Janez Potočnik at the Hay Festival: Environment or Economy: Can we have both?

Janez Potočnik – European Commissioner for Environment

Public discussion at the Hay Festival (Hay-on-Wye, UK)

Hay-on-Wye, 28-5-2013 — /europawire.eu/ — I am hearing far too often these days that in these times of economic crisis we cannot afford to have a high level of environmental protection. Worse, I am hearing that many of our economic problems are caused by environmental laws and that if only the so-called ‘Green Tape’ was removed our economies could recover and create the jobs and growth we all desire.

Frankly, this is nonsense, and I will explain why.

To begin with, let’s just look at this ‘Growth’ issue:

Economic growth in Europe has been falling continuously for decades. According to OECD data, growth was 5.4 % in the sixties, 3.8 % in the seventies, 3.1 % in the eighties, 2.3 % in the nineties and 1.4% in the first decade of this century. Does anyone seriously imagine that this is down to excessive environmental rules? The trend is clear: European growth will be low in the coming years. In fact, if there is to be growth, it will have to be Green Growth. I would go as far as to say that unless we transform our economies into resource-efficient, low carbon economies in the coming years then we will find ourselves in much deeper economic trouble than we are in now.

The reasons for this lie in global mega trends:

• Our planet’s population is expected to rise to more than 9 billion by the middle of this century. We will share our planet with an additional 3 billion middle class consumers by 2030. In just 30 years – one generation – 2 billion people more will share the planet, which is more than the total amount of the population on the planet at the beginning of the 20th Century.
• Of course, this is great for those 3 billion whose living standards will rise, and for the businesses that will thrive in providing for those demands, but this will put immense strain on many resources. We will need three times more resources -140 billion tons annually- by 2050. The demand for food, feed and fiber is projected to increase by 70%.
• Already today 60 % of the world’s major ecosystems on which these resources depend are degraded or are used unsustainably. (fish, water … biodiversity, climate change). Without important efficiency gains, by 2030 we will need 40% more water than we can access. We would need around three times more resources by 2050.

Looking to the future, the “business as usual” scenario simply will not work. Transition from our current resource intensive economic growth model to a resource efficient growth model, to a circular economy, is not only absolutely necessary, it is actually inevitable for all our economies. For the first time, we humans, are affecting the balance of our planet.

For the past two centuries we have relied on an economic growth model based on cheap and abundant resources. This ‘great acceleration’ has been a fantastic achievement of the generations of humans that have mastered so many obstacles to bring such unimagined health and prosperity. But we cannot go on growing in the resource-intensive way we did in the past; certainly not on a global scale. Today the richest 20% of the world consumes about 60 times more than the poorest 20%. Just imagine the stress on the world’s resources if the rest of the world were to live the same way as we do.

It may sound hypocritical for rich countries to say “grow as we say, not as we did”, and of course those 3 billion new middle class consumers have just as much right to a decent quality of life as we do. But it is simply a fact that the resource intensive growth model of the previous century cannot be extended to today’s global population. Industrialized nations must change their production and consumption patterns of the last century, and developing countries must not seek to imitate those patterns, but rather take a different route to higher living standards. The stakes are high and our responsibility for managing our own future has increased enormously.

Our future, taking into account human population growth and growing per-capita consumption rate will be very much shaped by how well we manage existing limited resources. Water, land, energy, oceans, raw materials, biodiversity, ecosystems and the complexity of their interactions will be decisive for our future. In the past we were never so seriously forced, at least globally, to deal with these questions.

Europe

For us in Europe, in addition to this looming global resource crisis we are currently embroiled in the most serious financial, economic and even political crisis for many decades. We are struggling to find the way out, to stabilise and reform our economies and to find effective ways to inject new growth and create new jobs. There is no silver bullet – if there were, it would have already been fired.

Our eventual exit from the crisis is inextricably linked to the environment. Why?

Firstly: we use a lot of resources. The European economy is built on decades of resource intensive growth. We use 16 tons of raw materials per person per year. Worse, we throw away 6 tons of that, and half of that waste is buried in the ground as landfill: 3 tons per person every year;

Secondly: resources and energy (World Energy Outlook: International Energy Agency) are getting more expensive. After a century of declining resource prices in real terms, pressures on resource supplies have led to a steady increase of prices since 2000. On average, real prices for resources increased by more than 300 % between 1998 and 2011. At the same time, resource price volatility also increased. In Europe, 87 % of EU companies expect resource prices to continue rising in the next 5 years.

Thirdly: already today resources are the dominating factor in the cost structure. For example in German industry 43% of the total costs can be attributed to the use of resources and only 18% to the cost of labour. We are still very much focussed on labour and capital productivity because they are the traditional drivers of growth. But actually more than half of growth comes from innovation and technological change.

And fourthly: we import most of our material resources. More than half of the materials that we use are imported. We import six times more than we export. We have the world’s highest net imports of resources per person. And our dependency on imports is increasing. We get 48 % of our copper ore from abroad, 64 % of zinc and bauxite and 78 % of nickel. We import all of our cobalt, platinum, titanium and vanadium, as well as rare earth metals.

So far, I realise I must sound like one of the Four Horsemen of the Apocalypse bringing tidings of Doom. Can we actually do anything about all this? Well, to paraphrase a politician who is more famous than me ‘Yes we can’. But first, many people will have to stop claiming that the economy is more important than the environment and wake up to the reality that the two must go hand in hand.

What can be done? What must be done?

To paraphrase that politician again – we need change. We need to rethink the way we produce and consume. The process of economic recovery cannot only be about stimulating growth, it has to be about building the basis for a different quality of growth.

We have to turn that human creativity and innovation that so successfully exploited resources to provide us with health and prosperity, to rolling out those benefits to billions more people, in ways that exploit resources less. We need to move from a linear economic model, where we extract, produce, use and throw away, to a circular economy model.

The transformation of our economy will require further action in a wide range of policy domains: from energy, transport, construction and greening agriculture to combating climate change, preserving biodiversity and ecosystem services, eliminating environmentally harmful subsidies, shifting taxes from labour to pollution and resource use, and encouraging industry to take a longer-term view and to invest in technologies that will reduce the impacts on resources.

And we have taken some small steps along the road already:

The European eco-industry alone has created 1.2 million new jobs since 2000, employing today around 3.4 million people. And this is only one small part of the story. It is the greening of the wider economy that will produce the most new jobs. It is already doing so. Evidence points to an increasing number of green jobs as we move towards a resource-efficient economy. The most recent estimate is of around 20 million jobs or 5 per cent of the workforce.

In addition, with the global market for clean technologies forecast to double by 2020, we can build on our current strengths. The EU is amongst the world’s leaders in sectors such as energy efficiency and water and waste management. Today we provide one-third of the global market for clean technologies and, if we can keep that share in a rapidly-growing sector, it will inevitably mean new jobs, new markets and new benefits from launching innovative technologies or business models.

It is for public authorities to show leadership and give the right signals. As the situation is today, market forces are too slow and imperfect; the financial, business and economic world takes a too short-term view; and politicians tend to work too tightly only around electoral cycles.

We live in market economies and the role of the market will also in the future remain central. It is the best means we have, but a free market alone is not enough to bring the necessary transition about. The market cannot ensure efficiency in the allocation and use of resources if prices do not reflect the true costs of resources, if rewards to capital are disproportionate to other inputs, if managers on annual contracts are induced to make short term investment decisions, if directors’ business decisions are overly influenced by bonuses based on short term share price.

We need industry and investors on board. Rather than fighting the power of capital, or trying to legislate away its environmental downsides, we need to harness market forces to turn economies onto a track that is sustainable economically, financially, socially and environmentally. We need green economics. But industry and investors also need to take environmental concerns on board. Rather than trying to convince everybody how damaging environmental regulation is for their competitiveness, they should rather use that money and energy for innovating necessary solutions.

Yes, we must address market failures, but we must also address governance failures.

It is imperative that we address the prevailing short term logic which is built into all our systems, be it political or economic. Do you know any politician that has been re-elected because she or he was defending longer term interests over the short term ones? Or a manager who was rewarded because the profits of his or her company were lower that year, but more sustainable in the longer term? We cannot manage the world of the 21st Century without taking into account the longer term picture and consequences.

Planning the transition to a sustainable economy is the only sustainable way forward. And it is not about tomorrow – it is actually about today. It is the only way to avoid going from a financial to an “environmental credit crunch”. This is not just a ‘green growth’ agenda, it is a growth agenda that happens to be green. If Europe wants to retain an industrial base, it must start to innovate, invest and specialise in the activities where it will have a comparative advantage in the global context of competition for resources.

To put it simply: It is actually not about “green growth”, it is just about growth. Full stop.