Janez Potočnik. European Commissioner for Environment. Achieving a sustainable economy

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1 EUROPEAN COMMISSION Janez Potočnik European Commissioner for Environment Achieving a sustainable economy BusinessEurope Advisory and Support Group CEO Event/ Brussels, 9 October 2012 SPEECH/12/710

2 Ladies and gentlemen, I am really encouraged that you requested this meeting, one year after we discussed why and how to put resource efficiency at the centre of the agenda for sustainable economic growth. I am glad to see that the choice of topics for this year's event, shows that you understand well the link between competitiveness, energy, resource efficiency and the broader challenges of a sustainable exit from the crisis. Today around the table I see representatives of many of the companies that are showing the way in respect of resource efficiency, so I do not intend to repeat again the arguments for it as part of our recovery and future growth strategies you have heard it before and we have moved on from there. The need for long-termism The current crisis is consuming a great deal of our intellectual and emotional energy and is making us look for remedies that will quickly heal the wounds inflicted by the debts and the deficits. Yet we all know that these medicines, no matter how bitter, will not work overnight. The imbalances we are struggling with today were built up over many years, and it will take time to restore the economy to health, to create new jobs and to achieve the growth needed to support the wellbeing of our societies. It is hard to find a politician who was re-elected because she or he was defending longer-term interests over short-term benefits. Or a manager who was rewarded because the profits of the company were lower but more sustainable in the longer-term. Yet we have to do away with the thinking that makes a zero-sum game of our present and our future. Knowledge-based and resource efficient growth responds not only to the longer-term challenges of resource scarcity and environmental degradation, which will inevitably put a brake on growth if left unaddressed. Resource efficiency also caters for the short-term necessity to reduce costs and adjust to rising and less predictable prices of commodities on the one hand, and fierce competition and stagnating demand on the other. We are not fooling ourselves that the adjustment to a low-carbon and resource-efficient economy will come at no cost. Nor do we want to force it at any cost. Our aim as EU policy makers is firstly to provide the framework conditions and predictability for that transition to take place in a less disruptive and less costly way, and secondly to create the level playing field that will reward the best performers and put European companies in the lead of an expanding market for more efficient and sustainable technologies, goods and services. I have not produced a great deal of new legislation in the last two years not least because we already have in Europe a quite comprehensive body of environmental legislation, and I have rather concentrated more on its effective implementation But I have always believed that good regulation is important to push us in the right direction and to promote innovation. The free allowances under the ETS are just one example. The challenge we face is to make sure that we find the right balance at the right moment. We must not lose out on first-mover advantages by being too late to take up more sustainable ways of production and consumption. The kind of regulation, norms, and standards that the World Business Council for Sustainable Development called for at Rio in June, give clear signals to the private sector to make the up-front investments needed to become more resource efficient instead of just responding to supply shocks. 2

3 All too often we get the perception that Business Europe and its members have one message that regulation is just causing administrative burdens and preventing the private sector from spearheading the recovery. I don't say that this is an accurate perception, but it exists. I would like to see the message coming across that regulation (or "better regulation" if you like) is essential to provide the framework conditions and confidence for future growth. Not only that, we have to deal away with the legacy of wrong incentives, such as subsidies, which encourage inefficient resource use. And we have to use fiscal policy to move in the right direction, for example by shifting taxes from labour to pollution. Towards a circular economy Implementing the resource efficiency agenda requires active engagement from all economic actors. Some may argue that "the job of business is to do business" and not to take care of the environment. Yet resource efficiency goes to the core of the drive for profit and success; challenging the creativity of companies and systems to reinvent the ways they actually get there. Companies harvest and extract materials, use them to manufacture a product, and sell the product to a consumer who then discards it when no longer needed. In terms of volume, some 65 billion tonnes of raw materials entered the global economic system in 2010, and this figure is expected to grow to about 82 billion tonnes in Throughout its evolution and diversification, our industrial economy has scarcely moved beyond the fundamental characteristic established in the early days of industrialisation: a linear model of resource consumption that follows that take-make-use-throw away' pattern. Today in Europe we use 16 tons of materials per capita annually, of which 6 tons become waste, and half of that waste is then landfilled. This linear model was feasible for as long as only a fairly small proportion of the world was growing rich. Fortunately today many more billions are on a path to comfortable middle-class consumer lifestyles. And fortunately our companies will be able to satisfy many of those new markets. But unlimited growth on a limited planet means that this linear approach will inevitably lead to scarcity, price-volatility, supply disruptions and pricing levels that are unaffordable for our economy s industrial base. This is particularly problematic for Europe, where we are heavily import dependent for our materials. The answer is, instead of burying or burning those materials at the end of their life, to pump them back into the economy. To move to a circular economy. Our technological and innovation challenge for the next Century is to achieve prosperity in a world of finite resources. And it is business that will be at the forefront of that innovation. Fortunately, Europe has the knowledge and skills to make the circular economy a reality. The waste sector grew more than 20 % between 2000 and Jobs in recycling grew by almost 80 % for the same period. A recent study estimates that full implementation of EU waste legislation would save 72 billion a year, increase the annual turnover of the EU waste management and recycling sector by 42 billion and create over 400,000 jobs by

4 As you rightly point out in your key messages, full and proper implementation of environmental legislation is a "must" if we are serious about the efficiency improvements and the innovation levels we want to achieve. The 50-billion euro yearly bill for nonimplementation 1 is definitely one we do not want, and one we do not have to pay. That is why, for instance, the Commission is working on assessing the implementation of waste legislation and will review the current waste targets in The more global pressures push up resource prices, the more our waste will become valuable, and the greater will be the incentive to pump it back into the economy. But to make sure that we can do so effectively we must already start designing for recyclability, for repair and re-use. The design stage is crucial. It also means developing business models such as leasing that bring products back to their producers at the end of their life so that they can refurbish them (as Caterpillar has been doing already for decades), or recuperate the materials; It also means developing markets for secondary raw materials; and it means improving our recycling technologies to deal with more complex products and composite materials. If you read the Industrial Policy Update that we will adopt this week, under the leadership of Antonio Tajani, you will see that it fully embraces this closed loop philosophy with: practical proposals for extending eco-design to recyclability, durability and resource (for example water) efficiency; practical proposals for industrial symbiosis schemes to put together companies with by-products and waste, with other companies that can use them; practical proposals for directing structural and cohesion funds towards waste treatment that focuses on recycling and composting; it also announces our plans to develop common environmental footprinting methods to calculate the sustainability of products and of organisations based on life-cycle assessment. This should help cut costs for businesses operating across the Single Market and develop an effective single market for green goods and services which ensures that the best performers are rewarded for their efforts, and that consumers can have confidence in environmental claims. This package is one of the Single Market Act actions. Product design based on closed loop principles could deliver resource performance far beyond incremental efficiency improvements. For example, according to McKinsey's calculations, resource intensity of fridges decreases by 2 % a year, whilst in a circular system the reduction potential amounts to 67 %. Increasing the recovery of mobile phones from 15 % to 50 % could deliver 30 % net material cost savings. On a broader scale, a reduction of the total material requirements of the economy by 17 % could boost GDP by more than 3 % and employment in the EU by around 2-and-ahalf million. An annual percentage point reduction would be worth around 23 billion Euros to business, and up to 150,000 new jobs. These macro-figures are impressive, but as many European companies from Renault cars to Ricoh photocopiers have shown, the energy and material savings from remanufacturing make real sense for the bottom line. 1 "The Costs of Not Implementing the Environmental Acquis", September 2011, DG ENV (COWI, Ecorys, Cambridge Econometrics). 4

5 Sustainable sourcing Although a circular economy is required urgently, it is in itself not sufficient to solve all environmental and supply security problems. Even if we could achieve a 100 % circular economy, most of our resource input will still be primary resources. So, to deal with this, we also need to develop stewardship and sustainable sourcing for both renewable and non-renewable materials. Two areas that we identified in the Roadmap for a Resource Efficient Europe which have particular impact on the environment are food production and sustainable buildings. In both of these areas we will produce communications next year looking at what tools are needed to make our resource use sustainable. Implementation of the resource efficiency agenda So the Roadmap is truly up-and-running. The Spring European Council in its conclusions on economic governance asked for its rapid implementation, recognising its importance for a sustainable exit from the crisis. We are also putting our money where our mouth is. Resource efficiency is integrated in the proposals in the EU budget for For instance, 60 % of the funding under the future EU research and development programme Horizon 2020 will be earmarked for sustainability and climate change. The proposals for cohesion and agricultural policies are also substantially greener. And we have proposed to increase the budget for environmental protection, the LIFE+ programme, by 50 %, from 2.2 billion to 3.4 billion. We also hope that the recently agreed capital increase for the EIB will provide billion of additional loans earmarked for resource efficiency projects over the coming 3-4 years (with additional funds for SMEs, innovation, and skills). This will provide better value for money from EU spending, but we need Council and Parliament to agree. We have already launched European innovation partnerships, notably on water and raw materials. These will support not only research and technological innovation, but also innovative ways to use existing technologies, to change governance set-ups, management practices and business models, as well as financing mechanisms to bring existing solutions to the market. Moreover, we are looking at innovations both for the European market, and in rapidly expanding markets in the developing and emerging economies. National governments have to play their role. So we have already started to integrate resource efficiency into the governance mechanism of Europe 2020 the European Semester. This year we focussed in our recommendations for 12 countries on the need to shift from taxing jobs towards environmental taxation, and issues such as waste and water were also raised for particular Member States (Estonia and Bulgaria respectively). Energy efficiency and transport were also covered extensively. Green growth performance indicators were included in the analysis underpinning the recommendations. Green public procurement is another important instrument. Earlier this month we published a report that showed that 26 % of the public contracts signed between 2009 and 2010 in the EU included all of the core green public procurement criteria that we have set out. More needs to be done to bring all Member States to the level of the top four performing Member States (Belgium, Denmark, the Netherlands and Sweden), that have attained between 40 % and 60 %. 5

6 In order to ensure that the complex set of actions that we are pursuing actually lead us to the future we want, we have to agree on resource efficiency indicators and potential targets. You know better than I do that "what is measured is treasured". In July we launched a public consultation on options for resource efficiency indicators. We are also working on footprint type indicators to cover the consumption perspective. I have high hopes that the processes we launched this year, in particular the high level Resource Efficiency Platform, which includes nine business representatives, will bear fruit in Last but not least, we have to recognise the global context. We are not engaged in a process which provokes a race to the bottom; that could erode our competitiveness. The importance of the necessary transition to a resource-efficient growth model is more or less already understood worldwide and was addressed a couple of months ago at the Rio de Janeiro conference on sustainable development. We must take advantage of all the work, positive energy and investment that went into Rio, and build the partnerships that will be needed between the EU and emerging powers in the 21 st Century. Conclusions To conclude, let me remind you of something I said at the beginning: that without business we cannot achieve transition to resource efficient growth. I have excellent relations with environmental NGOs and I have come to respect and treasure the vast majority of them for their knowledge and professionalism, for their constructive approach and their commitment to worthy causes. But I can assure you that I have had many more meetings with businesses and their representative organisations over the last two years than I have with environmental NGOs. I have held out a hand to you, and a large proportion of the business community has gripped it. As we move from nice consensual words to real delivery I need you to stay on board, and to help the others particularly SMEs to understand the imperative. Failure to deliver would mean not only that we will increasingly hit the "hard walls" of supply constraints and environmental tipping points, but also that the Commission, and Member States, would be obliged to go back to a much more restrictive and regulatory approach to achieving environmental objectives. An approach that would be without any doubt more conflicting and painful for many, including your members. The only future we want, the only future we can afford, the future which in essence has no alternative, is a sustainable future, in the broadest sense. Competitiveness proofing is therefore actually sustainability proofing; at least in the long term. And I am convinced that the challenges of the 21 st Century cannot be properly addressed without the longer term-perspective in mind. And for that we need industry 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 our economies on to a track that is sustainable economically, financially, socially and environmentally. 6