Germany's Pricy Gambit Will 'Cleantech' Be Next Economic Miracle?

Climate change is forcing the world's economies to embark on a new industrial revolution. The environmental industry creates growth and jobs, with German companies leading the way worldwide. But how much longer can it last? And what is the cost of the boom?


By and

On the outskirts of Güstrow, a town in northeastern Germany, 20 tent-like structures rise from the Mecklenburg plain. From a distance, the scene looks like a circus convention. But if anyone were to enter the circular structures, he would not encounter a joyful menagerie of people, animals and circus sensations, but immediate death by suffocation.

The giant, airtight tanks are filled with corn silage, tons of chopped up stems, grains and leaves, which is fermented at 36 degrees Celsius (96.8 degrees Fahrenheit) for 10 weeks. The process, which yields biogas that contains methane, mirrors what happens in a cow's intestines, says businessman Felix Hess, but with one difference: "We capture the gas."

Hess, 49, picks up a handful of the corn substrate, crumbling it between his fingers. It smells fresh and slightly sour, "which is exactly the way it should be," he says.

An engineer by trade, Hess has fulfilled his dream. After working for years as a strategic consultant, he wrote a business plan and, together with three partners, founded the bio-energy company Nawaro, an abbreviation, in German, for the words "Renewable Natural Resources." The plant the four partners designed in Güstrow is something the world has never seen before. In a few weeks, the world's largest biogas production plant will begin operating at full capacity for the first time.

Gas for 50,000 Households

Once the Güstrow plant is up and running, farmers from the surrounding 50-kilometer (31-mile) radius will supply it with organic matter. Roughly 1,250 tons a day will be processed at the plant, producing methane that is pumped into a pipeline running directly beneath the plant grounds.

If all goes well, the company will produce 46 million cubic meters of gas a year, "enough for 50,000 households," as Hess estimates. Biogas, which is produced on an industrial scale from arable crops, now plays only a small role in the energy mix, but the market is still in its infancy. Nevertheless, the developers of German plants, which control 90 percent of the global market, have already gained an enormous edge over the future competition. With its advanced environmental technologies, the German economy is not only capturing global markets but is also seen as a trendsetter in the industry.

Green industries are developing into an engine for growth and employment, particularly in Germany's eastern states. Many see "cleantech" as a new major industry that could even surpass the auto industry one day. There is talk of a new economic miracle not unlike what happened in post-World War II Germany, except that this time the emphasis is quite different and unmistakably green.

This time it is not the unfettered play of market forces that is driving the economy to churn out mass-produced goods for a throwaway society. In fact, almost the opposite holds true today: The government, with the help of laws and regulations -- from emissions control to packaging regulations --- is developing investment incentives to encourage companies to come up with technologies that protect resources. It is essentially forcing the economy to embark on a second industrial revolution, except that this time belching smokestacks and sparks are not part of the mix.

Germany's Green Wave

This new environmental movement is not spearheaded by concerned environmentalists, but by coolly calculating entrepreneurs. They are armed with a good deal of specialized knowledge in the development of highly efficient equipment, including condensing boiler heating systems, heat pumps and steam turbines, and they expect their efforts to yield a handsome profit.

At the same time, a number of young companies have sprung up that specialize in the exploitation of renewable energy sources. With massive support from the government and from electricity customers, they have catapulted themselves to the top of the industry worldwide. Their founders, people like Frank Asbeck, CEO of the solar panel producer Solarworld, and Aloys Wobben, the chairman of wind turbine manufacturer Enercon, have become rich in the process.

According to studies commissioned by the German environment ministry, a veritable green wave is taking shape in Germany. Experts with Roland Berger, a strategic consulting firm, predict that by 2020 sales in environmental industries will have more than doubled, reaching €3.1 trillion ($4.55 trillion).

German industry, according to Roland Berger, is benefiting enormously from this green revolution. The Berger consultants predict that the share of the gross domestic product stemming from cleantech will increase from 8 to 14 percent, and that the sector could provide many new jobs.

In the midst of the deepest economic crisis since the Great Depression, climate protection offers a way out of the current plight -- and a path to a low-carbon future. "In the next 20 years, we will experience more changes than in the last 100 years," predicts the legendary US scientist Dennis Meadows, a coauthor of the 1972 book "The Limits to Growth." The German economy appears to be extremely well equipped for these developments. But exactly how great are the opportunities? Will the green revolution automatically create prosperity and jobs?

A Profound Challenge for Traditional Businesses

"That's nonsense," says Joachim Weimann. "The net effect is more likely to be negative." For Weimann, an environmental economist in the eastern German city of Magdeburg, some of the studies currently being touted are nothing but "pipe dreams." He argues that green expenditures represent costs more than anything else, particularly for energy-intensive industries. They increase the costs of production and hamper competition, effects that are sometimes glossed over, says Weimann. "Environmental protection isn't available for free."

Does this mean that the green revolution won't trigger another economic miracle, after all? One thing is certain, and that is that the demands stemming from climate change are wreaking havoc with the traditional business models of entire industries, particularly in Germany, with its pronounced industrial sector.

The real question is this: Will the economy succeed in going green, and can it revitalize itself so that it ultimately generates more added value than it loses? The answer to this question is critical to the future of traditional companies like Bosch.

The world's largest auto parts supplier is in the midst of a profound shift in strategy. Bosch wants to make itself less dependent on its classic clientele, the auto industry, which is struggling with rising gasoline prices, tougher environmental requirements and the financial crisis. For several years now, CEO Franz Fehrenbach has been investing heavily in new, future-oriented markets, particularly the solar and wind industry.

Now that its traditional business has declined sharply, Bosch will likely be in the red for the first time since World War II. But its new growth businesses are still far too underdeveloped to offset these losses. Bosch has embarked on a bold balancing act, but, as Fehrenbach says, it has a history of particularly strong development in difficult times. He emphasizes the "regenerative energy of the crisis," even in Bosch's traditional businesses.


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