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Sustainable Technological Progress
Ernst Ulrich von Weizsäcker
Wuppertal Institute for Climate, Environment and Energy

1. Three challenges from the Earth Summit

The Earth Summit addressed three major challenges:

* sustainable development and worldwide equity;

* biodiversity; and

*climate.

In all three of them, the situation is alarming and the time that elapsed since Rio has not seen any improvement, rather a further deterioration.

On sustainable development, the 800 pages of the Agenda 21 were adopted. Water, soil and air pollution is to be combatted and poverty should be overcome. A sum of 600 billion dollars annually was quoted for implementing Agenda 21, of which the West was su pposed to pay about 100 billion. But hardly anything has happened in this regard.

We shouldn't be surprised. The whole philosophy still dominating the Agenda 21 of environmental protection as a costly business is not in itself sustainable. If we in the North say we can afford environmental protection only if we are rich, we should not expect the South to say otherwise. But then the next question what "rich" means in ecological terms. Today one can say that those countries which "can afford" environmental protection, show per capita consumption rates of natural resources easily ten time s higher than those of the poor countries. (Fig 1)

Fig 1

Fig 2, from Friedrich Schmidt Bleek of the Wuppertal Institute adds a quantitative estimate to this picture. His group calculated the "ecological rucksack" caused by German consumption patterns to 50 tons per year. That means that to provide the goods and services enjoyed by an average German, some 50 tons of materials have to be moved somewhere, be it in copper mining, be it in earth movements for agriculture, be it in construction of buildings or of infrastructure.

Fig2

If German consumption rates were the prerequisite for protecting the environment, then we would have lost the battle already. The global ecosystems cannot absorb another fivefold increase of global consumption rates which would result from 5.7 billion peo ple becoming as rich as today's Germans or Norwegians.

Let's be honest. Environmental protection in the classical sense and involving high cost is ultimately incompatible with sustainable development. If by a miracle all those 600 billion dollars were made available annually for financing the tasks named in A genda 21, it would be a huge ecological liability to the earth. This is because most of the tasks involve a massive further increase of energy consumption, earth movements and the rest.

Taken seriously, the sustainability postulate will ultimately force us fundamentally to redesign environmental protection.

But now comes the good news: I do see scope for this transformation. The key word for this transformation is the "efficiency revolution" in dealing with scarce natural resources. I shall come to that later.

The second big challenge from Rio de Janeiro is biodiversity. We are losing animal and plant species at the positively alarming rate of some ten or twenty a day.

Fig3

Mostly this is the result of overselling natural resources on the part of the highly indebted developing countries since the late seventies. Papua New Guinea earns some 98.6 % of her export earnings from natural resources including timber, agricultural pr oduce and minerals.

Fig4

As all countries were forced to accelerate their commodity sales, the prices fell, thus forcing countries to sell even more in the context of their debt service.

Fig 5

The adoption in Rio de Janeiro of the Biodiversity Convention and the first Conference of Contracting Parties in Nassau, Bahamas, last November have not at all changed the dynamics of the debt crisis and thus could not stop the sellout of nature.

The third challenge of Rio de Janeiro is climate protection. Let me devote a special chapter to this challenge.

2. Assessing the size of the greenhouse challenge

The Vostok expedition to the Antarctic has established a close correlation between C02 concentrations and global temperatures during the last 160.000 years.

Fig 6

Even if the feedback loops are not yet well understood, we have to assume that further rising C02 (and other greenhouse gas) concentrations will increase global temperatures. The Intergovernmental Panel on Climate Change (IPPC) sees a reduction by some 60 to 80 percent of greenhouse gas emissions as a necessary target to prevent a dangerous acceleration of global warming.

Contrasting sharply with the needs established by the IPCC, the scenarios of the World Energy Council forecast increases of energy demand world wide by some 50 to 70 percent until 2020 which may be extrapolated to a doubling until 2040. Now we know the si ze of the gap that is opening between the exigency called by the IPCC and the WEC scenarios. It's a factor four at least.

Fig7

The newly established, Kyoto based RITE is supposed to become one of the leading institutes worldwide to address the challenge. Their answers seem to be mostly of a high tech nature. Pig 8, from a Rll E prospectus shows what their answers to the greenhous e challenge look like. It involves a lot of nuclear energy including fusion; also C02 fixation, desert biotechnology and space solar power is invoked.

Fig8

I am afraid I cannot associate myself with this strategy. If we very daringly assume a tripling of nuclear energy worldwide over the next 30 or 40 years, we would reach an increase in the world energy pie of nuclear energy from 5% (today) to 15% (then).

***But if in the meantime the pie is doubling in size, that sector would not be worth more than 7.5%.

Fig9

This is simply too little to solve the problem. And all the unpleasant dangers lying in nuclear energy would be alarmingly increased, such as vulnerability to terrorism, uranium mining (which is unbelievably messy), and final waste disposal for hundreds o f thousands of years.

Space solar energy is not safer, I fear. Imagine high tech terrorist using remote control to redirect the power beam from the recipient power plant to the next conurbation. And nuclear fusion involves unprecedented intensities of neutron flows which can p ass any conceivable wall material thereby radioactivating much of it in a fairly unpredictable fashion. In addition, there will be enormous quantities of tritium, radioactive hydrogen which is extremely difficult to keep in safe containment.

Two institutes in different parts of the world have a different vision. It's the Rocky Mountain Institute with Amory Lovins as Research Director and the Wuppertal Institute. We believe that the answer lies in an efficiency revolution in dealing with energ y and other resources.

Fig 10

3 Efficiency revolution: a new direction for technological progress

By an efficiency revolution we don't mean efficiency increases of five or ten or thirty percent. We think ''big". We think we can achieve 300% or 1,000% improvements. 300% would amount to a factor of four, i.e. the production of four times as much wealth (or well being) from one unit of energy.

A factor of four in energy productivity would allow a doubling of energy services while at the same time allowing to halve energy related greenhouse gas emissions.

Quadrupling energy productivity is not so outlandish as it may sound at first glance. It will be reached by a mere 3% annual increase over some 45 years. And for many processes involving energy consumption a quadrupling of efficiency is possible even with existing technologies and without requiring any major changes of behaviour or infrastructure. Fig's 11 16 show a few examples of quadrupling resource productivity.

The point of entry into rising energy productivity could be Least Cost Planning (LCP). If power plant permits are made dependent on the proof that there are no lower cost alternatives available to fill the expected energy gap, it soon becomes more profita ble for the utilities to subsidise energy efficiency at the consumer's end. Utilities are permitted to raise the price for the kilowatthour if the monthly bills of their customers are reduced. The capital costs go down very substantially. Pacific Gas and Electric has entirely scrapped its construction department and is making more profits than before LCP.

The Rocky Mountain and Wuppertal Institutes are able to demonstrate the possibility in a great variety of sectors of quadrupling or more resource efficiency at no loss of service quality. We are not only thinking of energy but just as well of material res ource use which at present is positively unsustainable. In fact, the physical properties of materials as compared with energy make it even easier to think of huge factors of productivity increases. The key words are longevity, remanufacturing, recycling, and reduced transportation needs.

4. Make it happen in the real world

The easiest way of driving technology development into the new direction should be to give consumers national choices and let the prices speak the truth (or nearly) and thereby to make the wanted technological revolution profitable both at company level a nd for the end consumers. Incentive structures historically were developed so as to encourage the wider use of natural resources in the surface of technological progress. "Progress" was new machines using energy in place of muscle power. Given the prevail ing incentive structures, capital found it usually more profitable to move into expanded resource use and to increase labour productivity. This need not be so eternally. Contrary to the situation 150 years ago, the true scarce resource of today is nature. Human labour, by contrast, is abundantly available. Macro economic benefits can be expected from a revolutionary increase in resource productivity even if advances in labour productivity suffer a certain slow down.

To make it happen in the real world, the first and most important step is to correct perverse incentives. Architects today earn more by building inefficient, expensive homes and office buildings than by using cheapest and most energy efficient windows, wa lls and installations. The auto industry and the road construction business had just no interest in efficient vehicles and efficient traffic. All industries keep laying off people and "hiring" more kilowatt hours and tons of concrete.

As Fig 5 has indicated, commodity prices went down since many years signalling ever more forcefully that wasting such resources was economically reasonable. By contrast, costs of human labour have been on a steep increase throughout the post war period.

It is high time to break these unhealthy historical trends. One of the least bureaucratic and arguably most powerful instrument for correcting perverse incentives is an ecological tax reform. Scandinavian countries have gone ahead with this very reasonabl e instrument. Britain has introduced a fuel tax "escalator" adding 5% price increases every year.

Ecological tax reform is not an unequivocal concept. There are certainly many ways of creating a lot of damage by an ill designed tax reform or by ill bred implementation.

A few hints may help finding an appropriate design.

(1) No quick ecological effects should be expected from green taxation. Short term price elasticities for the use of energy and other resources are very low. This fact should not be misinterpreted as an alleged poor efficiency of the instrument. Long term price elasticities can be expected to be very high even for car fuels, the commodity often quoted for nearly non existing price elasticities.

Fig 17

(2) Because short term price elasticities are low and long term price elasticities are high, there is no point in introducing high green taxes very quickly. To achieve the desired steering effect it is far more important to create an indisputable certaint y of a gradual rise of green taxes over decades. It is a perfectly legitimate demand from industry that the signal should not lead to capital destruction (premature closing of existing facilities). But it is not legitunate to ask for conditions encouragin g fresh money to flow into unsustainable structures.

(3) Revenue neutrality is essential for positive employment effects. State spending tends to be less effective in job creation than private spending under favourable business conditions. For best effects in job creation indirect labour costs should be reduced with highest priority. A reduction in social security payments, health insurance premiums and similar indirect labour costs would make human labour more affordable for the employer. Obviously, the proceeds of green taxation would then have to be used in part to cofinance the respective services.

(4) There are no ecological reasons against revenue neutrality. Earmarking of the proceeds ("hypothetication") is unnecessary. The strongest ecological effect of ecological tax reform comes from the change of the frame of profitability. If there are stron g additional reasons to spend more public money on environmental protection or for mass transport infrastructure, Parliament is free to decide so, —but at the expense of other sectors.

Reflecting and considering these observations, I have come up with a proposal of ecological tax reform which I consider acceptable from the point of view of a society which has adopted employment its first priority. What I am suggesting is a slow pace of raising resource prices some five percent annually during a long period of perhaps some forty years (v. Weizsacker and Jesinghaus, 1992). This can be achieved by first cuttiing subsidies on energy (and, likewise, on other ecologically problematic factors) .

Other taxes, charges and levies should be reduced by equivalent amounts.

Ecological tax reform should be good for the economy as a whole. Repetto et al (1992) quoting Ballard and Medema (1992) believe that "the total possible gain from shifting to environmental charges could easily be $0.45 to $0.80 per dollar of tax shifted f rom "goods" to "bads"—with no loss of revenues." Rudolf Rechsteiner (1993) has shown that countries with high energy prices actually fared better economically than those with low energy prices.

Fig 18

Owing in part to expected productivity gains (estimated conservatively to 3% annually), the price signal of 5% annually would be extremely tame. It would be 2% (5% minus 3%) annually for a production factor weighing on average less than 4% of total production costs, so that the remaining cost differential would be only 0.08% annually. Even this almost imperceptible cost differential would on average be outbalanced by labour cost reductions e.g. from reduced social security payments. Hence firms would on average even financially benefit from the reform. Energy intensive firms can be partly exempted from the tax as has been done in Denmark and Sweden. Also GATT compatible protection measures are conceivable.

If business leaders and capital owners see scope for a new and reliable road of technological progress they may feel encouraged to pour money into the new trend. There is hardly anything more stimulating for the business world than a steady and predictable trend. Once the consensus is strong enough to persuade the pioneers, the process can soon become self enforcing. Durable goods would become obsolescent somewhat earlier. This could easily serve as a powerful kick for accelerating the present economic recovery.

References

Ballard Charles L. and Steven G. Medema. 1992. The Marginal Efficiency Effects of Taxes and Subsidies in the Presence of Externalities: A Computational General Equilibrium Approach. East Lansing: Dept. of Economics, Michigan State University.

Repetto, Robert, Roger C. Dower, Robin Jenkins and Jacqueline Geoghean. 1992. Green Fees: How a Tax Shift Can Work for the Environment and the Economy. Washington, D.C.: World Resources Institute.

Schmidt Bleek, Friedrich. 1994. Wieviel Umwelt braucht der Mensch? Basel: Birkhauser.

Weizsacker, Ernst Ulrich von. 1994. Earth Politics. London: Zed Books

Weizsacker, Enst Ulrich von. Amory Lovins and Hunter Lovins,. Factor Four Target for Sustainable Development. In preparation. 1995