Commission official: Lack of resource efficiency rules hurts industry

This article is part of our special report Resource Efficiency.

SPECIAL REPORT / The European Commission is working on turning resource efficiency into a political aspiration, by setting indicators to measure it and scoreboards for countries to compare their performance. This will help industry, says William Neale, responsible for resource efficiency in the Commission's environment unit.

William Neale is a member of cabinet in the European Commission's Directorate-General for the Environment. He spoke to EURACTIV's Ana-Maria Tolbaru.

Is it hard to find the right indicators for measuring resource efficiency?

Absolutely, yes. It’s very complex, a case of getting the right indicators. It’s a difficult task, intellectually speaking. 

Usually the metrics used for the existing policies are simple. For climate it might be, let's say, greenhouse gases, or for research we have clear targets – 3% of GDP going to research expenditure. They are rather precise. OK, they are selective to a certain extent maybe, but they it sum up rather easily. But when it comes to resource efficiency, it’s not a simple metric anymore.

This is because we have so many different resources, so many different economic activities. There’s an interplay between the different resources, so you might use more water in order to use less energy for example. There are so many complexities involved.

In the economy, normally the allocation of resources is by price and that has perhaps been the most efficient way of doing it so far because it manages the complexity. But because price doesn’t always reflect the importance or the availability or the sensitivity of a particular resource, it’s not always the best way of managing it.

So we need to have a better idea of, in terms of indicators, where the pressure points are and what we need to head towards.

But doesn’t price stimulate savings when it comes to materials used? Water used, energy used, land used…?

Definitely. That is one of the main drivers… Price is good if it reflects the real value. For example, the big improvements in energy efficiency that we have seen recently are maybe partly coming due to the drive for improving the climate situation, but also it makes business sense and for individual households to reduce their energy consumption, because it is expensive. And it’s going to get more expensive.

For other kinds of resources, that's for sure, for example for the German manufacturing industry. About 40% of their input costs is in materials. That’s twice what they pay for labour. So of course if material prices are going up, it’s obvious business sense for them to use the resources better, more efficiently and make them go further, get more out of them and waste less. So price is an important driver, but there are things like water that don’t really have a price that reflects its scarcity, and scarcity can be regionally different.

And things like biodiversity which provides … very important economic services, some of which we don’t realise until there is a disaster and think, well, if we hadn’t dug up all those trees we wouldn’t have had this flooding problem. And it costs a lot more to build flood defences out of concrete in terms of grey infrastructure than it would have done to keep that green infrastructure, but the value wasn’t understood before.

So sometimes the price doesn’t really reflect the value or the utility of the resources. And that’s why we need to have an attempt to recognise the importance of those resources. Either by getting the price closer to their real value, or by having some kind of indicators or some kind of signals that show to the business community and consumers where that value is.

The lead indicator you have initially proposed in the roadmap has been highly criticised – I had a look at the responses given by stakeholders in the consultation that ended on 22 October.

Well it’s highly criticised but we don’t actually have one [lead indicator] yet. Because this is so complex we are having a very long expert discussion, a very long stakeholder discussion. We now have 170 replies to our stakeholder consultation…

So you can imagine, we are trying to analyse those and we are at the same time checking our own analysis.

There is one [indicator] which is being mooted quite frequently, which is the domestic material consumption compared to GDP.

That was the lead point?

This is one of the ones which is with the task force which is now looking into the possibilities that have been suggested. We haven’t received the reports yet and it’s still being developed.

There will be a meeting at the platform to get a further steer on this in December and it will be next year when the decisions are made.

But wasn’t this proposed in the Roadmap, the lead indicator?

Yes, it was suggested in the Roadmap.

There are drawbacks from it. But it does also have certain advantages in that the information is there, the data is there, it’s comparable between countries and so on.

I think that the main thing that we need to look at is whether we can reflect in that the importance of imports and exports. The resources embedded in products that are coming from Asia or America or wherever are not counted at the moment.

So we need to look at that. And we also need to look at the fact that domestic material consumption is very much based on weight, so platinum and gravel would have the same value.

So we can also think about it in terms of different sectors. Maybe it makes more sense to look at it sector by sector.

That is the work that’s going on, and I’m not going to predict what is going to be the outcome.

But we certainly recognise that there are important drawbacks in the domestic material consumption model.

But it also has a lot of big advantages, because some of the others have even bigger drawbacks.

So it has the least drawbacks out of all the ones you have come across?

For a headline indicator, it has the beauty of sending quite a good political message.

Do you think that if you have one indicator that can be interpreted differently from one country to the other, as opposed to one indicator per material per sector…

Well the thing is that if you did that, it would no longer be a headline.

The idea of a headline indicator is that it gives a kind of political aspiration.

The idea really is to have something which is comprehensible, communicable and has strong enough data and methodology behind it to be credible and to allow comparisons. But it should be something which we can propose for the review of the 2020 Strategy, where we already have headline indicators for various areas.

In the current strategy we have a flagship on resource efficiency, and what we need to try to do is to show the direction we want to go in with resource efficiency. Just as we do with the 3% for research, or the employment – 70% of employed persons and so on – or in 20/20/20 for energy, you have those headline indicators which are also selective, they don’t tell the whole story, but they show the direction we are trying to go in.

Like the indicative target in energy efficiency? So it’s not binding but at least it’s indicative?

I think for resource efficiency, we are all pretty much agreed that we need to de-couple resource use from growth.

Now, as resources are so complex, it’s difficult to find an indicator to show that. Energy is a bit more easy, employment is a bit more easy, research is a bit more easy.

As it’s so complex I think maybe the one that comes closest to that link of de-coupling resource use to growth is domestic material consumption to GDP. Because it has the GDP as the growth angle, and it has materials, which are a very important resource.

That is why it would fit in fairly well as a headline indicator. But of course we have to look at the negative sides of it, and the fact that it doesn’t necessarily reflect in every way the way we want to go. There are other complexities around it.

So you’re trying to reach a compromise solution?

And this is what the consultation is all about. This is what the expert groups have been working on. And now the European Resource Efficiency Panel, which has its working group looking at this. Which has a very strong participation of industry and the private sector, and also a couple of NGOs, academics and so on.

But it also depends on how you define resource efficiency. Because you could say this is the best way to measure resource efficiency, but actually some people define it differently.

Well, we took a very wide definition of resources in the resource efficiency flagship. So we include energy, biodiversity – it’s not just materials. It’s not just energy. It’s water, it’s biodiversity, because these things are all important because of environmental impact, and because of the interplay between them.

You can’t really just concentrate on one. You might be missing what’s really going on. You might really reduce material consumption but water consumption goes through the roof, and that has a bigger environmental impact, so you really need to treat it in a holistic way. Which is why it’s intellectually difficult to reflect that.

But you need to have them there, because quite often if you can’t measure it, or at least if you can’t give an aspirational indicator of the direction you want to go, then it doesn’t happen. Because the policies that are leading to it are not aware of that direction.

Industry is opposing indicators a lot … what is their real worry?

Well, resources efficiency is talking about an economic and structural transition. And that involves winners and losers.

It involves pain. It’s creative destruction.

You will have certain sectors and industries which will gain, and others which will lose.

We argue that the transition is inevitable, it’s going to happen anyway because resources are under increasing pressure. We have the 9 billion population predictions, 3 billion new middle class consumers by 2030. Which is wonderful… it’s new markets, new consumers and so on, but it will put a new pressure on resources which means we need to undergo this transition.

What we are also arguing is that by having indicators we are giving a clear signal to industry where it needs to invest in order to make that transition less painful. Because if we say this is the way things are going then companies, investors, funds and so on can start seeing that that is the writing on the wall. That gives increased confidence and predictability in the direction we need to go, rather than then hitting the constraints of supply, and the price volatility and hikes and so on.

It’s really about helping industry and I think that by just having no clear direction that we need to go it’s not helping industry.

We can’t help industry by saying we can just carry on the way we want to carry on. That’s really just killing industry by kindness.

Actually if you look at the industrial policy updates which Vice President Tajani had adopted in the Commission about eight weeks ago, you will see that the whole idea behind this sort of new approach to industrial policy is to try to channel investment more towards those future growth sectors, without the Commission picking champions, which is not really the idea. But at least to free up some of the obstacles to investment in those areas.

Things like green technology can be considered by investors to be more high risk, for example, and there is a lack of knowledge about the risks and payback periods and so on for those kinds of technologies, amongst venture capital fund managers and banks and so on.

So we need to address those particular issues, and in terms of resources efficiency we want to get the stakeholders together to actually consider that.

Is it a normal practice to get investors together to consider different options?

I’m sure it’s been done for other areas. If you look at some of the other areas in the industrial policy communication, some of the other sectors with greatest potential, it’s things like biotech and so on, and I’m sure there would be no harm done in bringing investors together around those areas also.

But for resource efficiency we’re talking about a major economic transition. We’ve always said that it’s not for the Commission alone to do. We can provide the signals, but in the end it’s going to be the private sector which has to adapt and change and take on that transition.

And it is investors who will drive that as well.

And I think the EIB for example is very aware of the discussion we’re having on resource efficiency.

Further Reading

European Commission