UCL ENERGY INSTITUTE Resource efficiency: the challenge and opportunity A presentation to the ENWORKS Conference: Obvious in Hindsight: a strategic insight into successful environmental business support Paul Ekins Professor of Energy and Environment Policy UCL Energy Institute, University College London Manchester March 25 th 2010

UCL ENERGY INSTITUTE 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

UCL ENERGY INSTITUTE 3 The ecological cycle

UCL ENERGY INSTITUTE 4 The ecological cycle and human well- being

UCL ENERGY INSTITUTE 5 The economy as a sub-system of the biosphere

UCL ENERGY INSTITUTE 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 2 o C

UCL ENERGY INSTITUTE 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 CO 2 concentration that limit global average temperature increases to 2 o C will require a degree of absolute decoupling of GDP from carbon emissions that is outside all previous experience

UCL ENERGY INSTITUTE The necessary improvements in resource and carbon productivity To achieve 450ppmv atmospheric concentration of CO 2, assuming ongoing economic and population growth (3.1% p.a. real), need to increase carbon productivity by a factor of by 2050, or approx. 6% p.a. Compare current increase in carbon productivity of 0% p.a. over , i.e. global carbon emissions rose at 3.1% p.a.; also Compare 10-fold improvement in labour productivity in US over , 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

UCL ENERGY INSTITUTE An unprecedented policy challenge 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

UCL ENERGY INSTITUTE 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

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

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

UCL ENERGY INSTITUTE NISP value for money (2) NISP outputs (investment £28m over 5 years) 5-year figures = 60% attribution and 20% annual persistence decay Actual5 years Public investment/ unit output Landfill diverted (mt) (£/t) CO 2 reduction (mt) (£/t) Virgin materials saved (mt) (£/t) Hazardous materials reduced (mt) (£/t) Water saved (mt) (£/t) Extra sales (£m) (£/£) Costs saved (£m) (£/£) PLUS Extra Government revenue (£m) (£/£) Fiscal multiplier: 3.2 (£/£) Private investment (£m)131 Jobs created3683 Jobs saved5087

UCL ENERGY INSTITUTE 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 dont work: information failure (main NISP innovation) Culture, habits, institutional structure (attention/job description) Businesses wont 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)

UCL ENERGY INSTITUTE 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

UCL ENERGY INSTITUTE 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

Thank You