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How Industry Takes Up the Challenge
Rodney F. Chase, Managing Director
The British Petroleum Company PLC.
Chairman, World Industry Coucil for the Environment
I would like to start with a quotation: "with greater freedom for the market comes greater responsibility".
This was spoken by your prime minister. Her perception and leadership have done much to set the stage for a more constructive debate on environmental matters, and for real progress in tackling the challenges which have been identified.
But the quotation does something else. It highlights a key tenet of the business community's progress towards the goal of sustainable development, a point to which I will return.
May I too welcome the initiative of the Norwegian government in arranging this symposium on the changing patterns of consumption.
Now I know that behind the simple phrase 'sustainable consumption' lies a complex picture. It has moral and social dimensions, as well as economic and technical ones. The growth in world population is certainly an important example. However, others have addressed these issues. I certainly support their relevance, but I think I can add most to this meeting by focusing on how business is putting sustainability into practice.
By this I mean how industry is achieving more for less - which is my working definition of sustainabilitv. Then, looking ahead, I will cover some of the challenges we have to overcome to continue this; and to some changes in traditional boundaries between sectors of business which I think offer opportunities for better use of resources. Lastly I will touch on the important question of how we should conduct the debate, to involve others in the search for the best solutions.
At the heart of the phrase 'sustainable consumption' lies a key question. Since I think few would be able to provide an absolute definition of 'sustainable', we are often without precise goals, and are working for improvements as technology and the market permit. But the question for policy makers is to what extent habits must be changed and consumption curbed? And to what extent advances will permit greater efficiency in the use of resources to provide an acceptahle answer?
Businesses exist to meet customers' demands for products or services. To prosper, they must be flexible and innovative, and behave in a way which is acceptable to their various stakeholders. But particularly we must understand and respect the choices of our consumers. Industry leaders will develop new products and ways to produce old products with less impact on the environment. But they will fail if the customers do not like them or are unwilling to pay.
We must remember that supply cannot take place without demand. Much has been done, and can still be done, to lessen the impact of operations on the environment, and to provide products which cause less damage from their use. But it is an unavoidable fact that the consumer remains the polluter of last resort. Policy makers should not fight shy of this when looking for answers.
Although with harmful products the goal has always been elimination, the priority in the l960s and 1970s was on dealing with incidents of significant pollution; on controlling occurrences through what is called 'the end of pipe' approach.
While 'control' remains a significant choice for environmental protection, we now look to remedy the cause rather than the result; to preventing pollution at source, to minimising the impact from production and the product.
We do this through what is known as the 'life cycle analysis' of products and processes. Put simply, this means that the whole chain of the impact of a product is examined for its demand on resources, its consequences in use and what to do when the end of its useful life is reached. Through this approach, we begin to find some of the answers to sustainable consumption.
And the point I would like you to think about is that this change in approach will have some quite profound consequences for the way in which individual sectors of business are structured, and how they operate. Controlling its pollution used to be solely a matter for the individual firm. But if we wish to reduce total demand for the world's natural resources - raw materials, energy - and the production of waste, the traditional boundaries between industry sectors may need to be changed, so that co-operation across industries is bodh encouraged and permitted.
If we are to rethink the blueprint, to emphasise product life cycles and their connected patterns of consumption - and I will return to this later - then the challenge to policy makers and educators is how to facilitate this change while respecting the individual freedom of choice and ensuring chat resources are used effciently.
Economic instruments, as they are called, do have the advantage that they respect the individual's freedom to choose. Provided there are choices available in the market place. They also stimulate innovation and reward effciency. Though, as I suggested earlier, respecting the individual's freedom implies that there is a personal responsibility for pollution, at least where alternatives are available.
But for consumers economic instruments generally mean taxes. Acceptable in principle the practice is ofren distorted.
The test of good environmental taxation is its effficiency in changing behaviour and its honesty of purpose. If it is unrelated to the environmental cost, or environmental purposes are falsely claimed, disenchantment will follow.
The recent history of the carbon and energy tax proposals are good examples. Far from being a tax proportional to the carbon content of fuel, the outcome has been increased taxes on gasoline, in both Europe and the USA. Coal remains untouched - and in some cases still subsidised - although its use generates far more C02 than oil. This is a questionable way to gain support for so called ecotaxes.
Now people may question the commitment of business. I believe more and more business leaders, of both large and small companies, are committed to running their firms in a way which will turn sustainable development from a costly dream into reality.
There is a host of success stories to support this assertion. Air, soil and water quality have improved. Previously barren areas such as lake Erie or the river Thames are seeing the return of wildlife. Automobiles are lighter and more efficient than ten years ago. CFCs have been identified as a problem and substitutes developed. Water based paints are replacing their solvent based predecessors. Recycling is taking hold, though it is a complex topic, often widh questionable economics, and sometimes a cause of international diffficulty.
And in explaining why industrial leaders are moving in this direction. I would say:
First, industry is not divorced from society. We have shareholders and employees who care every bit as much about dhe environment as anyone else. And so do our customers.
Industrial organisations care about economics. They have to because they have to manage cost, including the cost of change. The leaders are those who make the best use of their resources, which is the way to a more sustainahle future.
And industry survives by developing and applying technology to solve new problems. This expertise will benefit others.
And to round off my first point. I would characterise the principal components of the industry approach as follows:
First, good housekeeping. This may sound trite but it often involves much painstaking work in measurement of what is happening, in applying the technology and skill to finding the answers, and in measuring progress thereafter. Much of the success in achieving greater energy effficiency in refineries has come through management attention to the process.
The second key is in the development and substitution of materials which are acceptable. For example lead, mercury and CFCs have in many cases given way to substitutes, and as I mentioned earlier, water based paints are replacing solvents for a beneficial effect on certain types of air emissions.
The whole approach to manufacturing is a third key. I have mentioned recycling and one immediately thinks of the efforts by the German car manufacturers in particular to design the next generation of cars with this in mind.
Finally there is the benefit to be gained from resource recovery. The use of a chemical by - product to produce artificial insulin for diabetics, or the great potential for power co-generation are examples.
So I think industry can play an enabling role in developing sustainability. It also has a vitally important part to play in helping policy makers, consumers and producers consider what is feasible and economic at any one time.
But as I said earlier there are challenges to overcome. The costs of change are often high, and it takes time for technology to spread. We cannot invest in new and more effficient buildings or processes overnight. And as important, people's attitudes are not converted with the speed of the apostle Paul on the road to Damascus.
Change may involve a change of location, a change in the number of the workforce and the way they work. It may involve new and more costly materials and their handling. For the oil industry the requirement for unleaded petrol called for considerable investment in the refineries, in distribution, and on the forecourt.
If the solution is only available at great cost then the resulting benefit is often questionable. I think, for example, of the European Union proposals to reduce emissions when refuelling on petrol forecourts. As currently drafted they would save less than 1% of the emissions for a very significant cost - estimated at over a $1 billion.
Again the practical technology may not yet be available to reach the goal. We all know of the search for a competitive electric car or solar energy.
One thing we have learned is that few industries fully understand the entire consequences of everything they do. The manufacturer's knowledge may stop short at the factory gate. He may not, for example, appreciate the impact of the user on the environment.
If we are to design and operate for sustainability, then we need to understand the effects across the full chain from design, to use, to disposal. Sharing information across industries, between industries and with policy makers, academics and public authorities, is important to ensure the right answers.
I will not say much on attitudes, but my belief is that people look for value. Some may be persuaded to collect glass bottles or aluminium cans for recycling. But they are unlikely to buy 'green' products or save energy unless they see benefit in doing so. In Britain motorists were only persuaded to change to unleaded petrol by lower taxation.
Now may I illustrate some aspects of the move to sustainability through reference to two industries - energy and transport.
Not so long ago the fashionable concern was that energy supplies would soon run out. We have since learned that supplies are more prolific than at first thought, and that we can probably develop alternative forms of energy in the long run. Moreover we have learned to use energy more wisely and without penalising economic growth. But there are still greater gains to be had if we wish to achieve them.
Global warming is another issue associated with energy, and particularly with fossil fuels. There is little that can be done to remove carbon from the fuel or to prevent generation of C02, though we can choose less carbon intensive fuels.
But we can develop more effficient combustion systems, in industrial plants, space heating or vehicle engines. However these will not come from the energy industries, but from the makers of machinery and the designers of buildings.
But that is not the whole story, for the way in which the factory, the office or the driver use and maintain their plant will make a lot of difference to how much energy they consume. We are all agreed that we must become ever more energy effficient. We must understand where and how to achieve the most economic result.
The transport sector is another example of the same point. We have seen gasoline taxes increase in almost every country in Europe. But where have we seen a matching increase investment in public transport, in relocating jobs and homes? People's use of a car cannot be suddenly switched off if there is no ready alternative.
This leads me back to my third point. To achieve sustainability, we must look for innovation at every point. We must challenge the traditional boundaries between different industries, and between markets. This is a challenge for business, but also for policy makers because of their influence on consumption through law and the public sector. Let me briefly give three examples of what I mean.
Traditionallv the auto industry makes cars, and the oil companies produce the fuel, and hopefully there is a match. But now the car has to meet not only what the customer wants, but emission standards to deal with air quality issues. To respond to this, the oil and auto industries have set up a joint project with the European Commission to evaluate the options. This is a notable step forward for two industries who in the past have had some frosty moments in their relationships.
The study does not include fuel efficiency. But perhaps this is sensible since the issue is wider than these two industries and will bring with it questions which involve land use planning, alternative systems of transport, and the development of information technology and telecommunications. These are vital too if an alternative to some physical journeys is to be found.
This leads to my second example. We are seeing enormous advances in the development of communications and information processing. Not only will they alter current boundaries between industries engaged in telecommunications, consumer electronics and entertainment. They will also affect where companies locate their activities and the jobs which go with them. They will affect how and where people work, shop and are entertained. One can easily see from this how the demand for raw materials and energy could change, though it will take time. The danger is that we try and develop 'sustainability ' for a transport system which is anyway becoming obsolete.
My final example is the electricity industry. Here we see quite significant growth in demand, a wider choice of technologies and fuels, and much greater competition among suppliers. This will lead to a larger industry and to changes in its structure. The old monopolies will disappear and the relationships with suppliers of fuel, and particularly with customers, will be different.
I suggest that each of these examples, and there are others, gives us all a challenge to recognise the opportunity to work for an outcome which delivers sustainahility. I have concentrated on making the case for industry's interpretation of its commitment to sustainability, and of the challenges which are ahead. I understand that this may not be the last gathering of its kind, and I hope there will be an opportunity to explore some of these and other issues at a later stage.
But I would not like close without acknowledging what I said at the outset. The issue of sustainable consumption is complex and there are a number of perspectives which I have not addressed. I have approached the question by illustrating steps which industry is taking to reduce its own demands, and given examples of where industry is working to help consumers reduce their own impact.
I have not, for example, been specific as to location. Partly, this is because I believe that an approach adopted in one country is normally valid everywhere else. But there is a more difficult question. Some people question whether the aspirations of citizens in fast developing countries can be satisfied without threatening sustainable growth? The implicit suggestion is that the pace of development in some countries needs to be checked.
All I want to emphasise is that this question falls beyond the competence of business to resolve. Governments and their peoples must decide where to draw the line between satisfying material wants as quickly as possible, and other considerations. Business can help determine how to achieve goals. But certain goals can only be set by governments.
But that still leaves business with an enormous responsibility. As I said earlier we welcome this symposium. And to come to my final point, the organisation of which I am chairman, WICE, was set up by forward thinking business leaders precisely because we recognised the need to contribute to the debate and help find the answers.
Industry may operate at site level but in many respects national borders are passing features. We know of the so called global market place. This is increasingly true for environmental policy, and today's issue is a prime example.
Dealing with the ozone problem, the concern over global warming, biodiversity, issues of trade and the environment, are examples of where we have to find answers which accommodate what may appear to be conflicting interests. WICE is actively involved in developing recommendations to deal with these issues.
National environmental policy, trade and technology, life cycle analysis; and the sharing of best practice among businesses, are some of the points on which we are working. This with a view to helping governments shape policy, educate public opinion and bring about the changes, necessary to achieve healthy and sustainable economies.
And I hope it is not arrogant to say that WICE sees a real role for itself and its members in helping some of the difficult debates which must go on around the world if the right solutions are to be found.
Business is used to dealing with uncertainty - or the survivors are - so we can help. But we do hold strongly to the view that policy should be based on a proper understanding of the science, of the costs and benefits, and should have public support. The last point is increasingly important as we deal with trade offs affecting lifestyle.
So to conclude may I reiterate:
Business will continue to bring to the development of sustainability its commitment, its understanding of economics, and its skill with technology.
As business leaders we will develop and apply new products and new technology, but we must move from single point analysis to understanding the economics of the whole life cycle chain. Traditional boundaries between industries, and transactions between sectors will change, and should be encouraged to do so.
Economic instruments will help the market to work to reduce costs and stimulate innovation. But policy makers must be open about their objectives and be prepared to tackle the difficult political issues - lifestyles for example.
Energy is an example of a natural resource where more efficient use will require a response from many parties users and policy makers. Customers, shareholders and employees will also need to support the changes.
Transport is an example of where the quest for greater sustainability involves others beyond the traditional sectors, in this case the oil and auto industries.
Business leaders are not concerned only with their own performance. They recognise the need to communicate actively on these issues and to provide positive and innovative thinking. WICE is actively engaged in looking for answers. This in itself is evidence of the desire and determination of business to contribute to the debate.