Market penetration of smart growth technologies and services in general remains low in emerging markets. For virtually every type of product from renewable fuels, to GIS, to synchronized signaling systems, emerging markets are still at the beginning of the market saturation curve. The current low market penetration may represent an opportunity for product and service providers to pursue these markets with a minimum of competition. Just as many emerging market consumers have jumped directly to cellular phones in the absence of more traditional telecommunications infrastructure, unique conditions in emerging markets sometimes create demand for services and technologies earlier in the economic growth cycle than experience in some countries might imply.
Market for Electronic Toll Collection Technologies Shifting from North America to Asia Pacific over the Next Decade The total investment in electronic toll collection technologies will top US$11 billion over the next 10 years as more than 23,000 toll lanes will be equipped with the technology, according to a study entitled "Electronic Toll Collection: Market Analysis and Technology Update." Growth is slated to continue into the next decade with the number of equipped lanes growing by an average of 10.29% per year over the next 10 years. The focus of that growth, however is shifting from North America and Europe to Asia Pacific, which is a huge and still largely untapped market," said Merrill Douglas, lead author of the study. "Japan alone has more than 4,000 toll lanes at stake, but only this year has it started awarding contracts to equip them." Other examples inside and outside the Asia Pacific region are 71 lanes in Argentina, 22 lanes in Hong Kong, and 62 lanes in Thailand. Source: ITS World, September/October, 1999. |
The catalyst for smart growth service and technology demand can be summed up in a single word: practicality. Some of the basic factors propelling the market are:
- National and Local Environmental Regulations. Increasing air pollution in urban centers throughout the developing world has become increasingly undeniable for the government and public alike. In many countries, government at multiple levels has responded by imposing new standards and regulations on vehicle emissions. For example, China has adopted a series of air quality standards at the national level requiring that all cities eventually stop using leaded gasoline and increase the fuel efficiency of vehicles.
- Capital Scarcity. The need to save money is a factor propelling new markets for smart growth technologies that increase the efficient use of existing infrastructure and either displace or defer the need for more infrastructure. The provision of transport and urban management services and amenities based on smart growth principles would likely be at a lower cost — with lower environmental impacts — than conventional transport infrastructure and urban development investment. For example, to build, operate, and maintain a mile of urban highway on average in the U.S. costs up to US$100 million. By contrast, the average cost to install one mile of new rail costs US$15 million and one mile of bicycle lane is $100,000. Adopting more efficient, more compact patterns of development can also save scarce capital. Results from a study of Toronto, Canada found that over the next 25 years the region could save more than US$8 billion in infrastructure and maintenance costs from more compact landuse development. The same study suggests that over the next 20 years, an additional US$15 billion could be saved from reduced travel by private passenger car.
ITS in Korea: A Global Market Worth US$7.2 Billion by 2005 The September, 1999 edition of ITS America News reports that Korea is beginning to deploy telematics to improve its transport systems. currently engaged in developing a national ITS master plan, a 5-year ITS standardization plan, advanced traffic signal systems and various R&D projects throughout the country. As reported by Mr. Seung-Hwan Lee, Director of the Ajou Transportation Research Institute:
Source: Adapted from "International Fellow Joins ITS," ITS America News, Washington, D.C., September, 1999 & "Show Me the Market," ITS America News, Washington, D.C., August, 1999. |
- International Environmental Agreements. In June 1992 in Rio de Janeiro, Brazil 150 nations agreed to reduce their greenhouse gas emissions to 1990 levels. They signed an agreement signaling their commitment called the United Nations Framework Convention on Climate Change. In December 1997 the nations of the world gathered again in Kyoto, Japan to further negotiate a treaty to control GHG emissions that have been implicated in the threat of global climate change. The resulting agreement is known as the Kyoto Protocol. In it many nations agreed to significantly reduce their emissions over the next 10 to 15 years. Given that the transport sector accounts for a fifth of all GHG emissions, the full array of smart growth services and technologies will be essential for accomplishing that goal.
- Global Economic Competitiveness . Increased global trade and competition forces countries, all levels of governments and companies to minimize costs. Many developing country cities experience traffic congestion daily and escalating energy consumption that threatens economic growth. Bangkok, Thailand loses approximately US$12 billion worth of workers productivity every year due to traffic congestion. As wages and costs of local inputs rise with economic development, relative energy (e.g. oil imports) and transport infrastructure costs (e.g. roads) become relatively more important, providing further incentive for efficiency.
- Environmental Concerns Among Civil Society . Developing countries governments are under increasing pressure from civil society to clean up local pollution from their industrial, power and transport sectors. They are also under pressure from international agreements to limit growth in emissions of greenhouse gases that contribute to climate change.
Transport and Urban Development Policy Creating Market Pull in Poland Krakow is the most famous city in Poland and has been a symbol of tradition and culture throughout Poland’s history. Sadly, severe smog, high sulfur concentrations and traffic congestion have had serious impact on the city’s 750,000 residents. The severe pollution and congestion have also assaulted the historic and cultural integrity of the city’s buildings and monuments. To address their mounting transport problems, the Krakow City Council in 1993 passed the following policy priorities in the city’s transport Master Plan:
To operationalize the policy, investments are planned for an array of "green" technologies and infrastructure that include catalytic converters, pedestrian and cycling facilities and electric trams. The commitment to transform environmental regulations into tangible changes on the ground in Krakow is creating a market "pull" for not only the air pollution and control equipment for existing "end of the pipe" pollutants, but for technologies that reduce and prevent pollution in the first place. |
Market Advantages, Trends and Barriers
The primary competitive advantage that the U.S. has is the amount of investment by government and industry that has already gone into designing, testing and commercializing a diversity of smart growth services and technologies. According to Lovins, its massive investments in technological research means America leads — for now — both in the dynamism for start-up-businesses to take root, and in all the required technical capabilities. Even with this competitive advantage, opportunities for smart growth technologies and services in emerging markets remain largely untapped. While each country and market is different, several persistent barriers are common:
- Scarce Capital. Smart growth transport and urban development projects compete for scarce capital with the industrial, commercial and power sectors. Few in-country financial institutions have experience financing smart growth transport and urban development energy projects or ventures.
- Subsidy Removal
Smart Growth Includes More Energy-efficient Vehicles: Moldable Composite Materials Can Save Energy In the 1920s, motor vehicle manufactures in the U.S. made vehicles with wooden frames. But for most of this century, motor vehicles frames have been made of steel. American vehicle manufacturers in the future may use lightweight carbon, glass, or polyaramid fibers — known as moldable composite materials. One example of a moldable composite is carbon fiber. Carbon fiber can achieve the same strength as steel and is half to a third of the weight. Lighterweight vehicles are more energy-efficient. Aside from the energy savings, a moldable composite's greatest advantage is in the vehicle manufacturing process itself. Only 15 percent of the cost of a typical steel-framed car is for the steel; the other 85 percent pays for the production process: pounding, welding, and smoothing. In contrast, composites emerge from the mold already in the required shape and finish. Cheaper, more agile manufacturing — as well increased vehicle energy efficiency — can offset the higher material cost of moldable composites and help keep manufacturers competitive globally with an innovative product. Source: Lovins, A., et.al., "Reinventing the Wheels," The Atlantic Monthly, January, 1993. |
- Privatization . Many countries are privatizing formerly state-owned public bus fleets, roads and highways. Privatization in theory leads to improved efficiency in all aspects of operation, including energy use. In countries such as Chile and South Africa, for example, the private sector is increasingly the provider of public transport services.,
- Perceived Investment Risk . Demand-side transport and urban development projects are perceived to be more risky than conventional supply-side projects in part because they are non-conventional but also because they are often "soft" technology based investments, i.e. they are not necessarily large, capital-intensive infrastructure investment.
- Small Scale Projects
- Lack of Public Policy Support. The legal and regulatory frameworks in many developing and transitional countries are not supportive of smart growth investments, particularly transport service performance contracting and urban development zoning.
Market Potential of New and Improved Transport Information Technologies to Increase Transport Productivity
| Technology | Time- frame |
Nature/Size of Market | Regional Aspects |
Marketability |
| Traffic Control | 0 to 20 years | Major urban areas | Privileges for high-occupancy vehicles Road pricing or distance charges Landuse planning investments |
Jurisdictional issues Mechanisms to internalize full costs Significant capital investments in multimodal systems |
| Travel Substitution | 0 to 20 years | Intercity commuter trips Urban commuters |
Based on new data and video communications
technologies being introduced into the market Time benefits are principal gains |
|
| Route Planning | 0 to 10 years | Multimodal commuter trips Intercity freight |
Parking control measures Improvement of public transport |
Public information campaigns |
Source: Adapted from the International Energy Agency, 1997
What is Necessary to Establish a Foothold in the Market?
To meet the transport and urban development needs of emerging markets, companies and industry associations must be diligent in preserving open-mindedness and challenge conventional concepts of what a transport system is supposed to provide. Establishing strong government-business partnerships must be a cornerstone of any strategy to identify new and growing markets, develop and commercialize new technologies, and pursue export opportunities. Several foreign governments (e.g. Germany and Japan) are forming partnerships with their nation’s companies to overcome inexperience in emerging markets and ensure that they reap the benefits early of early strength in the transport and urban development technology field. In response to the needs of industry, a program of U.S. Government export assistance to the private sector would, at a minimum, do the following:
- Increase Industry Awareness of Market Potential. A program of government assistance would provide information to a variety of industry associations and diversity of companies to increase their awareness of smart growth and sustainable development concepts. It would also discuss opportunities for innovative and unique combinations of seemingly unrelated technologies and services (i.e. from renewable energy to information technologies) that can create added value, and market trends and potential opportunities for these technologies and services in developing countries. The goal would be to help companies and industry associations recognize and establish their identify as members of the smart growth industry and their identity as an economically significant government constituency.
- Increase Awareness of Relevant U.S. Government Agencies. A program of government assistance would disseminate information to relevant U.S. Government agencies on smart growth and sustainable development concepts, the diversity of companies, technologies and services that comprise the smart growth industry, their growing presence as a significant government constituency, and export and technology transfer opportunities in developing countries for industry. The goal would be to establish recognition by the U.S. Department of Commerce and other important government agencies (e.g. USAID) of the smart growth industry as an economically significant constituency and thus increase export assistance until U.S. industry has a stronger foothold in the market.
- Document Economic Potential of Exports, Energy Savings and GHG Reduction. A program of government assistance would document the export and technology transfer potential for U.S. industry, as well as the economic and environmental potential for energy savings and GHG reduction in developing countries from smart growth technologies and services. The goal would be to document the economic benefits of smart growth technologies and services, and the positive environmental impact from saving energy and reducing GHG emissions, in order to provide a rationale for U.S. export and technology transfer assistance.
Innovative Financing Mechanisms: Implementing Smart Growth through Performance-Based Rewards National level governments might consider establishing a performance-based national Smart Growth Program. The objective is to use market mechanisms and economic incentives to implement a smart growth approach. Transport services are therefore treated as a consumer good with value in a competitive marketplace for transport services. A performance-based financing mechanism could spur the implementation of smart growth approaches by rewarding local jurisdictions for greater transport system efficiency. It would encourage local government innovation in achieving energy savings, air quality targets, reductions in overall trip making and vehicle-miles-traveled, or improvements in other measurable targets. Local jurisdictions would be rewarded with "bonus" payments from their national governments when their innovations prove successful. Consumers should be rewarded for greater efficiency as well. Many of the social costs associated with transport, particularly from the automobile, are directly related to the total distance traveled or the number of trips taken. If these external costs could be internalized and thus paid for by consumers, consumers could be rewarded for practicing transport efficiency. One such technique is pay-as-you-drive insurance. Vehicle insurance premiums are collected when the vehicle is refueled. The charge is assessed on a per-mile-traveled basis. |
Prepared by the International Institute for Energy Conservation
(IIEC)
September 1999
Support for this document was provided by the Export Council for Energy Efficiency (ECEE) and the US Department of Energy (award DE-FC41-94R110679). This support does not constitute an endorsement by the US Department of Energy of the views expressed in the article.
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