Dear Professor Lu Mai, dear Professor Liu Shinjin, ladies and gentlemen,

It is an unusual honour for me to be invited to this keynote address, which I have put it under the title of Resource Productivity.

Fig 1

This title contrasts with the preoccupation with labour productivity during the last 200 years of technological progress. Labour productivity has been the melody of the first Industrial Revolution. It increased twentyfold or more during those 200 years. This has been the basis of prosperity and it is the main theme of China’s stunning economic progress.

During those same 200 years, the world has also seen a systematic decrease of prices of natural resources.

Fig 2

This invited mankind to a wasteful use of those resources. Small wonder, then, that resource productivity was stagnant or even decreasing during much of this time.

Let me submit to you that we cannot continue on this road. It may be wise, chiefly for the industrialized countries to slow down the further increase of labour productivity while forcing the increase of resource productivity.

Forcing resource productivity has become an imperative also for the developing countries that cannot afford a wasteful use scarce resources. Obviously, this consideration was at the roots of planning this conference. The new trend in technological development, namely a strong emphasis on resource productivity, may be triggered by the recent increase of resource prices:

Fig 3

For China in particular, the rising commodity prices were a signal of warning. But then, you have additional reasons to become more resource efficient. It would allow you to simultaneously reduce one major health problem, namely pollution-caused mortality in your industrial agglomerations:

Fig 4

Clearly, air pollution should also be addressed directly by appropriate pollution control measures. These have an additional cost, which however, is far exceeded by the economic benefits for China, according to Stefan Hirschberg et al (2003) of the Swiss Paul Scherrer Institute:

Fig 5

China is going through the standard development with regard to pollution: Countries start poor and clean. Then they industrialize and get rich and dirty. And then they rich enough so that they can afford pollution control and end up rich and clean:

Fig 6

It has been the traditional view of the developing countries that they are too poor to pay for pollution control. As Indira Gandhi said it in 1972 at the first UN Conference on the Human Environment in Stockholm: “Poverty is the biggest polluter”

Fig 7

Indira Gandhi’s slogan went down well not only with the political leaders of developing countries to whom it was a nice excuse for not acting on pollution control, but also for industry in the North that could conveniently say that they needed good profits for the sake of the environment.

The trouble is that today’s biggest environmental problems, biodiversity losses and climate change, are chiefly caused by the rich.

Fig 8

Regarding biodiversity, the biggest problem is habitat losses due to increased land use for agriculture, settlements, mining, energy and transport. You can estimate the acreage that is needed per person for a sustainable supply of all the daily goods and services. This is then the “ecological footprint” according to William Rees and Mathis Wackernagel, caricatured in the next picture:

Fig 9

The ecological footprints of average Chinese people are roughly one hectare. We in Western Europe have footprints four times as large, and in the US and Canada, footprints are even eight times that size. If all 6.3 billion people had US type lifestyles, we would need three to four planets Earth to accommodate all their footprints. This is obviously unsustainable.

The other big problem is global warming. Global temperatures have been rising and falling over the last 160.000 years in close correspondence with CO2 concentrations.

Fig 10
Based on the physics behind this correlation, the Intergovernmental Panel on Climate Change (IPCC) has projected temperatures to rise dramatically during our century:

Fig 11

The consequences could be alarming for water, food security and for biodiversity. You would also have to count with more devastating typhoons and, most dangerous perhaps, with a rising sea water table, indicated by the green line in the next picture.

Fig 12

The difference between high and low water tables is more than 100 metres, which means that coast lines will heavily vary. The next picture shows it for Italy. 20.000 years ago, during the last Ice Age, the Sea was lower and Italy was larger than today. But two million years ago there were no polar ice caps (and also the geological situation was different in the Mediterranean Basin) so that Italy was much smaller:

Fig 13

At present, we see a dramatic change of temperatures in the Arctic region, as has been discussed in the Arctic Climate Impact Assessment (2004). The summer freshwater coverage of Greenland has increased more than fourfold in ten years:

Fig 14

We are unable to predict the consequences of this development. But we know from historical records that ice masses can collapse or glide into the oceans in a very short period of time. This has been the case with the ice shield once covering Labrador and the Hudson Bay, which disintegrated during a few decades, perhaps even a few weeks some 7800 years ago, letting the sea water table rise by some 7 metres:

Fig 15

Imagine what such a mega-event would mean for China’s or Japan’s coastal areas, or for the Netherlands or Egypt or Florida!

What do we have to do to prevent such disasters from happening? It is plausible that at least we should try to stabilize CO2 concentrations. This, however, will require us to reduce annual CO2-emissions by 60-80 percent, according to the IPCC. Let us optimistically assume that 50 percent will do. But under the present trends, we shall get exactly the opposite. We are heading for a doubling of CO2-emissions:

Fig 16

China, India and other countries are drastically expanding their industrial outputs, their motorized transportation and their energy consuming housing and agriculture. So we shall see China and India to have emissions similar to those of the US:

Fig 17

Fig 18

The world energy pie shows that worldwide we have still an overwhelming dominance of fossil fuels.

Fig 19

In Europe, we have begun systematically to work on the reduction of CO2-emissions. The trading began in December, 2004. Initially, the prices paid per ton of CO2-emissions were at around 8 Euros. Meanwhile, prices have roughly doubled.

Fig 20

One component of our combating greenhouse gas emissions has been the increase of renewable sources of energy. In Germany, we have been quite successful in this:

Fig 21

We were very glad to see a large Chinese delegation at the Renewables 2004 conference in Bonn last year, and many said that China was about to copy the German system and is now planning another such conference this November. However, for all their merits, the renewables will not suffice to solve the problem. The energy pie is simply too large and must be reduced if we want to fight global warming and also avoid a dangerous dependence on nuclear power.

The key to the answer will be a Second Industrial Revolution focussing on the strategic increase of resource productivity. This has been the vision in the book “Factor Four. Doubling Wealth, Halving Resource Use”, which was also translated into Chinese:

Fig 22

It has been known for a long time that lower energy intensity is a sign of modernity:

Fig 23

We therefore see the Factor Four story as a true continuation of technological modernization and progress.

Let me now open a window for you to look into the new universe of eco-efficient technologies. The pictures will mostly compare existing technologies on the left hand side with new technologies on the right hand side that are some four times, or even ten or a hundred times more resource efficient than the old ones.

Fig 24

Let me start with my co-author’s Amory Lovins’ favourite idea, the “hypercar”, which allegedly does 150 miles a gallon, or needs only 1,5 litres per 100 kilometres.

Fig 25

Some remain a bit sceptical about its success but according to Amory, some 2 billion dollars have already been invested in the concept.

Fig 26

The next is Amory Lovins’ institute and home, the Rocky Mountain Institute, high up in the Rocky Mountains, which during much of the year is largely energy-self-sufficient and is easily a factor of ten better regarding energy than typical mountain.

Fig 27

The concept has been transferred ten years ago to ordinary apartment houses in Germany and elsewhere, as “passive houses” making use of solar heat and of heat exchange ventilation.

Fig 28

In my political constituency, Stuttgart, or rather in nearby Fellbach, we have a true zero-external-energy house. It has become a tourist attraction. And part of the excess energy it produces is channelled into a super-efficient car.

You all know the efficient light bulbs that need only a quarter of the electricity used in old incandescent bulbs. China has become the largest manufacturer worldwide of the efficiency bulbs. However, as most of you know, this is not yet the end of the road. Light diodes are coming up that are yet another factor of two or three better than the efficiency bulbs shown on the picture.

Fig 29

This is a small cooling chamber to replace the refrigerator that stands freely in the kitchen. Two weeks ago, I met with a Japanese gentleman who told me that even freely standing refrigerators have now been developed that are seven times more energy efficient that the old ones. The new development was probably triggered by the “Top runner programme” of Japan.

Fig 30

Fig 31

If you replace the old-fashioned filing cabinet technology by CD ROM’s you save more than a factor of ten and you have easier access to your data.

Fig 32

Water scarcity is one of the biggest problems of China. You may therefore be interested in a technology used in Germany that has reduced water consumption twelve fold in paper manufacturing, chiefly by systematically recycling and cleaning waste water.

Fig 33

My friend Professor Ryoichi Yamamoto of Tokyo once sent me the above picture showing a thin rod of steel that has the strength and capacities of otherwise ten times more resource consuming steel.

Fig 34

Video conferences are, of course, something like a factor of one hundred more energy efficient than the otherwise necessary business travel. I admit that video does not easily substitute for a business meeting on the Bahamas.

Fig 35

This is the story of modern, energy intensive agriculture. Winter tomato grown in greenhouses in Holland tend to need a hundred times more energy than they afterwards contain! With intensive cattle farming, the ratio is hardly better. Organic farming, on the other hand, is roughly by a factor of four more energy efficient.

Fig 36

This is the well-known strawberry yoghurt saga established by Stephanie Böge at the Wuppertal Institute. Lorries criss-cross Europe and drive some 8000 kilometres for the manufacturing of strawberry yoghurt. Obviously you could do at least ten times better.

So much perhaps to encourage you to think further about the upcoming technological revolution. Let me close by making a few remarks about methods to arrive there.

China is one of the countries that has established efficiency standards for cars. To meet the 2008 standards, many European and American car manufacturers have still to do considerable homework, while Toyota is well prepared.

Fig 37 [*]

In the business world we seem to see a slight competitive advantage of eco-efficient companies listed in the Dow Jones Sustainability Index over the average listed in the Dow Jones Group Index.

Fig 38

And if you compare different countries using the World Economic Forum’s Competitiveness Index you see a positive correlation with the Sustainable Development Index of countries.

Fig 39

So we seem to be on a good way. However, this is all too slow to reach the necessary factor of four. Let me in closing say a few words about instruments. I am impressed with what I heard in China about the determination with which you are creating incentives for more resource efficient technologies. Moreover, Douglas Ogden this morning mentioned the possibility of tax refunds for companies that achieve ambitious standards, and James Sweeney spoke about appropriate pricing.

Japan has gone a considerable step further with her “top runner programme” that makes the most energy efficient appliance or vehicle the top runner or standard and announces shame on those companies in a few years that still sell outdated, less efficient items. Ultimately they even have to pay a fine.

Germany and other countries have adopted an ecological tax reform to reduce the fiscal load on human labour while making natural resources more expensive.

And at the G 8 Summit that takes place in a few days, we hope countries agree on a geographical extension of climate policy beyond “Kyoto”. We hope that also China, India, Brazil etc will be invited under fair term to join international climate policy.

For this, the North has to understand that the present “grandfathering” approach is unfair to the developing countries and has to be replaced step by step by a system based on per capita allowances, – which would be good for China and India.

Mr. Chairman, ladies and gentlemen, I feel that the race is on worldwide among countries and among companies to take the lead in the Second Industrial Revolution that is driven by the second melody of progress, the melody of a revolutionary increase of resource productivity.

Thank you for your patience and attention!

References

• Hirschberg, Stefan, et al. 2003
• Rees, William and Mathis Wackernagel
• Von Weizsäcker, Ernst Ulrich, Amory Lovins and Hunter Lovins. 1997. Factor Four. Doubling Wealth, Halving Resource Use. A Report to the Club of Rome. London: Earthscan. Also available in Chinese and ten other languages.

[*] After the lecture, I was approached by a reresentative of General Motors who said that GM had also met the standards with cars exported to China.

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.

Introduction

I feel greatly honoured being invited as your tenth speaker in the Business Leaders Conference on Environment and Development. Nihon Keizai Shimbun started the series in the year of the Earth Summit of Rio de Janeiro, the UN Conference on Environment and Development. 1992 was the year of culmination for the topics of environment and development. Since that year, public attention worldwide has to an alarming extent deserted both topics.

I shall briefly offer some unconventional views on Japan and then move on to discuss the megatrend of globalisation which I see as the main reason for the massive neglect of the environment. I shall conclude with an attempt at establishing a new sense of direction for technology, civilisation and investments.

Is Japan ill? I rather think the opposite

So let me begin with my personal views on your country. Foreign commentators tend to depict Japan as stagnating and ill. Increasingly, even the Japanese seem to believe in this negative assessment.

Of course, in a world in which growth is the yardstick of success, you cannot be too happy. Of course, one feels worried by non-performing loans worth 40 trillian Yen and by a national debt of 400 million Yen.

And, of course, everybody right in his mind has to support your Prime Minister Jun-ichiro Koizumi’s bold reform policies including the privatization of some of the tokushu-hou-jin (Special Public Corporation). He also addresses new competitive frontiers which are to be explored chiefly by the private sector.

However, let me as a guest and an outsider say a few words of reassurance to you. I have the privilege of visiting Japan rather regularly. What I see is a strong and prospering country proud of its history, full of high technology industry, pioneering in exquisite services. I visit top class universities, see happy school children in pretty school uniforms and enjoy clean and well-functioning public transport. I feel safe in the absence of crime and violence. Best of all, the people you meet on the streets look happy and respond with exquisite politeness to any question of a foreigner. Compare Japan to the violence situation in US American cities, in Colombia or in South Africa! Compare Japan with the poverty situation in most developing countries. Compare Japanese tolerance with the religious or political intolerance and fighting in half of the countries of the world! No, I find it squarely scandalous of journalists and economic analysts to call Japan a sick country.

One of your and of PM Koizumi’s worries is the lack of economic growth. But then let us reflect for a moment. What is the meaning of zero growth in a situation of a stable population and of high prosperity? It still means a huge turn-over; it can mean an increasing stock of wealth. It only means that the flow, covering both increase and maintenance of wealth is not bigger than it was in the preceding year. As a matter of fact, private financial assets are nearly four times as high as your state deficit meaning that your country as a whole is not indebted.

There are only two worrying facts associated with zero growth. One is that some competitors may eventually outgrow you. And the other is that technological advances produce higher labour productivity, which means an increase of unemployment, a phenomenon unknown to Japan for many happy decades.

I shall address both troublesome facts later. As I said before, I am not suggesting that Japan cannot be improved. I share the view in particular that Japanese consumers would do a good thing returning to an optimistic habit of spending. But I am suggesting that all measures of improvement including the Koizumi reforms would greatly benefit if the country would enjoy a new and clear sense of direction.

A clear sense of direction means that investors know where to invest. Banks trust that the investments make sense. And consumers want to be “with it” and re-discover the joys of owning the right things.

Blind markets

Markets in our days hardly create a new sense of direction. They did so in the past when essentially all goods and services were in short supply. Industry was only too happy to produce all that was needed. During this happy period the increase of labour productivity was only too welcome. It meant that ever more could be produced and that wages could steadily rise. Japan surely had a strong state dominating the economy. But the business community didn’t mind. “Japan Incorporated” benefited all during that period.

Let me repeat and highlight one aspect of this period. It is the dominance of the state over the private sector. Fig. 1 symbolises this situation, — in a caricature fashion.

Fig. 1: The state dominates but business is happy.

What was true for Japan, could similarly be found in West Germany, in Canada and essentially in all OECD countries. In the USA, in particular, the strong leadership of the state, the serious quest for social justice and the relatively humble role of the private sector, could be observed since the days of John F. Kennedy — not to mention Franklin D. Roosevelt a generation earlier.

But then, after the turbulences of the oil crisis and in its wake the novel arrogance of Islamic fundamentalism, first culminating in the Iran hostage crisis, the USA underwent profound changes. Ronald Reagan enjoying a landslide victory in 1980 pulled out of the welfare state and in foreign policy steered the country into harsh confrontation against what he called the “evil empire”. He promised to reduce taxes for the achievers and invited private business to take its profits home. In effect you could see the state on retreat.

Fig. 2: The 1980s: The state on retreat.

Similar developments could be observed in Britain, Germany and several other countries. At the time, I believe, it was good for these countries that the private sector assumed additional responsibilities and introduced efficiencies unknown to some state owned agencies. But in some cases such as the privatization of the British rail it went all wrong. Anyway what I am suggesting is for each country to maintain a healthy balance between public and private.

Globalisation

In many parts of the world we seem to have lost that balance. When the Soviet bloc collapsed, many nation states in the West and in the developing world all of a sudden lost much of their bargaining position towards the international capital markets. This bargaining position had been rooted to a large extent in the very existence of the communist threat. It forced capital owners to accept progressive income taxes, social security and environmental regulation. This was simply because the socially inclusive market economy was still better for capital owners than any kind inclination of a country to go communist.

Now, after 1990, that comfortable bargaining position of the nation state was gone. What now happened, was called globalisation and was characterised by the dominance over the smaller nation states of international capital markets.

Fig. 3: Globalisation means the dominance of the private sector.

This is our situation today. First, the world (and not only business) was celebrating it. The spectre of a third world war had disappeared. . Hundreds of million of people were liberated from dull, authoritarian and inefficient regimes. Huge peace dividends were expected to arrive. The stock markets soared. Francis Fukuyama in America called it the end of history, i.e. the end of ideological quarrels. Markets were believed to give guidance towards ever increasing prosperity. Nobody dared to question whether we had a reliable sense of direction.

Nobody dared to raise doubts about the legitimacy of the dominance of the private sector because the dominance of the state had conspicuously lost its legitimacy.

However, the euphoria didn’t last very long. Soon people began to realise that the gap between the rich and the poor was steadily widening. The income gap between the richest and the poorest twenty percent of the world population rose to a shocking factor of 75 during the 1990’s.

Fig. 4: The widening gap of income world wide.

Environmental policy became a nightmarish task because everybody’s immediate concern was now to survive in the unforgiving struggles of globalisation.

Even in their home turf, financial markets performed a lot poorer than expected In rapid succession, currencies from Eastern Europe, Western Europe, Mexico, the Asian emerging markets, Turkey and Argentina were subject to extremely damaging turbulences. Worst of all, the “new economy bubble” imploded and with it the entire euphoria of the global stock market.

The states, guardians of the public goods, suffered from stagnating revenues, in part self-inflicted through a rat-race for ever decreasing corporate taxation.

Fig. 5: Diminishing corporate tax rates in OECD and EU member states.

Ordinary people got increasingly worried and angry about the arrogance of the dominant market ideology. In Seattle, Gothenburg, Genoa you could see them marching and protesting. Protesters mostly represented the losers of globalisation. They also represented in a great variety of ways public goods such as the environment, human rights, social equity, farmers rights, cultural diversity, or the rights of indigenous people. You can ask any of these people if they see a purely monetarised globalisation as damaging to the public goods they defend. And their answer will clearly be “YES”.

Fig. 6: ¥€$.

Let us take stock for a moment. The victory of what we all considered the superior systems namely the democracy-based market economy, appears to be in the doldrums. People worldwide seek for a sense of direction, but in vain. Except, perhaps in China and America. In China they still enjoy the clear sense of direction of just increasing economic output. And in the US they don’t allow any critical questions about what their great country has been fighting for ages. They prefer to put the blame on the outside world, that is Islamic fundamentalism, coward Europeans, or a stagnating Japanese economy.

The unsustainable American way of life

I fear that we won’t arrive at a new and reliable sense of direction unless we dare to question – against all political correctness – the viability of the US model of economic growth or, what is usually called the American way of life.

In doing so, we have to focus our attention on the topic of our conference, environment and development. Let me submit that the American way of life is squarely unsustainable.

Of course, our friends from America don’t see it that way. To them, the USA represent the far end of what is often called the environmental Kusnets curve.

Fig. 7: The inverted U-curve of pollution.

The curve shows the history of the Industrial Revolution. Countries typically start off poor and clean. In the course of industrialisation they become rich and dirty. And finally they become so rich that they can afford expensive pollution control making them rich and clean. Japan, like the USA or Germany, is perfect example of this development. The curve justified in a sense what Indira Gandhi said 30 years ago, namely that “poverty is the biggest polluter”.

The trouble is that the situation of “rich and clean” is not automatically “sustainable”. Facing today’s major environmental problems, we should even call economic wealth the biggest polluter, although this time pollution is not perhaps the right term for the environmental damages. Fig 8 sums it up:

Fig. 8: The daily toll of environmental destruction.

Here we see the daily toll of global environmental destruction. We seem to be losing up to 100 animal or plant species every day. We blow 60 million tons of carbon dioxide into the air, thus changing the atmosphere. Over-fishing and deforestation go on almost unmitigated. Much of the damages stem from excessive land-use, material turnovers and energy consumption in the rich and clean countries. The USA is clearly leading this unsustainable direction of development.

Greenhouse effect and other ecological troubles

In assessing the problems and opportunities let me concentrate on the greenhouse effect, but I assure you that the assessment of land use and of material turnovers would lead to very similar considerations.

Carbon dioxide concentrations are on the rise since the early days of industrialisation. The next picture shows the trend for the last couple of decades:

Fig. 9: The steady increase of CO2 concentrations.

The trouble comes when you look at the correlation between CO2 concentrations and global temperatures.

Fig. 10: The “Vostok” expedition found a close correlation between CO2-concentrations and atmospheric temperatures during the last 160.000 years.

We can also see that in the industrial age the blue curve of CO2 is mounting steeply upward. Climatologists expect temperatures to rise correspondingly, and we are already seeing it happen. Nearly each year during the last 15 years has been the hottest year since scientific weather recordings started. During the last 4 years alone we have had twelve or more gigantic natural disasters due to weather in various places on earth including Asia and Europe.

In 2001, the Intergovernmental Panel on Climate Change projected a dramatic increase of global temperatures to occur until the end of this century.

Fig. 11: IPCC’s projection of temperatures until 2100.

Massive changes in the face of the planet could result. Temperatures alone and a few local disasters might not by themselves be the core of the drama. A hotter candidate for the core of the problem is the sea water table (Fig. 12).

Fig. 12: The sea water table goes with atmospheric temperatures.

In this picture I have added as a green line the sea water table during the last 160.000 years. I invite you to have a look at the difference between a high and low sea-levels. It is more than 100 metres! This formidable variance has a major impact on the coast lines, as can be seen on the next slide:

Fig. 13: Italian coast lines during the last Ice Age and during the Pliocene.

This is Italy some 20.000 years ago, during the last Ice Age. But now look at the coast line some 2 million years ago, during a truly hot age. Imagine, ladies and gentlemen, what this picture would mean for the Tokyo and Kansai areas or for Bangladesh, the Netherlands or for Egypt. What may cause more anxiety still is the potential dynamics of change.

Fig. 14: The collapse, 7700 years ago, of the ice shield covering Labrador and the Hudson Bay.

Studying the British coast line and flood marks left at the rocks rising from the sea, Professor Michael Tooley found that about 7,700 years ago global sea-levels must have risen by 7-8 metres within a few decades or even within a few weeks. His explanation is that the ice shield then covering Labrador and the Hudson Bay were breaking off into the sea within a short period of time. I assume that this was the historical backdrop for the Atlantis and the Biblical Deluge sagas.

If we now go on heating up the atmosphere, major parts of the Antarctic or of Greenland can break off at some unpredictable moment during the next 200 years.

If we want to avoid such disasters, we would be well advised at least to stabilise CO2-concentrations. In order to achieve that, we would have to reduce annual emissions by 60%-80%, according to the Intergovernmental Panel on Climate Change. Let us say – optimistically – that we need only a 50% reduction. This is as far higher ambition than laid down in the Kyoto Protocol. However, halving CO2-emissions may be extremely difficult to achieve because energy experts tell us that we shall rather incur a doubling of CO2 concentrations within a few decades.

Fig. 15: CO2-emissions should be halved to achieve stabilisation of CO2-concentrations, but energy demand is more than doubling.

The reason is that developing countries so far have much lower CO2-emissions per capita than the rich countries. China, Brazil and Ethiopia have every reason now to do exactly what we have demonstrated to them as the core of our industrial success story, namely high energy consumption accompanied by high CO2 emissions.

Factor Four

A gap is opening before us which is at least as large as a factor of four.

Some people both in Japan and Germany believe that the gap can be closed using nuclear power. Without going into any detail of this controversial issue let me only say that after 11th September 2001, safety assessments of nuclear installations have to be re-written from the scratch — with an essentially uncertain outcome. Nikkei President Tsuruta was kind enough to ask me how Germany was handling its decision of phasing out nuclear power while still subscribing to the Kyoto Protocol. One part of the answer is renewable sources of energy. However, we have to admit that there are also limits lying in their costs and in their modest energy densities.

The best solution, I suggest, is a strategy of systematically increasing energy productivity. The textbook for this has the title “Factor Four: Doubling Wealth, Halving Resource Use” which I co-authored with my American friend Amory Lovins and his wife Hunter Lovins.

Fig. 16: Factor Four: translated into many languages.

The book heralds a new industrial revolution. It thereby also conveys a new sense of direction for technological progress. It may encourage investors to go for new investments and for new technologies.

Quadrupling resource productivity, eventually even increasing it by a factor of ten, as my friend Friedrich Schmidt-Bleek is suggesting, is a gigantic challenge requiring the commitment of the brightest engineers and the boldest business people. It is my sincere hope that both Japan and Germany will play major roles in bringing that new technological revolution about.

Let me make the analogy to the industrial revolution more explicit. During the first fifty or seventy years of the industrial revolution, the world has seen a fourfold increase of labour productivity. Later, labour productivity increases even accelerated, owing to better technological communication and ever increasing costs of human labour.

Today, albeit expensive, labour is no longer a scarce factor. According to statistics of the International Labour Organisation (ILO), over 800 million people are unemployed or have only access to marginal work. In this day and age, it somehow doesn’t make much sense for the world economy to go on and maximise robotics and other labour saving technologies while neglecting productivity of the really scarce factor of our days, natural resources.

The mentioned book, Factor Four, which also was translated into Japanese, features 50 examples showing the potential of improving resource productivity at least by a factor of four. Twenty examples relate to energy productivity, twenty to solid material productivity, and ten to the transport sector.

Let me briefly introduce you to the new universe of factor four technologies. For this I shall show you some pictures beginning with Amory Lovins’ present favourite example, “Hypercar”:

Fig. 17: Hypercar is four times more fuel efficient than normal automobiles.

Hypercar, seen on the right hand side, is designed to use only one-and-a-half litres per hundred kilometres. I won’t go into technical details of this ultra-light vehicle.

The second example is what we refer to as the “passive house” which in Germany’s cold climate needs hardly any external heating except for some passive solar energy.

Fig. 18: Passive house, a concept to save 90% of the typical heating costs.

It is very well insulated. It needs no radiators and thus saves space and money making it commercially competitive with ordinary constructions. It is not only insulation and energy management that counts. Nearly equally important is the materials of construction. Wood is among the best, of course, in particular if we consider the carbon balance.

Fig. 19: Wooden construction saves energy and CO2.

Very familiar to you all are light bulbs and their modern efficiency substitutes.

Fig. 20: Fluorescent light bulbs are four times more efficient than incandescent bulbs.

A more recent development is light diodes which are still a factor of two better than fluorescent lamps.

Lets us now turn to household appliances. When you replace your free-standing refrigerator with a cold-storage room built into the north wall of the house, you can also save approximately a factor of four both in terms of energy and materials.

Fig. 21: FRIA, the non-mobile refrigerator.

In tropical countries, but also during the summer in Japan, the biggest energy eater in office and apartment buildings is air-conditioning. In Singapore, we found an engineer, Mr Lee Eng Lock, who builds air-conditioning systems that need some 70% less power than conventional ones. Imagine the savings for office towers and tourist hotels all around the hot belt of this planet.

When you replace an old filing cabinet with a CD-ROM system, you have a Factor 10 or more in material and resource productivity and you have much swifter access to your data.

Water is now one of the scarcest resources in the world. Several examples in our book deal with factor four water efficiency in agriculture, industry and households.

One important industry for water consumption is textiles. We found a small German manufacturer, Hess Natur, advertising clothes that overall need roughly one quarter of the natural resources including fresh water needed in ordinary products.

Fig. 22: Textiles with a cradle-to-grave resource use four times lower than average.

Another strategy of saving materials and energy is improving mechanical properties of such simple materials as steel. I recently learned about exciting advances in the Japanese steel industry.

Fig. 23: Innovative steel from Japan.

Instead of being a clumsy and heavy material, this extraordinary steel rod is incredibly light and elegant and yet extremely robust.

Let me finally turn to food. When you eat tomatoes from the Netherlands during the winter season, it could be that around 100 Kcal have been invested so that you can afterwards eat a Kcal tomato. In the case of European intensive husbandry beef each Kcal of beef requires some 20 Kcal of extended energy inputs. Ocean fishing, I am sorry to say, isn’t much better. With a diet, which is a little more seasonal, containing somewhat less meat and fish and stemming from organic farming or aquaculture you can easily save a Factor 4 in energy consumption, as the next picture indicates:

Fig. 24: Food can “eat” a lot of energy — but need not.

Stefanie Böge of the Wuppertal Institute has looked into the transport intensity involved in the production of strawberry yoghurt in Germany.

Fig. 25: 8.000 kilometres for strawberry yoghurt? It is too much!

She found that lorries are criss-crossing Europe at a total of around 8,000 km for the production of a cup of strawberry yoghurt. Clearly, this is not necessary.

Not only yoghurt journeys can be rationalised. Many business trips can be saved using videoconferences. And letters and manuscripts don’t always need airmail from Japan to Europe. Much can be sent by e-mail, saving a factor of 100 or 1000 in resource use. I am fully aware that substituting electronic dispatch for air transport in the case of tourism and Business Leaders Conferences is not quite so simple. Besides, people like to visit Tokyo for sight-seeing. However, in each case it is worth reflecting if a trip is really necessary.

In many cases the magical factor of four is not attained in one go. German chemical industry for instance managed to increase its overall energy productivity by a factor of four during a period of thirty years. Hundreds if not thousands of little inventions and process improvements were instrumental in bringing this success story about. You may not get much acclaim for this complex and incremental factor four story. But the effect is all the same.

Making it profitable

After having sketched out the shape of the new universe of factor four technologies I should like to turn to some economic and political questions. What can we do to make this technology shift profitable? Fortunately a reasonably large part of the eco-efficiency measures are already profitable. This is particularly true in developing countries. At my last journey to China, I read a brochure from a German consultancy working on strategies to reduce CO2 in China. And this is what they found:

Fig. 26: Fichtner found that CO2 reduction can be done at a profit in China.

I was actually surprised to see how cheap it was to reduce CO2 using wind or solar energy. But the real surprise was that just industrial modernisation would produce CO2 reductions as a windfall product. Best of all, strategic energy efficiency will earn the investor twenty dollars per ton of CO2 avoided. This is surely the basis for the astonishing fact that according to official statistics, China has reduced it CO2-emissions during the last three consecutive years while maintaining an impressive economic growth of up to 7% per annum.

Even if not every step of efficiency gains is profitable, the general attitude of eco-efficiency seems to pay. A Swiss-American partnership had lead to the establishment of the Dow Jones Sustainability Index representing the top firms worldwide which have a successful policy of improving eco-efficiency. Look how that paid off on the unforgiving international stock markets. The Sustainability Index had actually a better performance than the benchmark Dow Jones Index:

Fig. 27: Dow Jones Sustainability Index beats the ordinary Dow Jones.

Is that not a very encouraging piece of news? Unfortunately, the scope for profitable eco-efficiency is still rather limited. If we aim at a factor of four, we have to alter the frame conditions so as to make strategic efficiency increases still more profitable.

It can be seen as a perfectly legitimate objective for the state and for the international community to create an atmosphere that is favourable for creating the new industrial revolution. The basic idea is to make resource rationalisation more profitable than labour rationalisation. This has been the philosophy behind the ecological tax reform which has been introduced in most European countries, including Germany. The ideal scenario is one in which prices for energy, water and raw materials increase slowly (e.g. by 3 – 4% annually) so that technical progress can approximately keep pace. Imagine petrol prices increasing by 4% every year and the car fleet becoming 3% – 4% more efficient every year until. Then the fuel price per kilometre will remain almost stable. And your country would have to import much less oil.

Many other measures can be conceived to make resource productivity more profitable. Eco-audits have become very popular in Germany, Japan and elsewhere. The Netherlands through their former government have introduced a rule that pension benefits are tax free as long as the benefits are coming from certified stock portfolios of ecologically committed firms.

In the end I believe that one of the most important driving forces of technological progress is a new vision of how technology could look like in the future. I hope I was able in a very humble way to contribute to this goal.

Back to the alleged Japanese crisis

Let me return to the considerations made at the beginning. The eco-efficiency revolution can theoretically serve as a guideline for Japanese and European industry to return to investment optimism. In this field, it is both responsible and reasonable to go for innovations and massive investments that can shape the technological face of the world.

I also suggest to strengthen the advocates of the public sector again. The weakness of the state is likely to remain. But new allies have appeared on the scene to help the state defend public goods including the environment. It is the civil society NGOs. My last picture shows you in the former caricature form how I see the re-balancing of powers between private goods and public interest.

Fig. 28: NGOs can help the state re-establish the balance between public and private goods.

Let us hope that enlightened business leaders join in re-establishing both that said balance and the optimism that may also help overcome the economic stagnation some of you feel as a heavy burden on your companies and on your country.