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Convened by Senator Robert Hill, Minister for the Environment and Heritage, Canberra, 5 July 2000
Environmental Economics Research Paper No. 7
© Commonwealth of Australia, 2000
ISBN 0 642 19485 8
Wuppertal Institute for Climate, Environment & Energy, Eco-Efficiency & Sustainable Enterprises Team
Presented by Hartmut Stiller
Starting points for a sustainable industry development can be found at all levels of the socio-economic system–from the national (macro) level, over the regional or sectoral (meso) level to single enterprises and products (micro level). Striving for economic realism future work has therefore to aim at setting up assessment methods and monitoring tools at the macro-, meso-, and micro scale and the practical implementation of strategies and management concepts. This background paper represents a snapshot of current thinking and current activities towards sustainable industry development. The background paper is divided into two parts: The first part summarises recommendations and the second part presents key discussions points and practice oriented approaches in the frame of moving towards a eco-efficient and more sustainable enterprise.
Part A Summarised Recommendations
So far a vacuum exists between individual companies’ (micro) sustainable development goals and performance and the aggregate national (macro) or supranational (meso) goals for sustainable development. Back-casting tools that link societal goals and timetable for sustainable development with individual company performance do not exist, creating a gap between individual and aggregate performance. Therefore it is recommended to create connection (theoretical, practical and statistical) between micro and macro/meso goals and indictors (see Part B).
Recommendations on national/regional level
Recommendations on companies/sectors level
Part B Visions, management tools and practical examples towards eco-efficient and sustainable companies
1 A framework for sustainability
Sustainability today is considered a compound policy target with environmental, economic, social and institutional dimension. Due to the complexity of the task, so far little operational concepts for policies towards sustainable development exist–the curing of symptoms of unsustainability still prevails.
A framework for sustainability is depicted in figure 1. It regards as equally important the protection of the ecosphere, the equality of opportunities and a solid economic development 1. In specifying targets in one of the main areas goals and limits possibly given by the remaining two need to be taken into account. For example the goal of reducing material flows by a factor of 10 in a fifty years time span 2 is, of course, motivated by the necessity to reduce the pressure of humankind on the global environment, but it also includes equity arguments between north and south as well as the limits given by economic dynamics with respect to feasible annual increases in resource productivity (see below).
However, the Wuppertal Institute emphasises the fact that an economic system is environmentally sustainable only as long as the amount of resources utilised to generate welfare is permanently restricted to a size and quality that does not overexploit the sources, or overburden the sinks, provided by the ecosphere. Whereas the size of stocks (e.g. ores, crude oil) and their accessibility is an economic issue, ecology worries about resource flows (caused by extraction of raw materials, manufacturing, use and disposal), since these are what contribute to environmental impacts. Therefore, we propose characterising the physical aspect of sustainability through a quantification of the flow (or throughput) of energy, materials and land of a given economy, based on the computation of inputs.
Figure 1 A framework for sustainable development
Each use of natural resources, be it water for drinking or cooling, minerals for industrial production or construction, land for agriculture or air for breathing inevitably uses materials and increases the entropy of the overall system. We consider the total material flow an appropriate measure of disturbance, and we regard the reduction of material flows a necessary (although not in all cases sufficient) means of reducing the pressure of humankind on the global environment in a directionally-safe manner. The goal of reducing material flows is proactive, in that it does not refer to individual symptoms of environmental damage, but to the overall impact on the system, thereby trying to prevent future damages as well as reduce the current potential for disturbance. Although a direct link of material flows to environmental stresses is evident only in a minority of cases (as was the case with total energy consumption until the threat of global warming from CO2 emissions was taken seriously), many of the well-known symptoms of environmental degradation, from declining fish stocks to reduced fertility due to e.g. persistent chemicals accumulation, can undoubtedly be traced to intense material flows as the indirect cause. The present levels of consumption and investment in the rich countries (with 20% of the world’s population) are responsible for about 80% of the world's natural resource use, whereas the picture is reversed for poor countries. Consequently, we consider dematerialisation as an operationalisation of key aspects of the normative concept of sustainable development 3.
2 Eco-efficiency and dematerialization as vision and the translation into day to day practise
2.1 The Factor X Target as a Vision 4
With respect to the use of resources in our society today senior governmental, non-governmental, industry and academic leader argue the following: the total resource productivity of a nation should be increased by a Factor of 2 globally a Factor of 10 in industrialised countries within one generation 5 and by a Factor of 4 within the next decade 6 in order to redirect our course towards a sustainable economy. These goals are equivalent to an annual increase in resource productivity of 4.5% for materials and about 3% for energy, and considered a pragmatic, feasible and necessary policy target 7. The long time span is needed to allow the technical, social and economic dynamics to adapt and adjust without major conflicts with the requirements of economic sustainability. This is all the more necessary if, alongside technology improvements and the resulting efficiency gains, a culture of sufficiency is to emerge among the populations of industrial countries, accustomed to levels and–more important and problematic–forms and dynamics of well-being which clearly cannot be maintained for a very long time.
The Factor of 10 refers to total material flows (that include also material flows for energy production) within the economy and can be set e.g. in the national policy plan as quantitative goal 8. For the industrial production of goods and services within this national economy, this does not mean that the resource productivity of every single process or every individual phase of the life cycle must be drastically increased. Rather those whole industry sectors contribute with different factors to the Factor 10 goal according to their life cycle wide potential to reduce resource consumption.
2.2 Translating the Factor X into Praxis
So far the indicator development undertaken for all aspects of sustainability on the macro as well as on the micro level has been almost completely unlinked 9 (with the material intensity analysis for products, companies, regions and countries a remarkable exemplification of a multi-level economic-environmental interlinkage indicator–see 2.2.1 and 2.2.2). Consequently, for a company to actively support a move towards sustainability, new management tools are needed which provide the necessary information on the strategic level to keep business operations on track (see 2.2.3 and 2.2.4). Although the changes needed to achieve sustainability are different in each market sector some general analysis tools and management concepts will be put forward in the following.
2.2.1 Material Intensity Analysis–A monitoring tool for environmental sustainability at all economic levels
Valid and comparable physical data about material and energy flows is the precondition for achieving environmental sustainability. In order to provide such information, material and energy flows can be accounted for at national or supranational level, at regional and local levels and at micro-economic level (i.e. level of enterprises or products) 10. Material flow accounting (MFA) provides information that goes beyond a single indicator by monitoring the interlinkage of flows at different levels (product, company, region, national economy) and their interdependencies with human activities. Through the combination of regional and national MFA on the one hand, and product and process oriented MFA on the other hand, it is possible to detect life-cycle wide improvement opportunities for increasing the resource productivity by minimising inputs and losses of materials. The goal is to harmonise the planning of processes and products at company sites with material flow management and reduction targets at regional and (supra-) national level.
2.2.2 MIPS–A monitoring tool for the material flow on company level
MIPS measures the direct material input (MI) including all their ‘ecological rucksacks’ (the hidden material flows), i.e. the total mass of material flows activated by an item of consumption in the course of its life cycle 11. This MI is then referred to the end user service (S) derived from the product in question. MIPS aims at providing material flow information towards the goal of 'increasing resource productivity'. The inverse of MIPS is the material productivity. It generally holds that a reduction of inputs or an increase in the number of service units (efficiency strategies) are accompanied by an increase in materials resource productivity. In both cases, consumption of nature per unit of service is reduced.
2.2.3 Resource-Efficiency Accounting–Linking the Economic and Ecological Information
The concept of Resource-Efficiency Accounting (REA) has recently been developed by the Workgroup 'Sustainable Enterprise' of the Wuppertal Institute as companies suffer a lack of information tools which assess simultaneously and life-cycle-wide both economic and environmental aspects of decisions and activities. The ecological assessment of REA is based on the MIPS-concept. The economic dimension of REA may be referred to different cost accounting systems. The objective of REA is to reveal (hidden) environmental costs and to explore potential for environmental sound cost reduction.
REA links the economic and ecological dimension by so-called Resource-Efficiency Portfolios at process, product and company level (the latter to compare companies within a sector or generally). All relevant material flows and costs of a company are allocated to the processes and products which are classified in different Resource-Efficiency Portfolios. At product level it might be interesting to show contribution margin or other economic figures in addition to cost figures. The Resource-Efficiency Portfolios enable to identify 'economic and ecological cost drivers' at process and product level. Data at company level could be easily derived from the Portfolio data by simple accumulation. These Resource-Efficiency Portfolios can be an interesting tool for banks to assess different companies according to economic and ecological performance.
2.2.4 Shifting the environmental management agenda to a sustainable development one: COMPASS–companies' and sectors' path to sustainability
COMPASS (companies’ and sectors’ path to sustainability) 12 has been developed to provide decision-maker in a company or sector with sufficient information about environmental, economic and social aspects. COMPASS includes a methodological framework, instruments and measures to operationalise the normative concept of sustainable development at micro level. It helps step by step supporting the understanding of what sustainable development means for an enterprise or sector–from a life-cycle wide perspective of a product or service–and shows to what extent a development in the direction of a sustainable economy is achieved. It helps to evaluate the actual company’s impacts and to explore improvement strategies concerning the ecological, economic and social situation of the company.
For companies and sectors it is important to know what kind of targets and actions they will bring on a path to sustainability. Within this resource productivity is one important path for companies and sectors. However in the broader context of sustainable development there are also numerous other economic (e.g. high profit, high competitiveness, low investment pay back), ecological (e.g. low toxicity, high biodiversity, low erosion) and social targets (from employee satisfaction over a low unemployment rate to overall stability in society) which have to be addressed. In order to handle the enormous amount of economic, environmental and social criteria measurable quantities have to be derived, and an integrated analysis and decision support tool for manager, politicians, associations and local authorities is needed.
An overriding priority of companies and sectors attempting to promote sustainability on the company level is translating the broad indices and indicators of sustainability on national and regional level into measurable indices and indicators for the company to reflect in its business decisions. COMPASS includes an assessment part which combines selected performance indicators with overall (reduction) targets to present a holistic picture of the decision situation. Furthermore, COMPASS benchmarks the performance (e.g. the material throughput) of a product/service/company in a sector/on the market and evaluates the impact (e.g. CO2 emissions) the product/service/company is responsible for compared to the overall national impact 13.
The integration, implementation and communication of new business strategies in itself constitute a process and require further tools to take action. Currently, within different industry case studies COMPASS is developed further in order to provide guidance for different business units and stakeholders within the different industry sectors.
3 Procedural Tools towards Eco-Efficiency–EMAS and Resource Management
In the current discussion in Europe about corporate environmental management, good environmental management systems are considered to address both the direct environmental effects of running a business as well as the life cycle burdens associated with the environmental effects of products. What method should be employed in the assessment and analysis of the product life-cycle derived environmental effects, and how the results of such an analysis are to be integrated into an environmental management system, are left open.
The Eco Management and Auditing Scheme (EMAS–see: Commission of European Communities 1993) adopted by the EU Council of Ministers in June 1993 describes the voluntary participation of enterprises in a joint system for environmental management and environmental audits 14. It consists of 21 articles and 5 annexes. EMAS is generally a site-based registration system with due consideration of off-site activities that may have a bearing upon the products and services of the primary site.
As the first such instrument on a European scale, the ordinance provides the opportunity to develop a management system that avoids cumulative burden through the use of preventative policy measures and strategies, while improving, or at least stabilising, the profitability of a business. The objective of the scheme is to promote continuous improvements in the environmental performance of industrial activities by the establishment and implementation of environmental policies, programs and management systems by companies, in relation to their sites. Important elements are the systematic, objective and periodic evaluation of the performance of such elements and the provision of information of environmental performance to the public.
EMAS is notable in that the policy statement, the program, the management system and audit cycles are reviewed and validated by an external accredited EMAS verifier. The verifier not only provides a registration service but is also required to confirm, and perhaps even sign, the company’s periodic environmental statements.
The scheme does not replace existing European Community or national environmental legislation or technical standards nor does it, in any way, remove a company’s responsibility to fulfil all its legal obligations under such legislation or standards.
The Resource Management (RM) program developed at the Wuppertal Institute is used by several companies in the connection to EMAS as a foundational instrument for product life-cycle-derived and site-specific environmental audits. It combines an input-output analysis of a firm with a product life-cycle analysis of resource demands and a firm’s cost-accounting procedures. 15
Some experience with EMAS in Germany are 16:
Environmental protection within the company is improving constantly, new potentials for saving energy and raw material are found, and employees become motivated to contribute to overall environmental performance improvements.
In Germany 2,290 companies participated in the EC eco-audit (as at mid-November, 1999), i.e. about three quarters of all the participants in the European Union. A survey carried out that the majority of the businesses which took part in the audit scheme found options for performance improvement. On the other side they regret that the general public, banks, insurance companies and customers has only a little awareness about EMAS. As a return for participation in the EC eco-audit buisness would also like to see that the extent of the legal requirements for monitoring and reporting are reduced.
Since October, 1996, certification in Germany can also be effected according to the specifications of the international standard ISO 14001. The ISO 14001 requirements are less detailed and substantially behind those for the EU eco-audit. However as ISO 14001 applies world-wide numerous companies go for an additional certification according to the standard.
Prof. Dr. Andreas Troge, the president of the Federal Environmental Agency emphasised: 'The value added for the environment of the European management system has to be worthwhile for the participating companies. At the same time the importance carried by global validity should not be underestimated. Therefore I welcome the efforts undertaken in connection with the revision of the ordinance on the EU eco-audit (EMAS II) to make the requirements of the ISO 14001 standard an integral part of EMAS. This will help establishing both systems in parallel and without large expense.'
From the German point of view the present draft EMAS II still has be improved to ensure the future success of the EU eco-audit scheme. For example should it demand that companies have to employ the best available technology (BAT) to get a EMAS certification. In this way EMAS could help to satisfy the quest for having a 'value added' for the environment– in contrast to the ISO 14001 which aims primarily at keeping it to appropriate procedures.
4 Practical examples aiming at moving towards Eco-Efficiency
4.1 Communication for Eco-Efficiency–National Eco-Efficiency Initiatives
To translate eco-efficiency and sustainable industry development as a strategic management goal into praxis and to achieve system wide improvements towards the goal of Factor X networking and the exchange of knowledge is important. Below a European wide Initiative will be described briefly.
The European Eco-Efficiency Initiative has been found by the World Business Council for Sustainable Development (WBCSD) and the European Partners for the Environment (EPE) in partnership with the European Commission’s DG III. It aims at integrating the concept of eco-efficiency throughout European business and in European Union industrial and economic policies. The process will be developed in co-operation with national partners. The Wuppertal Institute has been asked to co-ordinate the activities in Germany.
The Eco-Efficiency Initiative aims to achieve two objectives:
One focus in the German Initiative will be set on integrating SMEs. This is essential for several reasons: SMEs are the innovation leaders in Europe as they are more flexible than bigger companies. SMEs offer more than 80% of the jobs in the European Union and are mostly supplier for bigger companies (the same applies to Germany). Thus, the integration of SMEs into the process of a sustainable development will be of outstanding importance for the future European development.
4.2 Involving SME’s in environmental performance measurements and reporting
The need to provide industry, including small and medium-sized enterprises (SMEs), with information on how best to incorporated preventive environmental manage-ment strategies is widely recognised. How can SME’s be motivated to take their environmental performance into account? How are the needed resources mobilised? How can workers be involved? How should the dialogue with internal and external stakeholders be achieved, etc. Taking up these questions the United Nations Environment Programme’s Division of Technology, Industry and Environment (UNEP DTIE) and the Wuppertal Institute–Eco-efficiency and Sustainable Enterprise Team have jointly developed a calendar for small and medium-sized enterprises 17. It aims to raise awareness of environmental performance issues among employees in SMEs world-wide. In combination with an additional booklet (The Efficient Entrepreneur Assistant), the Calendar guides businesses through a programme that provides assistance and guidance on how to measure and improve environmental performance and stakeholder relations in seven areas. On the basis of 'You can’t manage what you can’t measure', it introduces measures that help to assess and evaluate the current environmental performance. The calendar charts a 'month-by-month' programme that ends with a simple SME environmental report. The calendar is relevant to any firm that considers itself to be a SME-type firm or indeed to any firm that requires an introduction to environmental performance measurement and communication (e.g. in preparation of the ISO 14 000 or EMAS process).
4.3 The renovation of residential buildings–a chance for climate protection and the labour market!
In Germany, heating is one of the main responsible factors for carbon dioxide (CO2). Around one fifth of all emissions of CO2 result from heating. In private households heating is responsible for around one half of all emissions. Renovation of existing buildings could easily reduce the use of energy–and thus the discharge of CO2. A recent study 18 investigates the possible effects on the environment and jobs of extensive renovation of residential buildings to optimise energy use. The assumption underlying is that the number of residential buildings to be renovated in terms of taking energy-saving measures every year can be increased from around 150,000 today to approximately 330,000 a year. Therefore around $ 7.5 billions will have to be invested annually between 1999 and 2020. This sum corresponds to almost three per cent of the total construction volume in 1997. Investments to this extent
As a result of the study it has become clear that building policy has to turn to the renovation of existing buildings instead of supporting projects in the new building sector. The challenges faced now are to implementing a join programme in building policy, environmental policy and social policy to realise the opportunities listed above.
1 Hinterberger, F., and M.J. Welfens, Stoffpolitik und ökologischer Strukturwandel (Material Flow Management and Ecological Structural Change), Wirtschaftsdienst 1994/VIII, p. 403
2 Factor 10 Club, The Carnoules Declaration, Wuppertal 1995
3 Spangenberg, J.H., et al., Material Flow Based Indicators in Environmental Reporting, A Report for the EEA’s Expert Corner, Copenhagen 1998 (i.pr.)
4 M. Kuhndt and Liedtke, C., Translating a Factor X in Praxis: ConAccount Conference Proceedings 'Ecologizing Societal Metabolism–Designing Scenarios for Sustainable Materials Management', Leiden 1999
5 The Factor Ten Club. 1997: The Carnoules Declaration–Statement to Government and Business Leaders; Wuppertal Institute for Climate, Environment and Energy; Wuppertal, Germany.
6 Weizsäcker, E., Lovins A. B., Hunter Lovins, L. 1997: Factor Four Doubling Wealth–Halving Resource Use, London: Earthscan Publications Ltd.
7 See Factor 10 Club, The Carnoules Declaration, Wuppertal 1995; Spangenberg, J.H., Towards Sustainable Europe, op. it.
8 Die 'Ecocycle'–Commission from the Swedish Government is driving for a Factor 10 within the next 25-50 years (Kretsloppsdelegationens Rapport 1997/13: Hallbrat Sa Klart–en Kretsloppstrategi', Stockholm), The Netherlands formulated a Factor 4 goal in their national environmental plan in 1996 (Ministry of Housing, Spatial Planing and the Environment. 1996: National Environmental Policy Plan, The Netherlands), Austria wrote a factor 10 goal into their national environmental plan in 1995. (Austrian Government. 1995: National Environmental Action Plan, Vienna, Austria.) The German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety suggested a 2,5-fold increased raw material productivity by 2020 compared to 1993 and a 2-fold increased energy productivity by 2020 compared to 1990. (The German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. 1998: Sustainable Development in Germany–Draft Programme for Priority Areas in Environmental Policy, Bonn, Germany.)
9 For a compact overview see e.g.: Spangenberg, J.H., and O. Bonniot 1998: Sustainability Indicators–A Compass on the Road Towards Sustainability, Wuppertal Institute, Wuppertal Paper No. 81, Wuppertal
10 Schmidt-Bleek, F., et al., MAIA–Einführung in die Material Intensitäts-Analyse nach dem MIPS-Konzept (MAIA–Introduction to the MAterial Intensity Analysis following the MIPS concept), op. cit.; Schmidt-Bleek, F., 'Wieviel Umwelt braucht der Mensch?' MIPS–Das Mass für ökologisches Wirtschaften, Boston/Basel/Berlin 1994 (In English: The Fossil Makers, New York 1997), op. cit.; Adriaanse, A., S. Bringezu, A. Hammond, Y. Moriguchi, E. Rodenburg, D. Rogich, H. Schütz, Resource Flows: The Material Basis of Industrial Economies, op. cit.; Haake J., M. Kuhndt, C. Liedtke, T. Orbach, H. Rohn, Firms and Dematerialisation, in: Sustainability in question–the search for a conceptional framework, edited by J. Gowdy, F. Hinterberger, J. van der Straaten, J. Khn, Cheltenham, U.K: Eduard Elgon Publishing 1998
11 Schmidt-Bleek F. 1994: 'How much environment needs the human?' MIPS–the indicator for ecological societies (Wieviel Umwelt braucht der Mensch? 'MIPS–Das Mass für ökologisches Wirtschaften') Boston/Basel/Berlin: Birkhäuser Verlag.
12 Kuhndt, M., Liedtke, C. 1999: COMPASS–Companies' and Sectors' Path to Sustainability–The Methodology, Wuppertal Institute, Wuppertal Paper, Wuppertal, Germany.
13 Kuhndt, M., Liedtke, C. 1999. COMPASS–Companies’ and Sectors’ Path to Sustainability–The Methodology, op. cit.
14 The text of EMAS is available at http://www.EMAS.LU.
15 C. Liedtke, H. Rohn, M. Kuhndt, R. Nickel: Applying Material Flow Accounting: Eco-Auditing and Resource Management at the Kambium Furniture Workshop. In: Journal of Industrial Ecology, Volume 2, Number 3, MIT Press, 1998
16 Federal Environmental Agency, Germany: Press release 41/99. Full study: EC eco-audit in Germany–report about the experience gathered between 1995 and 1998. Berlin 1999. For more information see: www.umweltbundesamt.de
17 For more information see: www.efficient-entrepreneur.net (will be online from mid July on)
18 Spies-Wallbaum, H.;Hanke, T.; Langrock, T.; Lechtenbshmer, S.; Liedtke, C.; Orbach, T.; Ritthoff, M. 1999: The renovation of residential buildings-a chance for climate protection and the labour market. Study by the Wuppertal Institute for Climate, Environment, Energy on behalf of IG Bauen-Agrar-Umwelt and Greenpeace e.V.