Jeremy Oppenheim: Ireland’s global green opportunity
The world economy is fundamentally changing, making it impossible to separate economic and environmental decision-making, McKinsey’s Jeremy Oppenheim tells Environment Ireland.
With commodity prices set to remain high and the global middle class set to bulge, a new focus on resource efficiency and changes in production management leave Ireland well-placed. This was the message from Jeremy Oppenheim, senior partner at McKinsey and head of the company’s global sustainability and resource productivity initiative, when he addressed delegates at Environment Ireland.
The growing markets for resource efficient products and services, combined with Ireland’s natural assets, provide the country with abundant opportunities if economic and business strategies are re-orientated.
As the global economy grew ten-fold during the 20th century real resource prices declined by 50 per cent, Oppenheim explained. Technology on the supply side exceeding growth was one reason for the trend. ‘Frontiers’ were continually expanded, as more water, land and oil were always “relatively easy” to find. The number of people with resource-intensive middle class consumption patterns remained relatively small.
“In a way,” he stated, “globally, it took well over 2,000 years to get to 800 million people who one might regard as middle class.”
Since 2000, however, commodity prices have soared and reached their peak across a whole range of products. They have only fallen slightly from peak levels with the global economic slowdown.
Why did prices increase? “We have the dramatic arrival, at scale and at unprecedented speed, of billions of new middle class consumers,” he told delegates. The middle class, McKinsey predicts (based on conservative growth projections of 6-7 per cent for China and 4-5 per cent in India), will increase from 1.8 billion people in 2009 to 4.9 billion by 2030.
The point of entry of the increased numbers will pose real challenges for global agriculture in particular, said Oppenheim, who formerly worked in the World Bank.
While 1.5 billion hectares of agricultural cropland are in use today, an additional 90 million hectares will be needed. This is before considering problems such as land degradation, loss of soil fertility and climate change effects: “Then we have to deal with the fact that urban expansion always happens in prime agricultural land.”
Unless agriculture becomes more productive, an extra 150-200 million hectares will be needed. This land, he told the conference, is unavailable “unless you cut down forests, which exacerbates many other problems, and it’s not there unless you go into semi-arid land or grazing lands which are now, in today’s world, occupied.”
The opportunities from the need for controlled, precision agriculture are immense. Oppenheim envisages that if Ireland masters such techniques, it can export its produce and expertise globally while holding on to a core of intellectual property.
Despite the new pressures on the world economy and planetary vulnerability from climate change, Oppenheim remains optimistic. “There is a massive under-tapped, under-exploited opportunity around resource efficiency, of multiple forms,” he told delegates.
McKinsey has calculated that a $3.7 trillion (2010 dollars) market will exist between now and 2030 from resource efficiency goods and services, which include:
• building energy efficiency;
• large-scale farm yields;
• tackling food waste and municipal water leakage; and
• electric and hybrid vehicles.
These areas will drive economic performance, reduce resource price volatility and improve access to goods “all in a way that is unambiguously good for the environment, however one wants to conceive of the environment and natural capital.”
For Ireland (and other European countries), these areas represent “potentially fantastic” opportunities. The country has companies in the resource efficient sectors “who could play into global markets and who could win.” Along with the EU standardisation of policies such as building regulations (to allow companies to scale products successfully), three imperatives exist for Irish companies to capitalise: reach out to the burgeoning global middle class; attract foreign direct investment by leveraging our abundant natural resources; and shift to circular product life-cycle thinking.
“This is our space,” he stated, “because the Americans don’t want to do it, and the Chinese yet can’t get to it because they actually don’t have the technology. And they don’t yet have an approach that can go beyond command and control, not to the degree innovation has required.”
With two-thirds of resource efficiency opportunities sitting in the developing and “rapidly emerging” world, Ireland must broaden its export horizons, Oppenheim stated. 2.8 per cent of Irish goods exports during the first six months of this year went to the BRIC countries with 6.4 per cent of services exports in 2011 going to these emerging economies.
Those exports must also become more water- and land-intensive (e.g. live animals, clothing, raw materials). Only €4.7 billion of €24.9 billion of Irish goods exported during the first six months of 2012 fell into these categories. Not only has Ireland under-utilised its water-intensive industrial capacity, it has managed water use badly, Oppenheim noted. An average of 42.3 per cent of council-treated water here is lost
through leaks or unauthorised usage. The country’s abundant water, wind and land, he told the conference, placed it ideally to attract investment in a resource scarce world.
The possibility of shifting from a linear production model, in use for the past 100 years, to a circular one, according to Oppenheim, is one for which Ireland is well-placed. The shift from a model in which waste is discarded to one in which design is based on component re-use “requires actually [a] quite tightly knit business and political community to make it work successfully.” Relatively small societies can achieve the “high degrees of institutional co-ordination” needed to shift models.
The world is likely to be already “locked in” to well over 3⁰C of global warming, he concluded. Real risks are inherent in the changing relationship between economy, environment and management systems. Yet the opportunities for Ireland, through resource efficiency and leveraging natural and institutional assets, are immense.
