abare.gov.au - research report 08.02

5	Some economic aspects of the technology innovation process

The extent to which new titanium technologies are developed and deployed will have major implications for the world titanium market, demand for Australia’s rutile and ilmenite resources and the potential development of an Australian titanium industry. A domestic titanium industry, if developed, is most likely to be located at least initially in Western Australia in the proximity of major mineral sands deposits and related processing facilities. Private investment in a domestic titanium plant is also most likely to occur as a result of the further development and commercialisation of the TiRO/CSIRO process for producing titanium powder, although this is not the only option for the development of a domestic titanium industry.

In this chapter, the economic rationale for considering government intervention in technology R&D, adoption and transfer is discussed and some economic aspects of the technology innovation process in the world titanium market over the longer term are examined. The implications of this analysis for the TiRO/CSIRO R&D project and the potential development of an Australian titanium industry are discussed in the next chapter.

Role of government in encouraging technology R&D, adoption and transfer

It is useful to examine the role of government in encouraging technology R&D, adoption and transfer before considering issues specific to the titanium market. There are three main parts to the discussion in this section:

key stages in the technology innovation process

economic incentives for private investment in the development and deployment of new and enhanced technologies

the role of government in addressing market failures and implementing policy options to encourage technology R&D, adoption and transfer.
Each of these aspects is discussed in turn.

Technology innovation process

A major focus in this study is to examine the potential for the further development and commercialisation of the TiRO process developed to date in an R&D project at CSIRO. A brief overview of the technology innovation process is presented in figure g to highlight some key linkages between R&D projects and subsequent stages in the technology innovation process.

The process of technological change is often categorised into three broad stages —R&D, technology adoption and technology transfer. These stages may be subdivided to clarify aspects in the demonstration and commercialisation of new and enhanced technologies. The following definitions draw on ABS (2002) and Grubb (2007).

research and development — research into, and the development of, new and enhanced technologies. R&D activity extends to modifications to existing products/processes and ceases when work is no longer experimental:

basic research — original work undertaken primarily to acquire new knowledge without a specific practical application

applied research — original work undertaken to acquire new knowledge with a specific application, including to determine possible uses for the findings of basic research or to determine new methods or ways of achieving some specific and predetermined objectives

technology adoption — the initial commercialisation of new and enhanced technologies (technology leaders):

market demonstration — test and demonstrate the performance, viability and potential market of the technology

early commercial — adoption of the technology by established firms or the establishment of firms based around the technology

technology transfer — the more widespread commercialisation of new and enhanced technologies (technology followers):

niche market commercial — market accumulation process in which the use of the technology expands in scale, often in niche markets

fully commercial — diffusion of the technology on a large scale.

Private investment in the technology innovation process

Private firms identify and assess the economic viability of investment projects at each stage in the technology innovation process. A useful framework for considering the profitability assessments of investment projects is outlined in box 2 — this framework has been used in a range of policy assessments (see, for example, Hogan 2003, 2007).

Notably, for risk averse private investors, the profitability assessment of a risky project is assumed to be based on the project’s certainty equivalent value (CEV). A risky project is assessed to be profitable if the certainty equivalent value is zero (a marginal project) or positive (an economic project). The certainty equivalent value is equal to the expected net present value (ENPV) less a risk premium (RP) — the expected net present value is the probability weighted sum of the net present value of each possible outcome and the risk premium is the amount that compensates the investor for the risks associated with the project. The higher the risks, the lower the assessed profitability or economic viability of the project (all else assumed to be constant).

The risk profile of potential investment projects changes throughout the technology innovation process (figure g). Technical risk tends to be high at the R&D stage and diminishes as the new technology is demonstrated and commercialised. Investors become relatively more concerned about policy and economic risks during the commercialisation phases.

Unit production costs tend to be reduced in three ways through the technology innovation process:

‘proving up’ the technology — costs are reduced as the technology is ‘proved up’ through testing, debugging and demonstrating its market viability

learning by doing benefits — firms tend to reduce unit production costs further by improving on products and/or processes based on actual experience acquired in applying the new technology

economies of scale — unit production costs tend to be reduced as the technology is used on a large scale.

Reductions in both technical risk and unit production costs are important given the increased investment expenditure associated with the commercialisation phases of the technology innovation process.

Overall, some key aspects of the profitability assessment of projects in the technology innovation process include the following:

R&D projects — profitability assessments are based on the likelihood of discovering new or enhanced technologies that result in a future profit stream sufficiently large to compensate for the risks associated with the activity. Private investors tend to focus mainly on applied research and experimental development work where the commercial applications are more apparent — that is, in areas that are substantially less risky in terms of capturing the benefits from the R&D project (see, for example, Hogan 2004).

technology adoption — technology leaders are involved in the market demonstration and early adoption of new and enhanced technologies and, as a consequence, tend to incur additional costs and risks than would otherwise be the case. The profitability assessments of these investments take into account the possibility that, if the technology is successful, there is the potential to earn supernormal profits in the short to medium term before other firms adopt the successful technology. Project costs and risks may be lowered through learning by doing effects.

technology transfer — technology followers adopt a wait and see approach to the success of new and enhanced technologies and, as a consequence, tend to benefit through lower costs and risks in the investment project. Project costs and risks may be lowered through learning by doing benefits as well as by achieving economies of scale.

The rate of adoption and diffusion of new and enhanced technologies is influenced by a range of factors. As outlined in Heaney et al. (2005), factors driving the level of capital investment in an industry include the expected demand growth and the need for increased productive capacity, the size and age structure of the existing capital stock and the need to replace or refurbish existing capacity, the policy setting and impediments to investment more generally. Thus, for example, the speed of adoption in an industry that is characterised by large scale investment that is often long lived and irreversible tends to be slower than in an industry characterised by small scale investment.

box 2

An economic framework for decision making under risk
– certainty equivalent approach

In this box, an economic framework is presented for assessing the profitability of investment projects. The decision criteria to assess project profitability vary according to the riskiness of the project and the attitude of investors to incurring risk. The decision criteria are summarised in the table. Further information is provided in, for example, Hogan (2007).

Decision criteria for profitability assessments of investment projects

		profitability assessment

risk/attitude toward risk	profitability measure	uneconomic	marginal	economic

risk free project	net present value (NPV)	< 0	= 0	> 0

risky project
- risk neutral investor	expected net present value (ENPV)	< 0	= 0	> 0
- risk averse investor	certainty equivalent value (CEV)	< 0	= 0	> 0

risk free projects — net present value
Consider first a risk free investment. In the absence of risk, investors are assumed to summarise the profitability of a potential resource project by calculating the net present value. The net present value of a risk free project is the sum of the annual net cash flow over the duration of the project discounted at the risk free interest rate (assumed to be the long term government bond rate or LTBR). The net present value, NPV, in year 0 prices may be presented simply in algebraic terms as:

where V_s is the net cash flow of the project in years, i_rf is the risk free interest rate and

_s is the summation sign over all years in the project (with s = 0,1,2, … T, where T is the final year in the project life). Projects may be ranked according to net present value since it is a measure of the return to the investment. A project with a net present value that is greater or equal to zero is assessed to be profitable since it indicavtes that the investment will achieve a return that is greater or equal to the risk free interest rate.

risky projects with risk neutral investors — expected net present value
In the presence of risk, risk neutral investors are assumed to summarise the profitability of a potential investment project by calculating the expected net present value. A risk neutral investor is indifferent to the risk that an outcome may be either worse or better than expected. In this case, the investor is assumed to be able to identify a range of possible outcomes that reflect the significant sources of risk and assign (objective or subjective) probabilities to each of these outcomes. For example, price is usually considered to be a major source of risk and hence project profitability may be assessed under a range of possible price outcomes. The expected net present value is the probability weighted sum of the net present value of each possible outcome.

The expected net present value, ENPV, in year 0 prices may be presented simply in algebraic terms as:

where Prk is the probability that a possible outcome k may occur (noting that each probability has a value in the range from 0 to 1, and probabilities must sum to 1 — that is, 0 < Pr_k < 1 and

_k Pr_k = 1), NPV_k is the net present value of the project in possible outcome k and

_k is the summation sign over possible outcomes (with k = 0,1,2, … K where K is the total number of possible outcomes).

For risk neutral investors, projects may be ranked according to the expected net present value since it is now the relevant measure of the expected return to the investment. A project with an expected net present value greater or equal to zero is assessed to be profitable since it indicates that the investment is expected to achieve a return that is greater or equal to the risk free interest rate.

risky projects with risk averse investors — certainty equivalent value
In the presence of risk, risk averse investors are assumed to summarise the profitability of a potential investment project by calculating the certainty equivalent value. A risk averse investor is relatively more concerned about the risk of unexpected losses than the risk of unexpected gains. The certainty equivalent value of a project is the amount where the investor would be indifferent to investing in the risky project or accepting a risk free investment with a certain return. For risk averse investors, the certainty equivalent value is the expected net present value less a risk premium that provides adequate compensation for the risks associated with the project.

In simple algebraic terms, the certainty equivalent value, CEV, of a project for a risk averse investor may be expressed as:

where ENPV is the expected net present value, as defined previously, and RP is the risk premium.

Policy options to encourage the technology innovation process

economic rationale for government intervention

Failure of private markets to produce an optimal level of goods or services provides the economic rationale for consideration of government intervention. Two important sources of market failure to consider when assessing the role of government in encouraging technology R&D, adoption and transfer are the presence of positive externalities (spillover or third party effects) and risk.

In general, externalities occur as a byproduct or side effect of an economic activity. For example, a positive externality occurs when the actions of a firm have a positive impact on others (third parties) where these impacts are not fully reflected in the price of the good or service. Investment in knowledge or information by a firm is likely to result in positive externalities through the public good characteristics of information. A public good is nonrivalrous and nonexcludable. Information is nonrivalrous because consumption by one firm does not affect consumption of the information by another firm. Information is nonexcludable if it is not possible to allocate property rights or enforce these property rights at reasonable cost.

Two sources of positive externalities in the technology innovation process are:

positive externalities in R&D activity — at the R&D stage, as noted earlier, a private firm is likely to invest in acquiring information provided the benefits of the information to the firm over time are assessed to exceed the costs and risks of the investment. The profitability assessment does not take into account any benefits that cannot be captured by the firm.

positive externalities through learning by doing — in subsequent stages of the technology innovation process, particularly for technology followers, positive externalities arise as the costs and risks of technology adoption tend to be reduced somewhat through learning by doing effects. The flow-on benefits from learning by doing require the information to be passed on to others.

Compared with the optimal outcome, there is likely to be a shortfall in private investment in technology R&D, adoption and transfer owing to the presence of these positive externalities. Profit incentives to invest in the technology innovation process are further reduced by the presence of risk. The combination of positive externalities and relatively high risks is likely to be most significant for the shortfall in private investment in R&D projects.

policy options

Ideally, to provide an economic assessment of the role of government, policy options that address significant sources of market failure need to be identified and ranked, where feasible, according to the expected net economic benefits, including implementation costs. Only policy options that are expected to result in positive net economic benefits should be considered for implementation. From an economic perspective, the policy option that is expected to achieve the highest net economic benefits is the preferred policy option.

In practice, a range of policy options may be implemented to address an identified market failure. It is often useful to distinguish between policy options that encourage R&D in new and enhanced technologies and policy options that encourage technology adoption and transfer (see, for example, Hogan et al. 2007). These policies may also be referred to as technology push policies and market pull policies, respectively, in the technology innovation process and a mix of these policy approaches may be adopted in practice (figure g; Grubb 2007). It should be noted that policies that encourage investment in R&D tend to result in higher rates of technology adoption and transfer and, conversely, policies that encourage technology adoption and transfer provide economic incentives that tend to result in increased investment in R&D:

encouraging R&D (technology push policies or supply side policies) — there are several policy options that encourage R&D activity by providing greater economic incentives for industry investment in R&D (by reducing the costs and/or risks of the activity) and through direct support for public investment in R&D (including publicly funded R&D projects and public–private partnership arrangements). Policy options to encourage investment in R&D include: intellectual property rights (for example, patents, trademarks and copyright); government support for R&D through grants, subsidies and tax incentives; and joint ventures between private companies and/or public research organisations (for example, a joint venture partnership is an important mechanism to share the costs and risks of an economic activity between different partners as well as providing private partners with direct learning by doing benefits).

encouraging technology adoption and transfer (market pull policies or demand side policies) — there are several policy options that encourage technology adoption and transfer by providing greater economic incentives for industry investment in new and enhanced technologies. Examples of policy options to encourage investment in technology adoption and transfer include: setting government technology and performance standards (including energy efficiency standards); government support for technology adoption through grants, subsidies and tax incentives; and joint ventures.

Grubb (2007) discussed the role of publicly funded RD&D (research, development and demonstration) projects and the transition to privately financed operations. In the current study, the market engagement programs identified by Grubb (2007) are most relevant. Market engagement programs aim to move a trial technology from public R&D funding to engagement with the private sector and include:

technology incubators — these are government funded organisations that specialise in developing private firms out of public based research.

acceleration programs — these programs field test technologies to debug the technologies and reduce the costs and risks to private investors.

Some key economic aspects of the technology innovation process in the world titanium market are discussed in the remainder of this chapter.

Technology innovation process in the world titanium market

Information on the titanium supply chain and current R&D projects on titanium production processes was provided in chapter 2. A broader focus on the technology innovation process in the world titanium market is presented in this section, including some discussion of the economic incentives on the supply side and demand side of the market.

Key directions in technology development and deployment

The technology innovation process in the world titanium market has focused on three main areas:

quality characteristics of titanium metal

production costs

fabrication costs.

Titanium metal is used both in its commercially pure (CP) form and in several titanium based alloys that have been developed to meet the quality requirements for specific end use applications (DISR 2001b). CP titanium is composed of a minimum of 99.2 per cent titanium plus elements such as oxygen, nitrogen, carbon and iron, and titanium based alloys contain 2–20 per cent or more of aluminium, vanadium, tin, chromium and/or zirconium (DISR 2001b). CP titanium, which generally has lower tensile and yield strengths than the titanium based alloys, accounts for around 30 per cent of titanium mill products — CP titanium is used extensively in industrial applications where corrosion resistance is a major quality requirement (Norgate and Wellwood 2006; also see box 1).

As indicated in chapter 2, two production technologies have been commercialised in the world titanium industry — the Kroll process and the Hunter process. The Kroll process is used to produce titanium sponge that generally has a titanium content of between 99.2 per cent and 99.8 per cent (Roskill 2006). The Hunter process was developed to produce higher quality sponge for aerospace applications. Over time, however, with improvements to the Kroll process and better melting techniques, the quality of titanium sponge has become less critical and all the major producers now use the Kroll process (Roskill 2007). Technological change in the industry has been mainly characterised by incremental improvements in the production process, with production costs also reduced through economies of scale and learning by doing effects (DISR 2001a; Roskill 2007).

The major focus of current R&D efforts in the world titanium metal industry is to achieve significant cost reductions in the production and fabrication of titanium metal rather than to develop titanium based alloys with enhanced properties (Froes et al. 2007). The importance of the production and fabrication stages in the industry’s cost structure is indicated in table 11. The development and deployment of technologies that reduce titanium production and processing costs would enhance the cost competitiveness of titanium relative to substitutes such as steel and aluminium (see also box 1).

Both the Kroll and Hunter production technologies are relatively high cost batch processes and subsequent fabrication of parts involve an average wastage of 40 per cent (Roskill 2007). An important objective in current R&D activity is to develop a continuous production process for titanium metal to substantially reduce production costs (see chapter 2). In several of these R&D projects, including the TiRO/CSIRO project, titanium metal is produced in powder form (table 2). Powder metallurgy (PM) techniques in which items are directly fabricated from titanium powder may be utilised to reduce fabrication costs (Norgate and Wellwood 2006). Examples of near net shape applications using castings and PM techniques that have the potential to reduce fabrication costs are provided in Froes et al. (2007).

box 3

Illustrative impact of technological change in the world titanium market

In this box, a simplified graphical analysis is used to illustrate some key aspects of the long term adjustment in the world titanium market to technological change.

world titanium market
The long run adjustment in the world titanium market to technology development and deployment is illustrated in figure i. The development and deployment of a significant production technology in the world titanium metal industry reduces the long run marginal cost of production — the industry’s supply curve — from S₁ to S₂.

The world titanium demand curve represents the marginal benefit of titanium in all end use applications and is given by D — the industry’s demand curve. This is derived by summing horizontally the individual demand curves for different end use applications (the implied scale on the horizontal axis in the figure differs from the scale in other figures in this box).

Prior to the adoption of the new technology, the world titanium market is in equilibrium at the titanium price, P₁, where the supply curve intersects the demand curve — at this point, world titanium production, which is assumed to be equal to world titanium consumption, is given by Q₁. Following the adoption of the new technology, the world titanium price falls to P₂ and world titanium production and consumption increases to Q₂. Overall, the world titanium metal price is reduced and titanium is more competitive with substitute metals in end use applications — that is, there is a fall in the price premium of titanium over substitute commodities and an increase in world titanium consumption. The net economic benefits of the technological change are indicated by the shaded area in the figure (this is equal to the net increase in the consumer surplus and producer surplus where the producer surplus may be interpreted as incorporating the return to the mineral resource).

impact of a world titanium price fall on demand in different end use applications

The price responsiveness of titanium demand — that is, the extent to which titanium consumption increases as a result of the price fall — varies between different end use applications. The impact of technological change on four established and potential end use markets, referred to as applications A to D inclusively, is illustrated below.

1. established end use application A, no demand response

End use application A is assumed to be an established titanium market segment where there is no demand response following a titanium price fall — that is, titanium use is unaffected by price in this market segment. In figure ii, demand in end use application A is given by the vertical curve D_A — the demand curve represents the marginal benefit of titanium in the end use application. Prior to the adoption of the new technology, this market segment demands titanium up to the point where the titanium price, P<sub>1</sub>, intersects the demand curve — that is, titanium consumption is given by Q_A1 in end use application A. Following the adoption of the new technology, the world titanium price falls to P₂ but titanium consumption is unchanged — that is, Q_A1 = Q_A2 in end use application A.

This case may be broadly indicative of aerospace applications where titanium is a relatively small cost component in the construction of commercial and military aircraft. One factor that will influence the outcome in practice is the extent to which new technologies reduce the price of the very high quality titanium metal required in aerospace applications. The main focus of R&D projects is to reduce the cost of producing titanium for non-aerospace applications (Roskill 2007).

2. established end use application B, with demand response

End use application B is assumed to be an established titanium market segment where titanium consumption increases following a titanium price fall. In figure iii, demand in end use application B is given by the curve D_B. Titanium consumption in this end use application increases from Q_B1 to Q_B2 when the titanium price falls from P₁ to P₂ following the adoption of the new technology.

This case may be illustrative of industrial applications, such as tubing, where the benefits associated with the higher quality characteristics of titanium in the end use application is assessed against its price premium. The outcome for medical applications may fall between those illustrated for end use applications A and B, although this market segment is relatively small.

3. developing end use application C

End use application C is assumed to be a developing titanium market segment where titanium consumption is still relatively small but has the potential to increase significantly following a titanium price fall. In figure iv, demand in end use application C is given by the curve D_C. Titanium consumption in this end use application increases from Q_C1 to Q_C2 when the titanium price falls from P₁ to P₂ following the adoption of the new technology.

This case may be indicative of cookware applications if the titanium price falls sufficiently for titanium cookware to be cost competitive in the high quality end of the consumer market. Similarly, the use of titanium in architecture, building and construction has the potential to expand considerably depending on the extent of the price fall.

4. new end use application D

End use application D is assumed to be a new titanium market segment where titanium is not currently used but has the potential to be cost competitive following a titanium price fall. In figure v, demand in end use application D is given by the curve D_D. Titanium consumption in this end use application increases from zero to Q_C2 when the titanium price falls from P₁ to P₂ following the adoption of the new technology (that is, Q_C1 = 0).

This case may be indicative of automotive applications, such as automotive exhaust systems, if the titanium price falls sufficiently for titanium to be cost competitive with stainless steel systems.

Implications of technology development and deployment for end use applications of titanium metal

The development and deployment of a new titanium production process is likely to lower industry costs, reduce the world price of titanium and increase titanium consumption in end use applications. The responsiveness of demand to a price fall is likely to vary between different current and potential end use applications. The long term adjustment of the world titanium market to technological change is illustrated in box 3 using a simplified graphical approach.

There are four different end use applications in the world titanium market:

established end use application with no demand response

established end use application with a demand response

developing end use application

new end use application.

For example, aerospace is an important established end use application, accounting for 38 per cent of world consumption of titanium mill products in 2005 (table 3). Detailed long term projections for the world commercial aerospace industry by Boeing and Airbus indicate passenger traffic growth rates may increase at an average annual rate of around 5 per cent in the twenty years to 2025 (Airbus 2006; Boeing 2006; Roskill 2007). Demand for titanium will increase with the projected growth in the world aircraft fleet, although a significant fall in the price of titanium may not significantly alter this growth path. In addition, there is some uncertainty about the extent to which technological change will result in lower prices for the very high quality titanium metal required in aerospace applications — the main focus in R&D projects is to achieve significant cost reductions in producing titanium for non-aerospace applications (Roskill 2007).

By contrast, industrial applications are an important established end use market for titanium mill products that are likely to be more price responsive than aerospace applications (Roskill 2007). Industrial applications of titanium include a wide range of uses in the chemical/petrochemical, power, oil and gas, water supply, automotive, marine and construction industries. In 2005, industrial applications accounted for 49 per cent of world consumption of titanium mill products in 2005 (table 3).

Several end use applications for commercially pure (CP) titanium that have the potential to expand significantly, particularly with a lower world titanium price, are discussed in Norgate and Wellwood (2006):

tubing — CP titanium is currently widely used in tubing applications in, for example, power plants and heat exchangers. The quality advantages of titanium in these applications include corrosion resistance and long life. Demand for titanium in these applications has the potential to increase significantly with a lower titanium price.

medical implants — medical implants currently represent a small end use market for titanium. Despite its relatively high price, titanium is used in surgical components because it has proved to be completely inert and is more compatible with body fluids and tissues than other metals (Roskill 2007). Demand for CP titanium in medical implants is likely to increase strongly over time, particularly with aging populations in industrialised economies, and a fall in the price of titanium may result in a slightly stronger growth path. The discovery of a CP titanium with a higher strength would expand the potential uses of titanium in medical implants.

architecture, building and construction — titanium is currently used in relatively small quantities in architecture, building and construction applications reflecting its low density and weight, attractive appearance, good corrosion resistance and minimal maintenance needs. For example, in Japan, titanium has been used in hundreds of buildings, mainly near the sea, because of the corrosive environment. Demand for titanium in these applications has the potential to increase significantly with a lower titanium price.

cookware — cookware is currently a small end use market for titanium. Titanium has the potential to compete with stainless steel in the high quality end of the market. Demand for CP titanium in cookware has the potential to increase significantly with a lower titanium price.

automotive exhaust systems — there is potential for CP titanium to fully replace stainless steel in this application. Two quality characteristics of titanium are important in this application — corrosion resistance increases the lifetime of exhaust systems, reducing or avoiding the replacement costs associated with other systems, and a titanium exhaust system would be up to 50 per cent lighter than the alternative, increasing the fuel efficiency of the motor vehicle. Titanium will be cost competitive with the substitute metal in this application if the price premium for titanium does not exceed the benefits associated with the higher quality titanium exhaust systems.

It is apparent from the above discussion that there are major uncertainties in the long run outlook for the world titanium market. On the supply side, major uncertainties include the timing and extent of the development and deployment of any new production and fabrication technologies, and the impact of these technologies on industry costs. On the demand side, there are major uncertainties about the extent to which demand in various end use applications will increase in response to a lower world titanium price.
Three long run growth scenarios for world titanium consumption in end use applications are presented in figure h (this outlook assessment draws on information provided in Roskill 2007 and Holz 2006). Over the medium term, between 2005 and 2011, world consumption of titanium mill products is forecast to continue to increase strongly at an average annual rate of 6.8 per cent (see table 8 in chapter 4). Over the longer term, between 2011 and 2025, world titanium consumption is projected to increase at an average annual rate of 4 per cent in the low growth scenario, 7 per cent in the medium growth scenario and 10 per cent in the high growth scenario.

The growth scenarios presented in figure h represent a relatively conservative set of possible long run growth paths for world titanium consumption. The low growth scenario represents a relatively pessimistic outlook that is achievable without the deployment of new technologies and assuming moderate world economic growth over the longer term. The medium and high growth scenarios represent long term growth paths that allow for the deployment of new technologies assuming these are found to be economic. The high growth scenario allows for technology development and deployment to have a greater impact on the long run growth path for world titanium consumption although the penetration of titanium into new markets or end use applications is still assumed to be limited in this outlook scenario.

The final outcome for the future expansion of the world titanium market will be influenced by the extent to which international titanium R&D efforts result in new technologies that reduce titanium production and fabrication costs and, if economic, the timing of the uptake of these technologies.

The introduction of policies to limit greenhouse gas emissions is also likely to have a significant impact on the long run outlook for the world titanium market, although only some general comments are noted here. A significant new titanium production technology, if adopted, is likely to result in lower energy costs than would otherwise be the case (with or without a greenhouse gas policy response). The energy efficiency of established titanium plants varies widely — in particular, Japan has relatively energy efficient plants compared with those in China (Roskill 2007). The introduction of greenhouse gas policies is likely to increase the cost competitiveness of any new titanium production technology compared with the established technology, but the critical cost comparison should be with Japan’s established plants.

The production processes for titanium and its key substitutes tend to be relatively energy intensive. As a consequence, the introduction of greenhouse gas policies would place upward pressure on the prices of these products. Historically, the use of titanium in aerospace applications has been cost effective since its high strength to weight ratio resulted in lower fuel costs. Under greenhouse gas policies, to the extent that energy prices are higher than would otherwise be the case, there may be further switching toward titanium in end use applications that value these quality attributes. A detailed assessment of the net impact of these supply side and demand side influences on the world titanium market is beyond the scope of this study.
figure h