Intensified Product-orientated Environmental Initiative

5 The market

5.1 Introduction

At the same time, earnings from these products must be capable of forming the basis for developing even better products and launching them on the market. Moreover, it is a basic condition for any product initiative that Danish policy is to avoid protectionism within trade and commerce, just as international agreements, to which we have acceded, must, of course, be respected.

Can conditions and framework be influenced?
Therefore, it is relevant to assess the conditions and framework for selling products with improved environmental properties on the Danish and international markets. What are the options for influencing these conditions when based on the fact that the Danish market is a small one in open contact with the surrounding world? What are the options when based on the fact that Denmark is party to an international agreement system that makes it possible for Denmark to influence international trade frameworks while, at the same time, it restricts Denmark's possibilities of acting on its own initiative?

Access to information
Quality includes a number of dimensions, the most important one normally being to satisfy the need which the product is intended to meet. Price competition is so keen that it will normally not make economic sense to endow products with qualities which the customers do not appreciate or which are not stipulated by some kind of control. Therefore, environmental properties can only be of importance as a competitive parameter if customers have access to information on such properties and attach importance to them as a quality of the product.

Experience with eco- and energy labelling
Only limited Danish experience is available on customers' reactions to eco- and energy labelling. Within the EU, labelling is compulsory of the energy consumed when operating some kitchen hardware, etc. This labelling includes a division into seven of products according to their energy consumption. This labelling has produced a marked change in the sale of kitchen hardware to machines consuming less energy.

Correspondingly, Swedish experience shows that products labelled with the Nordic eco-label, the Swan, have enjoyed an increase in demand.

When it comes to organic foods, Denmark has for a long time had state-controlled labelling. The experience from selling organic goods is that sales were very low to begin with and only for a small group as the price of organic goods was markedly higher. It was only when the Danish Co-op (FDB) made organic goods available to a wide market, at the same time ensuring that prices were only 10-20% higher than for non-organic goods, that sales rose markedly.

Know-how lacking
Generally, however, only little is known about the way in which the improved environmental properties of products currently function as a competitive parameter. For the main part of the business sector, the use of the environmental properties of products as a competitive parameter is relatively new, and very few references exist from which to draw general conclusions. The following evaluations are therefore anchored essentially in the dialogue with the stakeholders and in the Danish EPA's own experience.

Consumers' attitudes and efforts
Different surveys of consumers' attitudes towards less environmentally degrading goods show that a fair share of consumers are happy, as a basic principle, to show consideration for the environment (close to 75%). At the same time, the actual proportion of less environmentally degrading products sold shows that fewer consumers than that actually buy these products.

There are a number of prerequisites for doing so. First, the more environmentally sound goods must be available on the shelves - and here the retail trade has a major responsibility. Secondly, there must be easy access to simple information - especially at the shops where the shopping is done. Thirdly, there must be a sensible price level for green products. A common problem with sales of environmentally sound products is that usually they are considerably more expensive than the alternatives.

Feeble public efforts
The efforts made to promote environmental and energy considerations in open-tender contracts and public procurement /9/ are not yet perceptible on the market. Partly, there have been some very marked examples of large investments where no consideration was given to the environment when purchasing, and partly it is still the exception rather than the rule that environmental requirements are stipulated in public procurement or that companies are winning public orders directly by virtue of improved environmental properties. However, there are also examples of pioneering public enterprises such as the Danish State Railways (DSB) and the Danish armed forces as well as a few local authorities.

Some companies have started
Growing interest in the environmental properties of products is being observed from large international trading companies and individual manufacturers within industries, e.g. the textile and furniture trades. This can also be seen from the interest in environmental control, environmental management, green accounting, environmental management system (EMAS) approvals, etc.

Developmental expectations

Interest in environmental matters
Looking at the interest in the environmental conditions in the broad sense, it varies considerably over time. Denmark saw growing interest in the environment through the eighties, followed by stabilisation at a comparatively high level in the nineties. Interest in especially the environmental properties of products has begun to manifest itself in the nineties and is particularly marked with regard to energy consumption, health and ecology. However, only a very limited part of the total product offering has yet felt the effect of this interest.

In the Netherlands, interest in environmental conditions rose to a very high level through the eighties, subsequently flagging somewhat during the first half of the nineties /10/.

Greater environmental problems - greater sales of environmentally sound products
On the slightly longer view, increasingly comprehensive global and local environmental problems will result in environmental effects and their economic consequences becoming more visible to all the stakeholders - including the consumers. Therefore, the importance of environmental properties as a competitive parameter must be expected to eventually increase distinctly although the rate, at which this will happen, can only be predicted to a very limited extent. In other words, environmental properties will, in all probability and to an ever greater extent, be a basic objective for the innovations of the companies.
Presumably, this interest in the environment will initially impact areas, in which very distinct environmental effects can be felt, and on prosperous markets with the reserves to allow for political or ethical considerations. The latter is interesting from a Danish point of view, as the majority of Danish goods and services are sold on developed markets in prosperous countries, see Table 5.1.

5.3 The global market

Trading with industrialised countries
Denmark is firmly integrated in the international market, exporting approx. 60% of Danish goods production and importing approx. 60% of the goods sold on the Danish market. Table 5.1 shows imports and sales of Danish products broken down into different markets. A very sizeable part of trade is conducted with other highly industrialised countries, particularly within the EU. I.e., markets that, in many ways, resemble the Danish market.

Table 5.1
Foreign trade broken down into countries

There are a number of reasons why the Danish market is interesting for many Danish as well as some foreign companies when it comes to environmentally sound products.

Domestic market is significant
Most Danish companies are small enough for the domestic market still to be of significance to sales. Even for larger concerns, the Danish market is important as a market they know and as one that is used as a test and reference market for their products.

Statutory requirements interacting with a strong market
There are a number of sectors in which interaction has successfully been created between a high level of service or protection on the one hand and the development of companies being in a strong international position on the other. This applies, for instance, within the health-care sector to products such as hearing aids, insulin, blood analysis machines, etc. It applies within the paint/varnish sector, in which Denmark has been a pioneer country as well as a pioneer market for water-based paint products. And it applies within the production of district heating pipes where Danish companies are world market leaders.

Spin-off effect on regulation in other countries
A number of large foreign companies seem to find the Danish market interesting. First, the development in Danish environmental regulations is regarded with interest. One example is the heavy involvement of the agrochemical industry in Danish pesticide regulation. This interest is presumably due to the fact that regulations in Denmark may be expected to have a spin-off effect on other countries.

Denmark as an international test market
Secondly, the Danish market is considered an interesting test market. This applies to i.a. a number of companies in the electronics and chemical industries. E.g. several German chemical groups have been willing to develop dyes with improved environmental properties for Danish textile enterprises. Again, it must be the expectation that there will be a far greater market for these dyes if the Danish companies can make them work.

International analyses confirm benefits for pioneer markets
Internationally, it has been described in various ways how a high level of protection and large-scale environmental initiative interacts positively with the development of competitiveness of trade and industry. Among others, the OECD has made an empirical macroeconomic analysis corroborating the likelihood of this; the European Commission, in its White Paper on the environment and competitiveness and in a report just sent out by the Commissioner for Industry, Martin Bangeman, has also made a similar evaluation. The American economist Michael Porter /11/ has argued that demanding markets will be instrumental in helping companies which supply such markets, to retain their competitiveness and, on the longer view, improve it relative to companies operating on less demanding markets.

Cost of being a pioneer
It is, however, obviously that extra costs may be involved for companies supplying goods to a pioneer market or manufacturing goods in a pioneer country. Other thing being equal, these costs will strain the competitiveness of the companies - at any rate on the short view. Costs imposed only on products manufactured in Denmark are particularly onerous in this respect. Any product initiative must be aware of these costs so as to try to ensure that no distinction is made between foreign and Danish manufactured products.

Different conditions
Market conditions vary greatly between different product areas and between different parts of the world. When organising the product initiative, it is necessary to examine the conditions of the market segments that should be influenced.

Resource area analyses as a springboard
In this context, the Danish Ministry for Business and Industry's resource area analysis can be used as a springboard. The analysis divides the trade and industry into the following areas: food, consumer goods and leisure, construction/housing, communications, transport/supplies and medical/health. Within each of the six areas identified, there is a communality of basic commercial conditions. These conditions are also essential to the organisation of the product-orientated environmental initiative.

A series of significant differences in the conditions applicable to the areas are described. These relate e.g. to differences in the number of stakeholders, differences in the stakeholders' balance of power, differences in public regulation, differences in investments, etc. The Ministry for Business and Industry's analyses should form the basis of further product initiative work.

5.5 The importance of public efforts

Legally binding frameworks
A brief description is given below of the legally binding frameworks for product initiatives at global, regional and national level. At the same time, the possibilities of influencing these frameworks are described.

This is a snapshot of the situation as it appears in the second half of 1996. International regulations are under constant development. Initiatives are being elaborated in new areas, adjusting amendments are being made to existing agreements and work is being done to fulfil existing agreements.

Global trade regulations

GATT allows for environmental considerations
The current WTO rules contain only a few proper provisions on environmental conditions. GATT/WTO generally permit interventions aimed at safeguarding environmental interests in one's own country, both for home-produced and for imported goods though they must not discriminate against imported goods, of course.

Whereas the former GATT agreement only allowed product properties to be regulated nationally, the WTO agreement also allows rules to be introduced on production methods and processes under certain conditions. This applies in cases in which the method or process is directly reflected in the properties or quality of the article.

Scientific principles
The WTO includes specific provisions (the SPS Agreement) for the application of such rules as part of "sanitary and phytosanitary measures" - which may include environmental protection measures. Unlike previously, a country now has an actual right to introduce environmental rules, providing they are based on scientific principles and are aimed at the state of the environment in the actual country. Even when, on the face of it, there is insufficient scientific evidence for such rules, they can nevertheless be introduced on the basis of relevant available data. In such cases, a basis must be generated for objectively assessing the risks involved within a reasonable period of time.

Technical barriers to trade
The Agreement on Technical Barriers to Trade (the TBT Agreement) stipulates that national standards should as far as possible be based on corresponding international standards. The agreement does, however, recognise a country's right to establish suitable levels of national protection, individually, for reasons of e.g. health, environment, animals and plant health. The agreement encourages the use of international standards, whenever appropriate, but does not require the level of protection to be lowered as a result of international standardisation.

International standards will assume importance
By virtue of the WTO agreements, international standards - such as ISO - effectively determine how to formulate eco-labelling schemes, how to put environmental stipulations into tenders, etc.

When parties cannot come to terms by negotiating, complaints about infringements of the GATT/WTO agreements can be lodged with the organisation. An expert panel is formed on a case-by-case basis to decide whether there is any breach of agreement. The organisation is not empowered to enforce such decisions, and it is thus left to the countries concerned to find solutions themselves if they do not directly wish to comply with a decision made under the GATT/WTO agreements.

WTO rules of great importance
The WTO rules are of great importance to both national and international environmental initiatives. If the rules are developed towards a restrictive interpretation, it will be very difficult to implement any environmental initiative in the product field that goes beyond that which can be agreed in the WTO or in international standardisation negotiations. This applies both in Denmark and in the EU. On the other hand, an expansive interpretation affords good opportunities for independent Danish or European environmental initiatives. It is therefore of great importance to support this freedom of action in future revisions of the agreements.

Global environmental regulation
The Montreal Protocol and Basel Convention
There are still only a few examples of global environmental regulation. Relevant examples worth mentioning are the Montreal Protocol on the global phasing-out of substances that deplete the ozone layer, which lays down very precise, binding obligations with regard to reducing and phasing out substances that deplete the ozone layer. In addition, environmental considerations have successfully been incorporated in the Basel Convention, which prohibits the OECD countries to dispose of their hazardous waste by exporting it to developing countries. The ban also applies to the export of hazardous waste for recycling.

POPs and the PIC procedure
The Governing Council of the United Nations Environment Programme (UNEP) made two decisions on chemicals in May 1995. One decision concerns initiatives to restrict the spread of a group of persistent organic pollutants - so-called POPs. Realistic strategies now need to be established for the reduction and/or phasing-out of these substances. In the present proposals, it is recommended that legally binding instruments are used.

The second decision concerns the so-called PIC Procedure, which entails an importing country - especially the developing countries - must give its prior informed consent (PIC) for the industrialised countries to export certain particularly hazardous substances to that country. A motion was passed whereby this information procedure has now been made legally binding. A decision must also be made as to any additional steps that may be necessary in this regard - for instance, whether more hazardous chemical substances are to be included in the global agreement.

The 1992 Rio Conference
The progress of global regulations in fields including e.g. chemical substances is due to the action programme, Agenda 21, adopted at the UN Conference on Environment and Development in Rio de Janeiro in 1992. Although Agenda 21 is not binding in the legal sense, politically and morally it is a powerfully obliging document and functions as a basis for the follow-up currently taking place both in individual countries and in regional and international organisations. More multilateral environmental agreements can be expected to be concluded in future but it is known from experience that new agreements are a long time in the melting pot.

EU regulation

EU regulation is paramount
EU regulation is unparalleled the most important international regulation in connection with a product-orientated environmental initiative. It is of great concrete importance to the level of environmental protection and to the regulations achievable within the area nationally and at EU level. Furthermore, it is important for EU efforts and for the EU's part on the global environmental stage. The discussion here will be confined to the most essential parts of the rules of relevance to the product initiative in order to illustrate the significance of such regulations and to stress the importance of intensive Danish efforts to influence the establishment of such rules.

EU regulation provides a better environment
A study /13/ into the importance of EU regulation for the Danish level of environmental protection has shown that, in the vast majority of cases, regulations have led to improved environmental protection both in Denmark and in the rest of the EU. Denmark has been active in developing such regulations. EU-level initiatives will have far more clout than purely national initiatives. Furthermore, most nationally implemented product-orientated regulations will have to be notified to the European Commission anyway.