In 2019, UK businesses spent £2.1 billion on environmental protection. But most of this spending was related payments made to external organisations. Businesses in the manufacturing industry spent the most (£1.7 billion) on protecting the environment, accounting for approximately three-quarters of the total sum.
The goal of the 2016 Paris Agreement is to keep average global temperatures from rising more than 2°C above pre-industrial levels by reducing the emissions that cause climate change. Business investment to make production less harmful to the environment is an important factor in meeting this goal.
Environmental protection expenditure includes all activities and actions that contribute to the prevention, reduction and elimination of pollution or any other degradation of the environment. Some examples are sewage treatment, the removal of solid waste, the management of exhaust gas emissions and protection of natural landscapes. Each of these activities plays a role in the effort to limit the rise in temperature and mitigate climate change.
Recent ONS data provide an update on environmental protection expenditure by UK businesses. The ONS surveyed around 3,000 firms from four industries: mining and quarrying, manufacturing, energy production, and water supply. The data show that UK businesses spent an estimated £2.1 billion on environmental protection in 2019 (See Table 1).
Table 1: Environmental protection expenditure by businesses, UK, 2016 to 2019
£ billions
| 2016 | 2017 | 2018 | 2019 | ||
| External expenditure | operating | 1.2 | 1.2 | 1.2 | 1.2 |
| In-house expenditure | operating | 0.5 | 0.5 | 0.5 | 0.4 |
| Total operating expenses | 1.7 | 1.7 | 1.7 | 1.7 | |
| End-of-pipe expenditure | capital | 0.2 | 0.5 | 0.3 | 0.4 |
| Integrated expenditure | capital | 0.1 | 0.1 | 0.0 | 0.0 |
| Total capital expenditure | 0.3 | 0.5 | 0.4 | 0.4 | |
| Disposals | 0.0 | 0.0 | 0.0 | 0.0 | |
| Total environmental protection expenditure | 2.0 | 2.2 | 2.1 | 2.1 |
Source: Office for National Statistics – Environmental Protection Expenditure Survey
Environmental protection spending can be divided into operating and capital expenditure. Operating expenditure relates to running costs incurred by businesses for environmental protection services that enable them to operate. In 2019, operating expenditure accounted for 79% of environmental protection expenditure. Around three-quarters (£1.2 billion) of this related to payments made to external organisation for their environmental services, such as waste disposal or sewage treatment. This suggests that businesses mainly paid other organisations for treatment, disposal, and investigation of waste, instead of managing these processes internally.
Capital expenditure relates to investment by businesses in assets such as land, equipment or buildings that are used during business operations to manage or reduce pollutants generated. These are often one-off items such as investment in equipment that treat generated industrial pollutants – low levels of investment in the current year may reflect high investment in previous years.
UK businesses in the four surveyed industries spent £0.4 billion on capital environmental protection expenditure in 2019, compared with £0.3 billion in 2018. In both years, most of this capital expenditure related to ‘end-of-pipe’ spending. End-of-pipe spending is an investment in new methods, technologies or equipment designed to manage pollutants after their creation. This might include investment in equipment that treated generated pollutants, such as an effluent treatment plant or exhaust air scrubbing system, or investment in ensuring their safe disposal, such as a solid waste compactor.
In contrast, integrated capital expenditure refers to methods, technologies and equipment integrated within a business’ overall activity, where the primary aim of the expenditure is to reduce any pollutants generated. An example here would be the difference in the cost to a business of purchasing more precise cutting machinery, that led to the production of smaller amounts of waste, compared to the business purchasing cheaper but less precise cutting machinery that might lead to the production of larger amounts of waste.
Spending on solid waste management activities (£0.9 billion) accounted for the largest proportion (42%) of all environmental protection expenditure in 2019 (Figure 1). Solid waste management includes the treatment and investigation of waste, including general waste such as paper and cardboard, as well as hazardous and non-hazardous waste. Most spending on solid waste management (87%) related to external operating expenditure.
Figure 1: Environmental expenditure by type and activity, UK, 2019
Source:Office for National Statistics - Environmental Protection Expenditure Survey
Generally, external operating expenditure was greater than in-house expenditure across all types of environmental protection spending – further evidence that businesses often outsource the disposal of waste to specialised contractors. But expenditure for protection of clean air mainly related to in-house operating expenditure. This suggests that businesses manage the protection of ambient air and climate internally.
Figure 2: Environmental protection expenditure by type and industry, UK, 2019
Source: Office for National Statistics - Environmental Protection Expenditure Survey
Environmental protection expenditure varies across industries depending on the operating activity of each business, and their strategies for waste management and environmental protection. In 2019, the manufacturing industry spent more on environmental protection than any other industry surveyed, accounting for around 78% of all spending.
The type of environmental protection expenditure by business usually reflects the activity of the industry. For example, a business within the energy production industry may be more likely to have larger in-house expenditure than external expenditure as their waste disposal and environmental protection activities might be easier to manage internally. But businesses within the manufacturing industry may have more bulky waste items that are difficult to dispose of and require specialised services and therefore spend more externally.
Where can I find out more?
- The ONS data release on environmental protection expenditure.
- Environmental protection and financial performance: an empirical analysis in Wales: study by Jerónimo de Burgos Jiménez, Diego Vázquez Brus, José A. Plaza Úbeda and Jeroen Dijkshoorn in International Journal of Operations & Production Management
Who are experts on this question?
- Jennifer L Castle
- David F Hendry
- Dimitri Zenghelis
- Emile S Greenhalgh
