On the road again – with a new roadmap

European Commissioner for Environment, Janez Potočnik, on why environmentalists and industry in Europe must work together to decouple growth from resource depletion.

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During the 20th century, the world population grew by four times, and its economic output by 40 times. We increased our fossil fuel use by 16 times, our fishing catches by 35 times, and our water use by nine times. It was called the “great acceleration” – which fits nicely with this article’s motoring metaphor title.

One hundred years ago, when the world population was 1.5 billion, this growth path was fine. It gave us health, well-being, and wealth. But with a population of seven billion, it is not fine. Every day, 140,000 more people are sharing a planet which will stay the same size. As we don’t have another planet, we have no choice but to use the resources on this one more efficiently.

Resource efficiency is not a choice, it is inevitable. Our choice is whether to do it now, or wait until we are forced to do it, when critical resources are exhausted and expensive. To go back to the motoring metaphor, if we want to continue to accelerate, we need to change roads or we are going to start driving straight into some walls.

Prices and costs

So, what should the new roadmap look like? Let’s look at what made us so competitive so far, and see how that is changing.

Europe is poor in mineral resources. We get 48% of our copper ore from abroad, 64% of our zinc and bauxite, and 78% of our nickel.

We import all of our cobalt, platinum, titanium, and vanadium. As a highly import-dependent continent, you would expect that we would 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 continued to rise. 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 reinforcing increase in costs and productivity fuelled the engine of our technological progress.

Ingenuity and innovation

The mega-trend today is the end of perpetually cheaper resources. With material costs making up more than 40% of total costs in manufacturing industries, compared to less than 20% for labour, 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. It is the message that leaps out from the industrial policy of Japan and Korea. It is the message that leaps out from the latest Chinese five-year plan.

Locked-in

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, which are able to quickly change direction in response to resource constraints. If we in Europe are to remain competitive in this new paradigm, we will have to achieve a major structural transformation.

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.

Resourcefulness

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:

• Turning coal into light is still only 3% efficient;
• Only 15% of the energy you put in your petrol tank is used to actually move your car down the road;
• 80% of what we produce is used once then discarded;
• 80% of the world’s resources are used by 20% of its population; and
• Only 1% of the valuable rare earth metals that we use in products are recycled at the end of the product’s life.

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 as long as there is no incentive to do so. We have to use market-based instruments to provide those incentives.

Hard to swallow

Here we reach the more difficult aspect of the relationship between resource efficiency and competitiveness in Europe. 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, what we are actually saying is less “stuff ”, but that does not mean less profit. 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 chemical leasing. And we need to develop the financing tools and the skills to ensure that there are no bottlenecks to developing these approaches.

Get together

I want the European Commission’s ‘Roadmap for a resource-efficient Europe’ to be seen as a partnership of old adversaries. Just as the 2009 climate and energy package of legislation to reduce CO2 emissions from new cars and transport fuels brought together the two sides of the argument who together could actually make things happen, I want environment and industry to get together to recognize that the environment and the economy must coexist and depend on each other.

Antonio Tajani, European Commissioner for Industry and Entrepreneurship, and I are already on the same wavelength, but achieving 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.

Europe’s industry ministers will be a central part of achieving resource efficient growth and I look forward to working with them to make sure that…doing more with less becomes our comparative advantage in the 21st century.

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