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How should European policymakers and businesses respond to the challenge of resource security? the environmentalist asks commissioner Janez Potoĉnik
Commodity prices have risen 147% since 2000 and are likely to continue to soar, despite the economic slowdown. Jeremy Grantham, co-founder of asset management company GMO, told the Re|Source 2012 conference in Oxford about 33 commodities that lost 70% of their value over the course of the 20th century, but in the past 10 years their price had, on average, tripled in value, something he describes as a “paradigm shift” and the most important event since the industrial revolution. Grantham warned delegates to expect a lot of volatility in the future, with short-term falls followed by rises, as prices continue on an upward trajectory.
The reasons for the increases include population growth – global population is forecast to reach nine billion by 2050 – and the rise of China as an industrial powerhouse. The Chinese economy currently consumes 59% of the world’s cement, 48% of all coal and 45% of all steel.
The rising population, coupled with greater affluence in developing countries – the global “middle class” is forecast to grow by 172% between 2010 and 2030 – is feeding the worldwide demand for material resources, forcing countries and companies to compete for what is available.
Rising demand also puts additional pressure on the environment. Higher prices act as an incentive for mining and oil companies, for example, to exploit new and less conventional sources, which can have an adverse impact on the environment. Exploitation of the Canadian oil sands highlights the dangers, as excavation is energy intensive and the oil produced more damaging to the environment than that from traditional oil wells.
The European Commission has published an action plan – a roadmap to a resource-efficient Europe – to address potential resource problems (see panel below). It aims to transform the EU economy into a sustainable one by 2050, with progress milestones by 2020.
Here, environment commissioner Janez Potoĉnik (JP) answers questions from the environmentalist (Env) on the importance of the EU and its member states improving resource security.
Env: What are the main physical and geopolitical risks that the EU faces in terms of resources?
When I say economies, I actually mean you and I, all of us in fact. And we are all using natural resources at an unsustainable rate, bringing our environment, both globally and locally, to tipping points that may be irreversible. Climate change is one well-known example. There are plenty more: overfishing and increasing damage caused by flooding, due partly to the loss of natural flood plains and increased channelling of rivers.
There is mounting evidence that the numbers of insect pollinators are falling sharply all over the world. Many food resources depend on pollination by bees and other insects – in the EU, insect pollination has an estimated economic value of €15 billion a year.
When we use resources inefficiently, we leave ourselves open to fluctuations in their price and supply conditions. So in the end it’s the economies that use resources more efficiently that are most competitive. That’s why I keep trying to pull the idea of sustainable growth into the picture.
Env: Research indicates that resource efficiency can save businesses considerable amounts of money. McKinsey reported in 2011, for example, that potential global savings of between $2.9 trillion and $3.7 trillion could be achieved by 2030 through a range of resource-productivity measures, 70% of which would have investment returns of 10% or more per year. So why are many companies still wasteful, and what can policymakers do to support greater efficiency?
JP: The failure by some companies to address efficiency is partly due to our mind-set – we aren’t yet used to high resource prices, and we still worry about high labour prices instead. But the recent upward trend in resource prices is likely to become more pressing as demand grows for energy, food, metals and minerals, driven by the rise of emerging economies, population growth and other geopolitical factors.
There are also hidden barriers such as counterproductive economic incentives that need to be overcome. They make it difficult for individual companies to take the necessary steps.
A third reason is that natural resources such as clean water, fresh air and healthy soils are not valued properly in our market economy. So businesses have neither the knowledge nor the incentive to use them efficiently. A forest is valued for the wood it contains, but it provides numerous other ecosystems services that don’t currently have a market value.
As I see it, policymakers should develop awareness of the need for resource efficiency but, more fundamentally, they need to look for ways to develop the right incentives. One good way to improve resource efficiency is to increase recycling rates, but this needs to be done in an intelligent manner.
It’s often hard to recycle complex goods: the appropriate collection infrastructure has to be in place. Ultimately it’s a question of time – we won’t adapt to high resource prices overnight. We need new design rules that factor in dismantling and recycling, and stable price levels that create robust economic incentives to recycle.
Env: The EU resource-efficiency roadmap talks about the need for a combination of instruments to support greater efficiency, including legislation and market-based instruments. Can you provide some examples of what the commission means?
JP: There are many examples. Fiscal instruments on pollution (including greenhouse-gas emissions), resources and energy use can help balance public finances, for instance. Moving taxation from employment to environmental impacts can stimulate long-term employment, and phasing out environmentally harmful subsidies could lead us to a situation where we focus more financial support on environmentally friendly sectors and help them grow so they can absorb more employment.
It’s often a question of awareness. Many of the arguments for green growth are still not fully recognised, even by some governments, so more work is needed to highlight the real economic benefits of becoming more resource efficient at national, EU and international level.
Env: Should producers be obligated to take back all products when consumers have finished with them? And should companies be obliged to manufacture products in a way that materials can be easily extracted at the end of their life?
JP: Legal obligations will help, and I think the market will get the message in any case as resource prices rise. However, much more needs to be done in terms of awareness, knowledge, infrastructure, institutions and policy to help get the incentives right for the market to react properly.
There is little doubt that extending producer responsibility could act as an incentive to design products in a way that makes dismantling and recycling economically feasible. More cooperation in the value chain would help too, so that we cut down waste wherever we can.
Good recycling infrastructure ensures that waste has a value, making it economically advantageous for companies to recycle the materials that are embedded in waste and allowing them to re-enter the market. That’s why we are so keen on making sure all member states follow the waste hierarchy, with reuse and recycling at the top of the pyramid. And of course we need to ensure that resources and raw materials used are harvested in a sustainable way.
Env: Waste electrical and electronic equipment [WEEE] contains a number of very valuable materials, including rare earth metals, but only 16% of WEEE is recovered. How can we make it easier for consumers to recycle goods? And would a payment system for electrical and electronic equipment that is no longer wanted, similar to those mobile phone companies operate, be a good way forward?
JP: Small WEEE is harder to collect, as many people are tempted to throw it out in their unsorted rubbish. But we don’t want light bulbs containing mercury going to landfill for obvious reasons, and, yes, small WEEE, such as mobile phones and USB sticks, often contain a lot of secondary raw materials than can be recovered.
Some member states collect small WEEE at the door; others have municipal collection points; and others encourage people to take it back to retail stores. The new WEEE Directive gives member states plenty of discretion regarding the method of collection, and it specifically asks for collection at retail stores as this is underdeveloped in many countries, and it can be very effective.
Regarding payment systems, it’s clear that financial incentives to bring back WEEE can work. Some shops already reduce the price of new equipment when WEEE is brought back; some phone retail outlets give cash for old mobile phones; and there are even firms that specifically buy WEEE for reuse and recycling.
The different systems can learn a lot from each other, and it’s good to see them becoming more widespread. The right measures take us a step closer to a truly circular economy. Some countries are doing very well – the overall collection rate in Sweden is already close to the 2019 collection target of 85%.
Env: Does the EU have sufficient/the right facilities to recover/reuse goods/materials? And should the EU stop all export of waste?
JP: The EU has one of the world’s best networks of recycling and recovery facilities. Landfilling has all but disappeared in some member states, meaning that waste is used as a resource. Others are still landfilling almost all their waste, and a lot of work will be needed before they meet the legally binding targets they have signed up to in EU legislation.
Economic conditions need to be altered before the required waste management facilities are put in place. Top-performing member states got there by using a mix of economic instruments, such as landfill taxes and bans, pricing policies for incineration, producer responsibility schemes to finance separate collection and recycling, and “pay as you throw” schemes to get the infrastructure in place and get it widely accepted.
Regarding export, EU legislation prohibits the export of hazardous waste to non-OECD countries and bans the export of waste for disposal outside the EU and EFTA countries. But banning the export of non-hazardous wastes destined for a recovery operation would contradict international trade rules and might also be detrimental to developing a circular economy.
Env: How can Europe best close the loop? Are there existing examples in the EU where this is happening?
JP: Closing the loop – when one sector’s waste becomes another sector’s raw material – is the ideal. If we want to make it a reality and see a large-scale shift to a circular economy, we are going to need to remove a lot of institutional and behavioural barriers that hold back resource efficiency.
It will also require the right incentives for sustainable production and consumption decisions. We need markets, prices, taxes and subsidies that reflect the real costs of resource use, more long-term innovative thinking in business, finance and politics, and research to fill the gaps in our knowledge and skills. It can happen.
Industrial symbiosis and design for reuse or recyclability is already a reality in numerous industrial sectors. Slags once discarded by the steel industry and fly ash from coal-fired power stations are now used in cement production. Waste paper, textiles and tyres are all reused or recycled. But there’s a long road ahead.
Env: Is leasing products, rather than purchasing them, a better business model?
JP: New business models may help to improve resource efficiency, but there is no one-size-fits-all solution. Leasing may be attractive for consumers who wish to buy a service instead of a product, and it also helps if we dematerialise – such as renting a film by downloading it instead of buying a DVD, for example. But these things happen slowly. Organisations have to develop the business models we need, and consumers must be weaned off the endless accumulation of physical goods. But it won’t happen especially fast.
Env: Some countries, worried about food security and having access to sufficient raw materials, are leasing or buying land in other parts of the world, including Africa and Southeast Asia. Should the EU/member states be doing deals with other countries rich in resources to gain access to them?
JP: Access to resources is clearly important for the EU economy, especially in this era of resource dependency. Member states are already involved in ensuring access to key resources such as oil and gas, but it’s generally private companies that make the decisions on the basis of market economics. That’s why the commission has proposed setting up the European innovation partnership on raw materials, with a view to increasing the availability of raw materials for Europe.
International raw materials markets should operate in a free and transparent way, but many countries are now applying measures that distort the markets. We try and block those actions through the appropriate channels. What we also need to avoid is situations where different players take advantage of lax environmental legislation around the world. We need raw materials, but not at any price, and we need to observe our commitments in areas such as biodiversity protection, for instance.
Env: The Rio+20 summit document talks about making better use of natural resources and includes a commitment to further reduce, reuse and recycle waste. But are you disappointed no concrete targets were agreed to improve resource use?
JP: There is no denying that the EU was hoping for a more ambitious outcome in a number of areas. But the result still remains close to a range of initial objectives. The Rio document provides a set of priorities and a pathway for further work. It’s only a beginning, but it is a beginning we can build on. It is up to us to make the best of the results we did obtain.
The recognition of the need for green growth was, to my mind, the most remarkable achievement of the conference. The world came around to the idea that the time has come for a move towards a green economy, towards a sustainable growth model; the need to make this shift is embedded in the final document. Also, the EU did manage to integrate most of its proposed targets into the main text in the form of express commitments, for example on future action concerning extending the protection of marine biodiversity beyond national jurisdictions.
But there is no sense in looking back and regretting what might have been. We have to look forward, and that means focusing attention on things like resource efficiency in the coming months as we go about creating EU-wide sustainable development goals.
And we need to use these goals to consolidate our efforts to eradicate poverty, and to secure sustainability within our planetary limits.
EU Resource-Efficiency Roadmap
The European Commission believes it is possible to produce more value with fewer inputs, to lessen the EU’s impact on the environment, and to consume in a more intelligent fashion. Its Roadmap to a resource efficient Europe was published in 2011 and aims to transform the EU economy into a sustainable one by 2050. The roadmap proposes ways to increase resource productivity and decouple economic growth from resource use and its environmental impact.
According to the commission, each person in the EU currently consumes 16 tonnes of materials annually, of which six tonnes are wasted, with half going to landfill. The roadmap sets out a vision for a number of areas and milestones towards achieving those objectives. These include:
Consumption – Changing the consumption patterns of private and public purchasers will drive resource efficiency as well as generate cost savings, says the commission. By 2020, it wants incentives in place to encourage citizens and public authorities to buy the most resource-efficient products and services. It also plans to set minimum environmental performance standards to remove the least efficient and most polluting products from the market.
Business support – Europe has the world’s highest net imports of resources per person, and its economy relies heavily on imported raw materials and energy. By 2020, the commission aims to establish a system of incentives that rewards business investments in efficiency and stimulates innovation in resource-efficient production methods.
Waste – Although overall waste generation is stable in the EU, some waste streams, such as construction and demolition waste, sewage sludge, marine litter and waste electrical and electronic equipment, are still increasing. By 2020, the commission wants waste to be managed as a resource, with recycling and reuse economically attractive due to widespread separate collection and the development of markets for secondary raw materials. It also aims to have eliminated landfilling and limited energy recovery to non-recyclable materials.
Research and development – The transition to a green and low-carbon economy will require significant innovation – from small incremental changes to major technological breakthroughs. By 2020, the commission wants to see that scientific breakthroughs and sustained innovation efforts have dramatically improved how we understand, manage, reuse, recycle, substitute, safeguard and value resources.
Price signals – Market prices often fail to reflect the true cost of using resources, while some subsidies distort prices and discriminate against sound environmental practice. The commission says that subsidies with potential negative impacts on the environment – notably in the areas of fossil fuels, transport and water – are worth $1 trillion per year globally and wants these harmful subsidies phased out by 2020.
Taxation – By 2020, the commission wants a major shift to have occurred away from taxation of labour and towards environmental taxation.
Natural capital – The commission notes that economic prosperity and wellbeing are dependent on natural capital – including ecosystems that provide us with a flow of essential goods and services, such as fertile soil, fresh water, clean air and pollination – that is often regarded as “free” because its economic value is not properly accounted for in a market economy. By 2020, says the commission, natural capital and ecosystem services should be properly valued and accounted for by public authorities and businesses.
Biodiversity – The commission acknowledges that biodiversity underpins many ecosystems and is vital to their resilience. By 2020, the commission aims to have halted biodiversity loss in the EU and the degradation of ecosystem services.
Built environment – According to the commission, better construction and use of buildings in the EU would significantly lower energy use and greenhouse-gas emissions as well as reduce material extraction by more than 50% and water consumption by 30%. By 2020, it wants the renovation and construction of buildings and infrastructure to be at high resource-efficiency levels, with all new buildings using virtually zero-energy and being highly material-efficient.
- By 2050, more than two planets will be required to sustain the current human population if we carry on using resources at the existing rate.
- Demand for food, feed and fibre is set to rise by 70% by 2050; 60% of the world’s major ecosystems that help produce these resources have already been degraded or are used unsustainably.
- Business demands for water are predicted to increase by more than 200% in developing countries by 2050.
- In 2007, the total amount of material directly used in the EU economy was more than eight billion tonnes.
- Each year, the EU produces 2.7 billion tonnes of waste, 98 million tonnes of which is hazardous. On average, only 40% of solid waste is reused or recycled, with the rest going to landfill or incineration.
- 88% of EU fish stocks are fished beyond maximum sustainable yields and only 11% of protected ecosystems are in a favourable state.
- The World Business Council for Sustainable Development estimates that by 2050, at least a fourfold increase in resource efficiency will be required, with significant improvements already needed by 2020.
- A study for Defra estimated that simple resource-efficiency actions, which would pay back in less than 12 months, would produce around £23 billion of cumulative savings each year for UK companies.
- The emissions associated with mining and refining a kilogram of platinum and palladium is around 14,500kgCO2e and 10,000kgCO2e respectively, while secondary recovery of both metals generates about 750kgCO2e per kg.
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