# Chapter 5 The Socioeconomic System Driven by the Environmental Industry – New Growth through Green Innovation –

Touched off by the global economic crisis triggered by the subprime loan problem in the United States, countries around the world have been taking active initiatives to make intensive investment in environment and energy sectors, thereby striving to ensure an economic recovery and create employment and also solve global warming and other environmental problems. In Japan, as a result of a number of policy steps, such as the eco-point system for home electrical appliances and tax reductions and subsidies for ecologically-friendly cars, personal consumption appears to be showing some signs of recovery, providing underlying support for domestic demand of home electronics, automobile and some other industries.

These developments are not just transient trends. For example, the “Declaration on Green Growth” adopted at the June 2009 Ministerial Council of the Organization for Economic Cooperation and Development (OECD) invited the OECD to “develop, as a horizontal project, a Green Growth Strategy in order to achieve economic recovery and environmentally and socially sustainable economic growth,” an indication that a paradigm shift revolving around the environment is accelerating on a global scale.

In this chapter, we focus on the environmental industry that is expected to serve as the driving power of economic growth and examine policies that should be implemented in order to promote green innovation and create and foster the environmental industry. We also show trends in research on sustainability indicators and discuss a path to a socioeconomic system that creates a virtuous cycle of the environment and the economy.

## Section 1 The Current State of the Environmental Industry

Japan has set the mid-term goal of reducing greenhouse gas emissions by 25% by 2020 from the 1990 level and also the long-term goal of reducing them by 80% by 2050 toward realizing a low-carbon society, premised on the establishment of a fair and effective international framework in which all major economies participate and an agreement on ambitious emissions reduction targets by all the major economies. Internationally, efforts for the prevention of global warming, the building of a sound material-cycle society and the conservation of biodiversity are commonly shared challenges, requiring all the countries to shoulder a fair share of responsibilities. In order to deal with and solve these challenges, the market size of the environmental industry is growing substantially, accompanied by the creation of employment on a large scale, not only in Japan but also around the world, with the long-term and continuous expansion of the environmental industry anticipated.

In this section, we give a broad overview of the current state and outlook of the global environmental industry and then look at the present state and strength of Japan's environmental industry.

## 1 The Environmental Industry Expanding in Japan and in the World

## (1) The current state and outlook of the environmental industry in the world

By way of estimating the global market for the environmental industry, for example, the “Green Jobs: Towards Decent Work in a Sustainable, Low-Carbon Society” (compiled by the U.N. Environment Program (UNEP), the International Labour Organization (ILO) and other institutions in 2008, hereinafter referred to as the “Green Jobs report”) expects the environmental industry’s global market size to double from an estimated $1.37 trillion in 2006 to $2.74 trillion by 2020.

According to the estimate by a U.S. private company, the global market of the environmental industry has grown at an annual rate of a little over 4% between 2000 and 2008, though the coverage of the environmental industry and classifications are different from those of the Green Jobs report. While the market is estimated to have posted negative growth in 2009 following the global economic crisis, it is expected to resume and continue to grow by a little over 3% in 2010 and onward. By region, the Asian market is estimated to expand by the largest margin between 2008 and 2012, growing by about $20 billion during this period (Figure 5-1-1).

Expectations are also rising about the creation of employment in the environmental industry. The Green Jobs report estimates that green jobs in the renewable energy sector around the world, at about 2.33 million in total in 2006, will likely grow by 2030 to 2.10 million in wind power generation, to 6.30 million in photovoltaic power generation and 12.00 million in biomass power generation, for a total of at least 20.00 million.