Please cite as: Smith M and Crotty J (2008) ‘Innovative Responses to the EU End-of-Life Vehicle Directive: A UK Perspective’, Business Strategy and the Environment, 17, 6: 467-488
Environmental Regulation and Innovation Driving Ecological Design in the UK Automotive Industry
Mark Smith Birmingham Institute of Art and Design Gosta Green, Aston, Birmingham B4 7DX UK
[email protected] Tel: +44 121 331 7845 Fax: +44 121 331 5973 And Jo Crotty Aston Business School Aston University Aston Triangle Birmingham UK
[email protected] Tel: +44 121 204 3071 Fax: +44 121 333 3474
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Environmental Regulation and Innovation Driving Ecological Design in the UK Automotive Industry
Abstract The philosophical justification for EU product-oriented regulation is ecological modernisation. The theory asserts that economic and environmental goals can be integrated within a framework of industrial modernity. Its central tenet is that environmental regulation can stimulate the application of ‘clean’ technologies or techniques. Ecological modernisation also contends that environmental regulation can offer business benefits from innovation through improved product design and economic performance. The EU End of Life Vehicles Directive (ELVD) embodies these principles as it compels all car manufacturers to ‘take-back’ and dismantle vehicles at the end of their useful lives and to remove the hazardous substances from the production process. Each component part will then be either reused or recycled. The legislation forces designers to introduce ‘clean design’ and ‘design for disassembly’ practices. In light of this, we examine the impact of the Directive on UK automotive component manufacturers. We find limited evidence that the EU ELVD Directive has driven product innovation beyond The results of this study offer limited support for the contention that regulation drives innovation and the ELV effectively diverts innovative capacity into short-term, incremental technological trajectories. We therefore conclude that a more radical approach, in line with Dobers and Wolff’s (1999) ‘dematerialisation’ thesis, is needed to generate more radical, ecological design solutions within the UK automotive industry.
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Key Words: Automotive; EU End of Life Vehicle Directive; Innovation; Eco-efficiency; UK
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Introduction This paper reports on the effects of the EU ‘End of Life’ ELVD Directive (ELVD) on small firms in the UK automotive component industry. The ELVD is an illustration of product-oriented European regulation that aims to encourage the elimination of environmentally hazardous materials through ‘clean design’, by through the promotingon of design for recycling and disassembly. As a result, the ELVD reflects many aspects of the ecological modernization thesis. This thesis asserts that macro-economic and environmental objectives are not mutually incompatible. Innovation maybe able to deliver both these goals, but and innovation will deliver these goals. It also recognizes that market based regulation may be required to steer this environmentally benign innovation and development. Critics argue that ecological modernization has limits to delivering ecological gains, largely through eco-efficiency. Instead, it is suggested that truly sustainable innovation depends on factors beyond regulatory intervention which may only yield modest environmental improvements. To date there is little work that combines an examination of theoretical basis of regulation designed to stimulate innovation with empirical evidence of its actual impacts and effectiveness. This paper addresses this omission by considering how a sample of firms in the UK has reacted to the ELVD. We observe the ability of businesses to engage in ecological innovation in response to the ELVD by examining a series of case studies conducted with UK automotive OEMs and component manufacturers. We find conclude that regulation that reflects ecological modernization may only encourage ‘business as usual’, or step-wise innovation, rather than radical innovation. We therefore conclude that a more radical approach, in line with Dobers and Wolff’s (1999) ‘dematerialisation’ thesis is needed to generate more radical, ecological design solutions within the UK automotive industry.It therefore contributes to the debate surrounding
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the limitations of regulation as a mechanism for transforming existing industries into sustainable enterprises.
The EU ELVDIn 1990, the European Union approved a waste strategy that included ELV as a measure to tackle a ‘Priority Waste Stream’. This was intended to limit the amount of waste going into Landfill sites, as some EU countries are close to their landfill capacity (Nieuwenhuis et al. 2003). The ELV is an illustration of regulation that specifically addresses issues of product design and recycling through alternative waste disposal strategies and ‘cleaner design’ strategies. The aims of the Directive were to increase producer responsibility, internalize environmental costs within industry, eliminate toxic materials, encourage the use of recyclable or renewable materials, and stimulate recycling through ‘closed loop’ manufacturing systems. Since January 1st 2006 all automotive OEMs (Original Equipment Manufacturers) and component manufacturers operating within the EU will need to must comply with the ELVD. The regulation compels all OEMs, (used in this case to denote solely the final assemblers of vehicles) to ‘take-back’ and dismantle all motor vehicles for domestic use at the end of their useful life. Each component part will then be either reused or recycled. In detail the ELVD stipulates that;
Producers limit the use of hazardous substances and increase the quantity of recycled material used in the manufacture of their vehicles; and that producers design vehicles for easy recycling; (own italics)
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From 2007, producers pay all or a significant part of the costs of free take-back of no or negative value vehicles to a treatment facility;
Producers meet a reuse and recovery target of 85% for all ELVDs from 1 January 2006, and within this a target of 80% for reuse and recycling, increasing to 95% and 85% respectively in 2015.
Treatment facilities have permits if they want to deal with ELVDs and should operate to higher environmental standards.
The introduction of a ‘Certificate of Destruction’ (CoD). (DEFRA, 2003)
The primary goal of the ELVD is to increase the recyclableility quotient of an individual automobiles by ratcheting upwards the minimum percentage requirement for recyclability in stages, from 80% since January 1st 2006 to 85% by January 2015. The secondary goal of the ELVD is the elimination of toxic materials from the manufacturing process and finished goods through redesign (Lewis and Gertsakis, 2001). In tandem, these requirements haveThis has forced manufacturers and product designers to address and control the issues of reuse, recyclability and the removal of hazardous substances both within the initial design of the product and throughout their supply chains (Toffel, 2003). This pressure has also had serious repercussions on the design and specification of vehicle components. Cars are however already among the most recycled and recyclable commodities in production. The metals currently used in manufacturing account for around 76% of overall weight routinely recovered, reused and recycled (SMMT, 2003). DHowever, despite this level of recycling, some nine to thirteen million cars are scrapped annually in the EU, of which the UK
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accounts for around two million units. The resultant unrecyclable crusher residue accounts for around five million cubic metres of waste (Nieuwenhuis et al. 2003), and most of this is disposed of in landfill. The legislation is necessaryintended to direct car design along a more resource efficient route, while eliminating toxic materials and reducing waste. Consequently, the ELVD illustration ofpromotes ‘product stewardship’. Product stewardship refers to a design philosophy that includes consideration of issues such as dismantling, reusing and recycling (Lewis and Gertsakis, 2001) Instead of the public purse bearing the costs for disposing of products at the end of their life the balance has been shifted towards the initial producer. The promotion of recycling is also consistent with the industrial ecology approach to ‘closed loop’ manufacturing (Ayres, 1989), epitomized by the ‘cradle to cradle’ philosophy of design (McDonough and Braungart, 2002). The Directive illustrates some of the features is an illustration of theof concept of Ecological Modernisation, which is shaping environmental legislation and is representative of a new range of market oriented policies to tilt design strategies towards those that favour recycling, thus stimulating markets for such materials. The Directive illustrates how environmental policy has evolved beyond process control and pollution abatement, and now embraces product design and other policy objectives.
Ecological Modernisation and Regulation. The ELVD illustrates the philosophy that ofs the environmental legislative process in the EU. It is reflected in the theory of ecological modernization originally proposed by Hajer (1995) and widely adopted by governments around the world (Mol and Sonnenfeld, 2000). The theory asserts that economic and environmental goals can be integrated within a framework of industrial modernity (Gouldson and Murphy, 1998). Proactive environmental protection can only be achieved with a realignment of broader policy goals so that environmental objectives are
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integrated into non-environmental policy areas, such as industry, transport, energy and trade. It effectively combines the principles of government lead environmental policy, industrial policy, regulation and decision-making (Gouldson and Murphy, 1998; Hills et al, 2004; Schaefer, 2004). The principle elements can be summarized as follows;
1. There is no conflict between environmental protection and economic growth, which may actually be mutually reinforcing, 2. Environmental protection should be realigned with other policy goals, relating to economics, transport, energy and trade, and embrace market-oriented, incentive based policies, 3. The exploration of alternative, innovative approaches to environmental policy may involve new relationships between the state, industry and other stakeholders to regulate the environment, 4. Governments should adopt a more positive approach in the innovation and diffusion of new, environmentally benign technologies and industrial processes. It is acknowledged that some major environmental problems require international agreements and control regimes, for example the Kyoto Protocol designed to control greenhouse gas emissions (UNFCCC, 2005).
The theory, reflected in the ELVD Directive is that regulation is now more pro-active, and has evolved away from purely pollution abatement and crisis resolution. The style has similarly shifted away from ‘command and control’ to embrace market-oriented, consensus driven, participative environmental policies and regulation. such as product stewardship. A critical facet of Ecological Modernisation is the assumption that appropriate regulation drives innovation that 8
will subsequently result in increased industrial competitiveness and concomitant productivity gains derived from improved resource efficiency (Porter and van der Linde, 1995; Elkington, 1997). The theory may also be reflected in a company’s strategic posture relating to environmental issues and its approach to regulation and innovation. The ELVD illustrates this new participative approach to forming legislation, which has been derived from extensive government and industry consultation. The ELVD reflects elements of ecological modernisation; it aims to promote environmentally benign innovation, and relates to non-environmental policy objectives, such as health.
The Limits of Ecologial Modernisation:; Bbusiness as Uusual and Ddematerialization. The argument that Ecological Modernisation effectively reconciles environmental objectives with economic growth is embodied in the concept of ‘eco-efficiency’. The term captures the simultaneous business and ecological advantages proposed by ecological modernization, originally coined by the World Business Council for Sustainable Development (WBCSD) and defined as;
“ “The delivery of competitively priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life cycle to a level at least in line with the earth’s carrying capacity”” (Dobers and Wolff, 1999, p33).
There are many examples in the literature to illustrate the principle (see for example Schmidheiny, 1992; Fussler and James, 1996; Weizsäcker et al., 1997) where this practice has
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produced business and environmental benefits through the creation of value by ‘doing more with less’.
The ELV is one of the first regulatory attempts to improve eco-efficiency through tackling waste streams with a major impact on product design. The Directive focuses on encouraging an increase in recycling and the elimination of toxic materials. It thus theoretically stimulates a transition from linear to circular production and a shift from dangerous to non-dangerous materials. Dobers and Wolff (1999) propose that the practices encouraged by the Directive, and thus driven by an eco-efficiency agenda, such as recycling, the prohibition of harmful materials, and increased material and energy efficiency will only create incremental environmental improvements and therefore represent a trend of ‘business as usual’. They therefore propose an alternative scenario of ‘dematerialization’, which focuses on reducing material and energy demands and pushing the limits of recycling. TheyIt is anticipated that this more radical degree of innovation will be driven through the reevaluation of value chains and business relationships within supply networks. The automotive is an example of an extensively networked industry where such innovation could be promulgated. Thus while the Directive has the potential to push such solutions through the supply chain initially via the OEMs, it is unclear if this occurs in practice.It is questionable if the ELV is capable of producing novel, more sustainable approaches to businesses or if it merely encourages limited, stepwise innovation.
Can Regulation Deliver Innovation? Ashford (2002) raises the question of the capacity for regulation to stimulate sustainable innovation in the context of ecological modernization. He also contends that most regulation, such as voluntary agreements, generally do not deliver innovation, and instead protect markets to
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favour large firms and dominant technologies. Legislation may serve to diffuse ‘presently available technology’, but might be different from intervention that could stimulate radical or disruptive innovation. This is a Schumpeterian or ‘creative destruction’ view of innovation, which does not occur in existing firms. He further suggests regulation can create new business forms to fill specific niches, but may not necessarily establish conditions for radical innovation, as envisaged by Dobers and Wolff’s (1999) dematerialized scenarios.
At the level of the firm, technological options are also influenced by a variety of factors. Anex (2000) discusses innovation and the potential for regulation to stimulate ‘green’ innovation. He reinforces Porter and van der Linde’s (1995) contention that firms are presented with many opportunities, but have limited information and resources, with the potential of selecting the wrong technological option. This is more critical for smaller firms. Secondly, there is also the problem of technology ‘lock in’, which may demand capital investment thus incurring opportunity cost and potentially limiting future options. Thirdly, and allied to the potential problem of ‘lock in’, is the relationship with dominant technologies, and is particularly relevant to the firms in this study which form the network of firms upon which OEMs depend for components. The effects of environmentally motivated legislation may have different effects depending on the technology employed, coupled with the degree of design autonomy within the supply network. OEMs have attempted to exploit their technological dominance and avoids potential non-compliance through the construction of the International Materials Database System (IMDS, 2005), the information disseminated through at least first tier suppliers. This may serve to reinforce the ‘lock in’ effect. Fourthly, in the Schumpeterian perspective of innovation, reflected in the work of Utterback (1994), major technological upheavals or ‘inflection points’ of the scale demanded for a transition to more sustainable technological 11
systems are rarely, if ever, triggered by legislation. It is the entrance of new firms to fulfill new markets that eventually overtake and displace pre-existing firms, which generally are incapable of adapting.
This study of environmental regulation on the automotive industry in the UK examines the effects of the ELVD Directive on innovation and design strategies, with particular emphasis on firms located in supply networks, and therefore questions the potential for regulation to cause technological ‘lock in’. It considers how current EU environmental regulation reflects the philosophy of ecological modernization and how this could translate into more sustainable design practices and technologies by encouraging component manufacturers to adopt ‘design for disassembly’ and ‘clean design’ strategies. It questions the capacity for regulation to deliver truly systemic changes in the industry towards a dematerialized business direction as compared to more limited eco-efficiency ‘business as usual’ environmental gains.
We find that rather than adopting innovation strategies compliant with the ELVD akin to the Dobers and Wolff (1999) model of dematerialization, UK firms have instead adopted incremental approaches to greener product design, and the legislation is unlikely to translate into more sustainable business practices.
The Research Study and Methodology The UK Government Department of Trade and Industry (hereafter DTI) were consulted to identify the firms in the UK that would be affected by the ELVthe ELVD. The DTI (2003) revealed that the enterprises affected were covered by several Standard Industrial Classification (SIC) codes. Motor vehicle component manufacturers identified by SIC 3430 would be subject to
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the ELVD, and the FAME (Financial Analysis Made Easy, 2003) electronic database of UK firms was then utilized. This database revealed 712 firms in SIC category 3430. A significant number of these 712 firms were deselected because they were exempt from the ELVD. This included specialist motor sport component suppliers, suppliers of truck parts and kit car-makers. This additional filter left a group of 214 firms to be contacted.
Discussions with representatives from UK-based OEMs preceded and helped to frame the development of the questionnaire. A four-part questionnaire was developed containing a mixture of closed, quantitative and open ended, qualitative questions, administered by telephone. The style of the investigation was a mix of hypothesis testing with grounded theory (Glaser and Strauss, 1967). The sequence of questions focused on the firm, its customers, its response and perceptions of the ELVD and environmental regulation in general, and its innovative capacity and response to the ELVD. The survey was also informed by consultation with two industrybased consortia. The Automotive Consortium on Recycling and Disposal (ACORD) has compiled a database of materials in vehicles, and the Consortium for Automotive Recycling (CARE) has researched materials for the reuse and recycling processes (DTI, 2002). Of the 214 firms contacted, 33 senior members of staff or those whose role suggested they were likely to be aware of the ELVD, agreed to participate, yielding a response rate of 18%. Not every respondent was able or willing to answer all questions. This was due to many reasons, for example perception
that
the
Directive
did
not
impact
a
particular
firm
or
a
lack
of
knowledge.Followingknowledge. Following the conclusion of the telephone survey, the interview transcripts were reviewed and coded. Evidence relating specifically to the principles of ecological modernization and innovation was highlighted. The interviewees were assured of the confidential nature of the information, and their anonymity was guaranteed. The firms contacted ranged from 13
sole trader to large (250+) employers, with an average of 40 employees. Although it was not ascertained in all cases, half (19) were first tier suppliers, 12 second tier, and one third tier. A first tier supplier is a firm that supplies components directly to the OEM for final assembly. Second and subsequent tier suppliers are located further along the supply chain, and supply components or subassemblies to other firms before final assembly by the OEM. Some firms supply the same client with different products and may therefore occupy different layers in the supply chain at the same time.
Findings Regulation and Innovation. The questionnaire schedule contained a series of questions designed to reveal attitudes towards environmental regulation and innovation. The respondents were offered a range of statements about environmental regulation, and asked to select the one that most closely reflected their opinion. At one extreme was the assertion that regulation was costly and had no benefits, while at the end of the spectrum it was proposed that legislation led to innovation and other benefits, such as strategic alliances and new competencies. The results are shown in Table 1.
Insert Table 1 about here
The results demonstrate the rhetoric underlying attitudes towards regulation from a business perspective. The results tentatively reflects tenets of ecological modernization, namely that regulation can deliver innovation. The respondents clearly reject the idea that regulation delivers no gains, and is entirely an additional cost burden to industry. The most frequent response, that
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regulation has limited benefits, is strongly associated with the need to maintain contracts with suppliers, and therefore supports the contention that regulation may simply generate technological ‘lock in’, a criticism of ecological modernisation.
Leading carmakers in the automotive industry are applying increasingly stringent performance targets on their suppliers. Those that fail to deliver on a wide range of measures, beyond purely financial compliance, are at risk of losing contracts. This has a major impact on strategic decisions for businesses that may be highly reliant on the automotive sector vis-à-vis financial viability. These may also be the firms that are less able to react to pressure to innovate, absorb the costs of compliance or adopt other strategies, such as exiting the automotive sector. Half the respondents sided with the assertion that the costs of complying with environmental regulations are outweighed by the benefits. This suggests that these businesses are more likely to be proactive or innovative. There is also the implicit assumption that regulations can also present barriers to potential market entrants, thus reducing likely competition.
Development of Green Activities Separate questions were used to triangulate with the above finding. These questions established how the ‘greening’ of various activities had changed in recent years. A four point ranking scale was used to measure the degree to which the respondents adopted such approaches. A score of one indicated no change, while a score of four indicated that the business had undergone a complete transformation as a result of the particular activity. The mode in almost every case suggests that environmental issues remain low on the corporate agenda. The results are presented in Table 2.
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Insert Table 2 about here
The mode suggests that in all but one activity, environmental factors have had little effect on these businesses. The last column indicates the combined scores where the responses were either three (significant change) or four (complete transformation). This question was designed to mirror that posed by Green et al (1994). Their survey was of a sample of businesses that had expressed an interest in environmental innovation. Their results broadly map onto the results from this pilot project. The main difference lies in the first category, product innovation, where their study revealed a much higher interest in this aspect (34% claiming large change), compared to 9% in this project. Critically, product design is the least affected business practice. It is possible that the ramifications of ‘design for disassembly’ are yet to be reflected in these firms.
With more than 60% (reflected in 36% indicating major or significant change in personnel training and selection) of the sample indicating their adoption of the Environmental Management System (EMS) ISO 14001 and increased focus on packaging and recycling emanating from the EU Packaging Directive, it would appear that registration and compliance with these regulations/standards were becoming an industry-wide feature. In particular, 14 firms stated that they had obtained ISO 14001 status, indicating that it is necessary to demonstrate greening or environmental awareness within the firm via this standard in order to maintain contracts with the OEMs, another illustration of ‘lock in’. Significantly, the respondents did not mention other measures such as stakeholder engagement, or innovation prompted by outside forces other than the need to demonstrate compliance with these standards. However, the superficial analysis of this dataset masks a wealth of qualitative information. Many firms mentioned they had introduced waste minimization schemes or other cost reduction strategies, such as reusing pallets. 16
These measures that reduce costs and also lead to environmental benefits through raised ecoefficiency are consistent with Ecological Modernisation. Many respondents also observed that the pressure to comply with ISO14001 certification was beginning to have an effect on supplier selection.
Innovation. A further set of questions was used to check the extent to which regulation had stimulated innovation in a set of activities. The majority (85%) of firms interviewed claimed to have introduced new products or processes in the last three years. The options were not mutually exclusive, so each respondent may have indicated multiple reasons.
Insert Table 3 about here
What is immediately apparent is that in this group of firms regulation per se is not one of the main reasons for introducing new products or processes. Instead, the drive to identify and exploit new markets suggests that 20% of these firms are looking at new opportunities, possibly incorporating technological diversification (18%). Pressure from clients and cost reduction were also key drivers. The idea that regulation might stimulate innovation is however not supported in this context, since just two interviewees cited it as a reason for innovation. This exposes a weakness of ecological modernization. It fails to contextualize regulation and innovation, where in this survey the need to comply with OEM contractual obligations forms one aspect of the competitive landscape, but it is not a dominant feature.
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The numbers mask fundamental pressures exerted through the supply network by OEMs. Although firms in this study do not recognize regulation as a driver of innovation, in the case of the ELVD, it is apparent that the pressure to comply through innovation originates with the OEMs. Regulation may be a more effective driver with OEMs, where control over supply networks is a major challenge given their geographical distribution. While this does offer more support for the notion that regulation can drive innovation, many other factors are cited by firms in this study that have very little direct connection with legislative obligations. This being the case, it calls into question if regulation can ever be a significant driver of innovation within the firm at this level and more importantly, a driver of green innovation.
Discussion and Conclusions. This study has shown that there is limited support for the argument that legislation promotes innovation in firms located in extended supply chains. The firms in this study did innovate in the context of regulation, primarily to maintain valuable commercial contracts, but this ‘green’ pressure did not translate into other environmentally driven strategies beyond general cost reduction tactics and limited resource efficiency gains. Further, as an example of ecological modernization in the context of the automotive industry, the ELVD offers limited, mis-directed opportunities for sustainable innovation. The focus is on resolving short-term, localized environmental degradation (landfill, elimination of toxic materials) rather than radical ‘dematerialization’ (Dobers and Wolff, 1999). The study suggests that product design strategies in the lower tiers of the supply chain have to date been virtually unaffected by the legislation. This may also reflect the nature of the ‘lock in’ dictated by the dominant technology through the OEMs. This position may change when the regulation becomes more embedded in the near future.
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The results also suggest that for some enterprise non-regulatory, market driven factors are more critical in determining innovation strategy. Any effort directed at achieving compliance tended to be of the ‘business as usual’ variety. The incremental approaches identified were largely process oriented, and suggest that the dematerialized scenarios envisaged by Dobers and Wolff (1999) are unlikely to be realized through the ELVD policy mechanism, which clearly focuses on recycling and ‘cleaner design’. The ELVD does not stimulate opportunities for smaller firms to exploit new market niches through innovative design and dematerialised business models. Instead, new ecologically sound, dematerialized or service-oriented strategies may have to originate with OEMs based on reassessments of value chains, such as those advocated by Tukker (2004).
The regulation is also orientated towards the product disposal phase, or ‘end of life’, therefore emphasizing the imperative to focus design strategies on recycling and disassembly. As such, it can be argued that the regulation focuses on commodities, rather than resource streams, and features weight based recycling targets while ignoring the levels of material reapplication. There are also very real practical problems associated with sorting ensemble products, which remains a costly exercise. The emphasis at present is on disassembly, but there is little evidence that manufacturers are contemplating the design implications of new vehicles from this perspective for their suppliers.
The study has some limitations. First, it is restricted to a small sample of UK firms covered by one SIC code (3430), and interviews were conducted with manufacturers largely located within the first three tiers of supply networks. In theory, the same legislation applies across the EU, and Japanese based OEMs already demand ‘zero waste’ from their suppliers regardless of 19
geographical location. Other allied industries, and those further down the supply chain may also be affected by the legislation. The regulation may result in changes in related industries, most notably the replacement part and scrap recovery sectors. This research also has not investigated fully the options available to firms, and therefore the extent of technological ‘lock in’, or dependence on OEMs. The high incidence of compliance with ISO 14001 demanded by OEMs serves as a proxy, but this is arguably part of the wider competitive landscape, and may be a contractual prerequisite for other clients. The obvious cost reduction strategies, closely associated with eco-efficiency and client pressure, have been widely described. However, the interviews suggest that firms are more strongly motivated by new market opportunities and diversification. This issue could be the subject of further research. The term ‘innovation’ in the context of this study has not been tightly defined, but most interviewees interpreted it in a narrow technological context. The effect of legislation on, for example corporate culture has not been explored. Innovation is also associated with risk. It has already been noted that firms lack complete information when making strategic decisions. Regulation signals acceptable behaviour and practices that may shape future design-related decisions. This is an opportunity cost borne by business. One potential outcome is that firms gain new competences from the Directive, which may be exploitable in other markets, and provide an exit strategy from the technological ‘lock in’ of the dominant OEMs of the automotive industry. The long-term effects of the ELVD have yet to materialize, so it is not possible to determine the full consequences for the firms interviewed. The ELVD is the first significant product-oriented legislation to affect a major industrial sector. Similar legislation is due to be introduced by the UK government in mid-2006, and will cover electronic and electrical equipment (DTI, 2005). Redesign issues covering recycling, material recovery and the elimination of toxic compounds will also dominate. It would be instructive to examine the effects of this legislation in the EU. 20
It is worth noting that the attitudes towards environmental regulation is not wholly negative, suggesting that regulatory reform through incentive based policy mechanisms consistent with ecological modernization is encouraging industry to become more engaged in the legislative process. It also supports one of the central features of ecological modernization, namely the resolution of the conflict between economic growth and environmental protection. This has yet to translate into more substantial activities beyond limited eco-efficiency measures, such as packaging recycling evident in this study. At present, product design strategies among these firms have been virtually unaffected by the legislation, regardless of the relationship with OEMs. This lack of drive towards more sustainable production systems outlined by Dobers and Wolff (1999) exhibited by the firms in this survey may indicate a weakness of ecological modernization.
Overall the ELVD is consistent with the theory of ecological modernization, but also exposes its shortcomings. It is geared to the delivery of ‘business as usual’ eco-efficient solutions as opposed to dematerialization scenarios. This research suggests that the ELVD is a partial solution since it addresses material recycling and promotes ‘clean design’. The ELVD will undoubtedly influence car design in the future, for example through increasing the amount of recycled materials incorporated. It may also lead to a restructuring of the industry with radically different economic dynamics, where ecologically-sensitive design innovation strategies will include extending vehicle life through customization and modular design approaches for introducing new, advanced technologies (Niewenhuis et al, 2003). The ELVD is at best a partial solution, but other forms of intervention, such as fiscal (taxation) incentives may prove to be more powerful drivers for change (Dobers and Wolff, 1999). The implications for other product-oriented directives are clear; they may also be too weak to promote alternative consumption patterns.
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In the automotive industry OEMs exercise powerful control over production and increasingly influence the whole supply network. Manufacturers continue to sell products, so the businessconsumer relationship through ownership is unaffected, and alternative dematerialized options remain undeveloped. The evidence from this study suggests limited ‘greening’ at the product or process level and business practices, through limited eco-efficiency measures, but not dematerialisation. Critics of ecological modernization argue that truly sustainable innovation demands a shift in a series of interrelated technologies. Small scale, piece-meal changes will be inadequate to deliver a more sustainable future, but is arguably the prevalent legislative process. This is a major limitation of ecological modernisation. It is argued that disruptive scale, radical innovations that reflect the Schumpeterian ‘creative destruction’ view of innovation, echoed in the work of Utterback (1994) are demanded for sustainability. This suggests that it is not just the technological frameworks that hinder industrial transformation, but it also suggests that radical technologies yield new organisational structures (Anex, 2000). Most of the firms in this survey have introduced innovations, but few directly prompted by regulation. The most significant driver for change is the response to external market signals. The firms reported on are aiming to diversify, possibly through competencies gained and technical expertise that enables them to enter other markets. Real innovation and competitiveness is more likely to arise for other reasons, notably market opportunities, and environmental regulation per se may be a minor feature of the selection landscape.
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Table 1 Response to Environmental Regulation Reaction to Environmental Regulation
Number of Firms agreeing. (Frequency) It is costly, and there are no benefits 2 It is costly, but has limited benefits (e.g. compliance 14 maintains contracts) Limited costs, indirect benefits (e.g. reduces 11 legislative exposure) Leads to innovation and other benefits 6 (e.g. develops new competencies and capabilities, develops market opportunities, generates competitive advantage)
%
6 44 32 8
(n=33)
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Table 2 To What Extent has your business adopted a ‘greener’ approach to the following factors? Activity Product Design Production processes Distribution or transportation Supplier selection Personnel training or selection Overall strategy
Mode 1 1 1 1 1 2
% significant or major change 9 36 12 21 36 27
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Table 3 Reasons for Introducing New Products or Processes during the Last 5 Years Reason cited Customer pressure Develop/enter new markets Employ new technologies Reduce costs Pressure from competition Increase productivity Regulation Supply chain Other
Frequency 9 9 8 7 5 3 2 1 1
% 20 20 18 16 11 7 4 2 2
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