Resource efficiency: the challenge and opportunity

1. Resource efficiency: the challenge and opportunity A presentation to the ENWORKS Conference: ‘Obvious in Hindsight: a strategic insight into successful environmental business support’Paul EkinsProfessor of Energy and Environment PolicyUCL Energy Institute, University College LondonManchester March 25th 2010

2. Principles of sustainable growth • Borrow systematically only to invest, not to consume • Keep money sound: control inflation, public borrowing, trade deficits, indebtedness • Establish transparent accounting systems that give realistic asset values • Maintain or increase stocks of capital (manufactured, human, social, natural) • As has become apparent every one of these principles has been spectacularly broken over the last few years, even in the financial sector and mainstream money economy • What prospect then for the big one, maintaining and rebuilding ecosystems/natural capital for environmental sustainability? • We must start by getting right the basic conception of how the human economy relates to the natural environment

3. The ecological cycle

4. The ecological cycle and human well-being

5. The economy as a sub-system of the biosphere

6. The challenge of environmental sustainability • Climate science and the Millennium Ecosystem Assessment make clear that without a radical reform of the human-nature relation – in favour of nature – human civilisation is at grave threat • Specifically, nine billion humans cannot live current Western lifestyles and maintain a habitable planet: the first thing to go will be climate stability, the whole biosphere may then start to unravel. Issue is saving the human, not the planet. • Any aspiration for a sustainable economy must start from the recognition of the need for the sustainable use of resources and ecosystems, rooted in basic laws of physical science • The first priority is to reduce emissions of greenhouse gases to keep global average warming below 2oC

7. The imperative of decoupling physical from financial growth • Decoupling: a decline in the ratio of the amount used of a certain resource, or of the environmental impact, to the value generated or otherwise involved in the resource use or environmental impact. The unit of decoupling is therefore a weight per unit of value. • Relative decoupling: in a growing economy, the ratio of resource use (e.g. energy consumption) or environmental impact (e.g. carbon emissions) to GDP decreases • Absolute decoupling: in a growing economy, the resource use or environmental impact falls in absolute terms • If GDP growth continues, climate stabilisation at levels of CO2 concentration that limit global average temperature increases to 2oC will require a degree of absolute decoupling of GDP from carbon emissions that is outside all previous experience

8. To achieve 450ppmv atmospheric concentration of CO2, assuming ongoing economic and population growth (3.1% p.a. real), need to increase carbon productivity by a factor of 10-15 by 2050, or approx. 6% p.a. Compare current increase in carbon productivity of 0% p.a. over 2000-2006, i.e. global carbon emissions rose at 3.1% p.a.; also Compare 10-fold improvement in labour productivity in US over 1830-1955, must achieve the same factor increase in carbon in 42 years A similar increase in resource productivity is required Focusing only on carbon may increase other kinds of resource use A systematic focus on ALL resource extraction is required: make transparent and accountable the physical basis of the economy The necessary improvements in resource and carbon productivity

9. The Stern Review Policy Prescription for climate change Carbon pricing: carbon taxes; emission trading Technology policy: low-carbon energy sources; high-efficiency end-use appliances/buildings; incentivisation of a huge investment programme Remove other barriers and promote behaviour change: take-up of new technologies and high-efficiency end-use options; low-energy (carbon) behaviours (i.e. Less driving/flying/meat-eating/lower building temperatures in winter, higher in summer) The basic insights from the Stern Review need to be applied to the use of other environmental resources (water, materials, biodiversity [space]) In a market economy, pricing is the key to resource efficiency, investment and behaviour change An unprecedented policy challenge

10. The benefits of resource productivity • Savings to business: £6.4 billion from measures that ‘cost little or nothing’ • Innovation: new technology, economic activity, exports • Increased resource security (reduced vulnerability): food, water, energy, rare materials • Environmental improvement: reduced GHG emissions, waste to landfill, extraction of virgin materials

11. …. And an extraordinary opportunity: NISP outputs (investment £28m over 5 years)Net (Gross) 1 = 60% (100%) attribution and 20% annual persistence decayNet (Gross) 2 = 60% (100%) attribution with no persistence decay

12. …. And an extraordinary business opportunity: NISP value for money (1)Net (Gross) 1 = 60% (100%) attribution and 20% annual persistence decayNet (Gross) 2 = 60% (100%) attribution with no persistence decay

13. NISP value for money (2) NISP outputs (investment £28m over 5 years)5-year figures = 60% attribution and 20% annual persistence decay

14. Policies for resource productivity • Importance of prices to drive productivity improvement • Landfill tax in 2013 will drive out landfill • Carbon price to drive energy from waste, CHP, biogas, recycling • Green fiscal reform (Green Fiscal Commission) can meet 2020 carbon reduction targets • Prices not enough: need for regulation, information • Pricing too difficult: land use, planning, biodiversity, Water Framework Directive, product design/performance (e.g. buildings, vehicles, appliances) • Prices don’t work: information failure (main NISP innovation) • Culture, habits, institutional structure (attention/job description) • Businesses won’t pay even though very profitable – rationale for public intervention (Landfill Tax – businesses pay for disposal; NISP – businesses improve resource and economic efficiency; businesses and government better off)

15. Back to NISP • Rising resource prices support technology, knowledge and innovation • Complementary policy (e.g. through Knowledge Transfer Networks) can magnify resource-price impacts and accelerate innovation • Developing collaborative research • Sophisticated nation-wide information system • Reducing time lag between invention and implementation, accelerating diffusion • Helping industry identify and overcome current market barriers • Meeting R&D and technology innovation needs of industry • Research found that 75% of all NISP-inspired projects (‘synergies’) included innovation • 50% involved best available practice • 20% involved new research • Realistic resource and waste prices are not the whole story, but an essential part of the mix

16. Final thoughts • Take physical basis of the economy as seriously as monetary basis: physical (resource flow) accounts to match National (money flow) Accounts • Use prices to increase resource productivity, reduce waste/loss of potentially valuable materials • Use information to increase effectiveness of price signals • Use regulation to secure environmental services/ecosystem functions, set framework within which markets/prices operate, achieve defined environmental outcomes when more effective than price signals • Low-Carbon Industrial Strategy, Carbon Trust, Technology Strategy Board, WRAP, NISP, ENWORKS – UK has made a start, well behind some other EU countries (e.g. Germany, Sweden), long way to go but prize is very great

17. Thank You www.ucl.ac.uk/energy