Eco-innovation - putting the EU on the path to a resource and energy eficient economy

©2009 Wupertal Institute for Climate, Environment and Energy

The objective of this study is to support the European Parliament’s ITRE Committee in its work on the EU’s industrial and energy policy and to give advice on the following issues:

Why is the issue of resource scarcity back on the agenda? What are the strategic conclusions for the EU? What can the EU expect from eco-innovation in a large range of industrial sectors?

Are existing measures meeting the EU aims and expectations, and what new policy initiatives should be set forward? To meet these objectives, this study is structured as follows:

Chapter 2 will give an overview on resource scarcities. Chapter 3 elaborates on ecoinnovation, including trends, barriers and driving forces. Chapter 4 outlines proposals for future EU policies. Chapter 5 sketches out a possible vision for the future.

Chapter 2 reveals recent findings on resource scarcity:

Global extraction of natural resource is steadily increasing. Since 1980, global extraction of abiotic (fossil fuels, minerals) and biotic (agriculture, forestry, fishing) resources has augmented from 40 to 58 billion tonnes in 2005. Scenarios anticipate a total resource extraction

of around 80 billion tonnes in 2020 (200 % of the 1980-value), necessary to sustain the worldwide economic growth.

On average, a European consumes per year around three times the amount of resources of a citizen in the emerging countries while producing twice as much.

Analysis on patterns of current resource use (direct and indirect use) is still in its infancy and shows data gaps. Based on country studies, however, one can arrive at tentative conclusions.

A recent study on Germany reveals that ten production sectors account for more than 50 % of German Total Material Requirements (TMR). Industries of three areas are of strategic importance because here a huge number of technological interactions among production sectors take place:

• Stones, construction, and housing = housing

• Metals and car manufacturing = mobility

• Agriculture, food and nutrition = food.

The rapidly increasing demand for resources has led to an unprecedented boost in resource prices, especially during the last five years until the breakout of the financial crisis in Fall 2008.

The EU is the world region that outsources the biggest part of resource extraction.

In comparison to the overall global growth rate (45 % over the last 25 years), Europe’s resource extraction grew only by 3 %, but studies show that these domestic raw materials are increasingly substituted by imports from other world regions.

World reserves in fossil fuels and metals are unevenly distributed across the world regions. Additionally, for various commodities, the peak of extraction has already been reached or is currently about to be reached. Not only for oil and gas, but also for critical metals such as Antimon, Gallium, Indium, Platinum and others the supply for European industry is at risk.

Natural gas cannot replace oil as main energy source, once the latter is depleted.

From this, the following main conclusions are derived:

• The European economy is increasingly dependent on resource imports from other world regions.

• Scarcity of ‘Critical metals’ will affect the European economy more subtle, but furtherreaching.

High-tech industries, in particular the electronic industry, will be affected by declining availability of precious metals. Also the development of new eco-technologies, such as photovoltaic electricity generation, could be slowed down by resource scarcity.

• It can be expected that worldwide competition for these resources will significantly increase in the near future, potentially leading to serious conflicts related to the access to resource reserves.

• In order to deal with this increased scarcity of natural resources, a significant reduction of the worldwide resource use will be necessary.

Chapter 3 gives a definition of eco-innovation as well as an overview of different types of eco-innovation and deals with measurement issues. Furthermore, it illustrates selected ecoinnovations in key areas, and highlights also trends, drivers and barriers analysed for these examples and illustrated by fishbone diagrams. The scrutinised eco-innovations and the regarding key conclusions are

(1) In the area of housing

a. “Deep Renovation”, which enables a minimisation of negative impacts on environment and health by system design and choice of components and is possible in nearly every building, though standardisation is limited, and

b. “Smart Metering”, for which there is worldwide evidence that giving consumers appropriate, relevant information on their energy and water use is an important basis for additional measures leading to a reduction in this use and thus in GHG emissions.

(2) In the area of mobility

a. the “Green Electric Car” and

b. “Car sharing”;

(3) In the area of food and drink

(a) the “Community Supported Agriculture” (CSA) and

(b) “Sustainable Sourcing of Retailers”.

The chapter concludes that eco-innovation has a crucial role to play in putting the EU on the path to a resource and energy efficient economy and thus significantly reducing the environmental impacts in each of the areas, housing, mobility and food and drink. Experts estimate that this is likely to become an $800 billion market worldwide by 2015 and a $ trillion

market afterwards.

Overcoming the barriers and building up eco-industries for energy and resource efficiency however calls for an active European Union. It requires the engagement of many different factors in society, and strategies should be implemented from many different sides. For an ecoinnovation to be fully accepted and diffused into wider society, a concerted effort must be

made to engage people and target the emotional and psychological aspects required to reinforce its uptake.

Chapter 4 (How to speed up eco-innovation in the EU) undertakes an attempt to analyse existing EU policies and initiatives; selected member states’ efforts are also considered. This is done via a comparative methodology with a joint format. The annex to this study contains three further briefing notes on this issue written by other authors. The following policies, initiatives and instruments are considered in this study:

• The Eco-design Directive (2005/32/EU) – focuses on energy use for a number of products and neglects other environmental dimensions, functional innovation and system innovation are not yet covered;

Wuppertal Institute et al. Eco-Innovation v

• The Competitiveness and Innovation Framework Programme (CIP) – first experience suggests a bias in favour of recycling technologies and energy along existing technology trajectories, less visibility of resource efficiency and new pathways;

• The Seventh Framework Programme for research and technological development

(FP7);

• The Environmental Technology Action Plan (ETAP) – Despite many achievements, environmental technologies still remain a niche market; further green procurement, greater financial investments, the establishment of technology verification and performance targets systems, and focussing on sectors with high gains is needed;

• The Directive on the energy performance of buildings (EPBD) – good ambitions, but a lack of implementation in many Member states, implementation requires both a speeding up and a scaling up, addressing the resource efficiency of buildings is desirable;

• The European Union Action Plan on Sustainable Consumption and Production and Sustainable Industrial Policy

• The European Directive on Waste from Electrical and Electronic Equipment

(WEEE)

• The UK Aggregates Levy and Aggregates Levy Sustainability Fund (ALSF)

• Environment-driven Business Development in Sweden

• The European Union Energy Label.

The analysis identifies specific gaps in the areas of entrepreneurship, pre-commercialisation and mass market development; in addition, the opportunities to refurbish buildings in Europe have not fully been deployed yet (see Figure 1). Based on this and supported by an expert workshop conducted by the ITRE on 12 November 08, the study formulates proposals that

could support the EU to speed up eco-innovation. They promote market-based incentives and the reform of existing initiatives; in addition, new proposals are presented that address specific gaps in the areas of entrepreneurship, pre-commercialisation as well as the opportunities

to refurbish buildings in Europe.

Bearing in mind the importance of construction as a driving forces of resource use, the relevance of the construction industry in the EU Lead market Strategy and current deficits, and the overall success of market-based instruments, this study proposes to extend the existing

eco-tax base in Europe by establishing a minimum tax directive on construction minerals.

It is expected to drive up eco-innovation because it gives incentives to improve resource efficiency and to refurbish old buildings. In addition, it generates revenues, which can be utilized for specific eco-innovation programmes.

A greening of the EU budget would be the material basis for speeding up eco-innovation beyond 2009. This would have to follow two strategic lines: on the one hand unsustainable spending would have to be cut, on the other hand the money saved by this activity could be shifted to support investments in structural eco-innovation. A budgetary strategy could include

the following elements:

• Further redirecting CAP from direct payments towards integrated rural development schemes, which support eco-innovation in the area of sustainable production of highquality food and biomass. These integrated rural development schemes should include integrated logistical, economic and technological strategies for adapted sustainable natural resource management in the landscape (food, water, soil, biodiversity and closed-loop biomass production and use). These strategies would have to be highly adapted to local economies and landscape conditions thus inducing local

eco-innovation and employment schemes.

• Rigorous environmental appraisal and reduction of Regional Policy schemes for large infrastructure projects which could support long-term unsustainable development paths, shifting towards funding for eco-innovation e.g. in the area of decentralized electricity grids (supporting green electric cars and renewable energies) and lighthouse projects on resource efficient construction and resource recovery.

• Redirection of Regional Funds from end-of-pipe technologies towards integrated solutions and eco-innovation (e.g. decentralized water treatment)

• More advanced schemes for improving energy and material productivity of economies would require an implementation of the CREST guidelines for improved coordination between Structural Funds, the Research Framework Program and the Competitiveness and Innovation Programme (CIP). Only such a concentration of forces could achieve a measurable improvement of resource productivity in Europe by means of regional eco-innovation clusters and a European network of regional resource efficiency agencies.

• Integration spending of the European Investment Bank (EIB) for improved cofinancing of eco-innovation.