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"Virtuous Circles"

European Commission - SPEECH/14/426   03/06/2014

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European Commission

[Check Against Delivery]

Janez Potočnik

European Commissioner for Environment

"Virtuous Circles"

Opening session of Green Week 2014

Brussels, 3 June 2014

Ladies and Gentlemen, Welcome to Green Week 2014.

Change is not easy. I don’t usually follow very closely the political principles of Niccolo Machiavelli, but he was amazingly perceptive when he stated that “there is nothing more difficult (…) than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.”

Over the next couple of days I think that we will all come to the conclusion that the circular economy will be the “new order of things”. I know that most of you here today are already more than “lukewarm defenders”, you are its passionate advocates,… but Machiavelli was still right.

Because who is representing tomorrow’s innovators today? Who speaks for those who may do well under the new order of things in Brussels, or in the national capitals.…? Nobody,… simply because most of them don’t exist yet. They are in the dreams of the entrepreneurs and innovators of tomorrow.

We policy makers have the ability to help drive change, but all too often we subsidize continuity, we preserve the status quo:…

  1. partly because the voices we hear most are those who do well under the existing system;

  2. partly because we fear the social and human costs of dislocation and disruption;

  3. and partly because, as I read in the Financial Times last week, “the efficiency of the current system is always your biggest competition, because the linear system is optimized”.

The linear system is actually working very well – it is just that the world is changing to make it no longer fit-for-purpose. The change we face is inevitable, and its scale will be enormous. Jeffrey Sachs, who shared this stage earlier today, put it very well in 2007 when he said "The challenge of our generation is not the war on terror. It is how to live in a crowded world. The world is bursting at the seams in human terms, in economic terms and in ecological term.

In 2007 it was the war on terror, from 2008 it was the financial and economic crisis. These are the important challenges of our generation, and we are right to focus our attention on them. But the underlying structural economic weaknesses don’t go away in the meantime.

I often get the feeling that we keep putting off the important challenges of the next generation by dealing with the urgent challenges of our own. Except that the strains on the earth’s resources are increasingly becoming problems for our generation.

Sometimes the reasons for procrastination are less convincing than terrorism or crisis. A bit like a teenager cleaning his room, organizing his desk, sorting his notes for hours, before finally sitting down to revise for an exam. Over the last five years, as I have made the case for resource efficiency I have so often heard people say “yes we fully agree, yes that is absolutely important, but not now, next year, when things settle down, when we have better data…” In the meantime, just like the student, we lose valuable time.

We are not standing still, but we are heading steadily in the wrong direction. Our economies and societies are constantly evolving. We have made incredible progress since the 19th Century, in Europe we have multiplied our wealth, eradicated diseases, and developed farming, housing and transport systems capable of supporting millions in comfort. But we are still evolving towards more efficiency in a linear way. Today’s economy and society in Europe is still based on incremental progress achieved since the renaissance and the industrial revolution.

  1. We are using 19th Century policies for 21st Century problems;

  2. We are living with 19th Century economic systems in the 21st Century world of emerging economies, millions of new middle class consumers, and inter-connected markets.

Europe’s industrial and economic model needs to change direction. We need systemic change in technology, in organization, in society, in finance and in politics. This does not mean moving to a service economy, it does not mean undermining the regulations that protect our health and environment, it does not mean replacing men with machines.

To find the direction in which we need to change we should revisit a 19th Century idea –David Ricardo’s law of comparative advantage.

Europe’s comparative advantage in the coming decades will be defined by the relative availability of resources - the factors of production from energy to materials, from labour to land, from water to biodiversity – and our ability to maximize their productivity. We will be obliged to focus on the markets where we are able to compete in the increasingly inter-connected world.

I leave it to you to work out whether this will be in the energy-intensive, labour-intensive, resource-intensive or knowledge-intensive sectors and markets. But I think the writing is pretty much on the wall for us all to see. Resource poor, crowded and ageing Europe will have to compete for inputs and markets with many other global regions. The formula that gave us growth and prosperity in the past just won’t work in the future.

But I believe that innovative, experienced and creative Europe will be capable of moving towards the resource revolution by decoupling our growth from our resource use.

It is the challenge, and the responsibility of policy–makers to tackle the inertia of the old system to enable this revolution; to create the right framework conditions for a managed and predictable transition; to create the right signals, incentives and instruments.

The European Commission did this in 2011 in its Roadmap to a Resource Efficient Europe. And in a couple of weeks we will take this further by setting out how moving towards a circular economy can take us a long way towards our decoupling goal.

So how does the circular economy fit into the resource efficiency picture?

We can – and should - continue to achieve improvements in resource efficiency in the linear system; extracting more value per ton or per hectare. I actually believe that we can still get pretty huge increases – maybe factor 4, or factor 5 in some areas. Europe proved its innovative capacity in delivering similar miracles in labour productivity in the past. But unlike human resources, material resources can be recycled and re-used pretty much forever. As Keynes said that “in the long run we’re all dead”, but material and renewable resources just keep on going.

If you discard those resources at the end of the useful life of a product, of a building, of infrastructure, then you are losing the possibility of getting value out of those resources again and again. So it is through circular economy models that we have the greatest opportunity to revolutionize Europe’s resource efficiency and make Europe competitive for the future.

From this it is pretty obvious that in a circular economy there can be no place for waste. It simply should not exist. That is why the package that the Commission will adopt in a few weeks will have at its core a push for higher recycling rates, and a push for the elimination of landfill in waste legislation. European waste legislation has already been driving us in the right direction for some time; some Member States are already achieving 70% recycling rates and virtually zero landfill, but for others you can pretty much exchange those figures. We need to get all of Europe up to the level of the best by 2030, and that is the objective we should set ourselves in the package.

The top performers have shown us that legislation is an important catalyst for change but, to really get results, waste management must be seen as just one part of a bigger process; as one phase in the loop.

So the circular economy package will situate waste legislation as one tool among the many needed to create a virtuous circle, in which secondary resources are sucked back into the productive economy by demand, in which one companies waste is another’s resource, in which we buy performance, not stuff.

The package will set out how we should innovate for a circular economy based on life-cycle approaches. It will set out the instruments needed to induce changes in design, in investments, in business models, and in markets.

It will devote special attention to sustainable buildings and sustainable food; two areas that we identified from the outset as having the highest effects in terms of impacts of resource use. In both cases it will directly tackle the waste phase, but in both cases we will treat that phase as part of the whole life cycle.

And the package will look carefully and specifically at green jobs and skills, and at green entrepreneurship and SMEs, identifying the future needs, the opportunities, and the instruments to help ensure that we exploit them.

So you can see that the package will be wide-ranging and comprehensive. We have argued since we included the resource efficiency flagship in the Europe 2020 economic strategy that an integrated approach is needed; this is not only a green agenda and it cannot be achieved through environmental policy instruments. So the various elements of the package will be led in partnership with various colleagues from the current Commission: the Commissioners for research & innovation, for industry & entrepreneurship, for health, and for employment & social policy.

Getting so many varied policy areas and so many stakeholders to move towards a transition that overturns old ways of thinking and lock-ins is a complex and difficult task. More than in any other area it is essential that there is clarity in the direction of travel. To provide that clarity we need a simple aspirational target for resource efficiency that provides a political commitment and economic predictability.

I can guarantee you that any proposal for a target for resource efficiency will meet the usual cries of “not now, not yet, wait until we have more data, and a mature methodology”. But after four years of work – analysis, consultation, modelling - I can assure you that there is really no legitimate reason to delay.

The outcome of this work shows that Raw Material Consumption related to GDP is the best available proxy to give a clear political direction. It is not perfect, but then neither is GDP itself, and we are not talking here about a legally binding target. The data will soon be available for all Member States, it is neutral in terms of embedded imported resources, and it is fully coherent with targets and goals we are using in other policy areas, from industrial policy to energy, from research to employment. We need such a target set at an achievable but aspirational level, and we should not be scared of it.

***

Ladies and Gentlemen,

At the beginning I quoted Machiavelli. Please believe me, I don’t want to go so far as to propose Machiavellian approaches to achieving a circular economy: I actually think that all our long term interests are aligned on this, so we don’t need to get nasty. But Machiavelli also identified an important part of the solution when he said that: “Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.”

We have never seen so many entrepreneurs and businesses at a Green Week in previous years. This is a demonstration of the progress we have made in building bridges between industrial policy and environmental policy.

We can see from many stands in the exhibition that Europe’s most dynamic and innovative existing companies are grasping the nettle of change. They understand that those who will survive in the coming years and decades will be those that have invested to be ready to compete in a resource-constrained world. These frontrunners have been led by visionary CEOs from the top, but increasingly pressure is also coming from shareholders that are increasingly concerned at how management is preparing for future supply risks, or from customers that want to buy performance, not possessions

In many of the examples that you will hear about over the next three days you will discover the clear business logic, the clear macro-economic logic, and the clear environmental logic of circular economy models, and of resource efficiency in general. In other examples you will see that there is much that is “possible, but not profitable”,… or rather not yet profitable.

It has to be said that the circular economy is exciting, it is where it’s happening – and we should transmit that sense of excitement to the outside world.

The circular economy will be the great innovation challenge of the next decades.


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