An outgrowth of this situation has been the development of a set of environmental standards by the International Standards Organization (ISO). The so-called ISO 14000 standards4 do not replace regulation. Rather, they are an attempt to establish a set of ground rules for corporate environmental practice.
The final factor influencing the ecology of industry is community acceptance and industrial impact. Communities in which industries operate are more frequently in the news because of potential environmental health concerns. Community acceptance of industrial activity is also influenced by where industry locates its facilities and the impact such siting has on taxes and local economic development, as well as by other sociopolitical factors. In the larger context, the level of community acceptance can result in demand for new government laws and regulations. Indeed, organizations are increasingly involving communities in the planning and design of their plants and operations. Carson et al. (this volume) provide an example of a mining company in Australia that developed a mine restoration plan in response to and in cooperation with local communities.
Directed efforts to improve industrial environmental efficiencies would not
be a priority of business without consumer demand, government regulation, and community acceptance, because the costs of materials do not reflect envrionmental impacts. When these forces come into play, however, environmental factors (costs) that were considered external to running a business are internalized, and companies move environmental issues out of the compliance ''doghouse" and into strategic focus. In doing so, they change how energy is used and how materials inputs and outputs are managed. In other words, they change the ecology of industry.
The Technological Link in the Evolution of Industrial Systems
Improvements in environmental efficiences are a direct result of deploying technology. Historical data (Ausubel and Langford, 1997; Ausubel and Sladovich, 1989) show that advances in technology have contributed to the evolution of systems that are decarbonizing (using less carbon per unit energy produced), dematerializing (using less material per unit product), and increasing in energy efficiency over time. Technology, however, is not a panacea. Much has been written about the unintended consequences of technology (e.g., Tenner, 1996), suggesting the need to understand the impact of technology on systems of production and consumption and to deal with them.
Yet, the positive impact of technology in addressing specific environmental ills is evident in this volume's papers on the pulp and paper and the electric utilities industries. For instance, technological advances in the making of pulp and paper have been instrumental in minimizing pollutants from pulp and paper operations. Electricity generation and distribution are also important to economic growth and to the role of electrotechnologies in addressing environmental concerns.
Most of the technological innovations discussed in this volume have been incremental. They have occurred almost continually, resulting from pressures to reduce costs or meet quality, design, performance, manufacturability, or environmental goals. They are seldom the direct result of any deliberate R&D, although they frequently benefit indirectly from previous R&D conducted for other purposes. Rather, the improvements are outcomes of inventions and improvements suggested by engineers and others directly engaged in the production or service function, or by users and customers.
Freeman (1992) describes three other categories of innovation that contribute to change in industrial systems: radical innovations, technology-system innovations, and techno-economic revolutions. Radical innovations are discontinuous events that result from deliberate R&D. The underlying science and engineering are often incremental, but the deployment of the results in the economic systems leads to radical changes from past production practices. (For
example, incremental improvements in canoes did not lead to steamships nor did the developments of glass and paper lead to the creation of plastics.) These innovations are unevenly distributed over industry sectors and over time. However, when they occur, they are the basis for growth of new markets or of significant improvements in the use of inputs (as well as the lower cost and higher quality of the existing product), as in the case of the oxygen steelmaking process.
Technology-system innovations are far-reaching technological changes that affect many branches of the economy. They ultimately create new sectors of economic activity. The clusters of radical innovations that together gave rise to the semiconductor industry are an example of technology-system innovations. Freeman (1992) provides two other examples of clusters of innovations. The first is in synthetic materials and petrochemicals introduced between the 1930s and 1950s. Adjunct developments in machinery for injection molding and extrusion and later innovations in packaging, construction, electrical equipment, agriculture, textiles, clothing, toys, and other applications resulted in a range of interrelated innovations that were not contemplated when the materials and chemicals were first developed. The second example is the cluster of innovations in electrically driven household consumer durables. Here, the availability of electric power and very cheap electric motors combined with new marketing techniques to transform patterns of household expenditures in high-income countries as well as the organization of production in many industries. Both examples are subsets of innovations that literally changed the industrial metabolism of economies, particulary in terms of the flows of material, energy, and capital.
Techno-economic revolutions result in new technology systems that have ubiquitous effects on the economy. These innovations transform production and management throughout the economy. The introduction of electric power (Torrens and Yeager, this volume) is one example. Changes associated with techno-economic revolutions breed clusters of radical and incremental innovations, which might eventually embody new technological systems. The computer and microelectronics are at the heart of such a revolution today.
In considering the ecology of industry, innovations likely to lead to the most pervasive effect on materials or energy savings will probably emerge from technology-system innovations and techno-economic revolutions. Indeed, pervasive changes are already taking place as a result of the current information and communications revolution, which is techno-economic in nature. The impacts of this revolution on the industrial metabolism of the economy and on the ecology of industry are already being felt, particularly in the monitoring and control of emissions and of energy and materials use; in quality and inventory controls; and in the miniaturization of technology.
Many of the energy-saving technologies and the electrotechnologies discussed by Torrens and Yeager (this volume) and most of the recent process changes in the pulp and paper industry discussed by Armstrong et al. (this volume) depend on the incorporation of electronic sensors and monitors, which
interact with feedback control systems and small computers. Monitoring and control systems are used in a similar way in fuel systems of automobiles (and other transporation vehicles). Sensing and monitoring instruments are also essential for many regulatory purposes, and instruments are used to detect pollutants.
Information and communications technology also makes possible greater quality and inventory control and helps reduce and eliminate defective or substandard products. This is not a result of the technology itself, but a diffusion of a management philosophy associated with the technology. Reengineering efforts discussed by Carson et al. (this volume) reflect this new managment philosophy, which abhors the wasteful attitudes and traditions of mass production that often tolerated the production of large amounts of scrap, high reject rates, and significant loss of inventory during production. The environmental benefits of applying information technology with new management philosophies extend beyond a single plant to networks of plants, including outsourced activities. However, some of these practices might have negative environmental consequences. For example, just-in-time practices can lead to increased use of transportation (trucks, railroads, and airplanes) and to associated air pollution concerns.
Finally, information and communications technology has also resulted in the miniaturization of technology, leading to less material being used per unit product or function. Compared with old vacuum-tube technology, semiconductor technology is vastly less materials and energy intensive. The value of miniaturization extends beyond the electronics industry. Torrens and Yeager (this volume) point to the potential decentralization of electric power generation resulting from the application of microturbines and fuel cells. On the materials front, there has been a reduction in metal consumption over the last 20 years (Sousa, 1992). The environmental downside of miniaturization is the dissipative nature of materials use. Recovery and separation of complex combinations of materials is more difficult, and many past environmental ills have resulted from the accumulation of materials in the environment over time. Hence, separation technologies might be epected to grow in importance as part of an overall environmental strategy.
How deeply the information and communications revolution will affect environmental performance is unclear. The environmental benefits of these technologies in manufacturing are well known. In transportation, which accounts for up to 26.5 percent of energy use in the United States (U.S. Department of Energy, 1995), the benefits derived from improved logistics and distribution in business applications are significant. Also, it is commonly perceived that telecommuting can reduce the environmental burden associated with commuting to work on a frequent basis. The potential for information and communications technologies to alter transportation patterns, reduce energy use, and improve air qualityeven as the technologies are applied to ease congestionrequires a range of government and industry investments and policies to be realized (Transportation Research Board, 1997).
Interconnected Complex Systems of Production and Consumption
Advances in transportation and communications technology underlie a rapidly increasing globalization of the ecology of industry; the regular flows of commercemovements of people, raw materials, intermediate goods, final goods, and capitalhave become truly transnational. At the same time, technical advances in areas like materials and production technologies are creating new types of companies. Although the world has long had multinational companies, there is no precedent for the large and growing number of companies (or groups of companies) that manage integrated global production systems and aim their products at an increasingly homogenous global market. As a result, supplier chain management and the management of environmental concerns associated with these complex cross-national chains is a cornerstone of management in contemporary business.
Another changing aspect of the ecology of industry is the growth of the services sector, which accounts for 60 percent of U.S. output and employment (U.S. Department of Commerce, 1996). Industries in this sector provide fundamental economic and societal functions such as transportation, banking and finance, health care, public utilities, retail and wholesale trade, education, and entertainment. The technological intensity of service industries (e.g., transportation, telecommunications, and health care services) is often high; the incomes of many who work in service industries are often well above average (e.g., doctors, lawyers, investment bankers, and airline pilots); and there is substantial capital investment by service companies (e.g., transportation firms, communications firms, and national retail chains). In addition, service companies have an enormous impact on the environment. Many have complex production operations that, inefficiently run, can use large amounts of energy and generate huge waste streams. As such, service businesseslike manufacturers, natural resource companies, and agricultural concernsplay a critical role in environmental improvement.
The leverage an industry has on environmental issues depends on its location in the production-consumption continuum. Mining, upstream in most production-consumption activities, has little or no influence on the behavior of customers for their product, who are downstream in materials processing or manufacturing (Chiaro and Joklik, this volume). Yet, the mining industry provides many of the basic ingredients of economic activities. Manufacturers, on the other hand (Laudise and Graedel, this volume), although depending on downstream activities, have enormous influence on their suppliers and others upstream through the procurement of materials and components.
Service businesses have some unique characteristics in terms of their ability to leverage both upstream and downstream. The companies in this industry sector have significant influence on upstream activities through their merchandise purchasing (e.g., WalMart, Kmart, and Target), provision of food service and deliv-
ery (e.g., McDonald's), use of logistics and distribution networks (e.g., United States Postal Service, UPS, and FedEx), management of hospitals and hotels (e.g., Marriott), supply of health management services (e.g., HMOs, Baxter Healthcare), and provision of entertainment (e.g., Busch Gardens and Disney theme parks). Because companies in this sector also interact with a large consumer base, they are a source of knowledge about consumer preferences downstream in the production-consumption system and can play a critical role in conveying environmental information to consumers.
Services' upstream leverage on manufacturers and other economic players is evident. As purchasing agents for millions of consumers, these companies exert tremendous influence on their suppliers by creating markets for environmental improvement. Their downstream influence, however, is yet to be tapped fully. Service firms, to be successful, must be very close to their consumers, and several companies in this sector provide their consumers with environmentally relevant information (e.g., Starbucks Coffee, which provides information about its environmental practices; Home Depot, which provides "green" products next to more common brands; some hotels, which provide an environmental explanation with an offer to change hotel sheets or towels less frequently than daily). Firms that provide this sort of consumer education also provide early insights into consumer preferences and regional buying habits. Such businesses create a true market for environmental improvement, with all the effectiveness that implies. Understanding the role of the services sector in the ecology of industry and examining the energy and materials flows through economic systems (to understand the dynamics, efficiencies, and opportunities for environmental improvements) are critical steps for improving environmental and economic efficiencies more broadly.
On a smaller scale, opportunities for improving environmental efficiencies exist among co-located industries and at the regional level. Torrens and Yeager (this volume) describe the city of Kalundborg, Denmark, to show how co-generation (the use of waste heat and water from a power plant by several industries located nearby) and symbiosis (the use of waste materials from one facility as input to another) have created a low-waste production and consumption system. Such arrangements might be vulnerable to breakdown if one of the partners goes out of business or needs to change its processes. Still, the advantages of such arrangements are being tested in several locations in the United States, including Brownsville, Texas, and Chattanooga, Tennessee (President's Council on Sustainable Development, 1994), and these are generating new information about the industrial metabolism of co-located industrial clusters.
The potential benefit of examining the resource flows of any system depends on the availability of methods to describe and analyze the industrial metabolism flows of energy, material, and capitalat different scales. Setting priorities among actions intended to improve the environmental performance of these systems is more successful if there is an understanding of how the current system operates. Also useful are information and tools that capture environmental value (costs).
The Information-Knowledge Connection
There are several "public goods" challenges that no single company can justify undertaking alone but which can have a dramatic payoff if companies can share costs and responsibilities. The challenges range from articulating technical and management standards that reflect the best strategic environmental approaches and defining criteria for determining environmental impacts and metrics of environmental performance to the potential use and misuse of environmental information. In each area, there are important roles for government, trade associations, and industry, the latter working with universities and environmental public interest groups (individually or in collaborative groups).
With respect to technical and management standards, the papers in this volume review practices in five industries. A codification and endorsement of practices, such as the Responsible Care program of the Chemical Manufacturers Association, might be effective in raising the standards of practice in other industries. ISO 14000 standards might also have the same effect, but their development is occurring in distinct ISO working groups organized around standards for labeling, life-cycle assessments, and environmental performance indicatorsthree areas that are interrelated and could benefit from an integrated approach. Such an approach would lead to better streamlining of needs in the area of environmental standards of practice.
A persistent and very difficult aspect of standards relates to assessing the environmental impacts of a product or service. This is true even in mining, which has its own set of suppliers of goods and services but does not have the same leverage on a supplier chain as do manufacturers or service providers who are farther up the "value chain," which extends from the mining of raw ore to final product delivery and beyond. In particular, there is little consensus on the criteria for environmental impact assessment within and outside a firm. The development of reliable "green" certification and mechanisms (perhaps a joint government-business effort) that allows standards sharing and cooperation among businesses in obtaining certification could speed the process of providing consumers with environmental information. There is also a serious need for good data, methods, and institutional mechanisms to undertake state-of-the-art, full environmental lifecycle evaluation.
Further definition and application of industrial environmental performance metrics should also aid efforts to improve environmental efficiencies. Performance metrics, together with a definition of business processes, will provide a framework against which audits (perhaps combined financial and environmental audits) ought to be conducted, because they could trigger prompt monitoring, learning, and mitigation activities. It is to be hoped that environmental measures become valued commodities in the same way quality and safety have come to be valued. Often, what is valued is what gets measured. For instance, toxic release inventory (TRI) data led to fundamental changes in the underlying processes from
which the TRI data arose. A broader-based set of environmental performance metrics could do the same. There is a need for a consensus on the structure of environmental performance metrics that are useful for management purposes.
A fundamental set of changes in the structure of production and consumption in the U.S. and global economies is under way, driven by information, communications, and transportation technologies. This change is evident in the rate of growth of the services industry compared with the growth rate of the industries covered by the papers in this volume. Another change is the increasing importance of environmental considerations in decision making. This will have profound and as yet only dimly perceived economic and environmental implications. In particular, the technologies of transportation, storage, materials handling, and information allow the creation and production of goods and services to be widely dispersed, yet goods themselves can be delivered almost anywhere very rapidly. The production-distribution chain for products and services is changing in ways that are likely to affect large-scale and diverse environmental issues. These include, for instance, energy consumption for transport, effluents from real estate development and redevelopment, and the capacity to select preferable packaging and product materials using life-cycle assessments. Also affected will be the ability to substitute information and control systems for energy and materials and the capacity to extend knowledge about these systems to less-developed countries before they encounter, and burden the planet with, insurmountable environmental problems.
1. Although the analogy of industral systems to natural ecosystems is not perfect, the two systems do share some fundamental features.
· They are both composed of individual interacting units, each of which is driven to increase its size or number.
· The actors in both cases depend upon supplies of resourcesin particular, energy, materials, and means of removing or decontaminating by-products.
· The interactions of the individual actors result in complex patterns of energy and materials flows.
They also have important differences.
· Materials cycles are essentially closed in mature natural systems but not in industrial systems.
· The total productivity of mature natural systems is essentially constant, whereas the productivity of industrial systems tends to grow exponentially.
· Mature natural systems are more or less sustainable, whereas industrial systems appear nonsustainable as currently configured, either because of production and consumpion patterns or because of their impacts on the environment.
· The pace of change in mature natural systems is relatively slowon an evolutionary time scalebut the technology of industrial systems changes rapidly; these changes affect the systems themselves as well as the relationship between industry and the environment.
· Interactions in industrial systems are often mediated by long-range transport, whereas interactions in natural systems generally occur between organisms in proximity to each other.
· The decomposers of natural systems are small and ubiquitous, whereas the decomposers (e.g., recyclers and waste disposers) of industrial systems are relatively few and far between.
· The information content, flows, and feedback loops (e.g., DNA and self-regulation through chemical signals) in natural systems are much more complex and richer than those of industrial or manmade systems.
2. O'Rourke et al. (1996) provide a useful critique of industrial ecology.
3. Over the last several years, NAE has, via its program on Technology and Environment, explored technology's impact on the environment through its role in production and consumption. Recent efforts in this area have focused on technology transfer (Cross-Border Technology Transfer to Eliminate Ozone-Depleting Substances, 1992); the effect of science and environmental regulation on technological innovation (Keeping Pace with Science and Engineering: Case Studies in Environmental Regulation, 1993); industrial ecology and design for the environment (The Greening of Industrial Ecosystems, 1994); corporate environmental practices (Corporate Environmental Practices: Climbing the Learning Curve, 1994); the United States' and Japan's interest in industrial ecology (Industrial Ecology: U.S./Japan Perspectives, 1994); linkages between natural ecosystem conditions and engineering (Engineering Within Ecological Constraints, 1996); design and management of production and consumption systems for environmental quality (The Industrial Green Game: Implications for Environmental Design and Management, 1997); an examination of industrial performance measures and their relation to ecosystem conditions (Measures of Environmental Performance and Ecosystem Condition, forthcoming 1998); the diffusion patterns of environmentally critical technologies and their effect on the changing habitability of the planet (Technological Trajectories and the Human Environment, 1997); the impact of services industries on the environment (exploratory workshops held in October 1994 and June 1995); the impact of polymers on the environment (exploratory workshop held in September 1996); and the role of information and knowledge management in improving environmental efficiencies (workshop held in July 1997).
4. The initial standards foreseen in the ISO 14000 series are:
Environmental Management Systems (EMS)specification with guidance for use.ISO
Environmental Management Systemsgeneral guidelines on principles, systems, and supporting techniques.
Principles, qualification criteria, and procedures for internal and external auditing.
Initial review guideline to determine a corporation's baseline operating position, typically used prior to establishing an EMS
Guidance for measuring environmental performance over time.
Description of labeling principles such as self-declarations of environmental benefits of products
Establishment of a methodology for a product's life cycle, including an assessment of impacts and an improvement analysis.
Terms and DefinitionsISO standards summary
Ausubel, J.H., and H.D. Langford, eds. 1997. Technological Trajectories and the Human Environment. Washington, D.C.: National Academy Press.
Ausubel, J.H., and H.E. Sladovich, eds. 1989. Technology and Environment. Washington, D.C.: National Academy Press.
Carberry, J. 1997. Using environmental knowledge systems at DuPont. Paper presented at the 1997 NAE Industrial Ecology Workshop, July 20-22, 1997. Woods Hole, Mass.
Freeman, C. 1992. The Economics of Hope. Essays on Technical Change, Economic Growth, and the Environment. London: Pinter Publications, Ltd.
O'Rouke, D., L. Connelly, and C.P. Koshland. 1996. Industrial ecology. A critical review. International Journal on Environment and Pollution 6(2/3):89-112.
President's Council on Sustainable Development (PCSD). 1994. Eco-Efficiency Task Force Report. Washington, D.C.: PCSD
Simon, F., and M. Woodell. 1997. Consumer perceptions of environmentalism in the triad. Pp. 212-224 in The Industrial Green Game: Implications for Environmental Design and Management, D.J. Richards, ed. Washington, D.C.: National Academy Press.
Sousa, L. J. 1992. Toward a new material paradigm. Minerals Issues (December).
Tenner, E. 1996. Why Things Bite Back: Technology and the Revenge of Unintended Conseqeunces. New York: Knopf.
Transportation Research Board. 1997. Toward a Sustainable Future: Addressing the Long-Term Effects of Motor Vehicle Transportation on Climate and Ecology. National Research Council. Washington, D.C.: National Academy Press.
U.S. Department of Commerce (DOC). 1996. Service Industries and Economic Performance. Washington, D.C.: DOC.
U.S. Department of Energy (DOE). 1995. Annual Energy Review. Washington, D.C.: DOE.