EnergY, RAW Material And ENVIRONMENT

EnergY, RAW Material And ENVIRONMENT

Wiesbaden, 2 November 2005 Press conference on 2 November 2005 in Berlin Statement by President Johann Hahlen Check against delivery Ladies and Gentlemen, The sustainability of development in Germany is measured using 21 indicators which are defined in the National Sustainability Strategy, which was adopted in 2002. The indicators relate to various sectors of economy, society and the environment. Most indicators measure the actual trends in comparison with the quantitative goals included in the Strategy. As in previous years press conferences on Environmental-Economic Accounting, we first show the degree to which the current values of the environmental and transport-related sustainability indicators (PERFORMANCE levels) have come close to the politically desirable levels (TARGET levels). To this end, the indicators on climate protection, air pollutants, renewable energy sources (in relation to total energy consumption and to electricity consumption), land use, energy and raw material productivity, as well as passenger and goods transport intensity and share of total freight transport capacity accounted for by rail and by inland shipping, are all observed. The second part of the presentation explores in greater detail the reasons for the trends in the indicators related to energy and to raw materials.

Statement by President Johann Hahlen Page - 2-1. TARGET-PERFORMANCE comparison The seven environmental indicators to be considered have developed on average in the desired direction in the past years, starting in each case with the reference year chosen by the Strategy. If the long-term average trends continue, the goals set for four of the indicators can be achieved by the deadlines which have been set (Figure 1): The average long-term decrease of greenhouse gas emissions amounts to 1.4%, which is much better than the target of 0.4% for the target year 2010. It is hence possible to achieve the desired reduction in accordance with the Kyoto Protocol by a total of 21% from 1990 to 2010. Having said that, greenhouse gas emissions have not fallen in Germany since 2000. The simpler, lowcost reduction measures were carried out in the nineties, whilst further steps are more expensive. The recent marked increase in energy prices might however help make sure that greenhouse gas emissions fall once more in future. For instance, according to preliminary information provided by the Association of the German Petroleum Industry, the sale of fuels fell sharply from January to August 2005 in a year-on-year comparison, by 5% for petrol, and there was also slight drop for diesel, by 0.6%. Emissions of air pollutants in the overall period under report 1990 to 2003 decreased almost twice as fast on average as necessary to reach the remaining target. Hence, the reduction target (70% in the period from 1990 to 2010) can be achieved if the trends continue unchanged. The decrease has however slowed considerably in recent years. With renewable sources of energy, the indicators show such a high average annual increase that the desired share of 4.2% in primary energy consumption, or of 12.5% of electricity generation, can be achieved in 2010. The three remaining environmental indicators, related to built-up and traffic area, energy productivity and raw material productivity, have developed in the desired direction, but the targets in the Sustainability Strategy can be met only if the pace of change is stepped up: In the case of built-up and traffic area, the deceleration of the daily increase since 1993, at an average of -2.7 hectares/day, was less pronounced than the target value still required (-3.7 hectares/day) by the target year. The desired restriction of the increase in built-up and traffic area by 30 hectares per day in Germany by 2020 would hence not be reached. Having said that, land use has fallen since 2000 by more than the long-term trend. The favourable trends are probably the result primarily of the collapse in construction investment (2003 as against 2000: -12%). There is little likelihood that the fall in construction investment will continue at this rate over a longer period.

Statement by President Johann Hahlen Page - 3 - The aspiration pursued by the Sustainability Strategy is to see energy and raw materials used much more efficiently. Accordingly, targets have been set for energy productivity to double from 1990 and raw material productivity from 1994 in each case by 2020. Energy productivity (measured as the ratio of gross domestic product, adjusted for price changes, to primary energy consumption) has only improved by 27% between the reference year 1990 and 2004, in other words almost half the time available until the target year. The annual change that has been observed (increase) should be more than twice as high on average in the remaining time until the target year than has been the case so far. The increase in productivity that has taken place in recent years has fallen to almost half the average value for the total period under observation. The situation is similar when it comes to raw material productivity, as it only increased by 29% between the reference year 1994 and 2004 (almost 40% of the available time). Here too, the average productivity increase per year which has taken place in the past is not sufficient, even if the reduction has been less pronounced in recent years than was the case with energy productivity. The four transport indicators of the Sustainability Strategy are also of considerable relevance in environmental terms because of the burdens associated with transport activities. Only with one of these indicators, namely passenger transport intensity, is it so far likely that the fixed goal will be achieved if the trends continue (Figure 2): With passenger transport intensity, the goal aspired to for 2010 of a 10% reduction in passenger transport capacity per unit of gross domestic product in comparison with 1999 had already been achieved in 2003. Maintenance of the pace of reduction to date would be sufficient to achieve the second goal for this indicator as well, namely a reduction by another 10 percentage points by 2020. By contrast, goods transport intensity, which according to the goals is to reduce to 95% of the 1999 value by 2020, increased from 2000 to 2004, meaning that the indicator value developed in the wrong direction. Furthermore, the two other transport-related indicators, the share of total freight transport capacity accounted for by rail and inland shipping, lagged behind the goal targeted: The share of rail is targeted to rise between 1999 and 2015 from 15.6% to 25%, that of inland shipping to increase from 13.6% to 14%. In reality, however, the share of rail only grew by one percentage point until 2004, while the share of inland shipping actually fell by 1.4 percentage points.

Statement by President Johann Hahlen Page - 4-2. Consumption of energy and raw material The data from Environmental-Economic Accounting on consumption of energy and raw material reflect the connection between environmental burdens and the responsible economic activities. Such an all-embracing view also reveals the link between environmental protection and the labour market. Energy consumption and use of raw materials are significant for sustainable economic activity. The trends in these factors influence the state of the environment in particular through: overuse of renewable resources and the risk of exhausting non-renewable ones, causing damage to landscapes and ecosystems by withdrawing mineral resources from nature, and discharge of residuals and pollutants, as well as air emissions and waste, into the environment by using these resources. Increasing material volumes in the economy also lead amongst other things to additional goods transport, with the associated environmental burdens, including energy consumption and land use, as well as air emissions. The price increases on the raw material markets have once more brought the significance of sufficient, reliable supplies of energy and raw materials to public attention. In terms of value, raw material imports in 2004 accounted for a good 7.5% of the total goods imports to Germany. If one includes the semi-finished products, petroleum products and pig metal, the share was in fact a little under 17%. The significant increase in import prices for sources of energy and metals started in mid-2004. Prices increased particularly rapidly (September 2005 as against September 2004) for iron ores (+ 69%), petroleum products (+ 49%), crude oil (+ 46%), natural gas (+ 43%), non-ferrous metal ores (+ 33%) and pig copper (+ 31%). Prices also increased considerably (+ 22% from Q2 2004 to Q2 2005) for power plant coal from non-eu countries. 2.1 Energy and the environment in the Sustainability Strategy As mentioned at the beginning, energy productivity increased by a total of 27% in the economy as a whole between 1990 and 2004 (Figure 3). The energy productivity reference number expresses how much value added was achieved per unit of energy. In absolute terms, energy consumption in Germany fell by 3.2% in these 14 years. Here, the reduction in energy consumption since 1990 was to a large extent the result of a fall in the first years after reunification (-4.9% between 1990 and 1994). Energy consumption increased by 1.8% from

Statement by President Johann Hahlen Page - 5-1994 to 2004. In an international comparison, however, trends in energy consumption since 1994 can also certainly be regarded as a success. According to information from the European Environment Agency, worldwide energy consumption increased by 16.5% in the period 1994 to 2003 (Germany: + 1.1%). It was also possible to increase the share of renewable sources of energy among primary energy consumption in Germany between 1990 and 2004 from 0.9% to 3.6%. Domestic energy use by consumers has a marked effect: In 2003, almost three-quarters were accounted for by the production of goods and services and almost one-quarter by private households (Figure 4). Private households need energy above all for housing and for individual transport. The lion s share of energy consumption in production is spread among a small number of highly energy-consuming sectors. For instance, almost one-quarter of domestic energy consumption (24.7%) is accounted for by the sector electricity generation and distribution of gas. The homogeneous branches chemicals (9.7%), fabricated metal products (4.8%), coke, refined petroleum products (3.5%), glass, non-refractory ceramic goods, treated stone and earths (2.1%) and paper and paperboard (1.3%) are also energy intensive. A large share of the products of these energy-intensive branches is needed as up-stream products (for intermediate consumption), in turn in producing almost all goods manufactured within the economy. Breaking down the use of energy among energy-intensive and energy-extensive sectors makes it possible to consider energy productivity in a more differentiated fashion. The available data only permit one to study the situation from 1991 to 2003: The macroeconomic energy productivity of all homogeneous branches increased by 24.6% in this period. These positive trends in energy productivity were favoured by the economic structural change which was in particular characterised by an increase in the less energy-intensive service areas. On average of all homogeneous branches, Euro 188 were made in 2003 using 1 kilojoule of energy, but in the service sector the figure was Euro 616, while in the production industries it was only Euro 65 (Figure 5). The share of the service sector in macroeconomic gross value added increased from 1991 to 2003 by roughly 8 percentage points to about 72%, whilst the share of the much more energy-intensive production industries fell in roughly corresponding degrees. In addition to this structural change, the more efficient use of energy in individual homogeneous branches also contributed to the macroeconomic productivity increase. The influence of structural change and efficiency improvements on macroeconomic trends in energy productivity can be estimated in greater detail when broken down by investigations into the overall trends in energy consumption for the individual influencing factors (so-called

Statement by President Johann Hahlen Page - 6 - decomposition analysis): The results for the period 1991 to 2003 show that both effects improvements in efficiency in the individual sectors and change in the sectoral structure through to the availability of less energy-intensive products have contributed to the overall increase in energy productivity of the homogeneous branches (+25 %). The structural effect has made a somewhat greater contribution to this than the increase in efficiency. Another aspect is significant from both an economic point of view concerning reliability of supply, and from the point of view of transferring environmental burdens abroad. German industry is largely dependent on energy imports. The dependence has increased further in recent years. In 1990, the energy import rate that is the ratio between the volume of the imported energy sources and the total domestic energy volume was 61.6%. By 2003, the share had increased by 15.0 percentage points to 76.6% (Figure 6). Whilst in particular the domestic extraction of coal and lignite fell significantly in the period 1990 to 2003 (coal -63%, lignite -48%), increased amounts of natural gas and coal were imported. The import share of coal increased to more than 60%, whilst in 1990 it was only 9%, whereas the import share of natural gas increased from 75% to 79%. The increase in dependence on energy imports has been somewhat alleviated by expanding renewable sources of energy: The volume of renewable sources of energy has almost quadrupled since 1990. 2.2 Raw materials and the environment in the Sustainability Strategy Now to raw materials in general, which also include energy sources. In the breakdown of the raw materials indicator used for the National Sustainability Strategy, raw materials (or primary material ) include the abiotic raw materials withdrawn from the domestic environment, as well as the abiotic material imported. This breakdown includes non-renewable mineral resources, that is fossil energy sources, minerals, such as the sands, stone and earth used in particular for construction purposes, as well as ores. The definition does not accommodate renewable (or biotic) raw materials, such as in particular products of agriculture, as well as water. Abiotic materials imported from abroad are collected independently of their degree of processing, i.e. semi-finished and finished products are also included in addition to raw materials. Accounting for all goods included in the national economy guarantees that substitution of withdrawal or import of raw materials by importing semi-finished and finished products is not misinterpreted as progress in productivity. To calculate raw material productivity as with energy productivity the ratio between gross domestic product adjusted for price changes and the abiotic primary material volume broken down as explained is formed. The target increase in raw material productivity meaning the decoupling of economic growth from raw material consumption constitutes a major contribution towards saving resources.

Statement by President Johann Hahlen Page - 7 - The increase in raw material productivity in Germany, at 29% between 1994 and 2004, moved in the right direction. This increase in productivity is the result of a 10.5% fall in the use of material, whilst macroeconomic capacity simultaneously increased by 15.6% (Figure 7). It is however still too low to reach the sustainability goal of doubling raw material productivity in good time by 2020. With primary material, the sustainability indicator combines different materials to form weight units. This provides initial indications of the degree of and trends in the physical use of the environment. Since the environmental relevance of the material can differ greatly, to achieve a more precise analysis it is necessary to differentiate by individual types of material. The volume of the total abiotic primary material used in the German economy was 1,342 million tonnes in 2003. That makes 16.3 tonnes per capita of the population. Almost half (53%) of this was raw construction materials (for instance sand, gravel and broken natural stone) and some other mineral raw materials, which are used in particular in the glass and ceramics industry. Energy sources accounted for almost 39%. Measured in weight units, the share of ores and the imported goods produced from ores was relatively low, at roughly 8%. The fall in domestic use of abiotic primary material by 159 million tonnes in the period from 1994 to 2003 (Figure 8) is caused by the reduced use of raw construction materials and other mineral raw materials ( Other mineral raw materials and products made from other mineral raw materials ) (-183.8 million tonnes), signifying an improvement in macroeconomic raw material productivity. With energy sources, the marked drop in the volumes produced domestically, by 52.5 million tonnes, was compared to an increase of 61.2 million tonnes in imports of energy sources. Consequently, the use of energy sources in tonnes increased by 8.7 million tonnes (+ 1.7%). The use of ores and products made from ores (semi-finished and finished products) increased in this period by 16.1 million tonnes (+ 18.5%). Macroeconomic productivity increased by 43% with raw construction materials, whilst with energy sources it increased by 11.9%, so that a clear decoupling of the economic trends can be established for these categories of raw material. By contrast, productivity fell by 4.0% with metals, meaning that the consumption of metals increased faster than economic production. (These productivities are measured as a ratio between gross domestic product adjusted for price changes and the volume of the raw material category in question). Here, productivity both with raw construction materials and raw material productivity as a whole is influenced by the fact that considerable amounts of construction waste were recycled. In 2002, it was possible to regain roughly 57 million tonnes (15% less than in 1996) of products and substances from construction waste. Since these materials largely flow back into the economic process, a decrease is seen in the volumes of primary material which have to be withdrawn from

Statement by President Johann Hahlen Page - 8 - the environment or imported from abroad. This also applies to metals. Hence, for instance in 2003 roughly 19 million tonnes of scrap were used for the production of raw steel (for comparison: The volume of imported iron ores was 38.9 million tonnes). It is also significant to the interpretation of the trends in the raw materials indicator from environmental points of view that the abiotic primary material requirement in Germany is increasingly covered by imports. Whilst the domestic withdrawal of abiotic raw material fell by as much as 220 million tonnes between 1994 and 2003, reaching a level of 888 million tonnes ( 20%), the import of raw materials as well as of semi-finished and finished products increased by 61 million tonnes, or 15.5%, to 453 million tonnes (Figure 9). The share of imported goods in total use of primary material thus increased from 26% in 1994 to almost 34% in 2003. Germany therefore increasingly spared the domestic environment and transferred environmental burdens abroad from the withdrawal of raw materials and processing to become semi-finished and finished products. This transfer effect is particularly exemplified by the above mentioned exchange of domestic energy sources for imported energy sources, as well as the increased imports of metallic semi-finished and finished products (+ 49%). The lion s share of abiotic primary material (96.1% in 2003) is used for the production of goods and services. Here, the use of the primary materials focuses on a small number of sectors which together use roughly 80% of these materials. In detail, these are the sectors glass, nonrefractory ceramic goods, treated stone and earths (25.0%), construction (20.6%), electricity and gas (18.2%), coke, refined petroleum products (10.2%), as well as manufacture of basic metals (5.8%) (Figure 10). The considerable concentration of the use of primary material on a small number of homogeneous branches indicates that macroeconomic primary material consumption, as well as trends in the sustainability indicator raw material productivity, are determined to a considerable degree by trends in these sectors. In the period from 1994 to 2003 observed here, the share of the comparably raw materials-intensive production industries in macroeconomic output fell by roughly five percentage points. Roughly half of this fall in the value-added share of the production industries is a result of the considerable fall in the value added in construction, the raw materials intensity of which is in turn much higher than that of the production industries as a whole. By contrast, the share accounted for by the service sector, whose raw materials intensity is only a small fraction of the value for the production industries, increased by five percentage points. The collapse in construction production (construction investment fell by almost 18% when adjusted for price changes between 1994, when the construction industry had almost peaked, and 2003) made a major contribution towards the favourable trends in macroeconomic raw material productivity.

Statement by President Johann Hahlen Page - 9 - The influence of structural change on macroeconomic trends in raw material productivity can, as with energy productivity, be more precisely estimated with the aid of further analyses, which break down the overall trends in consumption of raw material to isolate individual influencing factors. These surveys confirm the considerable influence on raw material consumption of the change in the economic structure. They also show that the efficiency of the use of raw material on average of all sectors has not increased. This is why the favourable trends in raw material productivity are caused exclusively by the structural change towards less raw materials-intensive sectors, but not by a more efficient average use of raw materials. This result for the factor raw materials is therefore quite different to the picture for the factor labour. Macroeconomic labour productivity increased by 19.7% from 1994 to 2004. Here, the relatively constant increase in labour productivity observed was fed largely by an increase in labour-saving processes, i.e. by more efficient use of the factor labour in the individual sectors. The lack of an increase in efficiency in the use of raw materials led to overuse of the factor raw materials, which is actually finite and non-renewable long-term, whilst there was underuse of the factor labour. 3. The data provided by Environmental-Economic Accounting This information is based on a detailed report and a detailed table annex on all topics of Environmental-Economic Accounting. This annual report of the entitled The use of nature and industry contains as usual a commentary text section with figures on all relevant environmental-economic reference values, as well as a detailed table section. You will find both of these on our homepage; a hardcopy of the text volume is also available (in German).

Figures attached to statement Figure 1 Average annual change of environmentally relevant indicators of the Sustainability Strategy - Target - Performance Comparison - 1) 2) - -4.1-1.4-2.0-1.0 0 1.0 Air pollutant emissions Mean index (1990 = 100) -2.3-1.3 Greenhouse gas emissions Index (reference value = 100) -0.4-4 -2 0 Share of primary energy consumption accounted for by renewable sources of energy % Performance: 2000-2004 0.02 Performance: 1990-2003 Performance: 2000-2003 Target: 2003-2010 Performance: 1990-2003 Performance: 2000-2003 Target: 2003-2010 0.3 Target: 2004-2010 0.1 0 0.1 0.2 0.3 0.4 0.5 Share of electricity consumption accounted for by renewable sources of energy % Performance: 2000-2004 0,7 Target: 2004-2010 0,5 0 0.5 1.0 1.5-12.7 Increase in settlement and traffic area Hectares per day -3.7-2.7-15 -10-5 0 Energy productivity Index (1990=100) Performance: 1990-2004 Performance: 2000-2004 Target: 2004-2020 0 Performance: 1993-2003 Performance: 2000-2003 Target: 2003-2020 0.8 Raw material productivity Index (1994=100) 2.0 4,5 1 2 3 4 5 Performance: 1994-2004 Performance: 2000-2004 Target: 2004-2020 0 2.9 2.4 4.4 1 2 3 4 5 1) Target: necessary annual change to reach the goal. 2) Performance: average annual change in the past. of Germany

Figure 2 Average annual change of transport-relevant indicators of the Sustainibility Strategy - Target - Performance Comparison - 1) 2) - Pasenger transport intensity 1999 = 100-1.5-0.6 Performance: 2000-2003 Target: 2003-2020 -2.0-1.5-1.0-0.5 0 Freight transport intensity 1999 = 100 Performance: 2000-2004 1.6 Target: 2004-2020 -0.7-2 -1 0 1 2 Share of freight transport capacity accounted for by rail % Performance: 2000-2004 0.1 Target: 2004-2015 0.8 0 0.2 0.4 0.6 0.8 1.0 Share of freight transport capacity accounted for by inland shipping % Performance: 2000-2004 -0.4 Target: 2004-2015 0.2-1.0-0.5 0 0.5 1.0 1) Target: necessary annual change to reach the goal. 2) Performance: average annual change in the past. of Germany

Figure 3 130 Primary energy consumption and economic growth 1990 = 100 Productivity 1) 127 123 120 Gross domestic product (adjusted for price changes) 110 100 Primary energy consumption 97 90 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1) Gross domestic product (adjusted for price changes) per unit of primary energy Figure 4 Private households Energy consumption by economic activities 2003 1) 27.1 % Total 14.257 petajoules 72.9 % of which: as a percentage 9.7 % 4.8 % 24.7 % Products of agriculture 0.9 % Coal and lignite; peat 0.2 % Food products and beverages 1.6 % Paper and paperboard 1.3 % Coke, refined petroleum products 3.5 % Chemicals Glass, non-refractory ceramic goods, treated stone and earths 2.1 % Fabricated metal products Electricity and gas All homogeneous branches 8.3 % 16.0% Other production industries Services total 1) Broken down by national accounts concept: Energy consumption of resident units 72.9 % All homogeneous branches

Figure 5 Energy productivity by homogeneous branches 2003 Euro per kj of energy Products of agriculture 168.0 Production industries 65.2 Services 616.2 All homogeneous branches 187.5 Figure 6 Trends in energy import rate *) 100 as a percentage 80 76.3 76.6 60 61.6 40 20 0 1990 2000 2003 *) Share of energy volume accounted for by energy imports

Figure 7 Primary material consumption and economic growth 1994 = 100 140 Productivity 1) 129 120 116 Gross domestic product (adjusted for price changes) 100 89 80 Abiotic primary material 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1) Gross domestic product (adjusted for price changes) per tonne of abiotic primary material Figure 8 Withdrawal of abiotic raw materials and import of abiotic raw materials Change 2003 over 1994 in mill. tonnes Sources of energy and products made from sources of energy -52.5 Import Domestic withdrawal 61.2 Ores and products made from ores Domestic withdrawal Import 0.3 15.8-167.4 Domestic withdrawal Construction raw materials, other mineral raw materials and products made from mineral raw materials -16.3 Import Enviromental-Economic Accounting 2005

Figure 9 Abiotic primary material by origin mill. tonnes Import 392 453 Domestic raw material withdrawal 1,108 888 1994 2003 Figure 10 All homogeneous branches Use of abiotic primary material by economic activities 2003 96.1 % in percent 10.2 % 25.0 % Products of agriculture 0.7 % Coal and lignite; peat 0.9 % Food products and beverages 1.3 % Coke, refined petroleum products Chemicals 2.9 % Glass, non-refractory ceramic goods, treated stone and earths Total 1,254 mill. t of which: 18.2 % Manufacture of basic metals 5.8 % Electricity and gas 3.9 % Private households 20.6 % Construction other production industries 5.1 % Total services 5.2 % 96.1 % all homogeneous branches