Resource efficiency: crossing the divide
In times of volatile resource prices, uncertain supply prospects, reindustrialisation attempts and concerns about environmental pressures associated with resource use, the concept of resource efficiency has gained increasing importance for policy-makers, firms, researchers and investors.
Resource efficiency – ‘doing more with less’ – is seen as one possibility to address these issues and deliver multiple economic and environmental benefits. All these challenges are particularly relevant for the European Union (EU) due to three reasons:
- The EU has one the highest net imports of raw materials per capita worldwide. On a side note, the EU imported materials worth roughly €5.6 billion (around AUS$8.9 billion from Australia in 2014).
- The EU aims to increase the contribution of its manufacturing industry to up 20 percent of GDP by 2020 (it’s currently about 15 percent). This is unlikely to be achievable without increasing the use of materials or resources more generally.
- Environmental concerns associated with the use of resources are likely to remain on the political agenda, especially in the follow-up to the EU’s intended nationally determined contribution from Paris to domestically reduce greenhouse gas emissions by at least 40 percent by 2030 compared to 1990 levels.
So, the EU is attempting to achieve several objectives by increasing resource efficiency: reducing its import dependency on virgin raw materials, increasing the cost competitiveness of its industry and mitigating climate change. But how far has the EU been able to pave the way to a resource efficient economy?
What has been achieved so far?
The European Commission (EC), executive body of the EU, declared resource efficiency a key priority in its growth strategy Europe 2020, introduced a ‘Roadmap to a Resource Efficient Europe’ in 2011 and established the European Resource Efficiency Platform in 2012, which comprises stakeholders from policy-making, business, non-governmental organisations and academia. They jointly formulated an ambitious call for coherent and stringent resource efficiency policies, including a quantitative target to increase material productivity by 30 percent by 2030 compared to the 2014 level.
In December 2015, a revised Circular Economy Package was published by the EC, including a more prominent role for the European Investment Bank (EIB) in financing resource efficiency projects. Additionally, the EU supports a variety of research projects in the areas of resource efficiency and the circular economy.
These measures on the EU level are complemented by country-specific resource efficiency policies. For instance, eight out of 28 EU member states (among them Germany, Sweden, Italy and Austria) have a quantitative target for increasing material productivity or decreasing material use. Such targets are not directly comparable, however, due to diverging definitions and calculation methods. Furthermore, certain regions, for example Flanders in Belgium, have almost entirely phased out waste landfilling.
“The revised Circular Economy Package does not feature a material productivity target, only a few binding measures and no systematic monitoring of resource efficiency developments.
Also, the private sector is increasingly considering its role and how it can grasp potential benefits from resource efficiency investments. Investment projects supported by multilateral development banks such as the EIB, the European Bank for Reconstruction and Development (EBRD) and national investment banks demonstrate that resource efficiency improvements can yield economic benefits for firms, while reducing environmental pressures.
Parts of the private sector have supported stakeholder groups, whose aim is to increase the public and political awareness of such benefits. For example, the Ellen MacArthur Foundation has played an important and quite successful role in making the economic case for a circular economy.
What are the challenges?
Despite considerable progress in establishing resource efficiency as an explicit political and economic objective, there are three key challenges for the future of this agenda.
The EU is very heterogeneous across its member states, both in terms of political ambitions and the status quo concerning the efficient use of resources. For instance, economies with a high industrial share tend to perform worse in productivity measures compared to countries with a strong service sector. The former may find it more difficult to receive public support to agree to a productivity target.
Thus, the EU members have partly opposing interests and priorities. Additionally, the EU takes decisions based on the interplay between the member states, the EC and the European Parliament. Unsurprisingly, all of them have diverse and non-uniform opinions, which naturally results in cumbersome processes in finding compromises.
The political priorities have changed under the incumbent president of the EC, Jean-Claude Juncker, and can be summarised under the mantra of ‘jobs and growth’. Despite the explicit mentioning of the topic in this year’s Work Program of the EC and of the Dutch Presidency of the Council of the EU, resource efficiency is not part of the EU’s priorities anymore and, instead of further developing the policy framework at a lower pace, efforts seem to have been reduced drastically.
This is exemplified by the revised Circular Economy Package, which does not feature a material productivity target, only a few binding measures and no systematic monitoring of resource efficiency developments. The important debate on suitable indicators has been postponed until 2017 due to a lack of political will on the issue. In short, not much progress has been made since Juncker took office in 2014. One reason may be that the topic is mainly seen as an environmental one and not an economic policy, thus enjoying a lower priority. One indication for this is that environmental ministries in the EU member states, environmental committees in parliaments and the environmental department in the EC are typically in charge of resource efficiency policies.
Resources and, in particular, materials are challenging to measure in one composite indicator. The reason is that materials comprise many different types, including crops, copper and gravel.
Currently, one of the most common ways to measure materials is in terms of their weight, putting most emphasis on heavy and frequently used materials such as construction minerals. A range of indicators has been developed and debated in academia, but there is insufficient comparable data available across time for the EU countries, making it difficult to design policies based on this.
However, drafting policies based on imprecise measures is nothing new – GDP being the most prominent example of an imperfect indicator triggering a range of policies. Nevertheless, the accuracy and availability of comparable and comprehensive indicators remains a political bottleneck for introducing a material productivity target, and discussions on suitable indicators are inevitable.
Unlike energy efficiency, estimating the impacts of resource efficiency on the macroeconomy and firms is a relatively recent research area. For instance, we still have to better understand the effects of increasing resource efficiency on competitiveness. Although firms that face relatively high resource costs are likely to benefit, it may be (more) profitable for firms with lower resource inputs to invest in alternatives.
Several case studies at the firm level suggest positive impacts of pursuing resource efficiency, which, up to now, have insufficiently been shown empirically on a more aggregated level. This current lack of evidence may obstruct stakeholders from even considering the issue in the first place. Nonetheless, the evidence base is expanding, as better data becomes available and research institutes increasingly take up the topic.
“The accuracy and availability of comparable and comprehensive indicators remains a political bottleneck for introducing a material productivity target.
These challenges are not new. There is, however, no silver bullet to solve them. All stakeholders are required to cooperate in tackling these remaining issues. Researchers can help to improve the evidence base, the quality of indicators and the availability of data. Firms and investors can showcase the viability of resource efficiency investments. Policy-makers are particularly encouraged to address existing market failures, thus enabling and incentivising the private sector to increase resource efficiency.
There is a range of market failures associated with resource efficiency, such as negative environmental externalities, imperfect information on the potential as well as implementation of measures, and limited access to finance. Policy-makers can also set a favourable legal framework to facilitate resource efficiency measures (such as taxation), systematically monitor progress of countries and firms, support research and incentivise eco-innovations.
The EU introduced several policy initiatives between 2011 and 2014, but has since lost momentum to push these promising attempts further. Priorities seem to have changed, leaving little political will for building on past achievements.
However, taking a break from the resource efficiency agenda is not an option given the EU’s own goals, dependencies and existing market failures. Clearly, researchers, firms and investors have to play their role in providing robust evidence and good practice examples of the effects of improving resource efficiency. Nevertheless, democratically elected politicians ultimately have to transmit a credible and convincing storyline in order to build political support for addressing market failures, unlocking the potentials of resource efficiency, and delivering a first crucial step into a more sustainable future. This remains work in progress.
The author, Florian Flachenecker, is a doctoral researcher at University College London (UCL) Institute for Sustainable Resources and a Consultant for the European Bank for Reconstruction and Development (EBRD). The views, opinions, assumptions, statements and recommendations expressed here are those of the author and do not necessarily reflect the official policy or position of UCL or the EBRD.