Florian Flachenecker

The causal impact of economic growth on material use in Europe

ABSTRACT Several scholars and policy-makers have claimed that Europe, and Western Europe in particular, has managed to ‘decouple’ economic growth from material use. We identify and address one major limitation in the existing literature – failure to take the endogeneity of economic growth into account. Based on a panel data-set of 32 European countries from 2000 to 2014, we estimate the causal impact of gross domestic product (GDP) on domestic material consumption (DMC) applying an instrumental variable approach. We use the number of storm occurrences as an instrument for GDP, which we show is both relevant and valid. Our results provide new evidence that increasing the GDP growth rate causes the DMC growth rate to increase for Western Europe, whereas the effect is insignificant for the Eastern European economies and Europe as a whole. As our results partly question current wisdom on the achievements of ‘decoupling’, especially among European policy-makers, we offer two explanations that are consistent with these results.

Investments in material efficiency: the introduction and application of a comprehensive cost–benefit framework

ABSTRACT Increasing material efficiency is considered to yield multiple economic and environmental benefits. This paper firstly introduces a comprehensive cost–benefit framework to systematically assess the viability of investments in material efficiency. The framework comprises several components by (1) comparing a business-as-usual scenario with a scenario of scaling up investments in material efficiency, (2) covering economic and environmental dimensions, and (3) considering direct and indirect effects. In a second step, we match the framework to existing evidence from the literature, followed by an application of the framework to a microeconomic investment project financed by a multilateral development bank. Our results suggest that material efficiency investments can yield positive net benefits, which typically increase when non-monetary dimensions are additionally taken into account. Overall, our analysis calls for a more comprehensive approach towards material efficiency investment appraisals, the internalisation of externalities, and further empirical research to better understand the implications of moving towards material efficient economies.

The Effects of Resource Efficiency on Competitiveness and Climate Change Mitigation: The Role of Investments

There is growing evidence that resource efficiency can be beneficial for boosting competitiveness and mitigating climate change. However, the majority of relevant studies either rely on case studies or suffer from methodological shortcomings. This chapter critically reviews the existing evidence base on the effects of resource efficiency on (firm and country level) competitiveness and climate change mitigation objectives. The concept of competitiveness is reviewed in detail followed by a discussion on the channels linking resource efficiency, competitiveness, and climate change. Furthermore, this chapter describes new empirical evidence on the effects of resource efficiency on competitiveness and greenhouse gas (GHG) emissions at the country and firm level in the European Union. The results provide a nuanced picture. On the one hand, there appears to be only limited evidence for a link at the country level. On the other hand, particular firms that have increased their resource efficiency as a result of investments in eco-innovations can realise positive competitiveness effects and simultaneously reduce their GHG emissions. This suggests that resource efficiency investments can reconcile competitiveness with climate change mitigation objectives for certain firms, in particular those that invested in eco-innovations. Important policy insights can be distilled from these results, including that not all firms are likely to benefit from resource efficiency improvements, and that investments in eco-innovations can play a crucial role in bringing about the resource transition.

Epilogue: Incentivising and Financing the Resource Transition

The book covers the multi-faceted incentives, trade-offs, and challenges associated with investing in the resource transition. Stemming from insights provided by each chapter, this epilogue distils the book’s three overarching messages. First, implementing the resource transition requires decisive action on the ground. Second, significant investment barriers exist and need to be addressed to foster progress towards more resource efficient and circular economies. Third, carefully designed policy packages that also take potential adverse effects into account are needed to ensure public support during the resource transition. Overall, this book aims to contribute to the discussions and future research on the role of investments in facilitating the transition to more resource efficient, circular, and sustainable development pathways.

Monitoring Resource Efficiency Developments: Indicators, Data, and Trends

Monitoring resource efficiency developments is important for identifying efficiency potentials, researching the effects of improvements, and building or maintaining political momentum. To this end, this chapter provides an overview of existing indicators and data sources to measure resource use and resource efficiency. Furthermore, recent and historic trends in resource use, trade, prices, and efficiency from global and regional perspectives are shown and discussed, aiming to provide insights into the various resource indicators and what has been achieved so far. Overall, this chapter shows that resource efficiency has increased over time but only slowly and heterogeneously across regions. Crucially, this efficiency improvement has not resulted in a global decrease of resource use in absolute terms.

The Introduction and Application of a Comprehensive Cost-Benefit Framework for Resource Efficiency Investments

Increasing resource efficiency is considered to yield multiple economic and environmental benefits. However, evidence suggests that resource efficiency is only gradually increasing across regions, countries, and firms. To systematically investigate the incentives and dis-incentives for firms to invest in resource efficiency, this chapter firstly introduces a comprehensive cost-benefit framework to assess the viability of investments in resource efficiency. The framework comprises several components of resource efficiency investments by (i) comparing a business-as-usual scenario with a scenario of scaling up investments in resource efficiency, (ii) covering economic and environmental dimensions, and (iii) considering primary and secondary effects. In a second step, the framework is matched to existing evidence from the literature, followed by an application of the framework to a firm level investment project. Following the insights of the case study, resource efficiency investments are more likely to yield positive net benefits when externalities are internalised, when the cost of ‘inaction’ is accounted for, and the longer the firm’s time horizon is. Overall, this chapter calls for a more comprehensive approach towards resource efficiency investment appraisals to strengthen the incentive for firms to invest in resource efficiency.

Enabling Resource Efficiency Investments: A Review and Outlook of the Resource Efficiency Agenda of the European Union

In times of volatile resource prices, possible disruptions in resource trade, re-industrialisation objectives, and concerns about environmental pressures arising from resource use, resource efficiency, i.e. ‘doing more with less’, is seen as one possibility to address these issues and deliver multiple economic and environmental benefits. All these challenges are particularly relevant for the European Union (EU) since it depends on resource imports, aims to increase industrial production, and has set itself the goal to significantly reduce greenhouse gas emissions. The EU attempts to achieve several objectives by increasing resource efficiency: reducing its dependency on resource imports, increasing the cost competitiveness of its industry, mitigating climate change, and working towards the UN Sustainable Development Goals. To this end, the EU declared resource efficiency a flagship initiative as part of its Europe 2020 strategy, introduced a Roadmap to a Resource Efficient Europe, and developed a Circular Economy Action Plan, among other initiatives. Additionally, the EU and its member states currently devote substantial capital to resource efficiency and circular economy investment projects. However, recent economic, political, and social circumstances have seemingly put other policy issues to the forefront of discussions, and slowed the political momentum for the resource efficiency agenda. Nevertheless, the implementation of the Circular Economy Action Plan and ensuring access to adequate finance for investments in resource efficiency and the circular economy remain key priorities. Accordingly, this chapter outlines the opportunities as well as challenges for advancing the resource efficiency agenda in the future, and discusses the role resource efficiency investments can play in that development.

Introduction: A Pragmatic Perspective on the Opportunities and Limits of Investing in Resource Efficiency

In the coming years, technological shifts (e.g. to electric cars, or renewable energy) and the delivery of the SDGs are bound to increase the demand for certain material resources. However, despite the evidence for the advantages of resource efficiency, the improvements have been falling short of expectations, and the benefits have been lower than expected. A central reason for this shortcoming is that the challenges of implementation have been underestimated, as firms and consumers were frequently unable or unwilling to invest in resource efficiency measures. This raises the question of what has been missing in resource efficiency efforts in order to streamline and upscale investments to make our economies more resource efficient. This book explores the decisive factors to enable the resource transition, i.e. the move towards greater resource efficiency and circularity, and examines how the potential of resource efficiency investments can be unlocked.

Barriers to Resource Efficiency Investments

In practice firms are faced by a range of market frictions and barriers, which can prevent them from undertaking investments in efficiency and low-carbon technologies. With a focus on resource efficiency investments, this chapter systematically investigates how the theoretical assumptions of perfectly competitive and efficient markets are violated in practice, and how this results in complex and interlinked investment barriers. It classifies five categories of investment barriers: information, capacity, and financial constraints, as well as uncompetitive market structures and fiscal mismanagement; and presents evidence on each of these. It concludes by proposing a range of measures for mitigating investment barriers, and addressing their structural causes.

Assessing Carbon Emission Savings from Corporate Resource Efficiency Investments: An Estimation Indicator in Theory and Practice

The Nationally Determined Contributions pledged by numerous countries under the Paris Climate Agreement refer to efficiency gains as a key instrument for achieving carbon emission reductions. Indicators for estimating emission savings from resource efficiency projects can play a key role in identifying and prioritising projects. Building on existing emission factor-based approaches, this paper introduces a methodology which allows consistent ex - ante estimation of lifetime carbon savings from corporate resource efficiency investments. This methodology accounts for the intertemporal dimension of resource savings and project lifetimes and allows consistent aggregation across resource and project types. Moreover, it shows how social benefit (or cost) can be monetised. The methodology is tested using a resource efficiency investment project under the UN Clean Development Mechanism. We demonstrate that this indicator can be a robust, coherent and practical tool for firms, governments and investors to estimate carbon emission reductions from resource efficiency investments.