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Commissioner Janez POTOČNIK
European Commissioner for Environment
Speech to the Informal Competitiveness Council
Sopot, Poland, 22 July 2011
Deputy Prime Minister, Ministers, Colleagues,
During the 20th Century the world population grew by four times, its economic output by 40 times. We increased our fossil fuel use be 16 times, our fishing catches by 35 times and our water use by 9 times1. It was called the “great acceleration”, which fits in nicely with our motoring metaphor for today.
With a world population of 1.5 billion 100 years ago this growth path was fine. It gave us health, wellbeing and wealth. But with a population of 7 or 9 billion it is not fine. 140 000 more people every day are sharing a planet which will stay the same size. As we don’t have another planet, we have no choice but to use more efficiently the resources on this one.
So my first message is that resource efficiency is not a choice, it is inevitable. Our choice is whether to develop it now, or whether we wait until we are forced to when critical resources are exhausted and expensive. To go back to our metaphor, if we want to continue to accelerate we need to change the road, or we are going to start driving straight into some walls.
So what should the roadmap look like? Let’s look at what made us so competitive so far, and how that is changing.
Europe is poor in mineral resources. We get 48% of our copper ore from abroad, 64% of zinc and bauxite and 78% of nickel. We import all of our cobalt, platinum, titanium and vanadium. As a highly import dependent continent you would expect that we manage our resources efficiently. The reason we don’t is because their prices have actually been decreasing in real terms for the last 150 years, excepting occasional wars and oil crises.
At the same time labour costs went on rising. To remain competitive we had to use all our ingenuity to match these increased costs with massive increases in labour productivity – increasing it about 20 times in the same 150 years. This mutually enforcing increase of costs and productivity fuelled the engine of our technological progress.
The megatrend today is the end of perpetually cheaper resources. Today, with material costs making up more than 40% of total costs in manufacturing industries, compared to less than 20% for labour2, it is clear that we need to apply the same ingenuity and innovation to improving our resource productivity now as we did to improving our labour productivity in the past.
In a resource-constrained world, our resource poverty means that the old cycle of … extract-use-throw away, extract-use-throw away … will only lead to further dependency on external sources and vulnerability to price hikes.
This is the message that leaps out at me from reading the background papers that have been prepared for today’s debate. It is a message that leaps out from the industrial policy of Japan and Korea. It is the message that leaps out from the latest Chinese 5-year plan.
Our challenge is that after a few centuries of resource-intensive growth we are “locked-in” to resource inefficient infrastructures, resource inefficient economic and financial systems, resource inefficient business models and resource inefficient behaviour. This is a problem that is not faced by the BRICs, who are able to quickly change direction in response to resource constraints. If we are to remain competitive in this new paradigm we have a major structural transformation to achieve.
There will be no growth if it is not green growth. That is why environmentalists and industry must move away from their old polemics and work in partnership. Environment policy cannot just be about punishing polluters, we must build it into the very way we produce and consume.
If we are able to do this we will start to see environment policy not as a constraint on competitiveness, but rather as essential to ensuring our future competitiveness. Or to look at it another way we are not protecting the environment from business so much as using business to protect the environment.
I remain optimistic, because one resource that we have in plentiful supply in Europe is resourcefulness itself. The power of our ideas and creativity gives us a comparative advantage for future growth. There is a huge margin for increasing the efficiency of our resource use through innovation:
By being the first to tackle these inefficiencies we will get first mover advantage in global markets for our technologies.
But innovation is not enough.
As an economist I learned that the first rule of competitiveness is the rational allocation of resources, and in our markets we use prices to do that. But how can we be expected to be rational and efficient if the prices bear little relation to the value of those resources? Most raw materials are traded and managed pretty well, but we will never manage other valuable resources such as water or forests properly for as long as there is no incentive to do so. We have to use market-based instruments to provide those incentives.
Here we reach the more difficult aspect of the relationship between resource efficiency and competitiveness. I will not hide the fact that the relative prices of some resources will need to increase. Nor will I hide the fact that our levels of consumption will need to be reduced. These messages are not easy for industry to swallow, so let me tackle them head on.
First, it may seem counter-intuitive to suggest that increasing prices of some inputs can make us more competitive, but that is because we take a short-term perspective. Not only will getting prices right mean we manage resources better, it will mean we manage them sustainably and avoid hitting those walls I mentioned earlier. We should not kid ourselves that we can go on relying on cheap resources; we need to provide the right pricing signals in a predictable way that gives industry the time to invest in ensuring that resource productivity keeps pace with resource costs.
Second, when we talk about reduced consumption we are actually saying is less “stuff”. That does not mean less profits. We need to dematerialise. We need to develop smarter products that do the same with fewer resources. And we need to sell the associated services. We need new business models that encourage greater value added, and more life-cycle thinking, such as the chemical leasing that Antonio just mentioned. And we need to develop the financing tools and the skills to ensure that there are no bottlenecks to developing these approaches.
I have distributed a note setting out the background to the Roadmap for Resource Efficiency.
When we adopt the Roadmap in September I want it to be seen as a partnership of old adversaries. Just as the Climate and Energy package brought together the two sides of the argument who together could actually make things happen, I want environment and industry to get together to recognise that the environment and the economy must coexist and depend on each other.
Antonio and I are already on the same wavelength. But getting to our ambition of decoupling Europe’s growth from resource depletion requires more than we have in our Brussels toolkits. We need national action, and we need the private sector on board.
That is why I am here today to explain the approach to industry ministers. You will be a central part of achieving resource efficient growth and I look forward to working with you to make sure that…
… doing more with less becomes our comparative advantage in the 21st Century.
UNEP Resource Panel
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