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The Role of Authorities; from Pollution watchdog to Catalyst for Sustainable Development
Harald Rensvik
Director General
Norwegian Pollution Control Authority

Based on a cautious extrapolation of consumption, a Danish industrial leader has recently indicated (1) that, in the future, we shall have to reduce the load on the environment from all products, and in the world as a whole, in the order of 70%. This is an indication of the size of the challenge. The figure becomes more palatable when the task is distributed over 50 years - in that case the resource productivity must be improved by ca. 2 %. Resource productivity can be defined as: a measure of efficiency calculated by comparing the wealth obtained from products with the physical resources (material, energy etc.) spent to produce them.

Another reason for introducing the term productivity in connection with resources - or the environment - is that it is believed that, as a society, we have something to learn from how we have managed to improve the labour productivity in modern times. During the last 150 years the most capable enterprises have improved labour productivity by a factor of 20, which means an average improvement of ca. 2% per year. Surprisingly, resource productivity has lagged far behind. In most of the industrialized countries, consumption of energy and materials have increased almost parallel with the increase in Gross Domestic Product (2). There are several reasons for our marked success in improving labour productivity. In our part of the world, democratization - and in the Scandinavian countries also the distribution policy - have led to higher costs of wages and a strong motivation to get as much as possible out of each working hour. Society has also invested a tremendous amount of resources in scientific research, in technological development, in logistics systems and in personnel development and leadership. So, when it comes to the point, we have used the greater part of our intellectual capacity within the production sector for this one purpose - to improve the labour productivity.

We have also made ourselves dependent on firmly maintaining the approach that labour is our most important object of taxation

For an enterprise with a given range of products, it is fairly easy to find indexes for resource productivity. For a larger range of products or a country's consumption, a comparison would depend on selection techniques. In order to link the concept to the macroeconomic terminology, it may be possible to use the selection of goods in the index for consumer prices. Further development work is needed to operationalize the concept.

An important lesson from our development of labour productivity is that a major motivating factor has been the price of labour. We must assume that one of the most important reasons for our poor results with regard to resource productivity is that the prices of energy and raw materials have been too low. In other words, there is every reason to expect that paying a more correct price for our products, by incorporating the environmental costs, will have a very positive effect on resource productivity. So one of our main strategies will be to increase prices for energy and raw materials until we achieve the necessary increase in resource productivity. But proper prices do not occur of their own accord, and can hardly be decreed. Most probably we shall have to depend on the following step-by-step development. At every stage, it should be possible to change part of the total production by using. solutions that are known in practice by front-runners in the industry.

In other words, we are dependent on a strategy with three different approaches: Firstly, by developing and maintaining a "bottom line" by regulating (controlling) the most obvious forms of damage to natural resources and the environment by law. Secondly, by holding on to the vision of internalizing the harm to the environment in the prices and keeping up the pressure in this direction. Thirdly, we must also identify and try out solutions that can be feasibly introduced gradually, along with the introduction of more correct prices. In the rest of this talk some ideas on how to accelerate a process towards better resource productivity will be presented. First some strategies which might contribute to better resource productivity will be described more specifically.

2. Possible strategies for improving resource productivity

Resource productivity can be improved by using known and economically available cleaner technology at one or several places in the chain of production, by manufacturing other types of goods with a longer life, so that an increased need is covered by less or the same use of resources. For example it is feasible that, in the future, a car will last for 50 to 100 years, and not for an average of 10 to 15 years as it is today.

People's needs can also be satisfied in other ways than by more goods. This last objective can be achieved by placing more emphasis on production of services, where the use of resources is small compared with the total value added.

A product follows a production chain from extraction of raw materials to being managed as waste (see Figure 1). The total use of resources is composed of contributions at all stages of this production chain. The size of these contributions depends on economic criteria, technology, imagination, culture etc. In other words, for all products, there are innumerable possibilities of reducing the average load on the environment by 70 %. Some of these possibilities can be summarized in terms of different strategies.

The specific content of these strategies will vary from country to country, and from one enterprise to another. Figure 1 presents some keywords to relevant strategies at different stages of the production chain.

In Norway, like in many other OECD countries, it is generally agreed that we have developed a good know-how in cleaner processing and energy technology. This development has been forced on industry by the authorities' imposing requirements and exercising supervision. Industry has responded in many different ways. Some enterprises have conformed exactly to the expectations of the authorities and have kept their own house in order, but have not shown any enthusiasm for or recognition of the need for new fundamental criteria in the future. Others have recognized that competition makes it necessary to have a good environmental profile. Some are beginning to see that the actual conditions on the market are also changing, and that the market is gradually demanding new forms of production and new products or services. This varied response means that there is a big difference between the poorest and the best of the various players that affect resource productivity. This in turn tells us that we have a set of players who, given today's economic criteria, do not use their potential to the full, and can be stimulated through new impulses from outside. In a country like Norway, the largest potentials for improving resource productivity exist in the following areas:

a) Helping to improve resource productivity by using cleaner sources of energy such as gas and hydroelectric power.

b) Extend the area of application and life of materials such as light metals and wooden materials.

c) Raise the level of utilization of protein from fish and fish products.

As far as items a-c are concerned, our potential will depend on our position in international trade. This is because we have more of these resources than we are able to use ourselves.

d) Cleaner processing and energy technology in the sectors of industry where the manufacture is based on purchased raw materials or semi-manufactured products. The greater share of this type of production is carried out by small and medium-sized companies.

Our national programmes of economic support for cleaner technology have led to a considerable improvement of resource productivity in small and medium-sized companies. For example, reductions of 10-30% have been achieved in the wastes and in emissions generated in laundries, motor vehicle workshops, printing shops, with an accompanying reduction of costs.

e) A larger share of materials or sources of energy based on wastes or recycled materials. There is a particularly large potential for recycling of plastics and for more intensive use of bioenergy as a source of energy (waste wood from forestry etc.)

f) Cleaner and more effective transport, and possibly more spread-out production. In Norway it is particularly interesting to achieve better utilization of the capacity of transport equipment and the infrastructure (roads, railways, airports and harbours). The alternatives tele-commuting and more widespread use of video conferences are also interesting in a country with our geography, and in all places where traffic is a problem.

A provisional estimate indicates that this strategy could lead to significant reductions of C02 emissions. Tele-commuting can also increase labour productivity by 15 to 20% (3,4). Another interesting point is that this would also substantially reduce the peak load on the roads.

g) Manufacture of long-life products. Norway produces few commodities of its own. However, one typical Norwegian product is furniture.

Nearly all households in the western world have a sofa. The sofa is the kind of furniture that takes up most room, requires most materials, and is most dominated by fashion. People buy a product which appears attractive and modern at the time - and bring into their sitting-room a product involving high consumption of materials, and one that is only moderately functional in use and has a short life. So the average purchase of a sofa can be extremely unfortunate both for the consumer and for society. But it ought to be possible to produce a "life-long" sofa with the following properties: an aesthetic appearance which makes you want to own it, also in the future; it functions so well that the owner will not want to change it because of its poor functional properties; and it should wear well - the main structure should last for about 100 years, while the worn components can be replaced. It should be possible to encourage this type of production by focusing more strongly on resource productivity.

h) Better energy utilization and more use of heat pumps are both of interest in a cold country like ours.

i) More production of services and repairs, more up-grading, and more privately financed culture and education. So much for specific examples of strategies that are within reach.

Two examples with obvious potentials for increased resource productivity.

People often buy a product which appears attractive and modern at the time

• High consumption
• Moderately functional
• Short lifetime

In some cases "tele-transport" should be considered as an alternative

3. Possible instruments that can be used to accelerate a process that will gradually lead to better resource productivity

According to some judgments, the following kinds of instruments will be needed: Some binding legal regulations at national and international level, more regulations that are self-perpetuating in the market, that is to say, standards, and both well-organized and cooperating catalytic forces and more uniform economic incentives in the various countries.

Binding legal regulations at national and international level

When instruments have been included in the agenda for the debate on the environment and resources in recent years, the discussion seems to have focused on effectiveness. This perspective is too narrow. The necessary shift of focus also demands a change of norms. In an environmental context, we know a lot about what is wrong, and what people should not be permitted to do even if they pay a lot of money to do it. As well as setting norms, the legal regulations would protect those who comply with the law from unfair competition, and in this way make it more attractive for the best enterprises to improve resource productivity. On the other hand, if the list of definitively wrong actions is too long it will be both impracticable and difficult to enforce. An important aspect of legal regulations is to have reasonably sure possibilities of sanctions. This demands thorough supervision by the authorities, and possibilities of legal action. Today, these kinds of instruments tend to be referred to rather patronizingly as "command and control" instruments, and not of the type that would be developed today. This is a complete misunderstanding, and a grave underestimation of these instruments' importance.

It will be very difficult to introduce proper prizes for wear and deterioration of natural environment, loss of biodiversity etc. In this connection, binding guidelines for planning and other legal regulations will be more relevant than economic instruments.

Several regulations that are self-perpetuating in the market - standards

Standardization is necessary in order top provide homogenous and unambiguous information throughout the whole product cycle. The work with ISO standards is important in this respect. Various forms of environmental labelling are useful, but if we get a swarm of different labels they will lose their value.

Other self-perpetuating measures are the introduction of "ecological audits", and a practice where the enterprises require their suppliers and sub-contractors to satisfy a certain standard of resource productivity. Multinational companies will be able to make more use of environmental standards internally.

Establishment of Catalytic Forces

Transfer of information between the different players in a very important field. The ecological grounds for the necessity to improve resource productivity are firmly established in the scientific milieux, but are not generally known and accepted by the public, by politicians or by the administration. We should make a major effort to strengthen the work on environmental data and environmental information. It is a basic requirement that the relevant data and information can be passed on to different parties. It is necessary to promote balanced and differentiated environmental education and information.

Sharing the economic risk of introducing cleaner methods of production and the subsequent transfer of information should continue until the potential has been realized.

An important instrument is to establish a more distinct strategic management to promote higher resource productivity. The market forces will not have the desired effect if the concrete frameworks for our goals are not recognized in the companies. Unless these frameworks are known, environmental issues may easily be placed in the category "unpredictable", and will thus not be very attractive to industry.

The results achieved by the western world as regards productivity of labour could hardly have been possible without a widespread establishment of institutions and competence at several levels. In order to shift the focus from the labour productivity alone to resource as well, it might be an idea to establish focal national multi-disciplinary centres for sustainable production and consumption.

These could have the following main tasks:

• in cooperation with other institutions and, possibly, within the framework of OECD, develop suitable concepts and guidelines for using and understanding the term "resource productivity"
• in cooperation with national parties and the Government, identify the potential for better resource productivity, based on the unique properties of the resource base, the load on the environment, the economic structure, and the economy and culture of the country. The point here is that there is no single generally applicable recipe - each has to be tailor made.
• serve as clearing houses for ideas and for realistic screening of ideas, by running pilot projects.
• prepare plans for education and quality assurance of the consultants who are to be responsible for those matters in the industrial sector.
• contribute by independently evaluating relevant projects.
• establish "bench-marking" techniques that can be used in branches or sectors.

It is necessary to turn some of the attention of the already existing institutions towards areas with a large potential for improving resource productivity. This will apply to public research institutions, branch research institutions established in order to share the economic risk for socio-economically sound projects. One of the most important challenges for these institutions is to improve the service sector. In large parts of this sector, labour productivity is too low, quality assurance is poor, and the distribution system is weak. A shift of focus is necessary if services, particularly those with a low content of expertise, are to be able to compete, given our level of costs. The service sector is also the sector that has by far the greatest potential for employment. In other words, here it is possible to kill two birds with one stone.

A re-organization of industry aimed at products and production methods giving higher resource productivity will, just like other changes, require the support of the customers. Situations could easily arise where the new initiatives are "killed" by companies with large marketing budgets, but with products that are not as resource productive. It may therefore be relevant to support the marketing of the "new" products, possibly through "social marketing" as a supplement to the ordinary marketing initiatives.

More uniform economic incentives

Some of the incentives that are generally accepted as part of our tax system are the worst examples possible; bonus systems by the airlines, mileage allowances for use of own car, and subsidized energy prices. If we accept that these types of incentives will survive the simplification and streamlining of the taxation systems now going on in several countries, we should make it possible to introduce a system of rewards for resource productivity. For example, a strong motivation would be lower VAT for a rotating three-year period for the 10 % of the products showing the best resource productivity, compensated by higher VAT for the remaining products.

Norway is one of the countries that has introduced quite heavy environmental taxes. Raising these taxes could give Norwegian industry a competitive handicap. So any further reorganization of the tax system, with higher taxation of natural resources or environmentally unfriendly products instead of taxation of labour, requires that our trade partners do the same at more or less the same time, and using more or less the same rates.

A larger share of the production in the different phases of the production chain is now taking place in different countries. This could easily lead to a situation where the manufacture of the parts of a product that are most difficult to produce with high resource productivity is established in the countries with the poorest environmental legislation or the lowest taxes. This could in turn lead to an unfortunate distribution of the environmental loads and would have a de-motivating effect on the enterprises that have made good progress in the efforts to improve resource productivity.

Both these reasons emphasize the need to develop more harmonized tax rates and terminology. This task will be extremely difficult. The new GATT Agreement, the NAFTA Agreement and the EEA will increase world trade in commodities. It may well be that the standard of difficulty will increase, because the opposition to change will be even greater when even more international patterns of trade have become accepted and established. It will in any case be interesting to follow developments. It is to be hoped that we do not end up with a paradox - that it will be impossible to tax natural resources and environmentally unsound products owing to the threat of leakages of trade, while local production of services, the very thing we want more of, will be left to the only possible new object to tax.

Summing up we need to:

• Focus to resource productivity as well as labour productivity.
• Promote a step-by-step development.
• Combine the instruments.

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