On the heels of the recent news involving President Trump’s decision to pull the United States out of the Paris climate agreement, there has been much debate on how it will impact the United States and her standing internationally. President Trump stated his motivation is to renegotiate the agreement “. . . with terms that are fair to the United States, its businesses, its workers, its people, its taxpayers.” With that in mind, it seems important to think through what possible impact this decision will have on demand for industrial equipment manufactured and purchased in the United States.

It is easy to think this would have a huge detrimental effect on manufacturing, but understanding what motivates the majority of manufacturers in the United States to adopt “green” technologies plays a key role in the impact evaluation. Undoubtedly there are manufacturers who are concerned about being good corporate citizens and taking care of the global environment. However, in North America, the United States in particular, the majority of manufacturers have adopted more advanced technologies because they see it as being beneficial to their long term operations. The biggest trends in manufacturing in the United States are improving energy efficiency and raising output without raising costs. In the past, US manufacturers tended to worry about initial capital cost when selecting new or replacement equipment. Over the past 10 to 15 years, primarily driven by high energy costs, growing foreign competition, and unstable market demands, their concern has shifted to equipment life cycle costs.

Over the past 25 years there have been several regulations enacted to require the adoption of higher efficiency motors. The initial reaction to these regulations was the typical postpone and delay as much as possible. Eventually companies were forced to adopt the higher efficiency standards. The expectation was that companies would continue to resist adoption, but the result was quite different. When the higher efficiency motors were installed properly, users quickly realized significant reductions in their energy consumption. Armed now with personal, empirical data supporting the adoption of higher energy efficiency motors, users began not only to systematically replace motors that fell under the regulations, they began seeking other motor applications throughout their operations that were not covered by the regulations, but could benefit from them. A paradigm shift occurred where concern for capital costs was replaced by attention to life cycle costs – both management and operations modified their attention to overall equipment costs, and eventually to overall system costs.

We are still in the midst of this latter transformation from equipment to system costs, but it is a pervasive and ever growing event. It is resulting in component suppliers, integrators, and users re-evaluating how their equipment interacts with adjacent equipment and systems. It is causing engineering and design staff to work more closely with customers and partners so that next generation products and systems have even higher energy efficiency and produce superior quality products, with less waste. This is an engine of innovation that is no longer dependent on regulation to drive adoption. Manufacturers have evolved. Their motivation may not be exactly what was intended from an environmental perspective, but the result is the same. Companies, regardless of the participation of the US in the Paris Agreement, will continue to adopt technologies and solutions that help them reduce costs and improve their competitive positioning; the fact that these activities also benefit the environment is an added bonus.

About Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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