Recovery in the U.S. environmental industry is slightly ahead of the economy at large, but growth is still painstakingly slow, and environmental executives have tempered their expectations for the second half of 2011, according to Environmental Business Journal's Annual Industry Overview.
The U.S. environmental industry grew 3.1% in 2010 to $312 billion, according to EBJ research, an estimate based on proprietary industry surveys and in-depth interviews with leading executives and experts in the field.
The growth in 2010 was, of course, a welcome improvement from a decline of 1.7% in 2009 in the aftermath of the global financial crisis-the worst year ever recorded since EBJ started tracking the environmental industry in 1988.
The previous low tide mark was 1996, a year characterized not by recession but by government shutdowns that disrupted waste cleanups and federal contracts and by lack of regulatory leadership under the Clinton Administration.
Ongoing economic uncertainty has caused environmental executives to adjust their outlook for 2011: An EBJ survey of environmental executives conducted in February forecast average growth of 7.4% for 2011, but just a few months later, an August survey revised that figure to 4.8%.
However, survey respondents also predicted improving growth rates for 2012. 'The general consensus is that the work is there and recovery is coming; it is just a matter of when and where the money is coming from,' said Grant Ferrier, president of EBI Inc., the publisher of EBJ.
EBJ's Environmental Industry Overview: Key Findings
- The Resource Recovery segment led growth in the U.S. environmental industry in 2010, with revenues up nearly 18%. For recyclers of metals, glass, plastics, and paper it was the best year in a long time, although construction and demolition (C&D) waste suffered from the lack of construction activity. Rising commodity prices rather than increased volumes were behind this double-digit performance.
- The worst performer in 2010 was Clean Energy Systems & Power, a segment that had enjoyed robust annual growth of 30-50% from 2005-2008 but declined by 8% in revenues in 2010 as wind installations in the U.S. halved from 10 GW in 2009 to 5 GW last year. Environmental projects in the clean energy sector are expected to recover to 20-40% sales growth in 2011-2014.
- The Analytical Services segment bounced back 5.5% in 2010 compared with a drop of 8.4% in 2009. On the face of it a nice recovery, but the environmental lab business still faces cutthroat pricing resulting from overcapacity in a highly fragmented market segment, and volume grew faster than revenues.
- In the Hazardous Waste segment, up 4% in 2010, diversification proved to be key, as some of the leading players now get less than half their revenue from the traditional hazardous waste treatment and disposal businesses.
- Providing ballast for growth in 2010 were the large, mature segments of Water Equipment & Chemicals; Remediation & Industrial Services; and Solid Waste Management, which all generated revenue growth in the 5-6% range.
Shale Gas is Strongest Client Sector
Looking at the industry in terms of client sectors, clients in the energy sector yielded the best opportunities in 2010. Specifically, EBJ survey respondents identified shale gas exploration and production (E&P) as the strongest source of sales growth in 2010. The client base for environmental companies consists of some 7,000 outfits engaged in exploration, transportation and pipeline operations.
'Competition for environmental services in the shale gas E&P market-including groundwater sampling, air monitoring and compliance audits-is intense and perhaps nowhere more so than in water management services,' noted George Stubbs, EBJ's senior editor.
'Consulting firms and water treatment companies especially are pouring into the Marcellus, Fayetteville, Haynesville, Eagle Ford, and other shale formations, where advanced technology is producing gas in quantities suggesting that this market segment will be healthy for years to come.'
In addition to shale gas, survey respondents reported strength in environmental work associated with petroleum extraction and refining, followed by renewable energy and mining. According to the EBJ's two industry surveys conducted in 2011, power utilities dropped from #5 to #8, presumably with the expectation that EPA's air rules will be delayed.
Margins Holding Up
Asked how their margins are holding up in 2011, 25% of survey respondents said that margins are trending about the same as 2010. Forty percent are actually enjoying increased margins, while 35% are seeing decreases, with the average performance a 0.2% gain.
'To be sure, how to allocate business development resources for the rest of the year and in 2012 is a big question for executives,' said Stubbs. 'The dilemma is the one we always see in tough economic times-trimming sails versus pressing ahead full speed with marketing initiatives.'
EBJ's Annual Industry Overview Edition 2011 is available for purchase.