The core of the answer to the energy challenges may not come from modified energy supplies but from a systematic, long term strategy of increasing energy productivity, which essentially means curbing energy demand while further increasing prosperity.

As a matter of fact, huge efficiency increases are theoretically available. In a book, Factor Four, also available in Chinese [1], fifty examples were presented of a quadrupling of energy and material productivity. A more ambitious sequel, called Factor Five [2] is under preparation and will focus more on systemic productivity increases beyond isolated efficiency technologies. Eventually, even a factor of twenty should be feasible, which could solve most energy-related problems of climate, the local environment and social equity, both in China and world-wide.

A strategic increase of energy productivity looks like a highly attractive national goal for China.

Surprise lesson from history: resource prices have been falling

Despite basically well-known potentials, there are few signs in any country of aggressively pursuing the energy productivity agenda. Australia’s and other countries’ decisions of phasing out incandescent light bulbs, Japan’s top runner program, the EU’s emissions trading system ETS, and China’s commitment in the 11th Five Year Plan to increase energy productivity compare favourably with the inertia in other parts of the world. But even these laudable measures fall very far short of meeting the challenges.

The basic reason for inertia on this front, so it seems, is a world-wide policy of keeping energy prices as low as possible. This has understandable social reasons but it also sends a signal to consumers, manufacturers, and investors that energy efficiency and productivity will be mostly left to idealism or some mild state intervention. The trillions of yuans, dollars, and euros invested annually in new businesses and infrastructures have almost no commercial motive of addressing energy productivity. This is the reason why many of the of the Factor Four examples, such as Amory Lovins’ high tech ‘Hypercar’ needing less than 2 litres per 100 kilometres, have not made it to the market. For reaching the market in significant numbers, they require huge investments, which won’t pay off under present conditions.

To make such strategic investments in resource productivity profitable, resource prices should go up. But so far, the opposite has happened. Combined efforts by politicians, entrepreneurs and mining engineers have established a long term trend of continuous decreases of resource prices, as shown in Fig 1 for “raw industrials”, meaning natural resources of industrial importance, including energy. This comes as a big surprise to many who are accustomed to complaining about high resource prices. The price hikes of the past couple of years have just brought us back into the lower confidence interval of the long-term downward trend. (The picture does not reflect the development after 2004!)

Fig. 1: Industrial raw resource prices, inflation adjusted over 200 years. Prospecting, mining and transport technologies were the main drivers. The price hikes since 2000 have just brought us back into the lower confidence interval of the downward trend! Source: The Bank Credit Analyst, 2005

There have been a few periods during which resource prices increased, notably the two World Wars. More memorable in our times have been the oil price shocks of the 1970s, which can also be seen in Fig. 1. In 1973, the oil exporting countries managed to quadruple oil prices overnight and push it further up in 1978. However, the rest of the world reacted by stepping up prospecting and mining until, by 1982, oil prices had come down to pre-1973 levels.

During the first years of the 21st century, many people felt that now, finally, resource prices were now going up irrevocably. The new surge of oil, gas and other mineral resource prices was triggered by steeply rising demand from the rapidly developing Asian economies, led by China. But China and the world wide mining companies have immediately thrown a lot of money into new prospecting and mining, which brought the surge to a halt and there are indications that commodity prices come down again, at least in constant dollars.

Typically, it is the geological limits and extraction and refinery cost that ultimately determine prices. In earlier decades, also access and transport limitations played a major role, but the share of transport cost has been falling systematically over time. If the geological limits remain the main determinant factor for resource prices, it can be assumed that oil prices will come down to something like $80 per barrel, reflecting the price of coal (at a high estimate of $100 per short ton of coal) plus the liquefaction cost at industrial scale plus company profits. Clearly, this price would be a blow to all investors putting their money into high tech vehicles like the Hypercar.

Active policies of raising energy prices

If markets (plus socially motivated price subsidies) lead mostly to low prices and if low prices are seen as the main obstacle to the efficiency revolution, then it would seem evident that China and the world should go for a policy shift from keeping prices low to actively increasing them.

Different instruments are available to put price tags on energy or, for that matter, on carbon dioxide. Theoretically, prices can be fixed by the state, — although in the past this was mostly done to keep prices low. Fees and charges can be levied. The EU’s ETS, a cap and trade regime, serves to put a price tag on fossil fuels. Some states, notably in Europe, beginning in Scandinavia, have introduced energy taxes.

An interesting variant of energy taxation has been the “escalator” idea of adding small annual price signals that were agreed for many years in advance. This has been first introduced in Britain and copied in Germany with some modifications. In retrospect, it can be said that the escalator proved very effective in reducing demand, as can be seen in Fig 2, which compares the two countries with Canada and the USA with regard to fuel consumption/ CO2 emissions per capita and year.

Fig. 2: Steering effect of fuel tax escalators (Picture: FÖS, 2006, Database: DIW, 2005)

Increasing energy prices in parallel with energy productivity gains

Combining the escalator idea with the long term goal of increasing energy productivity, leads to a novel policy proposal, namely to politically establish a trajectory of steadily progressing energy and commodity prices, with the slope of the trajectory being determined by the statistically established increases of energy and resource productivity.

If energy prices increase only in line with average energy productivity gains, then, by definition, there would be no additional suffering. This is of highest political significance and contrasts favourably with experiences from the past of rising energy prices causing major hardship for families, small enterprises, and whole branches of industry. The negative effect, however, has always been associated with the size and suddenness of the price increase and with its unpredictability, allowing no advance adaptation.

Despite this socially most welcome feature, the long term escalator sends a strong signal to investors, manufacturers, consumers, and infrastructure planners to be prepared and to adapt. In all likelihood, the signal will actually accelerate investments into energy efficiency technologies and energy productivity creating systems.

The trajectory would have to be kept stable for many decades. Investors will be all the more courageous the longer they can rest assured of the trend. The time horizon of the measure should be at least as long as the payback time of the most important investments, meaning long lasting infrastructures. A glance back in history shows that under the conditions of the low gasoline prices in the USA, an investment like the Japanese bullet train (Shinkansen) would never have been possible.

Are there alternatives to a tax system for establishing the price corridor? Just theoretically, increasing resource prices can also be induced by an ambitious cap and trade regime with gradually tightened cap levels. However, past experiences with cap and trade regimes show very unpredictable fluctuations, resulting in part from speculation. There is no way of linking resulting prices to previous efficiency gains.

Is there a problem for the poor or industry or inflation?

Objections against an ecological tax escalator can come from advocates of the poor, from industry and from inflation fears.

Advocates of the poor will hint at the relative importance for the poor of the energy costs in the consumer basket. Energy and water taxes tend to be “regressive”, i.e. hitting the poor more than the rich. To answer this problem, it is possible to grant a tax free or tax reduced minimum tableau of, say, one gigajoule of energy per person and week. Then the really poor would actually benefit, while the burden would shift towards middle income and rich strata of the society.

Blue collar workers, too, have a tendency of opposing energy taxes. They typically use the lines of arguments of the poor and have apprehension that energy taxes might destroy industrial jobs. But as demand for industrial output is rising, a country like China need not fear net job losses if the price increase goes slowly and predictably.

Industry and investors are actually likely to benefit from the predictability of the transition. They can move into ambitious technological and infrastructural projects with very limited risks, leading eventually to major advantages over competitors working under conditions of fluctuating if somewhat lower resource prices who invariably giving too little attention to the long term scarcity of resources.

Another concern, very relevant in China today, is inflation. However, a tax shift could be made from value added taxes to energy, which a net neutral effect on inflation.

Evidently, it would be desirable for both ecological and economic reasons to find international agreement on price trajectories. But if the increase is linked to productivity gains, pioneering countries are likely to benefit, not loose because they will be at the forefront of a trend that will come world wide anyway.

The paradigm of a twenty-fold increase of labour productivity

The history of technological progress so far is the history of the increase of labour productivity. It has been a revolution indeed, the Industrial Revolution. Labour productivity grew easily twenty-fold over time. During the 19th century, the increase in what became to be the industrialised countries was some one percent per year, which is not all that spectacular. The rate increased to one and a half percent during the first half of the 20th century and to two percent thereafter. But there have been phases like Germany during the late 1950s, Japan during the 1960s and China after 2000, where it increased more than seven percent per year, — to a large extent by copying technologies that had been developed elsewhere.

One fact, well-known by organised labour and by employers, is that wage negotiations have always taken labour productivity gains as their yardstick. It was only during the recent neo-liberal and neo-conservative phase since the early 1980s, that wages began to lag behind productivity gains, due mostly, as the employers saw it, to competition from low wage countries. What is not so well known is that productivity gains also went up in parallel with gross labour cost. What was the hen and what was the egg? Empirically, we observe wages and productivity going up in parallel (Fig 3).

Fig. 3: Rise of wages and of labour productivity mostly in parallel. The picture shows this for a time span of fifty years in the USA, but very similar pictures are available for other countries and other periods of time.

This trend of labour costs spurring labour productivity is an exciting indication for the potential of using energy price signals for spurring energy productivity gains. As a matter of fact, the “oil crisis” of the 1970s served as an (unplanned) experiment for this hypothesis. As energy prices went up across the board, a new mentality set in that focused on energy efficiency. Fig 4 shows the effect.

Fig. 4: The oil price shocks of 1973 and 1978 triggered a steady increase of energy productivity in the USA. The new mindset of energy efficiency survived even the period 1981–2000 of receding energy prices.

A revenue neutral ecological tax reform

The paradigm of labour productivity seems to support the idea of a steady increase of energy prices. As said before, if energy prices increase in line with average energy productivity gains, there would be no average suffering. The situation can become even more attractive if the fiscal income from energy taxes is re-channelled into the economy by reducing the fiscal or parafiscal load on human labour thus giving an additional push to overcome unemployment. But if inflation is the highest concern, the reduction of VAT is a more plausible candidate.

The new idea is to make the trajectory of energy prices very predictable by compensating world market fluctuations. Downward fluctuations would be compensated upwards and upward fluctuations such as the painful price hikes of late 2007 could be compensated downwards, so as to bring prices back to a previously agreed price corridor. The slope of the upward corridor could be determined annually (or every five years by the cycle of Five Year Plans) in line with measured average efficiency gains over the previous year (or years). Adjustments could be allowed on a quarterly basis so as to make prices even more predictable.

The system could be differentiated for vehicle fuels, electricity, carbon content, and other criteria. It will be a matter of political priority setting weighed against simplicity.

This system of increase should be made a law that is valid for some twenty years or even fifty or more years, with fairly tough clauses for exemptions or deviations from the rule.

It is conceivable to develop a similar system for materials and for water. If prices for primary raw materials and for water extracted from nature go up steadily, the incentives increase for reuse of materials and for water purification. Simultaneously, the profitability of mining operations go down, — which is exactly what we want.

Long term price elasticity is high

Generally, it can be said that energy and resource consumption have a rather low price elasticity in the short term. (Otherwise, the upward curve in Fig. 4 would have started in 1973 or 1974, not in 1977!) In the long run, however, the price elasticity is astonishingly high, as can be seen from an observation made by Jochen Jesinghaus [3].

The picture shows a striking negative correlation between fuel prices and per capita fuel consumption. Ten years after the introduction in the US of the Corporate Average Fuel Economy (CAFE) standards, this country although admirably catching up on per mile fuel consumption was still the country with by far the highest per capita fuel consumption. In other words, under the condition of low fuel prices what CAFE conveyed to automobilists was: “Now you can drive more miles for your bucks”. Which they did.

Fig. 5: Even for petrol consumption which is often referred to as nearly inelastic to price changes, we observe a near perfect price elasticity – if we ask the right question. The question asked for this graph was: how much petrol is consumed per capita and year in different OECD countries that have nearly equal levels of wealth and mobility? Countries had more or less stable policies on domestic fuel prices for many years preceding the year (1988) in which the data were collected. The picture reflects long term price elasticity.

This experience is very valuable for determining a price trajectory overcoming the dilemma of short term instruments. We can safely rely on small signals if we give the society assurance of a long term upwards trend for energy and other resource prices.

[1] Von Weizsäcker, Ernst Ulrich, Amory Lovins, Hunter Lovins. Factor Four. Doubling Wealth, Halving Resource Use. London. Earthscan, 1997; also available in 12 other languages including Chinese.
[2] Von Weizsäcker, Ernst Ulrich, Charlie Hargroves, Michael Smith. Factor Five. London Earthscan, 2009.
[3] Ernst von Weizsäcker and Jochen Jesinghaus. 1992. Ecological Tax Reform. London, Zed Books.

CCICED Taskforce on Economic Instruments for Energy Efficiency and the Environment
Interim Report 2008, Draft segment submitted by Ernst Ulrich von Weizsäcker

Why Sustainable Development?

We live in a finite world. Ultimately, there is no way around production and consumption patterns that are sustainable. Ultimately, customers, engineers, managers and politicians will show a strict priority for the respect of nature and the environment.

To be sure, global competition for highest cost-benefit ratios leaves little breathing space for such long-term considerations. But at any moment in time it is legitimate to ask oneself if the time has come to now make sustainable production methods and ecologically benign products the priority for the company.

Many people in the business community believe that most of the environmental homework has been done leaving not much to do. This optimistic conviction is based on the inverted U-curve”. Countries typically start poor and clean. Then they industrialise and become rich and dirty. Once they are rich enough to afford costly pollution control, they finally become rich and clean.

Fig. 1: Countries historically started poor and clean, then got industrialised and dirty and ended up rich and clean.

The trouble is that ”rich and clean” involves per capita consumption levels of depletable resources easily twenty times the rate of the ”poor and clean” stage. In the language of William Rees and Matthis Wackernagel (1992), lifestyles in the rich and clean countries involve ”ecological footprints” of some four hectares per person. Similarly, Friedrich Schmidt-Bleek has developed the concept of ”ecological rucksacks”. Every average Japanese causes an ecological rucksack every year of some 45 tons. Germans cause even heavier rucksacks weighing some 60 tons. Heaviest, of course, are the US American rucksacks of some 80 tons annually.

All in all, we are far from a harmonious situation. In fact the daily toll of environmental damages can be seen as absolutely alarming, as Fig. 2 is summarising.

Fig. 2: The alarming daily toll of environmental destruction.

Among the most alarming effects of our footprints and of the rucksacks is the rapid loss of biodiversity. At present, we are losing some twenty, perhaps up to one hundred plant and animal species every day. This is mostly due to the destruction of natural habitats that have been the home to hundreds of thousands of biological species, some of them rather inconspicuous but nevertheless important in the interlocking webs of ecosystems. Habitat destruction mostly results from land conversion for mining, agricultural use, forest monoculture, or settlements. Even if much of the land degradation is taking place in the developing countries, it is often exports of timber, ores, fodder and fruits to the North that cause the degradation. In other words, we in the rich countries tend to export our ecological footprints to the South

One of the most disquieting aspects of environmental change is the greenhouse effect. The Intergovernmental Panel on Climate Change (IPCC) has published fears of global warming by up to 5 degrees during this century. (Fig. 3).

Fig 3: Projections of global warming until 2100 (Source: IPCC, 2001).

Global warming can be accompanied by a further rise of the sea levels. Fig. 4 shows how the coast lines of Italy reacted to different levels of the sea water table.

Fig. 4: Italy during the last Ice Age and during the Pliocene.

There is still a lot of ice on the Antarctic and on Greenland, enough to flood Holland, Bangladesh, Egypt, Florida and much of Germany.

We should by all means avoid such disasters. The IPCC has suggested that in order to stabilise carbon dioxide concentrations we should reduce carbon dioxide emissions by some 60 to 80 percent, say by 2050. On the other hand, we learn from the World Energy Council, that the demand for energy, and with it the emissions of carbon dioxide, are likely to rise steeply and are most likely to at least double within that period. So there is a gap as large as a factor of four which will have to be closed.

Nuclear energy can’t close the gap. Today, nuclear energy is a mere six percent of the world energy pie, and in most countries, even the most ardent defenders of nuclear energy have stopped ordering any new reactors. Even a neck-breaking rush towards tripling nuclear energy supplies in the world would not buy more than is an increase from six to eighteen percent of the energy pie. And if that pie is doubling, we are falling back to a mere nine percent.

The substitution of fossil fuels by renewables is a lot nicer to the environment. But then wind and solar make up only 0.5% of the present pie. Let us assume a heroic strategy of increasing it twenty fold. Then we have reached ten percent of the present pie, but a mere five percent of the double sized pie.

Let me conclude this introductory section by stating plainly that energy policies too are in a massive dilemma.

After the Industrial Revolution the Eco-Efficiency Revolution

The challenges of sustainability, of biodiversity protection and of climatic change look breathtaking. Fortunately, there is hope. Much of this hope is rooted in technological progress. But the task will be no smaller than the adventure of the Industrial Revolution. Having listened to some of the participants of this conference in advance, I am confident that the radiation curing industry can play a significant part in our new adventure of technological progress. However, I don’t claim the competence for giving you any special technological advice. Let me instead try and characterise the broader features of that new technological revolution.

In the early days of the Industrial Revolution, technology was mostly driven by the desire of economic expansion. The main emphasis was laid on the increase of labour productivity, which may have risen twenty fold during the last 150 years. This progress becomes visible in the speed of our vehicles, in the power of our machines, in the organisational miracles of industrial production lines and in the unprecedented skills of modern information technologies.

The emphasis on labour productivity was very reasonable until quite recently when human labour was indeed very inefficient and very hard too. The resources of nature seemed to be nearly unlimited. So the exploitation of nature seemed like a legitimate and natural part of the game for much of technological history.

Today we are living in a completely different world from the early 19th century. Labour today is abundant, labour productivity is very high, and the real scarce resource is nature. This means it is high time now to concentrate our efforts on the increase of resource productivity. Even purely economic — and social — reasons speak for it. Slowing down the increase of labour productivity while speeding up resource productivity should make countries richer, not poorer.

Shifting emphasis to resource productivity should be the best answer also to the challenge of sustainable development. The World Business Council for Sustainable Development now speaks of Eco-Efficiency as a new guiding term. And the Wuppertal Institute of which I have been the founding president, gives ambitious goals for the increase of resource productivity. For the use of materials, my friend Friedrich Schmidt-Bleek calls for a decupling of resource productivity. But for energy, I suggest a more modest figure of a factor of four. At any rate, we are speaking of productivity jumps equally impressive as those characteristic of the Industrial Revolution. Let us therefore speak of the Eco-Efficiency Revolution, which we shall be forced to launch very soon.

The Eco-Efficiency Revolution is perhaps the only strategy allowing a reduction in size of the ecological footprints without jeopardising employment and competitiveness.

Factor Four

The good news is that quadrupling resource productivity is technologically feasible. A 1995 Report to the Club of Rome (in English: Weizsäcker, Lovins and Lovins, 1997) features fifty examples for the potential of increasing resource productivity by a factor of four at least. Twenty examples were selected in the field of energy, twenty in material resource productivity, and ten in transportation.

Fig. 5: Factor Four was translated into twelve languages including Chinese and Japanese.

My co-author Amory Lovins lives in and works at the “Rocky Mountain Institute”, some 2000 metres above sea level in a truly cold climate. And yet his home needs almost no external energy. It is easily a factor of four more energy efficient than ordinary alpine buildings. The next picture compares the two in terms of energy productivity.

Fig. 6: The Rocky Mountain Institute is perhaps ten times more energy efficient than an ordinary alpine house.

Another very attractive Factor Four example is what my co-author Amory Lovins has dubbed the hypercar {Fig 7}. By almost entirely redesigning cars, making them light-weight and still crash-resistant, and by using modern hybrid engines, the average fuel efficiency can be pushed up to 150 miles per gallon, which is more than four times better than today’s fleets.

Fig. 7: Amory Lovins’ “Hypercar” (right) is five times as fuel efficient as ordinary cars (left).

Other examples include light bulbs, refrigerators, air conditioners, TV sets, mechanical fans, pumps and motors, computers and other office equipment.

Also renewable sources of energy will play an important role in the efficiency revolution. They may not by themselves save energy but they are at least ”carbon-efficient” and lend themselves to being combined with efficiency technologies, e.g. the use of passive solar energy in buildings can be optimised by the so-called translucent insulation technique.

A different and very important sector of energy use is nutrition. By reducing the excessive use of fertilisers and the transportation of fodder, and by slightly cutting meat consumption, energy requirements for a healthy diet can be cut by a factor of four.

The twenty examples of revolutionising material productivity range from construction and durable office furniture, to water in homes, in paper manufacturing and to high tech recyclable plastics for wrapping and catering. One fine example is the replacement of a clumsy paper-based filing cabinet by a modern CD ROM system. There you save more than a factor of ten even if you generously include the ”ecological rucksacks” of the metal contained in the disks. One example is modern steel, which can be easily four times as resource efficient per unit of results obtained (Fig. 8)

Fig. 8: Modern steel can be fabulously strong and can help saving 75% materials.

Let me present one last example from our book, the logistics of the production of strawberry yoghurt. Stefanie Böge has found out that for manufacturing a cup of strawberry yoghurt in Germany you would typically let lorries criss-cross central Europe and make 8000 kilometres, if suppliers and the suppliers of the suppliers are counted. It can easily be proven that you can do an equivalent job with only a thousand kilometres, which again is more than a factor of four. (Fig. 9)

Fig. 9: The distance of total lorry traffic for the manufacture of strawberry yoghurt today (left) and in an energy efficient future (right).

I may have opened a window for you into a distant future of technologies and everyday habits of people, There will be millions of small transformations, some of them quite inconspicuous, that make up the factor four revolution. I am perfectly confident that the revolution will be as benign as the industrial revolution, although surely there will be losers, chiefly among those who do not want or cannot keep pace. That, however, is not exactly new in the history of industry.

Profitability, long term and short term

Needless to say much of the efficiency revolution is not going to happen unless the framework for doing business is changed. Efficiency must be made profitable. Fortunately, some eco-efficiency is profitable now. (Fig. 10).

Fig. 10: A portfolio of stocks of ecological “best in class” companies had a better performance than the DJGI

A portfolio of stocks of ecological “best in class” companies had a better performance than the Dow Jones Group Index. Companies paying attention to the resource and energy flows going through the firm, tend to gain internal transparency and to enjoy better staff motivation and better customer relations. This is perhaps the most convincing explanation for their encouraging stock exchange performance.

It is to be feared, however, that the potential for making profits by eco-efficiency measures will be very limited if the present world market conditions prevail. Energy and natural resources are still too cheap because markets are rather blind with regard to long term scarcities and to such developments as the greenhouse effect.

Moreover, conventional policies in most countries have even subsidised the use of natural resources. André de Moor (de Moor and Calamai, 1997) has estimated that some 700 billion dollars are spent annually in subventions given to the four fields of energy consumption, water, agriculture and motor transport. This does not even account for all the tax advantages, free infrastructure and land given to investors. De-subsidising resource use will be an important part of ecological policy worldwide.

Another and related policy tool is ecological tax reform. In a world of growing unemployment and of scarce natural resources it just doesn’t make sense to draw the biggest part of fiscal revenues from human labour while resource use is essentially free of charges. The German government has made some first steps in that direction, as have many other European countries. Perhaps certain details were not well designed so that the programme is not exactly popular.

The EU is now introducing an international trade regime for permits of carbon dioxide emissions. Economists believe that this instrument can be more cost-effective than ecological tax reform.

This is just the beginning. I remain confident that future generations will find it easy to accept market interventions making scare resources dearer and abundant resources cheaper. That is pure economic rationality and should make countries richer, not poorer.

I hope that your innovative branch of industry with it’s fascinating advances in UV/EB and radiation curing will be part of the driving force for a more prosperous and more sustainable society world-wide!

References

• de Moor, André and Peter Calamai. 1997. Subsidising Unsustainable Develop­ment; Undermining the Earth With Public Funds. Toronto: Earth Council.
• Hawken, Paul, Amory Lovins, Hunter Lovins. 1999. Natural Capitalism. Creating the next industrial revolution. Boston: Little Brown
• Rees, William and Mathis Wackernagel. 1994. Ecological Footprints and Appropriated Carrying Capacity. In A.M. Jannson (Ed) Investing in Natural Capital. New York: Island Press.
• Schmidheiny, Stephan and the Business Council for Sustainable Development. 1992. Changing Course. Cambridge, MA: MIT Press.
• Schmidt-Bleek, Friedrich. 1994. Wieviel Umwelt braucht der Mensch? Basel: Birkhäuser.
• Weizsäcker, Ernst von, Amory Lovins and Hunter Lovins. 1997. Factor Four. Doubling Wealth, Halving Resource Use. London: Earthscan.

• How did we arrive to the present resource squandering?
• How should the political and economical frame change to establish a sustainable resources use?
• How did the perception of resources changed during the last 40 years?
• Are politicians ready to change something?
• What should they change?
• Is the business sector moving towards resource efficiency?
• Are investors ready to pay for sustainable resources management?

You can listen to the full interview here:

Link: studentreporter.org