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European Commissioner for Environment
Resource efficiency is also a business opportunity
Meeting with the British Chamber of Commerce in Belgium
Brussels, 6 December 2011
I’m sure you have all heard about the famous climate change “hockey-stick”. It was used by the climatologist Jerry Mahlman to describe the UN IPPC graph showing global temperatures staying relatively flat for a millennium up to 1900 (“nineteen hundred”) – forming the hockey stick's "handle" – followed by a sharp increase in temperatures corresponding to the "blade”.
I want to explain another “hockey stick”. If you look at the real prices of most resources over the 20th Century you will find them in steady decline forming a long handle – though here we are talking of a century not a millennium. Then from 2000 we see a sharp increase. Indeed that “blade” has wiped out in one decade the real price reductions we saw in the previous Century.
What does that mean for industry and for the environment?
The growth of Europe's economies was built on those cheap resources. In the “Great Acceleration” of the 20th century our GDP growth was based on increasing the world’s fossil fuel use and extraction of material resources by a factor of ten1.
But that era of plentiful and cheap resources is coming to an end. Energy, raw materials, water, clean air, biodiversity and terrestrial, aquatic and marine ecosystems are all under pressure.
Scarcity is becoming ever more apparent, price spikes have dominated the markets in recent years and we are drilling ever deeper in search of new sources.
We have all heard the population predictions. A couple of weeks ago we welcomed the 7 billionth fellow human onto our planet. We are joined by another 200,000 people every day, and we will be 9 billion by 2050. Our co-habitants will rightly aspire to higher standards of health and wellbeing, and this will translate to a 70 % increase in demand for food, feed and fibre by 2050.
That demand is a wonderful business opportunity, but with 60 % of the ecosystems underpinning these resources already degraded, we risk failing to meet this demand. If scarcity is already a problem today what can we expect in 2020 and 2050?
It is clear that the resource intensive growth path that today’s rich countries followed in the last century will not be possible in this century. As we don’t have another planet, we have no other choice but to use the resources of planet Earth more efficiently. To recycle, to substitute, to reduce and to make resources go further.
Resource constraints are the megatrend we must deal with. If we want to grow we have to be more resource efficient. There will be green growth or there will be no growth. The choice we do have is whether to become more resource efficient now, or we wait until we are forced by collapses, shortages and price hikes.
My second point is that gradual increases in resource productivity will not be enough to fill this gap. We need to achieve 'real and absolute decoupling' of economic growth from resource use and pollution.
My third point is – you will be pleased to hear – a bit more optimistic. It is that such a paradigm change or industrial revolution is possible, largely because of that hockey stick I explained a few minutes ago. It is prices that will be the main driver of innovation.
Throughout the 20th century European industry achieved phenomenal increases in labour productivity because labour was increasingly expensive, and resources cheap. Now, as we hit the blade of the hockey stick, we already see those resource price increases leading to a new focus on increasing resource productivity and recycling.
So if markets will do the job why does the Commission, or national governments, need to get involved? Here comes my fourth point.
Well for a start, prices will do a lot, but prices do not always reflect the real value of resources. If we do not value water or biodiversity properly, how can we be expected to allocate those resources efficiently, or manage them properly? So we need to make sure that we eliminate subsidies and taxes that lead to distortions and inefficiencies, and try to get the prices right using market-based instruments.
And prices are not the only source of information. Poor consumer and producer information about the life-cycle costs and impacts of the products and services they produce and use make it difficult for them to behave rationally.
Then we must consider the fact that any transition will involve big investments and that industry, particularly small companies, need to have predictability and confidence to make such investments. Quite often taking the resource efficient option can involve higher initial costs and longer paybacks. And the challenge is not only at company level, in the wider economy we are locked into resource inefficient infrastructures, resource inefficient financing and policy-making and resource inefficient behaviour. Breaking out of these will require public-private partnerships.
So it is the task of governments to give clear messages and signals about the future context for growth, to provide the right framework conditions and to support industry in investing in that transformation now, rather than letting the creative destruction be more destructive than creative.
That means getting ahead of the curve, as it will be those companies and countries that adapt earlier to resource constraints that will reap the competitiveness rewards and that will feel the least pain.
Whatever the importance of policy makers, the delivery of resource efficiency will depend on business seeing its potential; and that potential is truly great; even for short-term gains.
For instance, evidence shows that a 10-20 % reduction in resource and energy use in Germany is possible2. The payback period would be one year in the case of materials. It is estimated that this would lead to an increase in resource productivity of 2.9 % per year. Only for materials, this saving would be worth up to 160 billion euros a year in Germany alone, with the German Resource Efficiency Agency estimating average savings – per SME - at € 200 000 each year.
Another study published in March for the UK Government identified around £ 23 bn a year of potential savings to British businesses from straightforward resource efficiency measures involving no investment, or small scale investment (again with payback within a year). This would also save around 29 million tonnes CO2 a year. £ 18bn of these savings are associated with using raw materials more efficiently and generating less waste. The £ 23 bn potential is spread across all sectors, with the biggest savings potential in chemicals, metal manufacturing, power and utilities, construction and road freight.
And I repeat, all this with no or small scale investment with payback within a year. Looking at longer-term savings with a payback of greater that one year, an additional potential of around £ 33 bn per year was identified for the UK.
So when I see some politicians blaming higher environmental standards for national or European economic problems, I really think they are missing the plot. Or maybe it’s just easier to blame costly regulation from Brussels.
I spend much time making the competitiveness case for resource efficiency. But I am the Commissioner for Environment, so let me explain why I believe resource efficiency is also the future direction for environmental policy.
In Europe we enjoy the fruits of 40 years of environmental legislation in providing for example clean air and clean water. But today it is no longer enough to punish the polluters at the end of the pipe, when they have gone too far and the damage is done. Today we need to reorient our economic activities so that they respect environmental constraints and boundaries. This is an environmental imperative and a competitiveness imperative.
This is a message that has already been understood in the industrial policy of Japan and Korea. And in the latest Chinese 5-year plan. And it is why I have made sure that environmental policy has become one of the main pillars of the European Union’s structural economic strategy – Europe 2020 - and of our industrial policy.
Our ultimate aim must be to decouple our growth from resource use and its impacts. That is the vision we set out to achieve in the roadmap that we published in September. The roadmap reflects the approach that I have already explained to you.
First, we need to get the prices right so that they reflect the real value of resources. Already in the Annual Growth Strategy we adopted last week you will see that we call on Member States for a shift in taxation from jobs to resources and to eliminate subsidies that perpetuate inefficient and environmentally damaging production and consumption.
Then the roadmap recognises that we must also help companies to develop sustainable products, services and processes, for example through support for eco-innovation and eco-design; and that we need to stimulate the demand for those products and services, through better labelling and standards, through green public procurement and through more information on the life cycle impacts of products. Already next week we will adopt the Eco-innovation Action Plan, and if you read our proposal for the next research framework programme – Horizon 2020 – you will see resource efficiency at its core. We commit to direct 60 % of Community research spending towards sustainable development.
The Roadmap also provides clear priorities. The United Nations Resource Panel states that around 80 % of the impact of our lifestyles – on resources as well as climate change – comes from housing, transport and food. And as we sit down to our dinner, I should remind you that by far the most significant of all of these is food, with meat and crops accounting for more than 50 % of all impacts. That is more than plastics, minerals and fossil fuels put together. So I encourage you to finish what is on your plate. Did you know that we throw away 179 kilogrammes of food per person in Europe? About 25 % of the food we buy ends up in the bin, and depending on where you live much of it ends up in landfill.
That brings me onto waste in general. We have excellent waste legislation today. The 2008 Waste Framework Directive is straightforward. But the level to which it is implemented varies enormously. It is clear to me that the key to achieving our waste objectives is to make them economically attractive. To get to the stage where waste is treated as a resource. And the most effective way to get to that position – as several Member States have already shown – is through separate collection of waste streams, and making landfill expensive.
We already have 5 Member States that have achieved virtually zero landfill, whilst many others still bury more than 80 % of their waste – either legally or illegally. The best have used a variety of means to get there, such as “smart” taxes on landfill, landfill bans, or producer responsibility rules.
To take plastic as an example, today about 49 % of plastic waste is still going for disposal. And most of that goes to landfills. This plastic is lost for good. Diverting this plastic to recycling would reduce environmental damage, increase supply and provide jobs. I believe that zero landfilling of plastic waste is achievable and that we should work towards it.
Moving towards sustainable materials management will become an increasing economic imperative as demand for those resources rises. We can help the market to develop through separate collection, through quality standards for secondary materials, by promoting recyclability at the design stage and by supporting industrial symbiosis.
The potential for job creation in re-use and recycling is huge.
Ladies and Gentlemen.
Environment policy is becoming economic policy. This was perhaps always inevitable as the economy is ultimately dependant on the environment. But it was only as we started to put real stress on our planet that we began to realise that it’s limits would actually be a constraint on our economic activity and our wellbeing.
That means we will start to see environment policy not as a constraint on competitiveness, but rather as essential to ensuring our future competitiveness and resilience.
We have to end the old polemics between environmentalists and industry. We all must understand that there can be no opting out or opting in to the system any more – we are in it together.
Decoupling natural resource impacts from economic growth, International Resource Panel (2011) and Ecological Economics 68 (2009) 2696–2705: factor 12 for fossil fuels, factor 10 for materials
Distelkamp, M., Meyer, B., Wolter, M.I. (2005) in: Aachener Stiftung Kathy Beys (Hrsg.) Ressourcenproduktivität als Chance, and MaRess Final Report, Wuppertal et al 2010, referencing others