Resource efficiency: an imperative for a sustainable world
G7 Summit

Resource efficiency: an imperative for a sustainable world

Over the past decade, awareness has grown regarding the threats posed by environmental change to social, political and economic security. It is also broadly recognised that long-term economic prosperity depends on environmental sustainability.

Humanity’s socioeconomic progress – coupled with population growth, rapid urbanisation and, with it, lifestyle changes – has come at a price.

Already, more than 20 per cent of cultivated land, 30 per cent of forests and 10 per cent of grasslands are being degraded. Up to 25 per cent of the world’s food production may be lost by 2050 due to climate change, land degradation, water scarcity and other processes – yet one-third of the food produced for human consumption is wasted each year.

As the World Economic Forum’s Global Risks 2015 report highlights, three of the top 10 risks in terms of impact over the next 10 years are environmental: water crises, failure of climate-change adaptation, and biodiversity loss and ecosystem collapse. Acknowledgement of the inextricable nature of these collective challenges is evident. That Germany, during its presidency of the G7, has made resource efficiency a priority is testament to that.

In 2015, the world has arrived at a critical decision-making juncture that will dictate the viability of current and future generations. The countries of the world will convene in Paris to negotiate the next global climate agreement. They will also pick up where the Millennium Development Goals leave off and adopt an ambitious set of universal goals, the Sustainable Development Goals (SDGs), which embrace the notion that everyone’s social, political and environmental destinies are intertwined.

However, to achieve goal number one of the proposed SDGs – end poverty in all its forms everywhere – or any one of the other 16 goals on issues ranging from ending hunger to ensuring affordable access to modern energy for all, from making cities safe, resilient and sustainable to reducing inequality within and among countries, everyone is going to need to find new, innovative ways of doing business. And I am optimistic that we can.

Efficiency and the economy
Becoming more efficient is a key factor in ensuring that the additional three billion people who are expected to enjoy middle-class income levels in the next 20 years can do so without breaching planetary boundaries or compromising the prosperity and equity of those who will join them. Helping to build an inclusive green economy – a circular economy in harmony with the natural environment – is also part of the answer. The smart economy will minimise the production of waste and reuse the waste that is produced, not only as an environmental rationale in a resource-constrained world, but also as a way of increasing competitiveness.

The proposed SDGs include a clear goal to “ensure sustainable consumption and production patterns”, and 13 of the 17 goals refer to the need to manage natural resources sustainably.

The question is: how can resource efficiency be an engine of development and job creation, a driver of innovation and economic prosperity, and a key tool in fighting climate change?

According to the United Nations Environment Programme’s (UNEP) International Resource Panel (IRP), and based on research by the McKinsey Global Institute, harnessing existing technologies and appropriate policies to increase resource productivity could save up to $3.7 trillion globally each year.

Many countries are already increasing resource productivity, investing in renewable energy systems and promoting a circular economy. The best aspects of those existing and emerging resource-efficiency solutions can be scaled. For example, Japan has taken a survival-of-the-fittest approach to setting product efficiency standards. The Top Runner Programme tests a wide range of products – from electric rice cookers to vehicles – to determine the most efficient model, and this becomes the new standard. This drives companies to make more efficient models to compete to develop the best available products.

In a bid to reduce energy consumption, the province of Ontario in Canada has instituted the Green Button programme, which lets consumers securely access their electricity consumption data, allowing them to understand their electricity consumption and identify opportunities to save energy within the household.

As the demand for energy has shifted, with 90 per cent of net energy-demand growth until 2035 expected to come from emerging economies, the carbon intensity of energy itself has increased. In the developing world, energy intensity, the energy needed to produce one unit of gross domestic product, is three times as great as it is in the developed world.

Investment, incentives and financing
Encouragingly, there is an upswing in global renewable energy investment – $270 billion in 2014, up 17 per centon the previous year, according to UNEP’s Global Trends in Renewable Energy Investment 2015 report from the Frankfurt School UNEP Centre and Bloomberg New Energy Finance. In developing countries, investment rose by 36 per cent to $131 billion, on track to surpass investment in developed countries.

This deployment of clean-energy technologies in the last decade is a progression that has surpassed predictions, and the proportion of world electricity generated from this cumulative installed renewable power capacity rose from 8.5 per cent in 2013 to 9.1 per cent in 2014.

Much of the surge in developing economies over recent years has been thanks to investment in China. This spiked up from just $3 billion in 2004 to $83.3 billion in 2014, helped by supportive government policies aimed at boosting power generation in the country, at providing demand for domestic wind and solar manufacturing industries, and – especially recently – at offering an alternative to pollution-inducing fossil fuel generation. In 2014, other BRICS countries were also among the top 10 countries investing in renewable energy: Brazil ($7.6 billion), India ($7.4 billion) and South Africa ($5.5 billion).

Yet the growth of renewables faces a mixture of old and new barriers, sometimes because of the very success of renewables. Coping with 25 per cent or more variable generation is more difficult for grids and utilities than managing a five per cent proportion.

If the positive investment trends in renewables are to continue, it is important that major market reforms in the electricity sector are implemented – of the sort that Germany is now attempting with its Energiewende transition to renewable sources.

Overcoming barriers to decoupling
No single change or improvement is likely to be sufficient, and none of these options is simple. Each one has its own challenges: cost, technological limits, slow turnover of existing capital stock, the ability to implement policy globally, and inertia in behavioural change. The drivers of change to support resource efficiency across multiple sectors will include macroeconomic policies that promote efficiency. The levers will be ambitious standards and norms, legislation, and fiscal remedies that provide incentives to businesses and consumers to promote sustainable lifestyles.

Existing barriers to decoupling need to be tackled, notably subsidies for energy and water use, outdated regulatory frameworks and technological biases. A meaningful global carbon price would also provide the right incentives for the most cost-effective decisions and investments to be made.

Green growth will largely be propelled by private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services. These investments need to be catalysed and supported by targeted public expenditure, policy reforms and regulatory changes across all sectors.

There is an increasing recognition among central banks, finance ministries and major investment funds, for example, that new ‘rules of the game’ are necessary. Still, more needs to be done and guidance is required as more markets step into this new world. This is why UNEP has initiated the Inquiry into Design Options for a Sustainable Financial System – to explore exactly how the financial and capital markets can be better aligned with sustainable development.

In a year such as 2015, when securing financing for sustainability – both broadly and for climate-related actions – is such a critical theme and ambition, the opportunity exists to go beyond identifying additional resources for sustainable development to shaping the contours of a new international financial system, one that is fit for the needs of an inclusive, sustainable, 21st-century economy.

There is no silver bullet for changing the carbon emissions path. Action is needed on many fronts. The time is now to invest in disruptive technologies and institute transformational policies that set humanity on a path to a prosperous and more sustainable future for generations to come.