The Eco-Innovation Challenge; Pathways to a resource efficient Europe by Technopolis Group

eco-innovation observatory

The Eco-Innovation Challenge Pathways to a resource-efficient Europe

Annual Repor t 2010

May 2011

Edited by Meghan O’Brien, Stefan Giljum, Michal Miedzinski, and Raimund Bleischwitz Authors Wuppertal Institute Meghan O’Brien Raimund Bleischwitz Stefan Bringezu Susanne Fischer Dominik Ritsche Sören Steger Tobias Samus Justus von Geibler Sustainable Europe Research Institute Stefan Giljum Christine Polzin Elke Pirgmaier Stephan Lutter Technopolis Group Belgium Michal Miedzinski Asel Doranova Finland Future Research Centre Universitty of Turku Jarmo Vehmas Anne Karjalainen Minttu Jaakkola Leena A. Saarinen Acknowledgments The authors would like the thank Prof. Rene Kemp (UNU-Merit, Maastricht University) and Prof. Friedrich Schmidt-Bleek (Factor 10 Institute) for their valuable comments and review of this report. We would also like to recognise the contributions from experts invited to the EIO Expert Group meeting in Wuppertal on the 25th of January 2011. The discussions and debate at this meeting helped to shape this report; we are grateful to Friedrich Schmidt-Bleek, Rene Kemp, Klaus Rennings (ZEW), Markku Wilenius (Allianz and Finland Futures Research Centre), Hugo Hollanders (UNU-MERIT, Maastricht University), and Igor Jelinski (European Commission, DG Environment (project officer)). We would also like to extend our gratitude to Till Ruhkopf (Wuppertal Institute) for his excellent technical assistance. Finally we would like to recognise the helpful comments received from Friedrich Hinterberger (SERI) and Arnold Black (C-Tech). Needless to say, the authors alone remain responsible for the contents of the report. A note to Readers Any views or opinions expressed in this report are solely those of the authors and do not necessarily reflect the position of the European Union. A number of companies are presented as illustrative examples of eco-innovation in this report. The EIO does not endorse these companies and is not an exhaustive source of information on innovation at the company level. Please cite this report as: EIO (2011). The Eco-Innovation Challenge: Pathways to a resource-efficient Europe. Eco-Innovation Observatory. Funded by the European Commission, DG Environment, Brussels. Design and Graphic identity www.tobenotobe.be [Benoît Toussaint]

eco-innovation observatory

The Eco-Innovation Challenge Pathways to a resource-efficient Europe

Annual Repor t 2010

May 2011

Table of contents

List of Figures List of Tables List of Boxes List of Eco-Innovation Good Practices List of Acronyms Executive Summary

IV V V V VI VII 1 2 3 4 5 7 9

2 | Resource efficiency: Key trends and targets 2.1 | Tracking trends: resource use and material productivity 2.2 | Future outlook: targets for sustainable resource consumption 2.3 | The targets, material productivity pathways and eco-innovation challenge

11 11 16 19

3 | The EU: Eco-innovation performance of countries 3.1 | The Eco-Innovation Scoreboard 3.2 | Comparing EU country performance with the scoreboard 3.3 | Understanding country performance 3.3.1 | Eco-innovation and economic performance: is eco-innovation only for â&#x20AC;&#x2DC;rich countriesâ&#x20AC;&#x2122;? 3.3.2 | Eco-innovation and environmental performance 3.4 | Eco-innovation performance and resource-efficiency targets

21 21 23 28 28 31 34

4 | The EU: Eco-innovation in sectors and markets 37 4.1 | Why sectoral perspective: where materials are used 37 4.2 | Eco-innovation activity in sectors: an overview 39 4.2.1 | Eco-innovation activity in sectors (CIS) 39 4.2.2 | Focus on manufacturing, construction, agriculture, water and food services 42 5 | Global dimension 5.1 | Future outlook: emerging markets and global areas of interest 5.2 | Business perspective: eco-innovation and international competitiveness 5.3 | Eco-innovation in practice: focus on developing and emerging economies

51 51 56 58

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63 63 63

77 77

8 | Main findings and key messages

References Glossary Annex I. Barriers and drivers of eco-innovation in the EU-27

67 70 71

79 84 86 88

93 99 105

List of Figures Figure 1.1 Expectations about how companiesâ&#x20AC;&#x2122; material costs will evolve (5-10 years) Figure 1.2 Cost structure in the German manufacturing industry in 2007 Figure 2.1 Material consumption of different world regions, in tonnes per capita (2000) Figure 2.2 Material productivity of different world regions, in USD per tonne (2000) Figure 2.3 Material consumption and material productivity in the EU-27, 2000-2007 Figure 2.4 Material productivity in EU-27 countries and selected non-EU countries, 2005 Figure 2.5 Material productivity increases in the EU-27 required to achieve reduction targets (with different assumptions on annual DMC and GDP growth), 2000-2050 Figure 2.6 The eco-innovation challenge and material consumption Figure 3.1 EU-27 Eco-Innovation Scoreboard: composite index Figure 3.2 EU-27 Eco-Innovation Scoreboard: eco-innovation inputs Figure 3.3 EU-27 Eco-Innovation Scoreboard: eco-innovation activities Figure 3.4 EU-27 Eco-Innovation Scoreboard: eco-innovation outputs Figure 3.5 EU-27 Eco-Innovation Scoreboard: environmental outcomes Figure 3.6 EU-27 Eco-Innovation Scoreboard: socio-economic outcomes Figure 3.7 Relationship between composite EI Index and GDP per capita in the EU, 2007 Figure 3.8 Relationship between composite EI Index and Competitiveness in the EU Figure 3.9 Scatter of Eco-IS index and material consumption per capita (year 2007) Figure 3.10 Material efficiency gains due to eco-innovation Figure 4.1 Strategic sectors towards eco-innovation: Detecting direct and indirect resource use for goods of final demand, Germany 2008 Figure 4.2 Share of firms in different sectors with innovations leading to reduced material / energy use per unit output Figure 4.3 Share of firms with innovations leading to reduced material use per unit output separated into industry and service sectors Figure 4.4 Share of firms with innovations leading to reduced energy use per unit output separated into industry and service sectors Figure 4.5 Types of eco-innovation introduced by companies in the last 2 years Figure 4.6 Share of innovation investments related to eco-innovation over the last 5 years Figure 4.7 Material costs as a percentage of companyâ&#x20AC;&#x2122;s total costs Figure 4.8 Types of changes to reduce material costs implemented in the past 5 years Figure 4.9 Stylized material efficiency marginal cost curve Figure 5.1 Eco-innovation in the electronic media (keywords in English) of the three continents: Europe, North America and Oceania Figure 5.2 Worldwide news coverage of generic eco-innovation keywords (in English) Figure 5.3 Worldwide news coverage of sectoral keywords (in English) connected to â&#x20AC;&#x2DC;eco-innovation Figure 5.4 Worldwide news coverage on keywords (in English) based on the EIO vision Figure 6.1 Eco-innovation drivers according to Eurobarometer 2011 Figure 6.2 Key eco-innovation drivers according to CIS2008 Figure 6.3 Eco-innovation barriers according to Eurobarometer 2011 Figure 6.4 Key eco-innovation drivers and barriers in countries according to Eurobarometer 2011 Figure 6.5 Eco-innovation drivers in sectors according to EB2011 Figure 6.6 Eco-innovation barriers in sectors according to EB2011 Figure 6.7 Eco-innovation drivers in sectors according to CIS2008 Figure 6.8 Eco-Innovation determinants identified from EU 27 country profile analysis Figure 7.1 Industrial metabolism 2010 Figure 7.2 Industrial metabolism 2100 IV

8 8 13 13 14 15 18 20 23 24 25 26 26 27 29 29 31 34 38 40 41 42 43 44 45 46 47 52 53 54 54 64 65 66 68 72 73 74 76 78 78

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List of Tables Table 2.1 The three scenarios and related targets until the year 2050 18 Table 3.1 “Ideal” indicators and best-available indicators in the 2010 version of the Eco-IS 22 Table 3.2 Comparing the ranking in the Eco-IS composite index 33 and in the structural environmental indicators Table 4.1 Classification and examples of measures 48 for improving material efficiency in the manufacturing sector Table 5.1 Summarized prioritization and urgency timeline for selected metals 56 with their selected applications (driving emerging technologies)

List of Boxes Box 1.1 Box 1.2 Box 1.3 Box 2.1 Box 3.1 Box 4.1 Box 4.2 Box 5.1 Box 5.2 Box 5.3 Box 7.1

Problem shifting—what are the (hidden) costs of EU consumption abroad: the case of biofuels Eco-innovation – a catalyst of the Europe 2020 Strategy Resource efficiency, productivity and intensity: distinguishing the terms Indicators derived from material flow analysis on the national level Social innovation The material requirements of renewable energies: the cases of solar, wind, fuel cells and electric cars Material efficiency in the manufacturing sector –the German case Critical metals Frugal innovation Preventing the resource curse of the green economy Social and institutional changes to achieve the vision

5 6 10 12 36 38 48 55 60 61 82

List of Eco-Innovation Good Practices The EIO online repository of good practices SkySails Resource-Efficiency Atlas Urban mining Living Lab Closed system for soilless culture, Cyprus AirDeck® - Energy and resource efficient floor system, Belgium Eco-cement Web Platform to Facilitate the Reuse of Construction Materials, Hungary Eastgate shopping and office centre in Harare, Zimbabwe City of Curitiba, Brazil Biomimicry, the example of jellyfish light Car2go Resource-light construction Floating Solar Islands ARBOFORM®: ‘Liquid wood’ Network Resource Efficiency, Germany

2 8 19 30 32 44 46 49 49 59 61 81 82 84 85 88 90 V

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List of Acronyms BAU Business–as-usual BRIC countries Brazil, Russia, India and China CIS Community Innovation Survey DMC Domestic Material Consumption DMI Direct Material Input EB Eurobarometer Eco–IS European Eco–Innovation Scoreboard EEA European Environment Agency EIO Eco–Innovation Observatory EMAS Eco–Management and Audit Scheme EPIA European Photovoltaic Industry Association ETC/SCP European Topic Centre on Sustainable Consumption and Production EU ETS The European Union Emissions Trading Scheme GCI Global Competitiveness Index GDP Gross Domestic Product IEA International Energy Agency Life–Cycle Assessment LCA MFA Material flow accounting and analysis MIPS Material Intensity Per Service unit NACE Nomenclature statistique des activités économiques dans la Communauté européenne (The Statistical Classification of Economic Activities in the European Community) NAS Net additions to stock NIC Newly Industrialised Countries OECD The Organisation for Economic Co–operation and Development PPP Purchasing Power Parity RMC Raw Material Consumption RMI Raw Material Input SME Small and medium-sized enterprises TMC Total Material Consumption TMR Total Material Requirement UNEP United Nations Environmental Programme WBCSD The World Business Council for Sustainable Development WTO World Trade Organization VI

eco-innovation observatory

Executive Summary The Eco-Innovation Observatory (EIO) is a leading EU-funded initiative collecting and analysing information on eco-innovation trends and markets in Europe and beyond. This first annual report introduces the concept of eco-innovation, placing key findings on the state and potential of eco-innovation in the EU into the context of the resource-efficiency debate, in particular considering the flagship initiative “Resource-efficient Europe” of the Europe 2020 strategy. Introducing the notion of the “eco-innovation challenge”, this report also opens a discussion on the potential benefits of eco-innovation for companies, sectors and entire economies.

What is eco-innovation Eco-innovation is innovation that reduces the use of natural resources and decreases the release of harmful substances across the whole life-cycle. The understanding of eco-innovation has broadened from a traditional understanding of innovating to reduce environmental impacts towards innovating to minimise the use of natural resources in the design, production, use, re-use and recycling of products and materials. Technological innovation alone is not sufficient to enable the transition of Europe into a sustainable economy; the magnitude of the challenge also calls for systemic innovations in the way services are delivered and organisations are run. Public acceptance and social changes are key in this process.

Why focus on resources This report focuses on material resources such as fossil fuels, minerals, metals, and biomass for three reasons. First, it is the human use (and over-use) of material resources that are linked to the most prominent environmental problems today, most notably climate change. Second, Europe’s dependence on materials imported from abroad is increasing, raising concerns over material security. European industries and consumers are increasingly vulnerable to volatility, increasing scarcity as well as rising material prices. Third, reducing resource use offers a significant business opportunity to reduce costs. At a time of increasing prices this is particularly relevant. According to the recent Eurobarometer survey, 75% of businesses in manufacturing, construction, agriculture, water and food services reported an increase in the cost of materials in the past 5 years. Nine out of ten surveyed companies expect material prices to increase in the future. Case studies on material efficiency improvements in Germany have revealed that on average around EUR 200,000 can be saved per company (from a pool of around 700 cases in the manufacturing sector) with investment costs under EUR 10,000 for nearly half of the companies.

Resource efficiency and the eco-innovation challenge Resource efficiency has become an “umbrella” issue included in various policy agendas and contexts. The Europe 2020 strategy regards improved resource efficiency as key for achieving both economic and environmental objectives. However, the resource-efficiency gains made so far have not been enough to change the trend in the absolute consumption of natural resources, which continues to increase in Europe and globally. The eco-innovation challenge is two-fold: to further improve the resource-efficiency performance of Europe and VII

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to ensure that those efficiency gains are not offset by growth in the total consumption of natural resources. The perception of eco-innovation as being limited to producing â&#x20AC;&#x153;green productsâ&#x20AC;? must be overcome to realise the full potential of eco-innovation.

Resource efficiency: Key trends and targets Tracking trends: resource use and material productivity Recent increases in relative material productivity have been significant in Europe; with an annual increase of 3.2% (when GDP is measured in purchasing power standards, when measured in exchange-rate values annual growth has been 2.2%) between 2000 and 2007. The EU has a material productivity similar to the United States, but much lower than Japan. Nevertheless, consumption levels are increasing in absolute terms. Global material extraction and consumption have grown from around 40 billion tonnes in 1980 to around 60 billion tonnes in 2007.

Future outlook: targets for sustainable resource consumption Establishing targets for resource consumption is necessary if companies are expected to invest seriously as well as to signal ambitions towards effective resource-efficiency policies. This report puts forward Factor 2 (reducing consumption by 50%) to Factor 5 (reducing consumption by 80%) targets for the absolute reduction in material consumption by 2050. A concerted effort towards transferring the scope of macro-level targets and providing appropriate incentives down to the scale of companies, where action is taken, is needed. This would make the eco-innovation challenge more tangible for companies and other stakeholders. Harmonised methodologies to measure progress across the EU will allow for better comparison and assessment of progress towards achieving overall city, regional, country, EU and global targets.

The EU: Eco-innovation performance of countries The eco-innovation scoreboard Tools to measure innovation have been developed and in place for a number of years, but tools to measure eco-innovation were largely missing. The EIO intends to fill this gap with the eco-innovation scoreboard; a new tool to track the eco-innovation performance of countries. According to the first edition of the scoreboard, Finland, Denmark, Germany, Austria and Sweden are the most eco-innovative countries in the EU. A closer look at the five components comprising the scoreboard (eco-innovation inputs, eco-innovation activities, environmental outcomes, eco-innovation outputs and socio-economic outcomes) reveals that no country performed well across all categories. Finland, for example, is the most ecoinnovative country according to the overall index, but ranks 19th in environmental outcomes.

Understanding country performance Eco-innovation performance is correlated with GDP and competitiveness. Currently, no direct relationship can be established between good eco-innovation performance and neither low nor high material consumption. The top five countries of the scoreboard have relatively VIII

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low performance with respect to environmental aspects (measured with environmental productivity indicators). Clearly, good performance in eco-innovation does not automatically translate to good environmental performance in absolute terms. The factor of time may be important in this context, considering that eco-innovation is an emerging area in Europe and investments have only been intensified in the past few years. Can emerging economies and developing countries also benefit from eco-innovation? We view eco-innovation as a relevant strategy for all countries and sectors. It is not limited to producing new green products and delivering new services, but also embodies the processes that may leap-frog economic and social development in less developed countries. The latter is particularly relevant for overcoming the â&#x20AC;&#x153;eco-innovation paradoxâ&#x20AC;?: the potential for benefiting from eco-innovation may be higher in the countries and regions where the capacity to develop or apply innovations is limited.

Eco-innovation performance and trends According to the 2011 Eurobarometer survey on eco-innovation around 45% of companies have introduced a product, process or organisational eco-innovation in the last two years. Around 4% of eco-innovators declared that the change they have introduced even led to a more than 40% reduction of material use per unit output; this roughly corresponds to a Factor 2 eco-innovation (50% improvements in resource productivity). While these companies have made outstanding gains over a short time period, the majority of surveyed companies reported more incremental improvements. 77% of eco-innovating companies reported between 1 and 20% resource-efficiency improvements as a result of eco-innovation. Clearly, if this scale of change is implemented continuously, such incremental improvements could be key towards achieving goals. But, if efforts describe one-off measures, the intensity of recent eco-innovation activity in European companies is not sufficient to achieve Factor 2, let alone Factor 5, resource-efficiency targets.

The EU: Eco-innovation in sectors and markets Eco-innovation activity in sectors: an overview A handful of sectors contribute significantly to the environmental pressures of the European economy as a whole, making specific sectors hot spots for potentially big resource savings through eco-innovation. Results from two EU-wide surveys of European businesses -- the Community Innovation Survey (CIS, 2008) and the Eurobarometer survey -- compare the tendency for eco-innovation activity and implementation among sectors in Europe. The CIS reveals that innovation to reduce energy is more pronounced than innovation to reduce materials in almost all European sectors, with the exception of finance. Manufacturing is the sector with the highest share (around 16%) of firms reporting eco-innovation to reduce material use, with companies in the German industrial sector reporting outstanding shares (nearly 40%). The Eurobarometer reveals that process eco-innovation was the most popular type of eco-innovation for companies in the agricultural, water and manufacturing sectors. Companies in the construction sector were more likely to have brought a new product or service to the market, whereas companies in food services tended to implement higher amounts of organisational innovation. IX

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Global dimension Future outlook: emerging markets and global areas of interest Media monitoring provides useful insights into emerging areas of interest. Analysis with Meltwater news, a media-monitoring tool covering more than 130,000 online publications from over 190 countries, reveals that the media presence of eco-innovation has continuously increased since 2006. However, North America has traditionally dominated in the amount of news on eco-innovation in comparison to Europe (with keyword searches in English). In combination with sectors, eco-innovation revealed the most hits when coupled with energy and industry, although all sectors showed an increasing trend. While the news coverage of ´dematerialisation´ is very low in popular media in Europe, it has had remarkably better coverage in scientific publications, indicating the need to create a stronger bridge between science and the public on this critical issue.

Business perspective: eco-innovation and international competitiveness Product and technological eco-innovation are an opportunity for all European companies to consolidate their position and expand to international markets. Further, eco-innovation represents an opportunity for companies to reduce costs through material-saving innovations along international material supply chains. European companies are facing increasing competition as emerging economies are becoming more aware of the opportunities of green markets and material efficiency.

Eco-innovation in practice: focus on developing and emerging economies Evidence suggests that dynamic developments in eco-innovation are happening in many economic sectors of emerging and developing countries, also in the form of so-called “frugal innovations”. These are innovations that bring products back to a level of basic simplicity, especially targeting low-income consumers. Following the economic crisis, many countries in Asia, in particular China and the Republic of Korea, pioneered an economic and employment recovery plan based in part on significant investments in a green economy.

Driving eco-innovation Drivers and barriers of eco-innovation as seen by business The most important drivers of eco-innovation are the current and expected high prices of energy, with material prices nearly as important, according to the Eurobarometer survey. Every third company surveyed considered expected future scarcity of materials to be a very serious driver of eco-innovation, with concerns over material scarcity more pronounced in the EU-15 than the EU-12. According to the Community Innovation Survey, focused on a broad range of eco-innovation types, nearly every fourth innovating firm in the EU introduced environmental innovation in response to existing regulations or taxes. Companies from Eastern and Southern Member States considered regulatory and policy factors as more important than companies from Northern and Western countries.

eco-innovation observatory

Drivers and barriers in EIO country profiles The EIO country profiles include a section on barriers and drivers, offering a complementary expert perspective to survey analysis. Country reports also reveal that the regulatory and policy framework are among the most important determinants of eco-innovation development in the EU. Availability of relevant expertise and human capital in research and post R&D project implementation were also mentioned as important drivers for success; while new Member States report widely about the lack of expertise, also leading nations like Denmark and Finland seem to feel a pressing need to attract world class foreign specialists to keep their leading positions.

Future Outlook: Visions of a resource-efficient Europe The visions in this report look beyond resource efficiency to ask what kinds of systemic changes are needed, and what the possible eco-innovations to get there entail. They are not scenarios or roadmaps, but should serve as a starting point for idea sharing and debate on long-term policy objectives. The visions are positive; to present this optimistic future the perspective of a citizen of the future (living around 2100), reflecting back on how sustainability was achieved, is taken.

The transition and resource consumption targets Around 45 tonnes/person (TMC, in the EU-15) were consumed annually in the year 2000. By 2050 a Factor 5 had been achieved, and in 2100 a Factor 10 (4.5 tonnes/ person). This transition was characterized by an increased mimicking of natural systems to create a more dynamic system of production, consumption and reuse. Systemic change was gradual: it began with greater life-cycle-wide resource-efficiency efforts, which triggered the need for better product design to optimise recovery and ultimately enhanced systems thinking in innovation efforts.

Dematerialization and rematerialization As population growth steadied out, it became clear that remodelling and renovating the built environment were the most cost-effective options and that the existing building stock held valuable material components that could be mined for re-use (urban mining). Eventually, secondary sourcing of metals became more common than primary sourcing. As regards mainstream products, for instance, producers started selling the performance of a product, but remained owners of the good. This transformed the concept of ownership and productservice systems. Material stewardship became a complement to producer responsibility and a driver for establishing new business models. Both coincided with a slow change in consumer understanding of â&#x20AC;&#x2DC;living greenâ&#x20AC;&#x2122;. Social values towards living space, mobility and ownership have adapted with the overall shift towards dematerialization. Whereas at the beginning of the century the net additions to stock (annual additions to buildings and infrastructure) amounted to about 10 t/cap in Europe, it has reached values around zero today. This does not mean that the economy has come to a standstill, but rather that economic growth and physical growth are no longer co-dependent.

Annual Report 2010

Harnessing the power of the sun In 2100 solar energy is not only used for heat and electricity production, but also indirectly for the synthesis of materials. This process was dubbed ‘Industrial photosynthesis’, meaning the use of captured carbon dioxide and solar energy to produce energy rich compounds for materials and fuels. This effort, which reached commercial scale around 2100, has made incredible gains in climate change mitigation and eased conflicts over land use and land use change.

The balanced bioeconomy In the 2nd decade of the 21st century international conventions were formed that first abolished all biofuel quotas and then agreed to halt all cropland expansion beyond 2020. Forced to use land resources more effectively, massive efficiency gains across the food chain—from “the field to the fork”—were made. Organic wastes were found to be an excellent feedstock for refinement and biorefineries eventually developed into processing and re-processing facilities, as well as decentralized energy suppliers. At the end of the century, industrial photosynthesis made it possible to rely more heavily on biomaterials and bioenergy, only supply was not based entirely on land or ocean based harvest, but rather represented the transition toward a sustainable economy, one built by mimicking natural systems of production and use.

Main findings and key messages ● Eco-innovation goes beyond eco-industries to encompass innovation in the way resources are sourced and products are designed, produced, used, re-used and recycled across all sectors. This includes technological and non-technological changes that benefit both the economy and environment. ● Many European companies implement eco-innovation, but the majority either still do not eco-innovate or the material savings achieved due to innovation are low. Strong eco-innovation performance in terms of company investments and activities are not automatically linked to strong environmental outcomes on the macro-scale. ● The potential for eco-innovation and the capacity to benefit from eco-innovation are different across EU regions and sectors. Eco-innovation may not only present the opportunity for emerging regions to ‘leap-frog’ toward ‘green economies’, but may also offer them the opportunity to develop new lead markets. ● Achieving the goal of a resource-efficient Europe represents a challenge for all EU countries. Meeting Factor 2 to Factor 5 material consumption targets will require an intensification of public policies and private investments towards both resourceefficiency and absolute dematerialization. ● This report has shown that the potential for instigating meaningful change through eco-innovation exists. While it has focused on the resource-saving efforts of European companies (achieving more with less), more radical innovations both in companies and across economies are needed (we must do better with less). Visions reveal that a combination of all types of innovation may contribute to creating a prosperous and resource-efficient Europe in yet unforeseen ways. XII

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1 | Introduction Are you curious about eco-innovation? Maybe you have heard the term, but are not quite sure what it means for you--as a consumer, a business owner, a policy maker. At the EIO we not only observe what types of eco-innovation are happening across the EU, but also identify future opportunities. We believe that eco-innovation represents a chance for companies to save costs and to expand to new markets, and that implementation of resource-saving eco-innovations at the company level could contribute to greater structural shifts towards sustainability in Europe. This first annual report is meant to introduce how we conceptualise eco-innovation and present our major findings, but it shall also go beyond that; we invite you, the reader, to take part in a debate with us about innovation, sustainability, and where the EU is and should be headed regarding both. It is a discussion that shall shape our future work and we hope to instigate it by not only presenting the work we have done so far, but also the key questions we will strive to answer with future analysis. To trigger the discussion we present a positive vision of the future, and aim to explore the eco-innovations that will drive this transition in our future work.

We invite you, the reader, to take part in a debate with us about innovation, sustainability, and where the EU is and should be headed regarding both.

This report includes a glossary to discuss and distinguish terms. Hyperlinks throughout the text enable you to navigate to and from this glossary. The report also includes a select collection of good practice eco-innovation examples from the EIO website. Chapter 1 takes a closer look at the definition of eco-innovation and the kinds of innovation this includes and excludes (section 1.1). It focuses on why innovation that improves resource efficiency is a major focus of our work, as well as of this report (section 1.2), and how this relates to the major challenges for the future development of Europe (section 1.3).

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Eco-innovation good practice 1 The EIO online repository of good practices The EIO is collecting examples of good eco-innovation practice and publishing them in our online repository on www.eco-innovation.eu. This interactive search tool allows users to search by country, sector or innovation area, or simply to click through to get an idea of what is happening across the EU and beyond. Examples are gathered from across all EIO deliverables, spanning a wide range of topics. This report includes a select few of these good practices to give you a taste of what is happening in Europe, as well as internationally. For further information visit the EIO online repository of good practices.

The key challenges of the 21st century are not only about reducing pollution, but also about getting a handle on the overconsumption of natural resources.

Eco-innovation does not just mean inventing green technologies, but also encompasses the “innovation cycle” in the way products are designed, produced, used, re-used and recycled.

1.1 | What is eco-innovation “Eco-innovation is the introduction of any new or significantly improved product (good or service), process, organisational change or marketing solution that reduces the use of natural resources (including materials, energy, water and land) and decreases the release of harmful substances across the whole life-cycle.” – EIO (2010) Traditionally, eco-innovation was understood mostly as a solution to minimise or fix negative environmental impacts from production and consumption activities. These endof-pipe solutions allowed for the ‘cleaning-up’ of polluted water and soils, and for reducing harmful emissions. It is increasingly evident today, however, that the key challenges of the 21st century are not only about reducing pollution, but also about getting a handle on the overconsumption of natural resources (SERI et al. 2009, Rockström et al. 2009, EEA 2010a, WWF et al. 2010). The understanding of eco-innovation has thus broadened to include a focus on resource and energy efficiency taking into account a full life-cycle perspective (or “cradle-to-cradle” approach). It does not just mean inventing green technologies, but also encompasses the “innovation cycle” in the way products are designed, produced, used, re-used and recycled. With its focus on resources, the EIO has termed this material flow innovation; this is a new way of conceptualising resource-efficient innovation that is complementary to the traditional classifications of product, process, organizational, and social eco-innovation. The EIO works to observe the types, degrees, and impacts of eco-innovation in the EU; from incremental to radical innovations. In this way, we can assess whether and in which form eco-innovations are contributing to ‘green growth’, or whether certain developments may actually slow down the transition toward a sustainable society. We are particularly interested

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in system innovation, i.e. innovations that change production and consumption patterns. What the most effective types of eco-innovation are, where the barriers, drivers and potential for significant changes are, and which policy and business actions can be taken to speed up the pace and scope of eco-innovations in Europe are questions the EIO will continue to grapple with. In our work, we distinguish between eco-innovation and eco-industries. Eco-industries are relevant players and a driver of European competitiveness on world markets (see for instance Ecotec 2002; Ernst & Young 2006; Bilsen et al. 2009, EIO 2010). They will have a role to play in environmental modernisation as well as in building up a voice for environmental policy in developing countries. However, while eco-innovation and eco-industries are corresponding (and partly overlapping) concepts, the affiliation between eco-industries and eco-innovation is not always automatic. First of all, eco-innovations are by definition solutions that are novel to the company and to the market, whereas eco-industries denominate an entire sector with all its products and processes. Further, while eco-industries aim to produce “green products and technologies” and generate “green energy”, eco-innovation also encompasses goods or processes that are produced without an explicit aim to improve the state of environment. In many cases, the motivation to invest in eco-innovation may be driven by the objective of reducing costs for materials and/or energy and thus increasing competitiveness and economic success. That is why we consider eco-innovation to be good both for business and the environment. Eco-innovation in industry alone is not sufficient to inspire the transition of Europe into a vision of a sustainable economy. Transformative innovations are needed; ones that shift entire systems from unsustainable consumption behaviours to more circular systems of material use and re-use. Public acceptance and social changes are key to this transition; people should not only have access to eco-innovative products and services, but – just like industry - will need to make a contribution to this change in their everyday lives.

1.2 | Why focus on resources In recent years, issues related to resource use have significantly gained importance in both business and the policy areas. But what are natural resources? In its Thematic Strategy on the Sustainable Use of Natural Resources, the European Commission (2005) applies a very wide definition of natural resources. According to this definition, natural resources include raw materials such as minerals, biomass and biological resources; environmental media such as air, water and soil; flow resources such as wind, geothermal, tidal and solar energy; and space (land area). In this EIO Annual Report, we apply a much narrower definition of resources. We focus on materials, which include non-renewable resources such as fossil fuels, minerals and metal ores, and renewable resources such as agricultural products, timber or fish. Why do we select this focus? On the global and European level, material use is a key issue in the transition towards more sustainable production and consumption patterns (section 1.2.1); it is also an area of rising concern as Europe is largely dependent on imports of

We apply a much narrower definition of resources to focus on materials.

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materials from abroad (section 1.2.2). On the industry and business level, reducing material costs and avoiding material scarcity are increasingly important aspects for economic success (section 1.2.3).

1.2.1 | Environmental perspective: overconsumption Human societies have always built their (economic) development on the extraction and use of natural resources. However, since the industrial revolution and especially during the last six decades, worldwide material use has reached unprecedented levels (see section 2.1 for details). Only in the period from 1980 to 2007, worldwide resource extraction and resource use increased by 62%, reaching more than 60 billion tonnes of renewable and non-renewable resources extracted and used in the year 2007 alone in the global economy (SERI 2010). A number of recent environmental assessments (EEA 2010a, WWF et al. 2010) illustrate that already at todayâ&#x20AC;&#x2122;s level of global consumption, the natural resource base our societies are built on is in severe danger of overexploitation and â&#x20AC;&#x201C; potentially â&#x20AC;&#x201C; collapse. At the same time, around 80% of the world population still lives on less than 10 US$ per day (Ravallion et al. 2008) and legitimately demands higher consumption in the future. The most prominent environmental problems are linked to human use of materials (including energy carriers); most notably climate change and the degradation of global ecosystems, as well as the ecological services they provide: fresh water reserves and forests are shrinking, many species are under threat of extinction and fertile land is being eroded. Environmental impacts occur across the whole life-cycle of material use: from extraction through processing to disposal. At every stage of this cycle, energy and water are used and emissions are released into the air, water and soil (Bringezu and Bleischwitz 2009). Extraction of large amounts of materials also impact land cover and biodiversity (EEA 2010b).

Europe has become the world region shifting most of the environmental cost of resource use abroad.

As materials and products are increasingly traded internationally, the environmental pressures associated with resource use are distributed across the world (see Box 1.1). Europe has become the world region shifting most of the environmental cost of resource use abroad. From 1960 to 2005 the growth of traded goods has increased about 3.5-fold (in terms of weight), whereas the ecological rucksacks (or hidden flows) of those traded goods have multiplied by a factor of nearly 4.8 (Dittrich et al. forthcoming). Reducing natural resource use through increasing resource efficiency is therefore one of the key means to lowering the environmental impacts associated with production and consumption, both within Europe and abroad.

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Box 1.1 | Problem shifting—what are the (hidden) costs of EU consumption abroad: the case of biofuels Using ‘green products’ may often appear to be an ‘environmentally friendly’ solution in the country of consumption. However, when the detrimental impacts are displaced abroad (often to the place of production) the net environmental impact may worsen. In the case of problem shifting the impacts of consumption are not seen by the end user as they occur elsewhere. Thus, there is no trigger to stop the behaviour causing the negative externalities. With globalisation, the scale of these negative externalities has increased.

Photo: Katrin Bienge

Biofuels are a classic example of problem shifting from the EU to other countries. To meet the demand for food, feed, biofuels and biomaterials, the EU currently uses about 1/5 more agricultural land than what is domestically available within the EU (Helmut Schütz, personal communication). The growing use of biofuels, fostered by the aim to reduce greenhouse gas emissions from transport, is further increasing the EU’s demand for land abroad, both directly through imports and indirectly by displacing production elsewhere. Cropland expansion is the biggest cause of deforestation worldwide. It is a major contributor of biodiversity loss and may release significant amounts of carbon, completely negating the CO2 mitigation potential of biofuels. In the most extreme cases, driving a car with palm oil biodiesel produced on land that was converted from peat rainforest might release 2,000% more carbon than driving fossil-fuel based diesel (Beer et al. 2007). While biofuels currently provide around 3.4% of Europe’s transport energy demand (EurObserv’ER 2009), plans to increase this share have sparked intense debates about the above mentioned problem shifting of externalities as well as the problem of replacing one supply dependency (fossil fuels) with another (biomass). Addressing these (hidden) costs of EU biofuels consumption may include increasing the efficiency of biomass use (e.g. through cascades), reducing the overall land requirements of the EU (e.g. by improving the efficiency of the food supply chain), improving the energy and resource-efficiency of automobiles, and approaching mobility with more creative approaches. It is vital that future eco-innovations are examined from a life-cycle and systems perspective to prevent the resource curse of the green economy (see Box 5.3). One aspect of this is monitoring sustainable supply to determine how much land is actually available for sustainable use, and adjusting governance accordingly. See the visions chapter (7) for a depiction of a sustainable use of biomass.

1.2.2 | Political perspective: material security Of all world regions, the EU has the highest net imports of resources per person (EEA 2010c, SERI et al. 2009). In 2008, European imports of raw material amounted to 1,800 million tonnes, which is about 3.5 tonnes per person (EEA 2010c). Europe is substantially dependent on imports from other countries, in particular for fossil fuels and metal ores. According to the EEA (2010), European import dependency around the year 2007 was 47% 5

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Europe is substantially dependent on imports from other countries, in particular for fossil fuels and metal ores.

for natural gas, 59% for coal and 83% for oil; 50% for copper, 65% for zinc and about 85% for tin, bauxite and iron ores; and up to 100% for a wide range of high-tech metals. Without major changes over the next 20 to 30 years, approximately 70% of the EU's energy will have to be imported. This is 20% more than today (EEA 2009a). Resources and resource use are already strategic issues and sources of conflict, and their importance will most likely increase. Thus, concerns about material security have gained widespread attention in Europe and policy processes have been launched to address the threats of potential supply disruptions, most notably the so-called Raw Material Initiative (EC 2008a). The EIO views material security as the security of supply and access to the material resources on which economies depend, as well as the ability to cope with volatility, increasing scarcity and rising prices. This includes, but is not limited to, energy security.

The price of many metals doubled or even tripled between 2002 and 2008.

The increasing use of and dependency on imported resources not only raises environmental concerns, but also concerns by industries (especially in regard to future material prices; see Figure 1.1). The rapidly increasing demand for commodities such as oil, raw materials and wheat – not least from rapidly growing emerging economies such as the BRICs countries – has led to a boost in resource prices, especially during the five years prior to the outbreak of the financial crisis. For instance, the price of many metals doubled or even tripled between 2002 and 2008 (EEA 2010c). Although the financial crisis and the recession brought a significant temporal drop in the oil price to below 40 USD per barrel, the fuel crisis remains real. Oil prices have now passed 100 USD and peak oil is approaching, according to many authors and institutions, recently also by the Chief Economist of the IEA1. For various other commodities, the peak of extraction seems to have already been reached or is expected to be reached in the near future, e.g. for natural gas, for the production of uranium and for the annual extraction of critical metals and minerals (European Parliament 2009). The inefficient use of these and other resources at a time of growing demand and prices is therefore neither environmentally nor economically sustainable.

Box 1.2 | Eco-innovation – a catalyst of the Europe 2020 Strategy Resource efficiency and eco-innovation are two major cornerstones of the EU 2020 strategy, the major 10-year strategy for development of the European Union, presented by the European Commission in June 2010. Two out of its three priority themes are directly linked to eco-innovation, namely “smart growth” (‘developing an economy based on knowledge and innovation’) and “sustainable growth” (‘promoting a more resource-efficient, greener and more competitive economy’). 1. See The Independent, 3.8.2009: “Warning: Oil supplies are running out fast”. (http://www.independent. co.uk/news/science/warningoil-supplies-are-running-outfast-1766585.htm.l)

Moreover, eco-innovation features strongly in three flagship initiatives: “A resource-efficient Europe”, “Innovation Union” and “An Industrial Policy for the Globalisation Era”. All three flagships consider eco-innovation and resource efficiency to be both a key challenge as well as business opportunity for European economies and societies. The research and analyses undertaken by the EIO will address eco-innovation activities pursued in the framework of these flagships.

eco-innovation observatory

The initiative “A resource-efficient Europe” is particularly relevant for the present report and the overall context of Europe 2020: A strategy for smart, sustainable and the EIO. It aims to help decouple economic growth from inclusive growth resource use, support the shift towards a low carbon economy, increase the use of renewable energy sources, “Improving resource efficiency modernise our transport sector and promote energy would significantly help limit efficiency. It states that increasing resource efficiency is key emissions, save money and to securing growth and jobs for Europe, especially “to bring boost economic growth.” major economic opportunities, improve productivity, drive down (EC 2010a). costs and boost competitiveness”. The flagship initiative also strives for building a long-term framework for actions in many policy areas to de-risk investment in eco-innovation and to ensure that all relevant policies take into account resource-efficiency issues. It provides one of the key orientations for innovation activities heralded also in “Innovation Union” and “An Industrial Policy for the Globalisation Era”. For general information on Europe 2020 strategy see: http://ec.europa.eu/europe2020/index_en.htm For “A resource-efficient Europe” flagship initiative see: http://ec.europa.eu/resource-efficient-europe/# For “Innovation Union” flagship initiative see: http://ec.europa.eu/research/innovation-union/index_en.cfm?pg=home For “An Industrial Policy for the Globalisation Era” flagship initiative see: http://ec.europa.eu/enterprise/policies/industrial-competitiveness/industrial-policy/

1.2.3 | Business perspective: saving material costs Resource efficiency is becoming increasingly important for economic success in a world where many resources are becoming increasingly scarce and expensive. There is evidence that substantial resource-efficiency gains in industrial production can be realised relatively easily and cost effectively2. We focus on the potential to reduce material costs in this report both because of their increasing importance to companies due to expected price increases (Figure 1.1) and because we believe that focusing on material productivity, instead of for instance on labour productivity3, may represent larger potentials for economic, as well as environmental, gains (see Figure 1.2). In this case, material productivity means increasing the amount of output per unit of material input. Business consultants report that even providing nothing more than technical advice to companies in the processing sector could bring savings of around 20% of material costs (Fischer et al. 2004; ADL et al. 2005; Aldersgate Group 2010). In the UK, estimated resourceefficiency opportunities for 2009 are estimated at £55 billion (DEFRA 2011). For SMEs the potential to improve material productivity is estimated to be even higher than for large enterprises. Case studies on material efficiency improvements in Germany have revealed that on average around EUR 200,000 have been saved per company (from a pool of around 700 cases in the manufacturing sector), with investment costs under EUR 10,000 for nearly half of the companies (see Box 4.2).

Eco-innovations allow companies in Germany to save 200,000 euro per year on average 2. See for instance Marc Grynberg, CEO of Umicore, talk about how resource efficiency policies are driving forward his global business (http:// ec.europa.eu/environment/ etap/inaction/interviews/596_ en.html). 3. This may have been an effective strategy to reduce

Accounting for material flows properly and realising potentials to save costs through increasing material productivity will therefore become one key determinant for European companies in the coming decades, in order to maintain competitiveness on global markets.

costs in the past because while salaries rose continuously, prices for raw materials may have been subject to great fluctuations, without following any clear tendency (this is, however, no longer the case).

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Eco-innovation good practice 2 SkySails The Hamburg-based SkySails GmbH & Co. KG has developed an automated towing kite system. The company develops and produces a wind propulsion system for cargo ships based on large kites. The kite is connected to the ship by rope, and an automatic control system adjusts its flight path. Depending on the wind conditions, the system can reduce a shipâ&#x20AC;&#x2122;s average annual fuel costs by 10 to 35%. Under optimal wind conditions, fuel consumption can temporarily be cut by up to 50%. An effective tractive force of 8 tons by a SkySail corresponds to approx. 600 to 1,000 kW installed main engine power on average - depending on the shipâ&#x20AC;&#x2122;s properties (propeller efficiency degree, resistance, etc.). According to SkySails the worldwide use of SkySails technology would make it possible to save over 150 million tons of CO2 a year, an amount equivalent to about 15% of Germany's CO2 emissions. Source: SkySails; Copyright: SkySails

For further information see SkySails or visit the EIO online repository of good practices.

Figure 1.1

Figure 1.2

Expectations about how companies' material costs will evolve (5-10 years)

Cost structure in the German manufacturing industry in 2008

1% No, material costs will decrease

4% Not applicable

13% Other

8% No, material costs will remain approximately the same

87% Yes, material costs will increase

2% Hired labour 3% Depriciations 3% Taxes chargeable as expenses

45% Material

11% Commodity

18% Personnel

2% Energy

Source Figure 1.1: Eurobarometer (EC 2011b); Q3. Do you expect price increases for materials in the coming 5 to 10 years? Base: all companies, % EU-27 Source Figure 1.2: Demea (2010)

Note: Data for both figures requires further analysis because it has been generated based on responses to questionnaires. Figure 1.2 may comprise hidden costs from other categories such as personal costs from suppliers and embodied energy costs.

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1.3 | This report: resource efficiency and the eco-innovation challenge Resource efficiency and eco-innovation have both recently climbed the EU policy agenda. The Europe 2020 strategy includes a dedicated flagship initiative on “Resource Efficient Europe” (EC 2011), which responds directly to the challenge of resource scarcity. Ecoinnovation is explicitly mentioned in another flagship initiative “Innovation Union” (EC 2010a) that mentions support to eco-innovation among its strategic commitments for action. The flagship “An Industrial Policy for the Globalisation Era” includes the issue of sustainable supply and management of raw materials in the context of industrial processes (EC 2010b; see also Box 1.2). A number of other EU policy processes also focus on increasing resource efficiency and eco-innovation (including for instance the “Thematic Strategy on the Use of Natural Resources”, the “Environmental Technology Action Plan”, the “Raw Materials Initiative”, and the “Sustainable Consumption and Production and Sustainable Industrial Policy Action Plan”). Resource efficiency has become an “umbrella” issue included in various policy agendas and contexts. The Europe 2020 strategy regards improved resource efficiency as key toward achieving both economic and environmental objectives. In this context, analysis and research on the current trends and the practical ways to improve resource efficiency is also becoming a priority.

Resource efficiency is key toward achieving both economic and environmental objectives.

However, resource-efficiency gains made so far have not been sufficient to bring about a substantial change in the absolute consumption of natural resources. The underlying logic of this report is based on the simple realisation that small gains in efficiency are not enough. Both large gains in efficiency and a significant change in the way both materials and resources at large are used, re-used and managed is needed. This change will be possible thanks to new technological and non-technological solutions, new approaches to the way businesses are run and the way goods and services are consumed and used. The eco-innovation challenge is twofold. On the one hand, it is to further improve the resource and energy efficiency performance of the EU by promoting eco-innovation and by ensuring that the benefits of new solutions are widely disseminated. On the other hand, it is to ensure that the efficiency gains are not offset by growth in the total consumption of natural resources. Both efficiency gains and absolute dematerialization are needed to meet the vision of resource-efficient Europe.

The eco-innovation challenge is to ensure that efficiency gains are not offset by growth in the total consumption of natural resources.

Many different types of eco-innovation can and will contribute to meeting this challenge. This report focuses primarily on eco-innovation that reduces material or energy use—thereby saving both resources and money. Indeed, much of our data in this first year stems from survey analysis of company efforts to reduce resource use. We see these resource-efficiency efforts as a critical first step towards more radical innovations along the material supply chain and also argue that the potential for “saving resources” with this type of innovation is high. However, more radical types of systemic change are also needed. We hope to capture some of these with good practice examples in this report. Other types of eco-innovation exist, for instance to reduce negative environmental impacts, but will not be the focus of this report. This reflects our systemic approach to eco-innovation and rationale that reducing 9

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resource use will also reduce the negative environmental impacts associated with using those resources. In the future, work on the distinguishing between different types and forms of eco-innovation will be intensified. This report offers a general framing of both the problems and the objectives; it begins by analysing current unsustainable trends and ends with a vision of a resource-efficient Europe. This vision reflects what resource efficiency means to us, it also depicts the scope the ecoinnovation challenge. As we will show, eco-innovation is already occurring in countries, sectors, and markets across the EU, but not to the degree necessary. The EIO therefore aims to demonstrate existing solutions and to explore the untapped, often unrealized, eco-innovative potential of new solutions. In this context, this report aims to provide answers to the following key questions: ● What are the current eco-innovation -- and eco-innovation relevant -- trends? ● What types of good practice can be seen in different EU Member States? ● What are the drivers and barriers of eco-innovation in countries, sectors and companies?

● What policy approaches are most effective for promoting eco-innovation?

Box 1.3 | Resource efficiency, productivity and intensity: distinguishing the terms Resource efficiency means using less resources to achieve the same or improved output (resource input/output). It is an input-output measure of technical ability to produce “more from less”. Resource productivity has a component of economic value: it refers to the economic gains achieved through resource efficiency (for example GDP/DMC). In this way it indicates the economic effectiveness of natural resource use. This report often refers to material productivity. At the company level, material productivity refers to the amount of economic value generated per unit of material input. In other words, reducing material cost or adding more value to the production output by increasing efficiency in the way material resources are delivered processed and handled. On the scale of economies, material productivity is an indicator calculated as GDP per material consumption. In this case, material productivity refers to domestic material consumption whereas resource productivity refers to total resource consumption (see also Box 2.1 describing material flow indicators). Resource intensity indicators are the inverse of productivity indicators. They are often used to discuss energy and emissions. This report, for instance, considers GHG emissions intensity (measured as CO2e/GDP) in the calculation of the Eco-Innovation Scoreboard (section 3.1).

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2 | Resource efficiency: Key trends and targets Resource efficiency has increased in Europe. However, efficiency gains have been offset by increases in consumption, both in Europe as well as in other continents. This chapter asks what is the dimension of the resource-efficiency improvements required to meet the eco-innovation challenge? It overviews concrete targets for the EU, which are used in this report to depict the scope of the challenge.

2.1 | Tracking trends: resource use and material productivity The global picture: rapid growth in material use Global material extraction and consumption has grown significantly over the past few decades, from around 40 billion tonnes in 1980 to around 60 billion tonnes in 2007 (SERI 2010). However, growth rates were unevenly distributed among the main material categories. The use of metal ores showed the highest increase (more than 115%), indicating the continued importance of this material category for industrial development, while industrial and construction minerals grew by 75% and fossil fuels by 54%. Increases in biomass extraction amounted to 46%, however, the share of renewable materials in total material extraction is declining on the global level (from 39% in 1980 to 35% in 2007).

Global material consumption has grown from around 40 billion tonnes in 1980 to around 60 billion tonnes in 2007.

Model calculations illustrate that in a â&#x20AC;&#x153;business-as-usualâ&#x20AC;? scenario, i.e. a scenario without material efficiency policy intervention, the global annual use of primary materials could be as high as 100 billion tonnes in the year 2030. This scenario assumes a stagnation of current rates of material recycling and re-use, continued high levels of per capita material consumption in industrialised countries and considerable growth of material consumption in emerging and developing countries, aspiring to the same material welfare as people in the developed countries (Lutz and Giljum 2009).

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Box 2.1 | Indicators derived from material flow analysis on the national level Material use at the national level is measured with material flow accounting and analysis (MFA). This is a method of environmental accounting from which a number of indicators can be derived; the most widely applied being indicators on the material inputs and consumption of countries (see also EUROSTAT (2007) and OECD (2007). The system of MFA-based indicators is modular. The simplest input and consumption indicators--Direct Material Input (DMI) and Domestic Material Consumption (DMC)--only include direct material flows. These are already being compiled by national statistical offices across Europe and are published by EUROSTAT, making them the most accessible MFAindicators in terms of data availability. However, they are also regarded as problematic, as a country can improve its performance simply by substituting domestic material extraction with imports of processed materials and because indirect flows (also called the “ecological rucksacks” of international trade), which are used along the production chain to produce a traded good, are not accounted for (Moll and Bringezu 2005). Therefore, indicators which are ‘safe’ against these distortions are preferable. The second pair of indicators - Raw Material Input (RMI) and Raw Material Consumption (RMC) - include indirect flows. Methods to calculate these indicators are currently being tested in pilot studies both at the European (EUROSTAT) and national levels. The final pair of indicators - Total Material Requirement (TMR) and Total Material Consumption (TMC) additionally include “unused domestic extraction”, such as overburden from mining activities, excavation materials or harvest losses in agriculture. It also includes, for instance, the extractions of soil and earth for infrastructure deployment and maintenance or the “bycatch” in fishing (which may be unintentionally killed). TMR and TMC are thus the most comprehensive MFA-based indicators. The European Commission also envisages them as the most desirable indicators for measuring material input and consumption (EUROSTAT 2009). However, data on TMR and TMC are only available for a few countries so far, but the data situation is improving and the EIO intends to use existing data to the largest extent possible.

People in industrialised countries consume up to twenty times more materials than people in least developed countries.

In per capita terms, people in industrialised countries consume up to twenty times more materials than people in least developed countries (Giljum et al. 2011). In Europe, around 14.5 tonnes per person (measured with the indicator RMC) were consumed in the year 2000, whereas North Americans consumed around 32 tonnes and inhabitants of Oceania about 37 tonnes per person. By contrast, average material consumption was about 5.5 tonnes per person in Asia and less than 5 tonnes in Africa (see Figure 2.1). Worldwide material productivity (which is calculated by dividing GDP by RMC) was around 615 USD per tonne of natural materials used in 2000. However, while Europe and North America produced output worth more than 1,000 USD with one tonne of material (1,080 and 1,029 USD per tonne respectively), material productivities in Asia, Oceania, Latin America and Africa were below average (420, 419, 324 and 149 USD/kg respectively) (see Figure 2.2).

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The material productivity of a country or region seems to be strongly related to its economic structure and levels of GDP. Low material productivities are found on continents with small industrial and service sectors (Africa) or on continents that are specialised in the extraction and export of materials (Latin America, Oceania) (see Box 5.3 for a discussion of the resource curse of resource-rich countries). This low material productivity is being observed despite the fact that in those world regions, material cycles are often more closed compared to industrialised regions. Repair rates and re-use of e.g. machinery or cars are often very high. In regions with a higher share of manufacturing, and particularly services, material productivity is typically higher (North America, Europe), driven by generally higher levels of GDP. The interpretation of worldwide rankings of regions regarding their material productivities should therefore be taken with care. As Figure 2.1 has shown, material productivity is highest for the continents with the highest levels of material extraction and consumption, except for Oceania, whose economy is much more dominated by material-intensive activities. Based on material productivity one might assume that Europe and North America are the most sustainable continents in terms of material use. However, total levels of material extraction and consumption per capita show that actually the opposite is true. The most efficient

The most resource efficient countries in the world are in most cases also the ones which extract and consume the most.

countries in the world are in most cases also the ones which extract and consume the most.

EU level: relative de-coupling, but no absolute reduction A number of current EU policy initiatives aim at â&#x20AC;&#x17E;decouplingâ&#x20AC;&#x153; economic growth from material use and its negative environmental impacts. As Figure 2.3 illustrates, the European economy

Figure 2.1

Figure 2.2

Material consumption of different world regions, in tonnes per capita (2000)

Material productivity of different world regions, in USD per tonne (2000)

Tonnes per capital

US $ per tonne

1200

1000

30 800

25 20

600

400

10 200

5 0

Africa

Latin America

Oceania

Asia

World

North America

Europe

Africa

Asia

World

Latin America

Europe

North America

Oceania

Source: Giljum et al. (in press)

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grew by 35% between 2000 and 2007, but also material consumption increased in absolute terms (7.8%), almost three times the growth in European population (2.6%). The absolute growth in material consumption indicates that the EU did not achieve an absolute decoupling, but only a relative decoupling. This means that growth in GDP (expressed in Purchasing Power Standards, PPS), was higher than growth in material consumption (measured with the indicator DMC).

Compared to the year 2000, 24% more economic value was generated by a tonne of material in 2007.

Relative decoupling is illustrated by the indicator material productivity. This reveals that in 2007, 24% more economic value was extracted from a tonne of material consumption compared to the year 2000. A number of structural shifts in the EU economy are responsible for this growth in material productivity (see also Bleischwitz 2010). The share of service sectors comprising the EU-27 GDP is high and growing (71.6% in 2007 compared to 69.6% in 2000), and service sectors have a much lower material requirement than primary sectors (such as agriculture or mining). Wide-ranging changes in the energy production systems of many countries in Eastern Europe, but also Germany, have also taken place in the past 20 years. This had positive effects on material productivity, as the extraction and use of coal for electricity production has decreased and other energy carriers (gas, renewable energies), which are less material intensive have become more favoured. This transforms to an annual growth rate of material productivity of 3.2%, which is slightly above the goal stated in the EU Resource Strategy (3% target) (EC 2005). However, the numbers for material productivity increases would be lower, if GDP was expressed in exchange-rate values instead of Purchasing Power Standards. Under these assumptions, an increase of only around 2.2% p.a. between 2000 and 2007 can be observed.

Figure 2.3

Material consumption and material productivity in the EU-27, 2000-2007 2000=100 140

GDP (PPP)

135 130

Material productivity (GDP/DMC)

125 120 115 110

DMC

105 Population

100 95

Source: own calculations based on EUROSTAT MFA database

2007

2006

2005

2004

2003

2002

2001

2000

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Moreover, if more comprehensive indicators than currently available were used, especially if the ecological rucksacks of European imports were taken into account, it is likely that the productivity performance of the EU would decrease. Considering that the EU imports around 6 times more materials than it exports (EEA 2010a), the outsourcing of environmental burden through international trade should also play a role in determining productivity performance with more robust indicators in the future.

If the ecological rucksacks of imports to Europe would be included, Europeâ&#x20AC;&#x2122;s material productivity would decline.

While material productivity has increased in general, wide differences exist in the performance of member states, as Figure 2.4 illustrates. The average EU-27 material productivity in 2007 was EUR 1,513 of GDP produced per tonne of DMC, compared to EUR 1,213 in the year 2000. Material productivity is in general higher in the EU-15 countries (average of EUR 1,715 in 2007) compared to the EU-12 countries (average of EUR 798 in 2007). EU-12 countries thus have only around half the material productivity performance of the EU-15 countries. This is due to the fact that these countriesâ&#x20AC;&#x2122; economies are, in general, still relatively more focused on industrial and extraction sectors while their service sectors are not yet mature. Most EU-12 countries are still undergoing the transformation from centrally planned to the market economies. Ecological modernisation, backed by a regulatory push mostly in the form of EU directives, is part of this transformation. In the EU-15, countries with a high share of service sectors (e.g. financial services such as in Luxembourg or the UK) or small countries with low material extractions and high imports (e.g. Netherlands) have the highest productivities (EEA 2010a). On the other side of the EU15 spectrum are countries which either have a less pronounced service sector, or relatively

EU-12 countries have only around half the material productivity performance of the EU-15 countries due to the higher importance of agriculture and basic industries.

Figure 2.4

Material productivity in EU-27 countries and selected non-EU countries, 2005 GDP in â&#x201A;Ź (pps) per tonne DMC x 10000 5000 4500 4000 3500 3000 2500 2000 1500 1000 500

Source: own calculations based on EUROSTAT database

2000

Japan* United States*

Switzerland Norway Turkey*

EU-15 EU-12 EU-27

Malta Hungary Slovakia Lithuania Cyprus Czech Republic Slovenia Estonia Poland Romania Latvia Bulgaria

Luxemburg Netherlands United Kingdom France Sweden Austria Italy Belgium Germany Greece Spain Denmark Portugal Finland Ireland

2005* / 2007

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important material processing sectors (such as timber in Finland or milk and dairy production in Denmark and Ireland). As single Member States, Luxembourg and Malta had the highest productivities of all EU-27 countries in 2007. Luxembourg achieves its high productivity mainly by its very high GDP level, whereas Malta’s high performance can be explained by the fact that extraction and processing of materials within the territory of Malta is very small and material consumption is to a large extent sustained through imports. In the same way, a city has a higher material productivity than a whole country.

In comparison to other OECD countries, the EU has a material productivity similar to the United States, but much lower than Japan.

In comparison to other OECD countries, the EU has a material productivity similar to the United States (1,316 € in 2005, up from 1,187 € in 2000), but much lower than Japan (2,114 € in 2005 up from 1,593 € in 2000). Recent increases in relative material productivity have been significant in Europe. However, absolute amounts of material consumption are significantly higher in Europe than in other world regions and these levels are still increasing in absolute terms. Achieving environmental objectives can therefore not be guaranteed by focusing solely on increased material productivity, as productivity improvements are typically overcompensated by economic growth. Indeed, efficiency increases on the level of products and companies can directly cause increased material use on the economy-wide level. This is known as the rebound effect (Binswanger 2001). For instance, when companies are able to produce their products with lower costs (i.e. through efficiency gains) and demand for those products increases, those material-efficient companies might expand their production volumes, offsetting their efficiency gains and leading to higher economic growth. These dynamics point to the necessity of implementing (policy) measures on the macro-economic level tackling those rebounds in addition to supporting material productivity on the micro level of products and companies.

2.2 | Future outlook: targets for sustainable resource consumption Where should the EU be in 2050 and 2100 in terms of material use and productivity?

The EU is improving its relative material productivity, but the absolute amount of material use is still increasing. How can this development in the EU be set into context of a long-term and sustainable development of material use? Where should the EU be in 2050 or 2100 in terms of material use and productivity? And which policy targets should be introduced on the EU level to support a transition to sustainable production and consumption patterns? Concrete targets for reducing resource use and related negative environmental impacts have already been introduced in several EU policy areas, most prominently in the area of energy and climate policy. For example, the Europe 2020 headline targets include a 20% reduction of greenhouse gas emissions (30% in the case of international cooperation), a rise to 20% of renewable energy sources and a 20% improvement in energy efficiency (EC 2011). In comparison, targets regarding the area of material resources have been discussed to a much lesser degree in the EU policy context. However, a number of studies have been

eco-innovation observatory

presented, which have proposed different targets for material consumption and material productivity. Most widely known are the targets of Factor 4, defined as a doubling of income while reducing material consumption by 50% (von Weizsäcker et al. 1997); Factor 5, i.e. an 80% increase in resource productivity (von Weizsäcker et al. 2009); and Factor 10, a ten-fold reduction of material consumption in industrialised countries up to the year 2050 (SchmidtBleek 1993; Schmidt-Bleek et al. 1993). Additionally, targets for the year 2050 of 6 tonnes of resource use per capita (Schmidt-Bleek 2008b; Ekins et al. 2009) or a total use (including unused material resources) of 10 tonnes of abiotic resources (Bringezu 2011) have been suggested. These visions of a dematerialised economy are also increasingly taken up in business thinking. For example, a recently published report by the World Business Council for Sustainable Development states that a “four to tenfold improvement in the eco-efficiency of resources and materials from 2000” is required to achieve a sustainable world in 2050 (WBCSD 2010). It is important to emphasise that targets on material consumption should be based on comprehensive indicators of material use, which include indirect material flows of international trade (such as RMC or TMC; see Box 2.1). Only those comprehensive indicators avoid the risk that a country or world region achieves its targets by a dislocation of domestic material and energy intensive parts of the economy abroad. This would only result in a relocation of environmental burden, but not in an absolute reduction on the global level. However, as data sets for those comprehensive indicators are not yet available on the European level, we refer to DMC data in order to show the order of magnitude of the required change. In later stages, the EIO project aims at employing more comprehensive indicators to target setting.

Targets on material consumption should be based on comprehensive indicators of material consumption.

Based on the basket of suggested targets, we defined a set of three scenarios and related targets for the European economy: ● Business-as-usual scenario, the trends of the past four decades continue, i.e. assuming a 20% increase of DMC in the next 40 years (based on the 20% increase of material consumption in the EU-15 countries observed between 1970 and 2008) (see EEA 2010a). Note that this is a very simple scenario, which is not taking into account structural changes of the economy and population; ● Weak reduction scenario, an absolute reduction of material consumption by 50% (or a Factor 2) until 2050; ● Strong reduction scenario, significantly reducing material consumption by 80% (or a Factor 5) until 2050.

The EIO targets are based on a development pathway, aiming for a Factor 2 to Factor 5 reduction in material consumption by 2050.

The two described reduction scenarios could also be extended to a long-term goal in 2100, resulting in a Factor 4 reduction in the weak reduction scenario and a Factor 10 reduction in the strong reduction scenario. Table 2.1 and Figure 2.5 provide an overview of key variables and targets in the three scenarios. All numbers are for the EU-27.

Annual Report 2010

The table shows that the rate of assumed average economic growth significantly determines the need to increase material productivity. The rate of annual increase in material productivity in the EU over the past few years was 3.2% (in relation to GDP in purchasing power standards) or 2.2% (GDP at market exchange rates). This illustrates that achieving an absolute reduction under a growth scenario requires significant efforts. Even under a zero growth scenario, the absolute reduction of material consumption to 20% of the current consumption level would require an annual growth of material productivity above the current rate. As a general conclusion it can be stated that an absolute reduction of material consumption under the current trend can only be realised, if the annual growth rates of material productivity grow at a significantly higher rates than the GDP growth.

Achieving an absolute reduction under a growth scenario requires significant efforts.

Table 2.1

The three scenarios and related targets until the year 2050 CURRENT SITUATION (YEAR 2007)

Average annual increase in material productivity required to achieve target under different assumptions of economic growth

Indicative DMC per capita values4

~ 16 tonnes

BUSINESSAS-USUAL SCENARIO (2050)

WEAK REDUCTION SCENARIO (2050)

STRONG REDUCTION SCENARIO (2050)

0% growth: -0.4%

0% growth: 1.6%

0% growth: 3.8%

1% growth: 0.6%

1% growth: 2.6%

1% growth: 4.9%

2% growth: 1.6%

2% growth: 3.7%

2% growth: 5.9%

3% growth: 2.6%

3% growth: 4.7%

3% growth: 6.9%

~ 19.2 tonnes

~ 8 tonnes

~ 3.2 tonnes

Figure 2.5

Index, 2000 = 1

Material productivity increases in the EU-27 required to achieve reduction targets (with different assumptions on annual DMC and GDP growth), 2000-2050

DMC Factor 5, GDP 3% DMC Factor 5, GDP 2%

DMC Factor 5, GDP 1% 15

DMC Factor 2, GDP 3% DMC Factor 5, GDP 0%

DMC Factor 2, GDP 2% DMC Factor 2, GDP 1%

2050

2040

2030

2020

to the UN statistics division,

0 2010

constant population. According

DMC Factor 2, GDP 0% 2000

4. Note that these values assume

European population is expected to decline slightly from around 841 million people in 2010 to around 824 million in 2050 (UN Statistics, 2009).

Note: This is an indicative figure based on the assumptions about material consumption defined in the weak and strong reduction scenarios (Table 2.1). It shows that, if the correlation between material consumption and GDP growth remains unchanged, the efforts to reach material consumption reduction targets will need to be intensified depending on the rate of GDP growth. However, increasing dematerialization would decrease the effect of economic growth on material consumption over time. This is not taken into account here.

eco-innovation observatory

Eco-innovation good practice 3 Resource-Efficiency Atlas No broad, global collection of resource-efficiency technologies, products and strategies was available, until recently. The “Resource Efficiency Atlas” (REA) has collected a selection of good practice examples; including technologies, products and strategies for increasing resource efficiency and approaches for a sustainable innovation policy. Overall, the global mapping resulted in almost over 100 efficient technologies, products and strategies. Most identified measures are located in Europe, Asia and North America. The share of the identified measures is highest in technologies, followed by products and strategies. For further information visit REA the EIO online repository of good practices.

The above makes the challenge to decouple economic growth from material consumption all the more relevant. A trend towards absolute dematerialization could gradually decrease the negative impact of economic growth on material consumption and lead to a win-win scenario of dematerialized, sustainable growth over the long term. The vision of a resource-efficient Europe provided in chapter 7 describes key possible elements of the strong reduction scenario. It is oriented towards the Factor 10 reduction in the year 2100.

2.3 | The targets, material productivity pathways and eco-innovation challenge Long-term targets are crucial for facing the eco-innovation challenge (Figure 2.6). They can frame policies and strategies to significantly de-risk the investment decisions of companies, governments, financial institutions or research organisations. The overall target should be translated to the level of individual stakeholders, sectors and regions. Policy makers will have to lead efforts to establish such operational performance targets, making them more tangible for companies and other stakeholders. Shared targets are imperative; meeting the scale of material productivity improvements needed requires continuous and concerted efforts by different stakeholders: ● Companies: to develop and implement viable innovations with a high use value with the reduced use of resources, including energy, materials, water, land and biomass; ● Public and private research organisations: to provide the knowledge foundations for achieving significant reductions in resource use, such as new materials and new production technologies as well as other innovative processes; ● Financial institutions: to provide the capital required for green investments at the scale necessary to realise targets; 19

Annual Report 2010

Figure 2.6

The eco-innovation challenge and material consumption Material consumption (1970 - 100) 160

Business as usual

140

Eco-innovation challenge

120 100 80 60

Factor 2

Factor 5

2050

2040

2030

2020

2010

2000

1990

1980

â&#x2014;? Policy makers and public administration: to implement a regulatory and policy framework which removes barriers and provides incentives for the implementation and wider diffusion of eco-innovative products and services; and, last but not least, â&#x2014;? NGOs and think tanks: to provide an independent perspective on the progress made by business and government and to promote good examples of eco-innovations for business and lifestyles.

The eco-innovation challenge can and should be tackled differently by different companies, regions or cities.

Without a clear direction and shared objective these efforts will remain uncoordinated and may lead to burden shifting. Moreover, it is key that the methodologies to measure progress are harmonised across the EU, to allow for comparisons and the assessment of progress towards achieving the overall EU and global targets. Operational targets, including the level of ambition and timing, should be diversified and recognise that the eco-innovation challenge can and should be tackled differently by different companies, cities or regions. The impact of eco-innovation in less developed industrial regions, for example, could be critical over a relatively short term as substantial material and energy productivity improvements could be achieved more easily than in more advanced regions. The short-term targets in such cases could be more ambitious if backed up by accompanying measures supporting the development and diffusion of resource efficient production technologies and processes. Such a diversified approach requires a substantial coordination effort at the national and EU level.

eco-innovation observatory

3 | The EU: Eco-innovation performance of countries Eco-innovation performance differs, sometimes drastically, in different EU countries. Chapter 3 presents and analyses the results of the first edition of the European Eco-Innovation Scoreboard (Eco-IS), asking whether common structural features of good and poor performers can be identified, and whether eco-innovation actually leads to positive economic and environmental effects.

3.1 | The Eco-Innovation Scoreboard If the necessary targets for reducing resource consumption and their negative environmental impacts should be met, Europe faces a huge challenge for increasing resource productivity through eco-innovation. But how can the eco-innovation performance of countries be measured? In order to monitor progress in complex and multi-dimensional areas, scoreboards have been introduced and widely applied by a large number of organizations. Examples of existing scoreboards include the OECD Science, Technology and Industry Scoreboard5, the Energy Scoreboard by the IEA6 or the Climate Scoreboard by Climate Interactive7. Scoreboards have also been developed to monitor innovation performance, most notably the European Innovation Scoreboard (see, for example, PRO INNO Europe® 2010) and its successor, the Innovation Union Scoreboard (PRO INNO Europe® 2011), introduced to provide a comprehensive measure of the research and innovation performance of EU countries. The Eco-Innovation Scoreboard (Eco-IS) developed by the EIO is the first tool to assess and illustrate eco-innovation performance across the EU. The Eco-IS shows how well individual Member States perform in different dimensions of eco-innovation compared to the EU average and presents their strengths and weaknesses. Thereby, the Eco-IS complements other measurement approaches of innovativeness of the EU and EU countries, notably the Innovation Scoreboards, and aims to promote a holistic view on economic, environmental and social performance. The Eco-IS serves several purposes in the EIO: to illustrate the eco-innovation performance of EU countries compared with the EU average; to identify and compare strong and weak areas of eco-innovation in single EU countries with regard to several thematic aspects, as well as to compare these aspects with average performance in the EU and to top performers; and to assist in identifying barriers and drivers of eco-innovation in EU countries. The core part of the Eco-IS is the “performance profile”, which contains indicators in five areas: eco-innovation inputs, eco-innovation activities, eco-innovation outputs, environmental

The Eco-Innovation Scoreboard (Eco-IS) is the first tool to assess and illustrate eco-innovation performance across the EU. 5. See http://www.oecd.org/ document/10/0,3343, 6. See http://www.oecd.org/de/ ieascoreboard.en_2649_33703_ 39493962_1_1_1_1,00.html. 7. See http://climateinteractive. org/scoreboard.

Annual Report 2010

The Eco-IS consists of two main parts: a “structural profile” and a “performance profile”.

outcomes and socio-economic outcomes. The 2010 version of the Eco-IS is based on 13 sub-indicators in these five areas. Sub-indices are calculated for each of the five areas. The overall eco-innovation performance of each Member State is calculated with the unweighted mean of the 13 sub-indicators (for more information on the calculation methodologies see the methodological note on the EIO website: www.eco-innovation.eu). The performance profile of the Eco-IS is accompanied by a “structural profile”, which contains indicators on long-term socio-economic and environmental trends. Indicators included Table 3.1

Indicators in the Eco-IS

SOCIO-ECONOMIC OUTCOMES

ENVIRONMENTAL OUTCOMES

ECOINNOVATION OUTPUTS

ECO-INNOVATION ACTIVITIES

ECO-INNOVATION INPUTS

"IDEAL" INDICATOR

BEST AVAILABLE INDICATOR FOR 2010 SCOREBOARD

DATA SOURCE

Total level of financial support for eco-innovation (as % of GDP)

Governments environmental and energy R&D appropriations and outlays (GBOARD, % of GDP), 2008

EUROSTAT

Total R&D personnel and researchers in ecoinnovation sectors (% of total employment)

Total R&D personnel and researchers as % of total employment, 2007

EUROSTAT

Total value of green early stage investments

Total value of new investment in green early stage investments in the period 2007-2009

Cleantech Group

Share of firms participating in eco-innovation

Firms having implemented innovation activities aiming at a reduction of material input per unit output (% of total firms) in the period 2006-2008

CIS, EUROSTAT

Share of firms implementing eco-innovation-related management systems

EMAS registered organisations (per population), 2007

EUROSTAT

Eco-innovation patents

Eco-patents for the fields of pollution abatement, waste management and energy efficiency, 2007

OECD

Material productivity (GDP/Total Material Consumption)

Material productivity (GDP/Domestic Material Consumption), 2007

EUROSTAT

Water productivity (GDP/water consumption)

Water productivity (GDP/Water Footprint), 2001

Water Footprint Network

Energy productivity (GDP/gross inland energy consumption)

Energy productivity (GDP/gross inland energy consumption), 2008

EUROSTAT

GHG emissions intensity (CO2e/GDP)

GHG emissions intensity (CO2e/GDP), 2008

EUROSTAT

Employment in eco-innovation industries

Employment in eco-industries (% of total workforce), 2004

Ernst & Young

Size of eco-innovation markets

Turnover in eco-industries, 2008

Ecorys

Exports of eco-innovation products

Exports of products from eco-industries (% of total exports), 2008

Ecorys

eco-innovation observatory

in the structural profile provide the general determinants for eco-innovation performance measured in the “performance profile”. Combining structural and performance indicators reveals, for example, to what extent GDP levels are linked with eco-innovation performance (see chapter 3.3.1). The structural profile also allows putting the results of the performance profile into perspective, e.g. exploring the links between the eco-innovation performance and environmental performance of countries (see chapter 3.3.3). The 2010 version of the Eco-IS is the first published version. As the data collection and compilation process is an ongoing effort, in many cases the first choice indicators and related data sets could not yet be included. Therefore, in several areas, proxy indicators are used in the 2010 version. Moreover, the number of indicators included is not yet satisfactory in several areas, for example, the area of eco-innovation outputs is only represented by a single indicator. The table 3.1 provides an overview over the envisaged “first choice” indicators and the available proxy indicators used in the 2010 edition.

3.2 | Comparing EU country performance with the scoreboard The Eco-IS allows illustrating and comparing the overall eco-innovation performance of EU countries. Figure 3.1 reveals the composite scoreboard and thus the overall ranking of ecoinnovation performance. As illustrated by the different colours, Member States have been separated into three groups8 based on their performance: ● Eco-innovation leaders. The first group consists of five countries, which have the highest results in the composite scoreboard. Finland leads the ranking, closely

Five countries belong to the group of EU eco-innovation leaders: Finland, Denmark, Germany, Austria and Sweden.

followed by Denmark, Germany, Austria, and Sweden. ● Eco-innovation followers. The second group encompasses eight countries, the index of which is close to the EU average value (100) ● Countries catching up in eco-innovation. The third group is the largest group, consisting of 14 countries with eco-innovation index values between 75 and 45. Figure 3.1

EU-27 Eco-Innovation Scoreboard: composite index 160 140 120 100 80 8. Note that this grouping is

tentative and should serve

communication purposes.

statistically validated so far.

The grouping has not been Methodologies to test this

Finland

Denmark

Austria

Germany

Sweden

Belgium

Netherlands

United Kingdom

Spain

Ireland

Italy

EU AVERAGE

France

Slovenia

Luxemburg

Portugal

Czech Republic

Malta

Hungary

Latvia

Cyprus

Bulgaria

Estonia

Poland

Greece

Romania

Slovakia

Lithuania

tentative grouping (such as cluster analysis) will be applied in the 2011 version of the Eco-IS.

Annual Report 2010

Analysing the compilation of the different groups it becomes apparent that the first group is made up only of Central and Northern European countries, while the second group consists of other EU-15 countries. The third group of countries catching up in eco-innovation consists mainly of Southern and Eastern European countries. While the performance scoreboard is useful for identifying general trends and informing the debate on eco-innovation performance across the EU, it is by no means the ‘final word’ on explaining eco-innovation performance and its socio-economic and environmental outcomes. In order to put the overall results into context, the results of the scoreboard need to be analysed with relation to structural indicators (see section 3.3). Here we investigate the different sub-categories and analyse to what extent typical patterns of performance can be identified across the different areas of the scoreboard.

Eco-Innovation inputs The analysis of eco-innovation inputs in the different EU countries shows as a result of

The analysis of eco-innovation inputs shows that Finland performs best regarding R&D personnel, government spending and investments into eco-innovation.

four especially well performing countries – Finland, Ireland, Sweden, and Denmark, with especially Finland far ahead of the others (see Figure 3.2). This is due to the fact that Finland has the best performance in all the different indicators in this sub-category, including a particularly high score for the indicator “Total value of green early stage investments”, where Ireland is scoring equally well. The distance from the fourth (Denmark, 176) to the fifth (Belgium, 135) is already remarkable, whereas the gradient among the following countries is rather low. Interestingly, due to the top-four performing countries being way above average, the larger group of the EU countries is below the average, with no real geographical or socio-economic patterns to be detected.

Figure 3.2

EU-27 Eco-Innovation Scoreboard: eco-innovation inputs 300 250 200 150 100 50

Ireland

Finland

Sweden

Denmark

Spain

Belgium

United Kingdom

France

Germany

Netherlands

Italy

EU AVERAGE

Austria

Estonia

Luxemburg

Portugal

Czech Republic

Slovenia

Hungary

Greece

Romania

Latvia

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Bulgaria

Slovakia

Poland

Malta 24

Cyprus

eco-innovation observatory

Eco-innovation activities The analysis of the eco-innovation activities shows a similar picture, however, with different countries leading the ranking (see Figure 3.3). Four EU countries are far ahead of the others in this area: Spain, Denmark, Germany, and Austria. After these four top-performers, the gradient in performance is flat, with old and new Member States being allocated across the whole spectrum without any clear geographical or socio-economic pattern. Spain ranks first in this area of the scoreboard, but this can – at least partly – be explained by a data artefact: out of the two indicators which make up the activities index only the EMAS9-certificate index is available for Spain and shows an extremely high number; the same holds true for Denmark. For those two countries, the EMAS indicator thus determines the overall result in this area. Germany and Austria also have high performances in the EMAS index, however their lower performances in the indicator “Firms having implemented innovation activities aiming at a reduction of material input per unit output” – although still high in comparison with the other countries – lowers the average of the two values.

The gradient after top-performers in ecoinnovation activities is flat, without any clear geographical or socioeconomic pattern. .

Figure 3.3

EU-27 Eco-Innovation Scoreboard: eco-innovation activities 250 200 150 100 50

Spain

Denmark

Austria

Germany

Portugal

Italy

Finland

EU AVERAGE

Sweden

Czech Republic

Greece

Belgium

Ireland

France

Estonia

Luxemburg

Malta

Latvia

Hungary

Slovakia

Romania

Lithuania

Netherlands

Poland

Cyprus

United Kingdom

Bulgaria

Slovenia

Countries with a performance below the EU average in general have lower performances regarding both indicators in this area. Data artefacts are also putting Slovenia, Bulgaria and the UK at the end of the ranking. For Slovenia and the UK, no data is currently available for the indicator on material input reduction in firms, while the reported EMAS performance is very low. In the case of Bulgaria, the reported EMAS number was 0. The data problems described here in detail re-emphasise the need to both improve the quality of single indicators as well as the need to include a larger number of indicators within certain areas in future versions of the Eco-IS.

There is a need to improve the quality of indicators in future versions of the Eco-IS. 9. The EU Eco-Management and Audit Scheme (EMAS) is a

Eco-innovation outputs

management tool for companies

The sub-category eco-innovation output consists of only one indicator (“Eco-patents for the fields of pollution abatement, waste management and energy efficiency – per million inhabitants”), and as such the analysis of country performances shows a remarkably inhomogeneous picture (see Figure 3.4).

and other organisations to evaluate, report and improve their environmental performance (see http://ec.europa.eu/ environment/emas).

Annual Report 2010

While there are again five to six “leaders” with performances high above the EU average (Austria, The Netherlands, Denmark, Germany, Sweden and Finland), the other countries show a high gradient of decrease in their performance. Among the top-six, all the top-five countries of the composite index can be found. On the other end of the spectrum various countries – mainly from the EU-12 – have not reported any eco-patents at all. The next version of the scoreboard aims to include additional indicators in this sub-category in order to make it more robust. Figure 3.4

EU-27 Eco-Innovation Scoreboard: eco-innovation activities 250 200 150 100 50

Austria

Denmark

Netherlands

Germany

Finland

Sweden

Belgium

Cyprus

Luxemburg

France

EU AVERAGE

Italy

Hungary

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Czech Republic

Spain

Ireland

Portugal

Greece

Latvia

Poland

Romania

Lithuania

Slovakia

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Malta

Estonia

Bulgaria

Environmental outcomes The sub-category “Environmental outcomes” consists of four different indicators on productivity in material, energy and water use as well as the intensity of GHG emissions. In this sub-category, again four to five countries can be regarded as top-performers, but the distribution is much more equal compared to other indicators (see Figure 3.5). This is a consequence of better data quality for those indicators (all four are based on EUROSTAT data) and the larger number of indicators included in this category compared to other areas in the scoreboard. Figure 3.5

EU-27 Eco-Innovation Scoreboard: environmental outcomes 160 140 120 100 80 60 40 20

Luxemburg

Netherlands

Malta

United Kingdom

Sweden

Austria

France

Italy

Germany

Denmark

EU AVERAGE

Hungary

Spain

Belgium

Ireland

Greece

Latvia

Portugal

Slovakia

Finland

Lithuania

Cyprus

Slovenia

Poland

Romania

Czech Republic

Estonia

Bulgaria

eco-innovation observatory

In contrast to other sub-categories, it is more difficult to distinguish any obvious patterns for comparing country performance. The overall leader in this area is Luxembourg, mainly due to its high material productivity, but Luxembourg’s performance with regard to energy and GHG indicators is only slightly above EU average. The Netherlands, ranking second, also has a very high value in material productivity and additionally ranks first in water productivity; however, the values for energy productivity and GHG intensity are below EU average. The UK performs above EU average with all 4 indicators, but significantly better in the material and water productivity indicators. The four environmental productivity/intensity indicators are therefore not closely linked in the group of the top-performing countries in this area of the scoreboard.

Below average performers in environmental outcomes can mainly be explained by the significantly lower GDP numbers compared to the top-performing countries, which translate into lower productivity indicators.

At the other end of the spectrum, countries typically perform below average in all 4 indicators. This can be mainly explained by the significantly lower GDP numbers compared to the topperforming countries, which translate into lower productivity indicators.

Socio-economic outcomes Figure 3.6 illustrates the results in the area of socio-economic outcomes. The scoreboard in this sub-category is led by Bulgaria – 21st in the overall scoreboard ranking. Bulgaria has an outstandingly high value in the index for “Employment in eco-industries”, which outweighs the very low value in the index for turnover in this sector (no value for the export-related indicator was available). In particular in this area of socio-economic outcomes, proxy indicators based on eco-industry studies had to be applied in the 2010 version of the scoreboard. The authors were not able to verify the numbers provided by the underlying study of Ecorys (2009).

Bulgaria – 21st in the overall scoreboard ranking – leads in the area of socio-economic outcomes, followed by Slovenia.

Figure 3.6

EU-27 Eco-Innovation Scoreboard: socio-economic outcomes 180 160 140 120 100 80 60 40 20

Bulgaria

Austria

Slovenia

Belgium

Denmark

Germany

France

Finland

Cyprus

EU AVERAGE

Italy

Romania

Sweden

Netherlands

Poland

United Kingdom

Latvia

Spain

Czech Republic

Hungary

Estonia

Luxemburg

Portugal

Malta

Lithuania

Slovakia

Ireland

Greece

Bulgaria is followed by Slovenia (14th overall), which also has a very high performance in the employment index and values around the EU average in the other two categories. Among the next five countries still above EU average four out of the overall top-performers can be found (Austria, Denmark, Germany and Finland). Interestingly, among the lowest 27

Annual Report 2010

performing countries in this sub-category are three EU-15 countries (Luxembourg, Portugal, and Greece). In this sub-category no patterns regarding performances among the different indicators can be distinguished. Many countries perform very differently in the three different indicators, with remarkable outliers in one of them. Hence, a direct relation between a country’s performance in the different categories is difficult to establish.

Comparing the performance in different sub-categories Of the top 5 countries only two countries ranked first in one of the categories (Finland in eco-innovation inputs and Austria in eco-innovation outputs), whereas none of the other top performers scored higher than second (Denmark in eco-innovation activities) or third (Germany in eco-innovation activities and Sweden in eco-innovation outputs) in the individual categories.

There is no “model country” which could serve as an example of best practice across all areas observed in the scoreboard.

This indicates that there is no “model country” which could serve as an example of best practice across all areas observed in the scoreboard. On the contrary, significant potential for improvement can be identified for all countries. For instance, Austria ranked 12th in the category of eco-innovation inputs; Sweden 13th in the category of socio-economic outcomes; and Finland – the best performing country in the composite index – only 19th in environmental outcomes. Denmark and Germany showed a relatively balanced performance over all the categories, with rankings between 2nd and 10th. At the lower end of the scoreboard a more homogenous picture can be drawn: many of those countries which had a low performance overall also scored low in the different subcategories. One exception is Bulgaria, while ranking 21st in the overall ranking it ranked 1st in the sub-category of socio-economic outcomes. Other countries – especially those in the middle performance part of the scoreboard – have a very inhomogeneous performance throughout the sub-categories.

3.3 | Understanding country performance Beyond just assessing performance, the EIO is interested in understanding why certain countries perform better or worse than others. We correlate three important relationships and ask whether there is a connection between eco-innovation and 1) GDP 2) competitiveness and 3) environmental performance.

3.3.1 | Eco-innovation and economic performance: is eco-innovation only for ‘rich countries’? There is a positive correlation between eco-innovation and GDP and eco-innovation and competitiveness.

EIO analysis reveals a robust positive correlation between eco-innovation and GDP (Figure 3.7) and eco-innovation and competitiveness (Figure 3.8). This suggests that eco-innovation may be contributing to the competitive advantage of economies and companies (see also section 5.2). It may also show that eco-innovation is easier to develop and absorb by companies with an established market position. These results should be regarded with caution; further investigation is needed to establish causality between both GDP and ecoinnovation and competitiveness and eco-innovation.

eco-innovation observatory

Nevertheless, the question of whether new Member States and others with a GDP lower than average can be expected to fully embark on this agenda without a substantial investment over extended periods of time is raised. We view eco-innovation as a relevant strategy for all countries. The business opportunities may be different in different places, but clearly an eco-innovative development path (green growth) is needed in countries still building up their infrastructures and built environment--so as not to follow in the problematic footsteps of highly developed countries. In less developed countries, eco-innovations are needed for responsible growth and building; for instance

We view eco-innovation as a relevant strategy for all countries.

Figure 3.7

Relationship between composite EI Index and GDP per capita in the EU, 2007 Composite EI index 160

Finland

140 120

Denmark Germany Austria Sweden Netherlands

Belgium Spain Italy

100 Czech Republic

R2=0.2998

Ireland

Luxemburg

France

Slovenia Portugal Malta Cyprus Bulgaria Latvia Poland Estonia Greece Romania Slovakia Lithuania Hungary

60 40 20

80000

GDP per capita

70000

60000

50000

40000

30000

20000

10000

Global Competitiveness Index 2010/2011, Score-Value

Figure 3.8

Relationship between composite EI Index and Competitiveness in the EU Composite EI index 160

Finland

Denmark

140

Austria

120

Sweden

Belgium Spain

100

Ireland

Italy Slovenia Portugal Czech Republic Latvia Hungary Malta Cyprus Bulgaria Romania Poland Estonia Greece Lithuania Slovakia

80 60 40

R2=0.745

Germany

France

Netherlands

Luxemburg

5,5

4,5

3,5

Annual Report 2010

Eco-innovation good practice 4 Urban mining Over time, massive amounts of material resources have been extracted for buildings and infrastructure development. The resulting accumulation - so-called urban stocks - could be important resource reservoirs in the future. Eco-innovation in the area of urban mining might create new opportunities; ultimately, it could expand the skills set and workforce across the entire value chain; from exploration and extraction to transportation and recycling/refining, and finally to marketing, selling and re-use. Environmentally, secondary sourcing of materials could drastically reduce primary extraction and thus lower the resource requirements of an economy. For more information visit Photo: Stefan Beck

the EIO online repository of good practices.

resource-light and energy-efficient technologies. In countries with a highly developed infrastructure and built environment, the growth rate of the physical environment needs to steady out—levelling off absolute levels of consumption. Eco-innovations are needed which focus on the re-use, refining and recycling of materials, as well as infrastructures (urban mining). It could be argued that in a short term eco-innovation can lead to substantial energy and material consumption savings, notably in those regions at earlier stages of ecological modernisation. As these countries start from a relatively low level they should not follow the path of more advanced countries, but set off to develop or transfer novel solutions to bypass less efficient technologies and solutions. These countries are often in a process of rebuilding their infrastructures, which offers a unique chance to radically improve environmental performance of entire regions and sectors if eco-innovation principles are considered in planning stages.

The eco-innovation paradox means that the potential for benefiting from eco-innovation is often highest in the regions and sectors where the capacity to develop or apply ecoinnovations is limited.

One of the problems limiting these opportunities is related to a weaker absorption capacity and the lack of strategic and policy “drive” towards eco-innovation. The latter is often perceived as something that incurs costs (e.g. adaptation to environmental legislation) rather than economic benefits (e.g. saving costs and energy). Eco-innovation is also often seen as a “sector” which does not allow for grabbing all the benefits. This is referred to here as the eco-innovation paradox: the potential for benefiting from eco-innovation is often highest in the regions and sectors where the capacity to develop or apply eco-innovations is limited. The eco-innovation paradox is relevant also for more advanced regions and cities, which face imminent decisions about their future development. Moreover, it should be taken into consideration that the availability of eco-innovation related data is sometimes better in countries with a high GDP. This may result in a bias in the scoreboard toward capturing eco-innovations in richer economies.

eco-innovation observatory

In summary, the EIO views the following aspects as key to this debate: ● The industry perspective: since a majority of business respondents to the Eurobarometer view material costs as a significant share of their overall total costs and an overwhelming majority expect higher material purchasing costs for the future, doing better in eco-innovation is a ‚must have’ for successful business. The share of material costs is especially high in the new Member States – another reason to abandon barriers to resource efficiency (section 5.2). ● The global perspective: there is a clear trend towards eco-innovation in major emerging economies. The EU should be well prepared to meet this challenge in order to maintain and improve its world market position (section 5.2).

3.3.2 | Eco-innovation and environmental performance Is eco-innovation leading to actual environmental improvements? This section investigates whether high eco-innovation performance is leading to an absolute reduction in material consumption. Furthermore, an analysis is carried out comparing the performance of countries in the overall Eco-IS composite index and different environmental structure indicators. Figure 3.10 plots the performances in the overall composite eco-innovation index and the indicator Domestic Material Consumption (DMC) per capita as a key indicator of environmental performance with regard to resource use in different countries of the EU. It is apparent that no direct relationship can be established between good eco-innovation performance and neither low nor high material consumption. Finland, as the leader in the overall eco-innovation scoreboard, has the second highest per-capita DMC in the EU; but

No direct relationship can be established between good eco-innovation performance and neither low nor high material consumption.

Figure 3.9

Scatter of Eco-IS index and material consumption per capita (year 2007) Composite EI index 160

Finland

Denmark

140

Germany Sweden

120 Netherlands 100

UK Italy

80 Malta

Hungary Slovakia

Austria

Belgium EU AVERAGE Spain France Luxemburg

Czech Republic Bulgaria Greece Poland Lithuania

Portugal Latvia Romania

Ireland

Slovenia Cyprus Estonia

0 DMC/cap [t]

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Eco-innovation good practice 5 Living Lab Living Lab is an integrated technological-socioeconomic approach to foster sustainable user-centred innovations. It is based on the observation that resource-efficient eco-innovations need cooperation of all actors along the value chain to be successful â&#x20AC;&#x201C; both in environmental and economic terms. Thus, the main approach of Living Lab is to integrate users (and other actors) into the innovation process, i.e., putting the user on centre stage in the development and testing of sustainable, innovative domestic technologies. A Living Lab design study executed by a European consortium of seven research and business partners created a methodology, which consists of three phases (generating insights, developing a prototype in a co-creation process and executing field testing) and a network of Living Labs across Europe. For further information visit Living Lab and the EIO online repository of good practices.

also the other top-performers rank rather high in terms of environmental impact. A special outlier is Ireland, which ranks around the EU average (index of 100) in the composite EcoIS Index but has by far the highest per-capita material consumption (see also section 2.1). To get a more complete picture regarding whether eco-innovation activities, especially in high-performing countries, prove to be successful in terms of reducing environmental pressures, we compare the Eco-IS Index with the per capita values of consumption of all four environmental structural indicators considered in the EIO: consumption of materials, energy, water, and GHG emissions.

The top-five performers on the scoreboard have relatively low performances with respect to environmental aspects.

Table 3.2 provides a comparison in the rankings of the specific countries with regard to the overall composite index and different environmental structure indicators. Interestingly, it can be clearly seen that the top-five performers of the scoreboard have relatively low performances with respect to environmental aspects. Again, an extreme example in this regard is Finland: it is above EU-average in all environmental pressure categories, having the second highest per-capita DMC and energy consumption and the fourth highest percapita emission production. Denmark (overall second performer) has the fourth highest DMC per capita; Austria and Germany are close to and above the EU averages in most of the categories; Sweden ranks third in per-capita energy consumption. The conclusion can be drawn that countries with a high performance in the eco-innovation scoreboard (and as such a high activity level in eco-innovation) are also those countries with especially unsatisfying environmental performance in absolute terms. Hence, a high eco-innovation performance as measured by the Eco-IS does not automatically lead to good environmental performance in absolute terms.

eco-innovation observatory

One key factor to explain this situation is that the top-performing countries are also very wealthy countries in terms of GDP levels (see also chapter 3.3.1) and that there is a linkage between high GDP and high absolute consumption of natural resources and GHG emissions. Eco-innovations are thus implemented in those countries, leading to high environmental productivity, but the overall result is not positive as the improved productivity is offset by high GDP growth (see also chapter 2.1). Time also plays an important role as eco-innovation is an emerging area in Europe and investments have only been intensified in the past few years. Possibly, the broader environmental impacts of those investments will only be visible in future years. Table 3.2

Comparing the ranking in the Eco-IS composite index and in the structural environmental indicators COUNTRY

INDEX

DMC/CAP

ENERGY/CAP

WATER/CAP

EMISSIONS/CAP

Finland

Denmark

Germany

Austria

Sweden

Belgium

Netherlands

Ireland

Spain

Italy

France

Luxembourg

Slovenia

Czech Republic

Portugal

Hungary

Malta

Cyprus

Latvia

Bulgaria

Estonia

Greece

Poland

Romania

Slovakia

Lithuania

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3.4 | Eco-innovation performance and resource-efficiency targets Evidence suggests that eco-innovation activity is relatively widespread among European companies with the level of engagement and resulting material efficiency gains differing between countries and sectors. Eurobarometer (EC 2011b) offers the first EU-wide results on material efficiency eco-innovations in five sectors: manufacturing, construction, agriculture, water supply and food services (see Figure 3.11). According to the survey around 45% of EU companies have introduced a product, process or organisational eco-innovation in the last two years. The majority of eco-innovators (77%) reported up to 20% resource-efficiency improvements as a result of eco-innovation. A small share of eco-innovating companies reported substantial material efficiency changes as a result of innovation. Approximately 4% of eco-innovators declared that the change they have introduced in the last two years led to a more than 40% reduction of material use per unit output. This roughly corresponds to a Factor 2 eco-innovation (50% improvements in resource productivity). Less than 2% of eco-innovating companies reported Factor 3 ecoinnovations.

The intensity of the recent eco-innovation activity of companies is not sufficient to achieve the Factor 2, let alone Factor 5, resource efficiency targets.

Connecting eco-innovation performance to its wider outcomes, notably in the context of resource-efficiency targets, constitutes a significant challenge due to limited data availability (e.g. limited sectoral and time coverage, no differentiation between different types of materials, no information about the total material requirements of companies) and the methodological challenges in connecting the micro, meso and macro levels of measurement. Despite the above limitations, results of the Eurobarometer survey suggest that the intensity of the recent eco-innovation activity of surveyed companies is falling short of achieving the significant progress needed to reach Factor 2, let alone Factor 5, resource-efficiency targets in the short term. First of all, the majority of companies have not introduced eco-innovation in the last two years. Second, only a small fraction of companies approached Factor 2 ecoinnovations, while the overwhelming majority of eco-innovators report only small material efficiency improvements. Figure 3.10

Material efficiency gains due to eco-innovation 10% DK/NA

34% Less than 5% reduction of material use per unit output

2% More than 60% reduction of material use per unit output 2% Between 40% to 60% reduction of material use per unit output 10% Between 20% to 39% reduction of material use per unit output

42% Between 5% to 19% reduction of material use per unit output Source Figure 1.1: Eurobarometer (EC 2011b); Question. How would you describe the relevance of innovation you have introduced in the past 24 months in terms of resource efficiency?

eco-innovation observatory

Undoubtedly, incremental innovations may also be of relevance in achieving significant material efficiency gains. If 20% material efficiency improvements were gained every two years, for example, the Factor 2 goal (i.e. halving material input per unit output) could be achieved by a company in roughly six years whereas Factor 5 in 25 years. These improvements may be meaningful in the context of the overall resource consumption challenge only if they are introduced continuously over long periods of time by a critical mass of companies. The results also confirm the first analysis of country performance as captured by the Ecoinnovation Scoreboard. Good performance in eco-innovation investments and widespread eco-innovation activity do not automatically translate into better environmental performance, measured as material and energy productivity. Improvements in the latter will depend on the scale of resource-efficiency improvements as well as on the level of diffusion of ecoinnovation. Needless to say, a time lag also has to be accounted for while attributing wider effects to company level processes.

> Future Work Plan: Countries

The indicator base of the eco-innovation scoreboard will be expanded in 2011. The links between measuring performance, impacts, and structural determinants of the eco-innovation activity of countries will also be strengthened. Critical will be the use of additional data sources, especially micro data from the CIS 2008 survey and the Eurobarometer survey (2011) in relation to countries and sectors. The EIO is especially interested in exploring the relationship between eco-innovation performance and its structural determinants — asking why some companies and countries perform better or worse than others. To this end, the structural profile for each EU Member State will be improved. Key questions we intend to explore on the macro level include: ● What are the links between eco-innovation performance and the structural characteristics of countries; - Are there common structural features among best performers that could be worked on to improve eco-innovation performance elsewhere? - Which policy environment is best suited to foster a high eco-innovation performance? - Can catching-up countries benefit from leapfrogging? - What is the regional dimension of the eco-innovation challenge? What types of regions are better positioned to benefit from eco-innovation? ● What sort of eco-innovation will contribute to changes of economic structures leading to better resource efficiency? ● Is outsourcing an answer to the resource productivity challenge?

Annual Report 2010

Box 3.1 | Social innovation Eco-innovation is not only about developing new products and processes; it is also about finding new ways to do things differently. These are often called social innovations and examples are emerging across society as people start looking for more effective ways to get things done. Motivations for changing behaviours may not just stem from a growing environmental consciousness, but also because it means cheaper, healthier or more equitable ways to achieve the same, or even better, services or functionality. Other reasons may include movements, like gorilla gardening, with political connotations. According to a European-wide survey, 30% of Europeans think that minimizing waste and recycling is the action they could take with the highest impact for solving environmental problems; 21% and 19% ranked buying eco-friendly products and energy-efficient appliances (respectively) as the most effective; whereas travelling less and adopting sustainable modes of transport gained 15% of the vote and using less water 11% (EC 2009). While all these actions do require changed behaviours, they are also often reactionary actions (choosing the â&#x20AC;&#x2DC;ecoproductâ&#x20AC;&#x2122; when the market provides it). More radical social eco-innovation goes more into the creative potential of society and calls on people to be open to change. It may also lead to user-led innovation. Car sharing is one of the most classic examples of social/service eco-innovation; it challenges people to approach car ownership differently. At the beginning of 2009, approximately 380,000 Europeans were estimated to be members of car-sharing schemes with around 11,900 cars available to them (Moma 2010). It is a trend that has been rapidly spreading across Europe; beginning in 1987 in Switzerland, it reached Germany in 1990 and has since reached 14 member states, with new programs emerging in both Portugal and Ireland in late 2008. Across Europe, the majority of users are private, with only about 16% being business customers. Very successful schemes are those which collaborate with public transportation, like in Brussels. The environmental benefits are manifold; cars are typically smaller with better fuel efficiency than the average car. Most importantly, surveys reveal that 1 carsharing vehicle replaces at least 4 to 8 personal cars (Moma 2010).

Eco-innovation good practice 5 Living Lab

eco-innovation observatory

4 | The EU: Eco-innovation in sectors and markets A handful of sectors contribute significantly to the environmental pressures of the European economy as a whole (section 4.1). This raises the question of whether the impetus for eco-innovation is more strongly linked to countries and regions or to specific sectors, or a combination of both. Results from two EU-wide surveys of European businesses -- the Community Innovation Survey (CIS 2008, Eurostat 2010) and the Eurobarometer survey (EC 2011b) -- compare the tendency for ecoinnovation activity and implementation among sectors in Europe (section 4.2).

4.1 | Why sectoral perspective: where materials are used A sectoral perspective offers three main advantages for analysing eco-innovation: 1.Input-Output-Analysis has revealed that a very limited number of industrial sectors contribute significantly to the environmental pressures of the European economy (ETC/SCP 2009): ● Agriculture (and its consumer products of food, beverages and alcohol) ● Electricity industry (and its consumer products of electricity, gas, steam and hot water) ● Transport services and basic manufacturing industries (refinery and chemical products, non-metallic mineral products, basic metals) and in particular construction works i.e. buildings and infrastructures.

In Germany, ten sectors induce more than 75% of the TMR.

In Germany, ten sectors induce more than 75% of the TMR (Acosta 2008), including those mentioned above. 2. According to innovation research, sectoral innovation systems determine innovation and technological capabilities and absorptive capacities of companies in different industries (Malerba 2007). The systemic perspective points to the role of many actors and links in the innovation system, the role of framework conditions as well as to the cumulativeness of knowledge as sectors depend on long term market dynamics and technological regimes (“path dependencies”). 3. Climate strategies as well as related environmental and industrial policies are addressing sectors, see e.g. the EU ETS, corporate strategies, voluntary agreements, and possible sectoral agreements for the Post-Kyoto period.

Annual Report 2010

Figure 4.1

Strategic sectors towards eco-innovation: Detecting direct and indirect resource use for goods of final demand, Germany 2008. RESOURCE EXTRACTION Coal, peat Mining + quarring

Coke + petrol products

Metals

Glass products, ceramics

Agriculture

Chemical products

D + I TMR associated with the monetary value of supply from activity i to activity j

Energy

D + I TMR associated with the monetary value of supply from activity j to activity i (most relevant backflow) 500 * 105 < TMRij

Construction

250 * 105 < TMRij ≤ 500 * 105 Machinery

100 * 105 < TMRij ≤ 250 * 105 66 * 105 < TMRij ≤ 100 * 105

Food products Motor vehicles

RESOURCE USE

Other market services

33 * 105 < TMRij ≤ 66 * 105 10 * 105 < TMRij ≤ 33 * 105 5 * 105 < TMRij ≤ 10 * 105 1 * 105 < TMRij ≤ 5 * 105

Source: Acosta 2007

Note: The lines indicate major total material requirements between sectors (blue line: strongest, red line: significant, yellow line: important); arrows indicate directions of interaction. Note that energy is a major contributor; however, it delivers many goods to a number of sectors in smaller proportions that are not revealed here due to scale issues.

Box 4.1 | The material requirements of renewable energies: the cases of solar, wind, fuel cells and electric cars One of the main drivers of climate change is our energy system based on fossil fuels. The transition to a renewable based energy system is essential to tackling climate change. At the same time, however, renewable energies also require resources (i.e. land--see Box 1.1 and critical metals--see Box 5.1), so that their scale-up at current consumption levels could have disastrous environmental consequences. In a recent study, Kleijn and van der Voet (2010) investigated the potential consequences of an economy based entirely on renewable energy sources. They constructed a — as they acknowledge -- highly unlikely scenario in which 80% of energy is produced with PV solar, 15% with wind and 5% with other sources, mainly biomass. The primary objective was to point to potential scarcities regarding the availability of certain materials. As regards solar energy, in an area like the (sub) tropical desert, 1 million km² would be needed to produce the 65% of primary energy, which is around 10% of the Sahara desert. At the latitudes of Vancouver or Paris, an area of 2 million km² would be needed. While solar cells based on silicon and thin-film cells would not face major problems of material constrains, their low efficiency and high energy intensity would mark a restriction. So-called thin-film cells can be produced at lower costs, but are based on rare materials which present a severe constraint for their future production. The assumed demand in 2050 would be a factor 10 to 100 higher than currently known reserves.

eco-innovation observatory

In regard to wind turbines, installed capacity would have to increase by a factor of 250 to supply 15% of primary energy demand. This would entail more than 50 million tons of copper, 3 billion tons of iron & steel and 3.6 million of neodymium, which would imply expanding current copper mine production by around 4 times, current iron & steel production by around 3 times, and current neodymium mine production by around 180 times. Resource constraints related to fuel cells and electric cars are also significant. If all 2 billion cars assumed to be on the roads in 2050 were equipped with fuel cells, 6,000 tonnes of platinum would be needed, which is 30 times the mine production of 2008. If these cars were equipped with electric motors instead, 2 to 4 million tonnes of neodymium would be needed, which is about 100 to 200 times current annual mine production. In this case, alternatives are available, such as the induction motor, which may represent an opportunity for ecoinnovation. As these scenarios illustrate, it would be very difficult to significantly scale-up renewable energy technologies due to resource constrains. The scenarios emphasise both the importance of increasing energy efficiency and reducing absolute levels of energy consumption for a transition toward a more sustainable development path, as well as the potential for ecoinnovation to perhaps provide solutions not yet thought of. Nevertheless, it is a question of scale: a transition to a renewable fuel mix may still increase resource efficiency at certain levels. Assessments on the basis of the MIPS methodology made in recent studies show that all renewable energy sources induce a lower material consumption than conventional ones in terms of water, air, biotic and abiotic materials – except for biomass which induces increased biotic materials and air consumption (see Rohn et al. 2010)

4.2 | Eco-innovation activity in sectors: an overview Which sectors are the most eco-innovative? Based on the CIS 2008 we examine which sectors have a higher tendency toward implementing eco-innovations – here: to reduce material or energy use10, as well as pointing to the differences between service sectors and industry in different EU countries. Section 4.2.2 takes a deeper look into the eco-innovation activities of 5 EU sectors: manufacturing, construction, agriculture, water and food services.

10. CIS 2008 offers information on innovations with environmental benefits as well as specific information on innovations leading to reduced material / energy use per unit output. Though this is very much in line with the EIO’s definition of eco-innovation one may

4.2.1 | Eco-innovation activity in sectors (CIS)

note that the CIS reference

The CIS is an EU-wide comprehensive survey focused on innovation performance in companies. It has been used since 1990 to gain insight on innovation and its determinants in companies, sectors and countries (see for example Cainelli et al. (2011) or Evangelista

to environmental benefits is somewhat broader than EIO’s definition and respondents may also interpret it in different ways.

Annual Report 2010

and Vezzani (2010)). The most recent version (2008) included an optional section about innovations with environmental benefits, making it a valuable source of data for analysing eco-innovation. Figure 4.2

Share of firms in different sectors with innovations leading to reduced material / energy use per unit output 30

Source: Eurostat 2010; own calculations

The manufacturing sector has the highest share of companies implementing ecoinnovations to reduce material use.

Reduced material

Administrative and support service activities

Agriculture, forestry and fishing

Wholesale and retail trade; repair of motor vehivles and motorcycles

Real estate activities

Transportation and storage

Information and communication

Construction

Accomodation and food service activities

Professional, scientific and technical activities

Mining and quarrying

Financial and insurance activities

Water supply; sewerage, waste management and remediation activities

Electricity, gas, steam and air conditioning supply

Manufacturing

Reduced energy

Figure 4.2 depicts differences in terms of shares of eco-innovating firms. It presents the share of enterprises within that sector which have declared implementing material and/or energy reducing innovations between 2006 and 2008. The manufacturing sector has the highest share of companies implementing eco-innovations to reduce material use while the electricity, gas, steam and air conditioning supply sector has the highest share of companies eco-innovating to reduce the use of energy. On the other hand, the energy sector itself is among the industries with the highest efforts to save materials. Interestingly, with the exception of financial and insurance activities, companies in all sectors tend to implement eco-innovations aimed at improving energy efficiency; the focus on material efficiency is less pronounced. Countries with a strong service or industrial base may perform differently regarding material productivity due to the different demands of their sectors. Service sectors have a lower material requirement than primary sectors and industry. For example in Germany, the average material requirement per 1,000 â&#x201A;Ź of value added is only 44 kg in service sectors compared to 557 kg across all economic sectors and 1,861 kg in manufacturing industries (Statistisches Bundesamt 2009). As such, one would expect industry to be more innovative

eco-innovation observatory

with respect to material reducing innovations. It should be kept in mind, however, that there is no service without the use of products, machines, infrastructures, etc. Indeed, the natural resource consumption following or due to a service rendered can be large; take, for instance the work of consultants in the construction business, whose service may lead to construction and material requirements. Innovation activities regarding the reduction of material (Figure 4.3) and energy (Figure 4.4) use per unit output is higher in industry than in service sectors in all countries11. The highest shares of firms implementing innovation in both categories was in Germany, with a high share of industrial enterprises developing innovations leading to reduced energy of nearly 46% and to reduced material use of nearly 40%. It should also be noted that these figures by far exceed the numbers as revealed in the analysis of Rennings and Rammer (2009) based on CIS (2006) â&#x20AC;&#x201C; indicating a landslide shift towards energy and material efficiency among German companies. In a similar exercise, a survey done in the UK among 500 companies has revealed that three-quarters of those companies have undertaken measures to cut their material purchasing costs (Drury 2010).

Innovation activities regarding the reduction of material and energy use per unit output is higher in industry than in service sectors in all countries.

Figure 4.3

Share of firms with innovations leading to reduced material use per unit output separated into industry and service sectors 40

Source: Eurostat 2010; own calculations

Bulgaria

Latvia

Italy

Poland

Cyprus

Slovakia

Hungary

Netherlands

Lithuania

Malta

Romania

Estonia

France

Croatia

Sweden

Czech Republic

Belgium

Austria

Luxemburg

Finland

Portugal

Ireland

Germany

11. Industry (except Industry Services

construction): NACE B-E; Service (of the business economy): NACE G-N., Unfortunately not all countries provided innovation data for their service sectors. Data from Denmark, the UK, Greece, Slovenia and Spain is missing entirely.

Annual Report 2010

Figure 4.4

Share of firms with innovations leading to reduced energy use per unit output separated into industry and service sectors 50

Source: Eurostat 2010; own calculations

45% of European companies in manufacturing, construction, agriculture, water and food services have introduced at least one eco-innovation in the past two years. 12. The Eurobarometer survey used the EIO definition of eco-innovation 13. All references to

Estonia

Bulgaria

Latvia

Poland

Italy

Hungary

Slovakia

Lithuania

Cyprus

Romania

Malta

Netherlands

France

Sweden

Croatia

Finland

Czech Republic

Austria

Luxemburg

Belgium

Portugal

Ireland

Germany

Industry Services

4.2.2 | Focus on manufacturing, construction, agriculture, water and food services The Eurobarometer survey 2011 (EC 2011b) investigated the behaviour, attitudes and expectations of SMEs in five sectors towards the development and uptake of eco-innovation. It specifically went into depth about material costs and import dependency12. According to the survey, 45% of European companies in manufacturing, construction, agriculture, water and food services have introduced at least one eco-innovation in the past two years. Process eco-innovation was the most popular type of eco-innovation for companies in the agricultural, water13 and manufacturing sectors. Companies in the construction sector were more likely to have brought a new product or service to the market whereas companies in food services tended to implement higher amounts of organisational innovation (Figure 4.5).

the water sector regarding the Eurobarometer refer to the Water supply; sewerage; waste management and remediation act.

As regards eco-innovation investments, the agriculture and fishing sector has the most in vestments related to eco-innovations (84%), followed by construction and manufacture (both 76%), food services (72%) and the water sector (69%). From all these investments, com panies from agricultural (11%) and water (10%) reported the highest share of eco-innovation

eco-innovation observatory

Figure 4.5 % of companies answering "yes" to introducing eco-innovation

Types of eco-innovation introduced by companies in the last 2 years

EU-27

Agriculture and fishing

Construction

Water

Manufacture

Food services

Product Process Organisational

Source: EC 2011b; QD5:

During the past 24 months have you introduced the following eco-innovation: A new or significantly improved eco-innovative organisational innovation; A new or significantly improved eco-innovative production process or method; A new or significantly improved eco-innovative product or service to the market.

investments (investment share of 50% or more) (Figure 4.6). At the same time, companies from the water sector have the highest share of none eco-innovation activities (20%) and of no innovation activities at all (6%). Whereas in relative terms companies from the agriculture sector have the lowest share of none eco-innovation activities (12%) and of no innovation activities at all (1%). The Eurobarometer survey also provides useful insight into the material cost structure of companies in different sectors, and what they have done to reduce these costs. Whereas about 50% from companies from the water sector have a material cost share of less than 30% of total costs, 60% of companies from the manufacturing sector have cost shares higher than 30% and 27% report cost shares higher than 50% (Figure 4.7). The manufacturing industry is also the sector which sources the highest amount of materials from abroad, with 12% originating from outside the EU-27 compared to 4-5% in other sectors. 75% of all businesses reported an increase in the cost of materials in the past 5 years, and 87% expect

The manufacturing industry is also the sector which sources the highest amount of materials from abroad. 43

Annual Report 2010

Eco-innovation good practice 6 Closed system for soilless culture, Cyprus Scarcity of water combined with high costs of collection are constrains for irrigated agriculture in Cyprus. An open system of soilless culture is currently favoured commercially, but it is associated with water and fertilizer loss. A closed water use system has been developed by the Agricultural Research Institute of Cyprus and is being tested on tomato cultivation. Protected cultivation and soilless culture are promising alternatives for agriculture in the Mediterranean region; the water consumption of a well managed closed system is nearly zero, being reduced to the evaporisation level of the plants. For more information Source: ARI Cyrprus

visit the EIO online repository of good practices.

Figure 4.6

Share of innovation investments related to eco-innovation over the last 5 years 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 %

More than 50 %

Between 30 % and 49 %

Between 10 % and 29 %

Less than 10 %

Food services

Manufacture

Water

Construction

Agriculture and fishing

None

No innovative activities

Source: EC 2011b; Q6: Over the last 5 years, what share of innovation investments in your company were related to eco-innovation, i.e. implementing new or substantially improved solutions resulting in more efficient use in material, energy and water?

DK/NA

eco-innovation observatory

future price increases. Criticality of materials adds to this outlook and gives further pressure to innovate, especially in the electronics industry, automotive and others. The preferred business strategies to reduce material costs within the last 5 years seem to vary, comprising purchasing more efficient technologies (56%), developing more efficient technologies in-house (53%), increasing recycling (52%), better supply chain management (46%), substitution of materials (38%), outsourcing (30%) and changing business models (27%). Those measures taken to reduce material costs differ among sectors (Figure 4.8).

Figure 4.7

Material costs as a percentage of company's total costs 40

50 % or more

Between 30 % and 49 %

Between 10 % and 29 %

Agriculture and fishing

Construction

Water

Manufacture

Food services

Less than 10 %

DK/NA

Not applicable

Source: EC 2011b; Q1: What percentage of your company's total cost - i.e. gross production value - is material cost?

Purchasing more efficient technologies was mentioned as the most popular change by companies in the agriculture and fishing (69%), manufacturing (57%) and construction (56%) sectors. Developing efficient technologies in-house was commonly cited by companies in the manufacturing (58.1%) and agriculture and fishing (57%) sector. Recycling was the most often cited method by companies in food service (59%), construction and manufacture (both 52%). No big inter-sectoral differences can be pointed out for the strategy of improving the material flow in the supply chain, it is realized by 40 to 50% of the respondents over all regarded sectors. Substituting expensive materials for cheaper ones is especially mentioned in the agriculture and fishing sector (45%). The strategies of outsourcing and of changing the business model are the least favourites and are implemented by about 20 to 35% of the respondents.

Purchasing more efficient technologies was mentioned as the most popular change by companies in the agriculture and fishing, manufacturing and construction sectors.

Annual Report 2010

Eco-innovation good practice 7 AirDeck ® - Energy and resource efficient floor system, Belgium AirDeck® is a floor system with bidirectional load-bearing capability; it is based on a framework panel fitted with an array of robot-placed airboxes. The floor system needs around 30% less steel and concrete, which also means lighter foundations and supporting walls. Less concrete per storey and fewer columns and beams can reduce the total weight of the structure by as much as 50%, while maintaining the strength of conventional concrete floors. The airboxes do not adhere to the concrete and Source: AirDeck®

can be recycled, making it a promising innwovation towards resource-light and recyclable buildings. For more information visit the EIO online repository of good practices.

Figure 4.8

Types of changes to reduce material costs implemented in the past 5 years

Agriculture and fishing

Construction

Food services

Manufacture

Water supply; sewerage; waste management and remediation act

Purchasing more efficient technologies

Developing more efficient technologies in-house

Recycling

Improving the material flow in the supply chain

Substituting expensive materials for cheaper ones

Outsourcing production or service activities

Changing business model

"Have you implemented any changes to reduce material costs in the past 5 years ?" (times mentionned, in % of total value

Source: EC 2011b; Q5: Have you implemented any changes to reduce material costs in the past 5 years? Legend: green shading indicates most relevant strategies per sector (the darkest colour indi¬ca¬tes the most cited strategy (50% or more)

eco-innovation observatory

> Future Work Plan: Sectors

An up-scaling of activities and more in-depth analysis dedicated to sectors and markets is planned for the future. The EIO intends to intensify activities using 1) CIS 2) Eurobarometer 3) Demea and 4) input-output analysis. At the micro level, efforts will be made to classify and better distinguish different types of eco-innovation and different profiles of eco-innovating companies. The possibility of creating an eco-innovation scoreboard for sectors will also be explored. Key questions include: ● What is the sectoral relationship between e.g. material productivity and eco-innovation performance? ● What is the position of European industry in eco-markets towards competitors from outside? ● How vulnerable are European industries to restrictions in the supply of materials and energy from other world regions? ● How does eco-innovation in sectors differ from the same sector in other countries with no scarcity / vulnerability? Moreover, the EIO will use Demea data (German case studies) in the next few months to develop a material efficiency marginal cost curve. This is an exercise that visualizes the marginal costs and savings in relation to different material efficiency measures (see Figure 4.9). Such an aggregated view on material efficiency measures, their costs and potential could support a company’s strategic decision toward actively improving its material efficiency, without denying the need to do specific analysis at each company. The EIO hopes to be able to provide such strategic knowledge, especially to SMEs, in the future. The German experience is perhaps representative of similar trends in other EU-countries. In the upcoming year the EIO will further investigate the data situation in other Member States to explore the possibility of a similar, EU-wide study. Figure 4.9

Stylized material efficiency marginal cost curve

Material efficiency marginal costs

Material efficiency measure 1

Material efficiency measure X

NACE SECTOR XY

Cumulative material efficiency potential

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Box 4.2 | Material efficiency in the manufacturing sector –the German case Approximately 800 billion Euros are spent annually on materials by the manufacturing sector in Germany (Destatis 2010). While material costs seem to make up a share of 45% of total costs on average, expenditures for energy and personnel are indicated to be lower (Demea 2010). Yet many of the efficiency measures implemented in companies have been directed at labour productivity, not material productivity (KfW 2009). Since 2005 Demea (the German Federal Ministry of Economics and Technology the Ger man Material Efficiency Agency) has been advising companies, in particular SMEs in the manufacturing industry, about options for improving their material efficiency. After some 700 cases Demea experiences are proving that material efficiency can be done at a profit. Nearly half of the companies achieve material efficiency improvements with investment costs under 10,000 Euros and 20% of companies for around 50,000 (Demea 2010). Measures for improving material efficiency can be process-orientated, production-orientated, production periphery-orientated, and personnel-orientated (see Table 4.1). In the Demea cases, around 200,000 Euros have been saved per company through material efficiency gains on average, which means that the material efficiency measures had a leverage effect of factor 20. This is the equivalent of around 3,300 Euro per employee and increases the yearly sales-to-profit margin of about 2.4%. In relation to their turnover, small companies have the highest relative material cost-savings potential (Demea 2010). Additionally, those industries classified as resource-intensive, like the manufacture of appliances, metal products, plastic products and the chemical industry, have the highest potential for material efficiency gains (KfW 2009). Supported by political measures the realization of material efficiency measures in the German industry can save material costs with an amount to around 60 billion Euros yearly between 2012 and 2015 (Arthur D. Little 2005). Table 4.1

Classification and examples of measures for improving material efficiency in the manufacturing sector

PROCESS-ORIENTATED

PRODUCTIONORIENTATED

PRODUCTION PERIPHERYORIENTATED

PRODUCTORIENTATED

PERSONNELORIENTATED

INTEGRATION OF A QUALITY MANAGEMENT SYSTEM

Replacement of additive material and operating material

Warehousing and consignment

Re-design, new material, less material, less material variety

Awareness raising and training of the employees

ESTABLISHMENT OF A RECYCLING SYSTEM

New production methods

Packaging

Standardization, modularisation, typification

Employee motivation

eco-innovation observatory

Eco-innovation good practice 8 Eco-cement Cement is one of the most relevant construction materials today. However, it is typically material and energy intensive, and its production emits high amounts of CO2 (about 5% of anthropogenic CO2 emissions globally (WBCSD 2009)). Research on eco-cement is ongoingâ&#x20AC;&#x201D;this is for example cement that uses industrial waste materials like slag or cement with a reduced calcium content, for instance Celitcement. The Waterford Bypass in Ireland was constructed using 50% eco-cement; this saved around Waterford Bypass, Ireland Source: Ecocem 2009

1,000 tonnes of CO2 (Ecocem 2009). For more information visit the EIO online repository of good practices.

Eco-innovation good practice 9 Web Platform to Facilitate the Reuse of Construction Materials, Hungary An online web portal facilitates the brokerage of used construction materials in Hungary. Developed by the Independent Ecological Centre (a Hungarian environmental NGO) in 2003, the objective was to reduce the amount of construction waste sent to landfills by increasing the reuse of second-hand construction materials (e.g. bricks and tiles) and building components (e.g. windows and doors). It has become a particularly popular tool in Hungary with approximately 65,000 visitors in 2009. The portal is particularly successful in the trading of bricks and tiles. For more information visit the EIO online repository of good practices. Photo: Meghan Oâ&#x20AC;&#x2122;Brien

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eco-innovation observatory

5 | Global dimension Eco-innovation is not only an important aim in the European Union, but an increasing number of resource-efficient products are also being developed in the rest of the world, including emerging economies such as China and Brazil. Moreover, eco- innovation in Europe can hardly be analysed without a connection to the rest of the world, as European products are either traded globally or embedded in global value chains. Chapter 5 answers a number of key questions: ● What are the emerging markets and areas of interest relevant for both business and policy? (section 5.1) ● What does the global perspective of material flows mean for European companies? (section 5.2) ● How do eco-innovation efforts differ in other parts of the world? (section 5.3)

5.1 | Future outlook: emerging markets and global areas of interest Examining news coverage of eco-innovation and eco-innovative related terms can provide useful insights into emerging areas of interest, as well as to regional differences. Using the media monitoring tool Meltwater News -- covering more than 130,000 online publications from over 190 countries in 100 languages -- this section takes a closer look at eco-innovation related news coverage over the last five years (2006-2010) by using English keywords. It examines three levels of keyword searches: ● Eco-innovation in general, with generic eco-innovation keywords connected to resource efficiency and productivity; ● Eco-innovation in sectors, with keywords relating specific sectors to innovation and eco-innovation ● Eco-innovative concepts and strategies, with keywords relating to the EIO vision of a resource-efficient Europe (chapter 7). From a global perspective, North America consistently dominated in the amount of news on eco-innovation (also in proportioned to population), in comparison to Europe, Africa, Asia and Australia/Oceania. Latin America and Africa, in particular, showed significantly fewer results. This result is affected by the fact that the relative usage of the English language in electronic media varies a lot between countries in different parts of the world. Understandably, the developing economies are difficult to analyse with electrical source media monitoring. This is due to a fact that roughly 1.5 billion people worldwide live without access to energy and thereby no access to and influence on electronic media.

From a global perspective, North America consistently dominated in the amount of news on eco-innovation.

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Figure 5.1

News coverage in proportion to population

Eco-innovation in the electronic media (keywords in English) of the three continents: Europe, North America and Oceania

1,6

1,4

1,2

0,8

0,6

0,4

0,2

2010

2009

2008

2007

2006

Europe

North America

Oceania

Figure 5.1 reveals that eco-innovation has gained an increasing media presence since 200514

As regards generic eco-innovation topics, resource efficiency has been the most widely covered topic in the context of ecoinnovation.

As regards generic eco-innovation topics, resource efficiency has been the most widely covered topic in the context of eco-innovation (Figure 5.2). Interestingly, whereas ecoefficiency and resource productivity appeared together widely, no results were found when connecting material productivity and eco-innovation. This is a gap the EIO intends to fill. In addition, only resource efficiency and material efficiency showed similar (and linear) growth patterns. In the generic eco-innovation category keywords were found almost exclusively from Europe and North America. Figure 5.3 presents the amount of global news coverage of sectoral keywords combined with eco-innovation. All the sectors demonstrated growth in the five year period, but particularly

14. Note that while the amount

energy and industry have shown fast growth in past three years. Since these two issues

of sources has increased, it does

have appeared increasingly in news particularly after 2008, it can be suggested that the

not affect the analysis because searches are done based on

public discussion has been effected by the financial crisis, as well as the debate on climate

current source base, and the

change issues.

Meltwater news search machine is able to index past articles as well (personal communication,

Two queries for each of the sectors in Figure 5.3 have been run: the name of the sector in

Meltwater News)

connection with ‘eco-innovation’ and with ‘innovation’. A remarkable difference is observed

eco-innovation observatory

Figure 5.2 Amount of news

Worldwide news coverage of generic eco-innovation keywords (in English)

400 350 300 250 200 150 100 50

Eco-efficiency

Material efficiency

Resource efficiency

2010

2009

2008

2007

2006

Resource productivity

Material productivity

Source: Meltwater 10.2.2011.

Note: “Eco-innovation” was connected with five keywords describing efficiency and productivity: ecoefficiency, material efficiency, resource efficiency, resource productivity and material productivity

in the amount of ‘hits’. For instance, ‘eco-innovation’ and ‘agriculture’ provided around 4,000 results in 2010 whereas ‘innovation’ and ‘agriculture’ bore over 21,000 news articles. However, searches with ‘eco-innovation’ reveal the same growth patterns as those with ‘innovation’, just to a lesser degree. In each of the sectoral keyword searches North America, Europe and Australia/Oceania were above the world average. Results from Australia/Oceania showed inconsistent trends, but indicated that news coverage in all of these areas was higher than

‘Eco-innovation’ and ‘agriculture’ provided around 4,000 results in 2010 whereas ‘innovation’ and ‘agriculture’ bore over 21,000 news articles.

in Europe. Keyword searches in Figure 5.4 are based on the EIO vision (see chapter 7); they include concepts related to the eco-innovation challenge. The topics most covered in electronic media are ‘green lifestyle’ and ‘carbon recycling’, which have both demonstrated a significant increase in news coverage since 2006. ‘Green lifestyle’ was the only keyword with a consistent growth trend; it has been increasingly covered in North America, Europe and Asia, where news coverage has grown rapidly since 2008. The prevalence of this social innovation concept seems to point towards a growing environmental consciousness across the globe.

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Figure 5.3 Amount of news

Worldwide news coverage of sectoral keywords (in English connected to â&#x20AC;&#x2DC;eco-innovation

50000 45000 40000 35000 30000 25000 20000 15000 10000 5000

Agriculture

Construction

Energy

2010

2009

2008

2007

2006

Industry

Transport

Water

Source: Meltwater 10.2.2011.

Figure 5.4 Amount of news

Worldwide news coverage on keywords (in English) based on the EIO vision

700 600 500 400 300 200 100

Source: Meltwater 10.2.2011.

Biomimicry

Carbon Recycling

Cradle to cradle

2010

2009

2008

2007

2006

Dematerialisation

Green lifestyle

eco-innovation observatory

The key-term ´dematerialisation´ - one of the driving concepts behind our work at the EIO has gained considerably less attention in the media. Its coverage has been increasing slightly, but almost exclusively in North America. On the other hand, while the news coverage of ´dematerialisation´ is rather non-existent in popular media in Europe, examination of the Web of Science15 reveals that the term has a remarkably better coverage in scientific publications in European countries. Thus, it can be concluded that in Europe dematerialisation is more typical to scientific vocabulary than to public media, so far.

While news coverage of dematerialisation is rather non-existent in popular media in Europe, the term has a remarkably better coverage in scientific publications.

All in all, queries related to eco-innovation overwhelmingly revealed a growing presence in the media, indicating that eco-innovation is an area of growing interest both in Europe and abroad.

Box 5.1 | Critical metals A large number of products used daily contain small, but critical amounts of critical metals; the non-availability of these metals could endanger entire sectors. High-tech industries, particularly the electronic industry, will be affected by the declining availability of precious metals. Also the development of new clean-technologies, such as renewable energies and energy efficient technologies, could be slowed down by resource scarcity (see Box 4.1). In many cases, the rapid diffusion of technologies can drastically increase the demand for certain metals. Hence, the list of the “most critical metals”(Table 5.1) will vary depending on the needs of emerging technologies (EC 2010c). Over a short time horizon (e.g. ten years), criticality is not determined according to geological scarcity, but rather according to changes in the geopolitical-economic framework. This means rapid, unexpected demand growth and high supply risks (UNEP and Öko-Institute 2009; M2i 2009; EC 2010c). Many of the critical metals essential to the EU economy are increasingly coming under supply pressure, as EU nations rely heavily on imported rare metals (M2i 2009; EC 2010c;). China is one of the most important exporters of critical metals (e.g. 99% of Dysprosium and Terbium and 95% of Neodymium). The EU, Japan and the US have already considered suing China because of austere export restrictions that are not allowed under WTO laws (Kim 2010). Imports may also be associated with severe environmental problems (problem shifting) and violations of human rights, for instance in the Congo, where mines are controlled by various armed groups that recruit civilians, including children, as forced labour. To meet the challenges posed by metals scarcity, the ad hoc group of the European Commission made a number of recommendations (see EC 2010c); eco-innovation could play a key role in enacting these recommendations. For instance, through innovation in the field of metals recycling (improving and developing recycling techniques and infrastructures for the collection of used goods), developing viable substitutes and improving the overall material efficiency of critical metals. For eco-innovations, the whole lifecycle of the metal has to be considered: from mining to final disposal. The goal should be no less than to ensure that metals are fully re-used, remanufactured, or recycled to serve as new materials or products in a sustainable industrial metabolism (see the visions chapter)

15. Web of Science consists of seven databases containing information gathered from thousands of scholarly journals, books, book series, reports, conferences etc.

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Table 5.1

Summarized prioritization and urgency timeline for selected metals with their selected applications (driving emerging technologies) PRIORITARY AND URGENCY REGARDING TIMELINE

METAL

APPLICATIONS AND DRIVING EMERGING TECHNOLOGIES (SELECTED)

Tellurium Indium Gallium

Solar cells and flash memories Displays (LCD), thin layer photovoltaics ICT, Thin layer photovoltaics, LED

Rare earths Lithium Tantalum Palladium Platinum Ruthenium

Catalysts, magnets (magnetic refrigeration) Batteries, ceramics/glass, hybrid electric vehicles Micro capacitors, medical technology, airplane turbines Automotive catalysts, seawater desalination Fuel cells, automotive catalysts, LCD and fibre glass Electronics, hard disks, gas-to-liquid technologies (high quality fuels)

Germanium

Optics (fibre and infrared), PET, solar

Cobalt

Lithium-ion batteries, synthetic fuels

SHORT-TERM (WITHIN NEXT 5 YEARS) + rapid demand growth + serious supply risks + moderate recycling restrictions MID-TERM (TILL 2020) + rapid demand growth and + serious recycling restrictions or + serious supply risks + moderate recycling restrictions LONG-TERM (TILL 2050) + moderate demand growth + moderate supply risks + moderate recycling restrictions Source: UNEP and Ă&#x2013;ko-Institute 2009; EC 2010c

5.2 | Business perspective: eco-innovation and international competitiveness Business is increasingly aware of the opportunities that come along with the eco-innovation agenda. Roland Berger Strategy Consultants (2009) expect 3.1 trillion in global sales generated by eco-industries by 2020, i.e. more than a doubling, and call eco-technologies the 21st century lead industry. While this is indeed good news for technology providers, eco-innovation clearly offers additional benefits for those improving their performance and developing system solutions over the long term.

The lead markets are expected to be energy, mobility, water and efficiency; a tripling of sales is also expected in material efficiency.

The lead markets expected are energy, mobility, water and efficiency; a tripling of sales is also expected in material efficiency (Roland Berger Strategy Consultants 2009). A trend, however, is fierce predatory competition as the first movers are accompanied by smart followers. Thus, success will depend critically on delivering real solutions for customers with verifiable sustainability achievements, as well as on suitable mass markets strategies to overcome current fragmentation and niche orientation. Such strategies seem to be supported by consumer orientation, i.e. price-conscious target groups nowadays consider ecological aspects of consumption when making product purchase decisions. Indeed, certainty about future market demand is a critical variable for any such trend, and willingness to pay for green products may not be as high as expected (see McKinsey 2008 in WBCSD 2010b and chapter 6 on drivers and barriers).

eco-innovation observatory

The most frequently cited benefits that firms expect from eco-innovation relate to improved business outcomes: the ability to attract and retain customers (37%), improved shareholder value (34%) and increased profits (31%), according to a survey done by the Economist Intelligence Unit in 2008 (PWC 2008). Managing eco-innovation from a cost/profit perspective may be pursued via the following seven steps (Lettenmeier et al. 2009): ● Step 1: Form a team ● Step 2: Choose a product and determine the service it is providing ● Step 3: Identify the product chain ● Step 4: Assess the current status of the product ● Step 5: Estimate the MIPS (Material Intensity Per Service unit) of the product ● Step 6: Optimize the product and implement eco-innovation ● Step 7: (Re-)design the product service-oriented Redesigning products service-oriented clearly requires intense communication with customers from all relevant target countries internationally. It might overcome the uncertainty about future markets (see Chapter 6 on barriers according to Eurobarometer) and lead to new business models of user-led innovation and social entrepreneurship. Seen from a comprehensive perspective (Bleischwitz et al. 2009, Petrie 2007), new business models for base metal industries might emerge, which could position the industry at the heart of global material value chains. This is a horizontal task which clearly transcends vertical production patterns, for example, it cuts across the automotive chain. Within networks and partnerships of integrated material flows management, the base metal industry can demonstrate stewardship and leadership. The challenge will be to overcome the attitude of a primary production company delivering basic materials in favour of a fully integrated material flow company network, with high knowledge intensity, customer orientation, worldwide reverse logistics, high-level recycling and a long time horizon; such future companies will manage products, flows and stocks along certain materials or groups of materials. With strong locations in the South, those new material flow companies may also help to heal the current North–South divide of low value added in the South and high value added in the North. Eco-innovation, however, clearly goes beyond materials: in line with EIO’s visions, the economics of ecosystems and biodiversity report for business (TEEB 2010) features how ecosystem services, currently not accounted for, might be turned into business opportunities. As part of these efforts, markets for certified agricultural and forestry products are estimated to increase by a factor of ten to twenty by the year 2050, with further opportunities in areas such as water management and ecosystem service provision. Worth noting, the EIO’s visions of industrial symbiosis and carbon recycling are not yet conveyed in. Certainly, this needs more in-depths analysis about trade-offs and sustainable pathways. Encountered with these unleashed opportunities, business will need to take leadership, form partnerships and integrate business strategies with risk management and wider responsibility strategies. Mining companies, for instance, need to work out biodiversity strategies with long-term objectives while also providing transparency.

Annual Report 2010

Material efficiency seems to be an area in which the NICs are especially building up their knowledge base.

Emerging economies are actively addressing the business opportunities of resource efficiency and will soon become strong competitors on these markets.

Emerging economies are increasingly aware of those opportunities. The TEEB (2010) reveals that business in Latin America, Africa and the Asia Pacific region is more concerned about biodiversity losses as a threat to their business growth potentials than their European and Northern American competitors. Singapore, Taiwan, South Korea, Malaysia, India and Chile now offer general capabilities for sustainability innovation that can be compared with OECD countries (Peuckert 2010). In most Newly Industrializing Countries (NICs), the world trade shares for sustainability technologies are considerably higher than the patent shares. According to Walz (2010a + b) this indicates that these countries are quite active in exporting sustainability relevant technologies, though based on a domestic knowledge base that is still below average. In more detail, Brazil, Malaysia, Mexico and South Africa focus on patenting, while China, South Korea and Argentina specialize on exporting eco-innovative technologies. Within these technology fields, material efficiency seems to be an area in which the NICs are especially building up their knowledge base. Almost all NICs show positive patent specialization here. Different rationales may explain such patterns: For Brazil, Malaysia and Argentina, the natural resource factor endowments and the related export potential encourage further build up in the knowledge base of associated technologies along the value chain. However, other technological areas are also contributing to the knowledge build up, e.g. recycling in Brazil and South Africa. Singapore and South Korea, on the other hand, are already highly successful in various manufacturing fields, but put a below average emphasis on material efficiency. India and China both still show a negative trade specialization. The positive patent specialization is more likely to be explained by the efforts made to build up domestic knowledge competences, in order to augment the strategies of securing access to raw materials from abroad with additional options to reduce the demand for these raw materials. Interesting to note, a global sustainability indicator developed at the University of Wuppertal (Welfens et al. 2010; composed of genuine savings rates — covering also depreciations on natural capital —, the international competitiveness of the respective country in the field of environmental (“green”) goods and the share of renewable energy generation) also delivers the strong ‘green’ position of some emerging economies. Despite these differences it seems that emerging economies are actively addressing the business opportunities of resource efficiency and will soon become strong competitors on these markets. Perhaps this competition will act as ‘process of discoveries’ to leapfrog strategies for resource efficiency towards a green economy.

5.3 | Eco-innovation in practice: focus on developing and emerging economies

Dynamic developments in eco-innovation are happening in many economic sectors of emerging and developing countries. 58

With the growing awareness of environmental problems, emerging and developing economies have an enormous potential for developing markets for eco-innovations and clean technologies. Following the economic crisis, many countries in Asia, in particular China and the Republic of Korea, pioneered an economic and employment recovery plan based in part on significant investments in a ‘green economy’ (see for example Barbier 2010). Although no systematic assessment of eco-innovations in developing and emerging economies has been carried out so far, this should not blind us to the high innovation activities in those countries. Evidence suggests that dynamic developments in eco-innovation are

eco-innovation observatory

Eco-innovation good practice 10 Eastgate shopping and office centre in Harare, Zimbabwe Modelled on the self-cooling mounds built by termites, the Eastgate shopping centre is ventilated, cooled and heated entirely through natural means. The termite structures can maintain the temperature inside the building to within one degree of 31°C both day and night, even when external temperatures vary between 3°C and 42°C. This passive cooling system works by storing the heat generated by machines and people during the day when the sun is shining and venting it through chimneys at night when temperatures outside drop. The Eastgate Centre thus uses 90% less energy for ventilation than a conventional building Source: Ask Nature

of the same size. For more information on this building see the biomimicry institute, Baird (2001), Gissen (2003) and the EIO online repository of good practices.

happening in many economic sectors of emerging and developing countries, notably in the form of so-called “frugal innovations” (see The Economist 2010a, b and Box 5.2)16. A large number of good practice examples have been realized in developing and emerging economies, in particular in the areas of construction, urban planning and transport17. Urban planning and sustainable transport solutions are also an area of great interest in many developing countries which have to tackle rapid rates of urbanisation and strong population growth. At the product or systemic level eco-innovations have the power to contribute to social objectives in emerging and developing economies, while significantly reducing the material and energy use related to the provision of housing and transport services.

> Future Work Plan: Global

Future analysis will focus on emerging global opportunities for eco-innovators as well as assessing eco-innovation activities in different countries within comparable groups of economies (e.g. OECD, resource-exporting countries, emerging economies etc.). It shall include performance over time and the linkages with aspects of burden shifting and international trade. A step-up in activities of media monitoring and patent analysis to gain more in-depth insight into what is happening and where it is happening is planned.

16. For examples on frugal innovations, see e.g. http:// frugalinnovation.blogspot.com. 17. For more examples illustrating the great diversity of eco-innovations around the world, see Pauli (2010) and von Weizsäcker et al. (2009).

Annual Report 2010

Box 5.2 | Frugal Innovation One of the latest and most rapidly growing trends in emerging economies which caters to the needs of consumers with low income is bringing products back to a level of basic simplicity. These products are not only designed to be inexpensive, but they must also be robust and easy to use. This kind of innovation has been dubbed as “reverse”, “constraint-based” or “frugal”. Frugal often also means being sparse in the use of raw materials and their impact on the environment (The Economist, 2010a,b). Frugal innovations can thus in many cases be regarded as eco-innovations particularly designed for use in non-OECD countries. Some examples of these simpler and cheaper versions of existing products include:

Source: The nano

Source: The chotoKool

● The Nano, a $2,200 car produced by Tata Motors, an Indiabased multinational company, ● A $70 fridge that runs on batteries, known as chotoKool (“the little cool”), developed by Godrej & Boyce Manufacturing, one of India’s oldest industrial groups ● A wood-burning stove that consumes less energy and produces less smoke than regular stoves, invented by the Indian start-up company First Energy,

Source: The wood stove

● A bank branch reduced to a smart-phone and a fingerprint scanner that allow ATM machines to be taken to rural customers, developed by the telecoms entrepreneur Anurag Gupta in India Frugal innovations also extend to production processes and Source: The bank branch business models in order to reduce costs, for example by contracting more work out, using existing technology in imaginative new ways, and by applying mass-production techniques in new areas such as health care. So far, the concept of frugal innovation is still young, and one of the challenges for eco-innovation research is to measure its size and impacts.

eco-innovation observatory

Eco-innovation good practice 11 City of Curitiba, Brazil Brazil’s 7th largest city and “Green Capital”, Curitiba, is regarded as one of the world’s best examples of green urban planning. Curitiba demonstrates that it is possible to greatly enhance resource efficiency while decreasing harmful pollution and unnecessary waste. The city provides about 52m2 of green area for each of the city’s 1.8 million inhabitants has (up from 1 m2 in 1970). Environmental legislation protects the local vegetation of mixed subtropical forest, which has been threatened by urban development. A special employment programme enables deprived groups in the slums to receive food and bus tickets in exchange for their rubbish bags. Curitiba thus has less waste in its streets, rivers and public parks. In combination with other initiatives, it has achieved a recycling rate of 70% of its waste. Public transport is organised in such a way that concentric circles of local bus lines connect to five lines that radiate from the city centre in a spider web pattern. On the radial lines, triple-compartment buses in their own traffic lanes carry three hundred passengers each. They go as fast as subway cars, but at one-eightieth the construction cost. The Source: Wikipedia

buses stop at Plexiglas tube stations. Passengers pay their fares, enter through one end of the tube, and exit from the other end. This system eliminates paying on board, and allows faster loading and unloading, less idling and air pollution, and a sheltered place for waiting – which is usually short (Rabinovitch and Leitman 2004). For more information visit the EIO online repository of good practices.

Box 5.3 | Preventing the resource curse

of the green economy

The transition to a low-fossil, carbon economy does not come without risks. Indeed, not only increasing demand per se, but also any increasing use of renewable resources will probably place increasing demands on land, minerals and other natural resources, which were not sought with such intensity before. These resources will most likely stem from abroad – and may trigger growth and development in extracting countries. On the other hand, problem shifting is a major concern. The question is, what can the EU do to prevent natural resources from becoming a curse to the citizens of resource-rich countries? Understanding the (future) resource requirements of eco-innovations is the first step. It should also become part of any business plan. The most important groups of resources for the emerging ‘green economy’ are biofuels and the metals and minerals needed for renewable energy applications and other green technologies. The second step is to map hot61

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spots where green economy resources correspond with weak governance zones (Bringezu and Bleischwitz in press). In those places, a push for transparency and public participation will be crucial to ensuring that resources are utilised properly and that the resulting revenues are handled responsibly. As regards biofuels, the risks of continued land grabbing for large-scale, commercial investment threatens the security and livelihoods of local landholders. Land acquisition and leasing has sometimes been encouraged by governments, and there is a risk that the revenues from selling and leasing the land, as well as those from biofuel production, will not benefit the majority of citizens in those countries. In the case of mining, opportunities for corruption are plentiful. For instance, the militarization of mining for tantalum (used e.g. in mobiles and PCs) in the Democratic Republic of Congo is well documented. The demand for gallium (used in green-tech) will probably lead to enhanced bauxite mining in Guinea, China, Russia and Kazakhstan. The need for rare earth metals (used in wind turbines and hybrid cars) will probably mean more mines in China, Russia, Kazakhstan, South Africa, Botswana and Malaysia. Potential measures to prevent the resource curse of the green economy can be learned from development research (Gylfason 2009) and ongoing activities aimed at the oil, gas and mining industries. Transparency is a critical first step and organizations like the Extractive Industries Transparency Initiative, Publish What You Pay and the Revenue Watch Institute are promoting the public disclosure of industry payments and host government earnings. The World Bank (2010) proposes transparency as one of their 7 principles for responsible agro-investment in farmland. International legal instruments may be another methodâ&#x20AC;&#x201D;for instance Siegle (2009) suggests criminalizing the diversion of natural resource revenues, for which the United Nations Convention against Corruption could provide the framework. In the private sector, corporate responsibility is a must. Those corporations which have met high standards of transparency and sustainability in the mining industry could be used as models for others, in particular for greening the supply chain. Codes of conduct should promote adherence to social and environmental standards and continued consultation and oversight of affected local communities. The Rio+20 Earth Summit is an opportunity to address these issues and facilitate forward-looking mitigation efforts for responsible resource use; for instance by establishing open trade for critical metals and recycling, forming an international covenant to close material loops of resource-intensive consumer goods, and taking steps towards an international agreement on sustainable resource management (Bleischwitz 2009). In any case, the development of a green economy must not exacerbate the existing resource curse, but instead draw on experiences and work with ongoing initiatives to prevent it from the start. In developing the eco-innovations that will enable this transition, it is critical to also look at life-cycle wide impacts beyond the borders of the EU when establishing accounting schemes, standards and certification of new products along the supply chain. In the long-term, the growing strain on natural resources may be best addressed by enforcing legal requirements, supporting democracy, stepping up civil society oversight and demanding business commitments to transparency and responsibility. In doing so, the market opportunities of sustainable resource management and making best use of mineral endowments will be enhanced. 62

eco-innovation observatory

6 | Driving eco-innovation From an idea to a successful implementation, all innovation activities are driven forward or hampered by various factors both internal and external to company. The EIO follows a systemic approach to understanding determinants of eco-innovation that encompasses a diverse range of factors: ● Economic and financial factors (e.g. pricing, market position, access to capital, demand) ● Technical and technological knowledge base (e.g. absorption capacity, human capital, infrastructure, technological lock-ins) ● Environmental factors (e.g. access to natural resources) ● Socio-cultural factors (including elements of social capital understood as the ability to collaborate and to take collective action, as well as cultural capital e.g. attitudes towards change, risk) ● Regulatory and policy framework (including environmental and innovation polices, taxes, standards and norms). This chapter analyses eco-innovation drivers and barriers in EU countries and various sectors. It is based on the results of CIS (Eurostat 2010b) and Eurobarometer (EC 2011b) (major EU-wide surveys), as well as on the findings of EIO country profiles (EIO 2011) for countries (sections 6.1.2 and 6.2) and sectors (section 6.1.3).

6.1 | Drivers and barriers of eco-innovation as seen by business 6.1.1 | General overview Eco-innovation drivers The most important drivers of eco-innovation according to the Eurobarometer survey are the current and expected high prices of energy. Every second company that introduced an eco-innovation ranked current (52%) and expected energy prices (50%) as “very important” (Figure 6.1). High material prices are nearly as significant with 45% of companies indicatating high material prices as a very important driver. Another key factor is having “good business partners”; 45% of companies deemed it “very important”. Significantly more companies considered having “good business partners” of higher importance than cooperation with research institutes and universities (19%). Four in ten eco-innovators (40%) considered access to subsidies and fiscal incentives a very important driver.

The most important drivers of eco-innovation according to the Eurobarometer survey are the current and expected high prices of energy.

Annual Report 2010

Figure 6.1

Eco-innovation drivers according to Eurobarometer 2011

Expected future increases in energy price Current high energy price Current high material price Good business partners Secure or increase existing market share Access to existing subsidies and fiscal incentives Technological and management capabilities within the enterprise Increasing market demand for green products Expected future material scarcity Good access to information, knowledge and technology support services Expected future regulations imposing new standards Limited access to materials Existing regulations, including standards

According to CIS 2008 nearly every fourth innovating firm in the EU introduced environmental innovation in response to existing regulations or taxes. 64

Very important

Somewhat important

Not important

Not all important

Not applicable

1000 %

80 %

60 %

40 %

20 %

Collaboration with research institutes, agencies and universities

DK/NA

CIS 2008 included a simpler typology of drivers and barriers; it focussed mainly on regulatory and policy determinants and, to a lesser extent, on economic factors (i.e. just on demand from consumers). According to CIS 2008 nearly every fourth (23%) innovating firm in the EU introduced environmental innovation in response to existing regulations or taxes on pollution (Figure 6.2). Seeking regulatory compliance was followed by complying with voluntary codes or agreements for environmental good practice (20%), expected future environmental regulations or taxes (18%) and current or expected market demand for environmental innovations from the customers (16%). The least often indicated driving factor was availability of government grants, subsidies or other financial incentives for environmental innovation (8%). Although the results from CIS and Eurobarometer are not directly comparable (e.g. slightly

eco-innovation observatory

different definition of eco-innovation, different sectoral scope and different country coverage), they suggest that when confronted with market and regulatory determinants, companies tend to point to the former as a more important driver of their eco-innovation activity. It needs to be kept in mind, however, that the regulatory framework is one of important factors determining the prices of energy as well as, although to a much lesser extent, materials.

Figure 6.2

Regulatory and policy framework

Economic factors

Key eco-innovation drivers according to CIS2008 DRIVERS (% of innovating companies introducing eco-innovation in response to the driver)

EU BE BG CY CZ EE 27

FR DE HU IE

LT LU MT NL PL PT RO SK SE

Current or expected market demand from your customers for environmental innovations

Existing environmental regulations or taxes on pollution

Voluntary codes or agreements for environmental good practice within your sector

Environmental regulations or taxes that you expected to be introduced in the future

Availability of government grants, subsidies or other financial incentives for environmental innovation

Source: Eurostat 2010; Legend: green shading indicates three most relevant drivers in a country (the darkest colour indicates the most significant driver).

Annual Report 2010

Figure 6.3

Eco-innovation barriers according to Eurobarometer 2011

Lack of funds within enterprise Uncertain demand from the market Uncertain return on investment/too long a payback period Lack of external financing Insufficient access to existing subsidies and fiscal incentives Reducing energy use is not a innovation priority Existing regulations and structures not providing incentives to eco-innovate Lack of qualified personnel and technological capabilities Technical and technological lock-ins in economy Market dominated by established enterprises Reducing material use is not a innovation priority Limited access to external knowledge, incl technology support services Lack of suitable business partners

Very serious

Somewhat serious

Not serious

Not at all serious

Not applicable

1000 %

80 %

60 %

40 %

20 %

Lack of collaboration with research institutes and universities

DK/NA

Eco-innovation barriers

The most significant barriers are related to economic and financial factors.

The Eurobarometer survey included a dedicated question on barriers to eco-innovation. The most significant barriers are related to economic and financial factors, notably to the lack of funds within the enteprise (36% companies ranked this barrier as “very serious”), uncertain demand from the market (34%), uncertain return on investment (32%) and the lack of external financing (31%). The insufficient access to public subsidies and fiscal incentives are closely following market factors with every third company (30%) coinsidering them a “very serious” barrier. The technological capacities or strategic objectives and social and relational factors (e.g. lack of good business partners, limited access to external knowledge and the lack of collaboration with research) are seen as least serious.

eco-innovation observatory

6.1.2 | Exploring different types of eco-innovation determinants: country perspective Economic and financial factors According to the Eurobarometer results, companies consider economic and financial factors to be by far the most important drivers and barriers of eco-innovation in EU countries (Figure 6.4). This does not come as a surprise as firms introducing eco-innovations face the same market realities as any other innovating company, which typically point to similar innovation barriers. It is important to underline that companies consider the high prices of materials a very important eco-innovation driver nearly as often as high prices of energy. It indirectly confirms that many companies eco-innovate in order to decrease the cost of purchasing materials. Furthermore, four in ten companies (42%) introduced eco-innovation to ensure or to enlarge their market share. This confirms that the capacity to eco-innovate may be considered an element strengthening the competitive advantage of companies. Market drivers are much stronger than the concerns related to material scarcity (35%) or limited access to material (30%). Demand from customers is also an important driver. Both CIS and Eurobarometer suggest, however, that in the majority of countries it was not considered as relevant as other market or regulatory factors. As one could expect, however, according to the CIS 2008 companies in countries with more environmentally aware consumers (e.g. Nordic countries) consider market forces as relatively more important than companies in other countries. Indeed, in Finland, Sweden, Luxembourg and the Netherlands, the role of demand as a motivation to eco-innovate was indicated more often than the regulatory framework.

Regulatory and policy framework Regulatory and policy factors are considered important or very important by the majority of companies surveyed by Eurobarometer. Both the CIS and Eurobarometer results confirm that in general companies from Eastern and Southern Member States consider regulatory and policy factors, notably access to subsidies, as more important than companies from Northern and Western countries. The higher relevance of current and future regulations in these countries, notably in the newer Member States, may indicate a response to the implementation of EU environmental regulations. This could also confirm the role of the EU regulatory framework for directing ecological modernisation in these countries. Conversely, the lower relevance of regulations in more advanced countries, e.g. in Denmark, Sweden and Finland, may be explained by the traditionally higher level of national environmental regulations and a relatively strong environmental performance of companies.

Companies from Eastern and Southern Member States consider regulatory and policy factors as more important than companies from Northern and Western countries.

Probably the most surprising result coming from the CIS is the high relevancy of voluntary codes and agreements for environmental good practice. One reason may be the growing popularity of eco-labelling schemes, which induce changes in companiesâ&#x20AC;&#x2122; practices. Thus, being part of a sectoral agreement may lead to (probably mostly incremental) innovation. This may also reflect the tendency of companies to enter into voluntary agreements -establishing their own performance targets -- to avoid regulatory intervention.

Annual Report 2010

Figure 6.4

Regulatory and policy framework

Socio-cultural factirs

Natural capital

Technological capital

Economic factors

Key eco-innovation drivers and barriers in countries according to Eurobarometer 2011 DRIVERS (% of companies considering the drivers "very important")

EU EU EU AT BE BG CZ DK DE EE EL ES FR IE 27 15 12

Expected future increases in energy price

52 51 56 62 60 66 30 43 58 61 76 75 29 68 42 78 62 73 51 59 85 46 54 75 66 60 55 47 40 53

Current high energy price

50 50 52 58 66 60 30 40 54 50 70 76 37 53 41 77 63 72 58 58 84 40 43 70 70 56 56 45 43 43

Current high material price

45 44 49 47 56 59 30 32 37 44 64 67 33 47 39 76 57 60 51 48 73 38 42 67 69 48 48 35 32 47

Secure or increase existing market share

42 41 46 48 38 54 26 39 46 51 60 49 24 52 40 55 47 60 58 60 65 47 35 60 66 48 45 42 37 37

Increasing market demand for green products

36 36 36 46 46 42 22 33 33 28 67 49 26 34 39 45 36 40 46 41 62 27 33 41 51 33 33 25 42 27

Technological and management capabilities within the enterprise

37 37 40 50 44 56 28 28 45 42 45 48 22 36 38 57 38 39 64 56 66 27 28 51 63 47 31 28 39 24

Expected future material scarcity

35 37 29 51 40 40 16 18 39 27 54 46 32 36 36 46 28 32 51 25 56 34 25 54 50 33 25 16 26 30

Limited access to material

30 32 27 38 30 29 13 26 26 25 34 23 45 38 31 25 16 35 28 24 11 25 36 22 31 34 30 28 25 34

Good business partners

45 42 54 73 50 69 39 33 68 58 62 35 24 38 34 69 61 56 79 66 27 37 43 61 73 48 55 42 44 34

IT CY LV LT LU HU MT NL PL PT RO SI SK FI SE UK

Good access to external knowledge, 34 33 38 49 37 52 23 20 33 31 52 43 20 41 35 52 38 38 51 61 59 32 25 43 59 37 38 24 25 32 incl technology support services Collaboration with research institutes, agencies and universities

19 20 19 22 25 32 13 10 15 18 40 32

Access to existing subsidies and fiscal incentive

40 38 48 52 43 64 28 15 31 45 68 61 30 39 44 61 51 46 56 72 81 32 40 43 59 48 46 25 24 24

Excepted future regulations imposing new standards

33 32 36 25 42 48 24 30 29 34 53 43 27 40 33 48 38 46 57 40 63 31 31 28 48 43 31 30 19 31

Existing regulations including standards

30 29 34 24 41 50 23 20 24 30 35 36 21 37 33 50 30 40 50 43 68 25 26 35 49 35 25 30 13 32

18 26 31 21 18 38 15 16 19 13 28 29 21 21 13 13 17

Legend: green shading indicates three most important drivers (the darkest colour indicates the most significant driver in a country); orange shading indicates three most serious barriers (the darkest colour indicates the most serious barrier in a country) 68

eco-innovation observatory

BARRIERS (% of companies considering the barriers "very important")

EU EU EU AT BE BG CZ DK DE EE EL ES FR IE 27 15 12

IT CY LV LT LU HU MT NL PL PT RO SI SK FI SE UK

Regulatory and policy framework

Socio-cultural factirs

Technological capital

Economic factors

Lack of funds within 36 34 42 24 18 50 31 11 24 28 61 68 30 37 40 58 44 40 36 54 50 23 38 37 51 40 37 15 12 22 enterprise

Uncertain demand from the market

34 32 38 26 27 46 27 22 30 28 46 62 21 32 35 55 28 32 23 55 55 28 35 37 45 24 36 22 16 23

Uncertain return on investment/too long a payback period

32 30 37 41 22 47 23 22 32 31 45 53 18 27 31 43 35 34 32 57 62 39 37 32 34 31 37 24 18 19

Lack of external financing

31 30 34 28 25 45 21 13 16 20 64 61 20 37 39 49 38 33 34 49 43 20 33 31 35 25 33

Lack of personnel and technological capability in the enterprise

23 24 21 33 40 35 18

24 20 27 37 18 18 22 37 30 31 44 17 34 23 12 31 34 31 19

17 18

Technical and technological lock-ins (e.g. old infrastructure)

22 21 26 21 22 38 14

15 19 34 42 16 12 23 38 28 29 34 41 23 17 23 27 31 21 16 13 11 12

Reducing energy use is not a innovation priority

26 27 21 29 34 22 14 14 29 15 40 43

34 29 49 25 31 33 17 40 39 16 39 34 12 29 11 10 26

Market dominated by established enterprises

21 22 21 26 24 29 15 12 26 19 30 41

19 23 45 18 23 33 26 33 20 21 28 14 16 26 12 11 12

Reducing material use is not a innovation priority

17 18 15 21 23 16 15 12 19

19 20 42 15 15 25 18 29 21 14 28 17 11 15 13

Limited access to external knowledge, 16 17 14 21 22 16 incl technology support services

24 31

14 12 31 35 12 14 19 39 17 15 15 19 19 15 10 20 24 17 12

Lack of suitable business partners

16 15 18 17 17 22 14

13 11 32 21 11 10 21 44 17 28 36 26 14

12 22 26 20 18

Lack of collaboration with research institutes and universities

13 13 12 18 13 24

17 23 15 12

Insufficient access to existing subsidies and fiscal incentives

30 29 35 38 25 53 12 13 27 26 56 52 24 18 31 71 40 36 22 45 56 28 26 30 55 32 38

11 14

10 35 28

17 18 32 14

28 12 19 10

Regulations and structures not 25 24 30 29 19 45 15 13 18 26 54 35 19 28 29 46 35 38 22 38 43 22 26 25 41 20 20 22 10 17 providing incentives to eco-innovate Source: Eurostat 2010; Legend: green shading indicates three most relevant drivers in a country (the darkest colour indicates the most significant driver).

Annual Report 2010

Socio-cultural factors Every third company considers expected scarcity of materials as a serious driver of eco-innovation.

Having good business partners was considered a very important driver by a significant number of companies surveyed by Eurobarometer. While it was the second most important driver in the EU-12, there were significant differences in the perceptions this factor among countries in the EU-15: it appears as the most important driver in Austria and Sweden and one of the least important drivers in France and Spain. Nearly all countries considered the collaboration with universities and research institutes as one of the least important drivers and barriers to eco-innovation.

Environmental factors Every third company (35%) surveyed by Eurobarometer considered expected future scarcity of materials as a very serious driver of eco-innovation. The material scarcity concerns are more strongly pronounced in the EU-15 (37%) compared to the EU-12 (29%). There are also significant differences between individual countries in this respect (see Figure 6.4).

23% of eco-innovating companies believed that the lack of qualified personnel and technological capabilities is a very serious barrier.

Technical and technological knowledge base Companies consider factors related to their own technological capacities or strategic objectives as significant to eco-innovation efforts, e.g. 23% of eco-innovating companies believed that the lack of qualified personnel and technological capabilities is a very serious barrier. Moreover, every fourth eco-innovating company indicated the lack of strategic priority to reduce energy use within the company as a serious barrier to eco-innovation. Interestingly, this was considered a very serious barrier more often in the EU-15 than in the EU-12 (27% and 21% respectively). Similar concerns about material use were expressed by 17% of companies.

6.1.3 | Sectoral perspective According to Eurobarometer, the expected and current high prices of energy were considered the most important driving factors of eco-innovation in all five sectors covered by the survey (see Figure 6.5). High material prices were also of high relevance, notably in the agriculture, construction, food services and manufacturing sectors, but less so in the water sector. Results on barriers to eco-innovation confirmed the high relevance of economic barriers: the lack of internal funds, uncertain return on investments and uncertain demand are the most frequently noted obstacles in all five sectors (see Figure 6.6). While the water sector suffers least from the lack of internal and external funding, companies from other sectors, especially agriculture, manufacturing and food services, indicated these issues as the most serious barriers to pursuing eco-innovation

Regulatory factors Highly regulated sectors, notably water and energy, are also those which consider regulation as a highly relevant driver for eco-innovation.

According to CIS, highly regulated sectors, notably water and energy, are also those which consider regulation as a highly relevant driver for eco-innovation (Figure 6.7). Indeed, nearly every second (47%) innovating firm in the water sector introduced environmental innovation in response to regulation. Other sectors highly influenced by regulation included energy generation (electricity, gas, steam and air conditioning supply; 40%), mining (35%) and construction (31%). Eurobarometer did not register significant differences between sectors in this respect, however, it did suggest that expected regulation was more important than existing regulations in all surveyed sectors except for water (see Figure 6.5).

eco-innovation observatory

According to CIS, sectors where availability of government grants and subsidies played a key role for environmental innovation included construction (17% of innovating companies in the sector), transport (16%), water (16%), mining (14%) and energy (12%). The higher relevance of grants in construction may reflect a growing role of environmental performance requirements in publicly funded construction works. Access to public subsidies and fiscal incentives was highlighted as a very important driver by respondents in Eurobarometer, notably in agriculture and fishing (48% of eco-innovators in the sector).

Technological, socio-cultural and natural capital factors Around one fifth of the SMEs surveyed by Eurobarometer considered the lack of qualified personnel and technological lock-in as a significant barrier to eco-innovation (Figure 6.6). Food and agricultural sectors seemed to be more exposed to these barriers, while the water sector is the least challenged. Technological and management capabilities help drive ecoinnovation in 44% of SMEs in agriculture and 35-38% of enterprises in other industries (Figure 6.5). Socio-cultural drivers of eco-innovations, such as collaboration with research organizations and other business partners, and access to external knowledge and assistance, are reported to be more important in the agriculture and fishing sector. The Eurobarometer survey showed that the current and future lack of materials is a particularly relevant factor in the manufacturing industry, and less significant in the water sector (Figure 6.5)

The current and future lack of materials is a strong driver in the manufacturing industry.

6.2 | Drivers and barriers in EIO country profiles The analysis of EIO country profiles18 contributes a complementary perspective to reflection on the barriers and drivers of eco-innovation in EU Member States. Each of the 27 country profiles has highlighted the most critical barriers and drivers of eco-innovation in that country, based on literature review and interviews with policy makers.

Regulatory and policy framework The country reports also reveal that the regulatory and policy framework is one of the most important determinants of eco-innovation development in the EU. Twelve country briefs report the current or expected stringency of regulation, introduction of standards, pollution charges and taxes, as well as targeted initiatives of the government as drivers of eco-innovation. On the other hand, several countries, mostly in new EU Member States, report that weak regulations and a lack of relevant policies form a barrier to eco-innovative initiatives. 18. The EIO has developed

Economic and financial factors Every country report underlines the importance of economic drivers to both the initiation and long-term viability of eco-innovation. Critical points seem to be seed funds and venture capital (which is largely lacking in the EU) necessary for technology transfer and commercialisation projects.

eco-innovation profiles for all Member States utilizing both internal expertise and national country experts. These reports contain concise analysis of ecoinnovation performance, leading and emerging eco-innovation

Eco-innovative developments in new EU Member States have been largely driven by special funding programmes of the EU in cooperation with national authorities; whereas dedicated investments into green R&D have been seen more in Austria, Finland, Germany, Denmark and France. Growing demand for green, ecological, and bio products, as well as

areas, an overview of relevant policy measures and a summary of barriers and drivers to ecoinnovation. The country reports are available on the EIO website

Annual Report 2010

Figure 6.5

Eco-innovation drivers in sectors according to EB2011

Construction

Water supply; sewerage; waste management and remediation

Manufacture

Food services

Current high energy price

Current high material price

Secure or increase existing market share

Increasing market demand for green products

Technological and management capabilities within the enterprise

Expected future material scarcity (as an incentive to develop innovative less material intensive substitutes)

Limited access to materials

Good business partners

Good access to external knowledge, incl. technology support services

Collaboration with research institutes, agencies and universities

Access to existing subsidies and fiscal incentive

Excepted future regulations imposing new standards

Existing regulations, including standards

Regulatory and policy framework

Socio-cultural factirs

Natural capital

Technological capital

Economic factors

DRIVERS (% of companies considering the drivers "very important")

Agriculture and fishing

Expected future increases in energy price

Legend: green shading indicates three most important drivers (the darkest colour indicates the most significant driver in a country) Source: data from Eurobarometer (EC 2011b); analysis and presentation by Eco-Innovation Observatory

eco-innovation observatory

Figure 6.6

Eco-innovation barriers in sectors according to EB2011

Construction

Water supply; sewerage; waste management and remediation

Manufacture

Food services

40,5

34,4

29,1

36,1

37,8

Uncertain return on investment/too long a payback period for eco-innovation

39,1

33,7

26,9

30,8

29,3

Uncertain demand from the market

32,9

33,6

35,4

34,6

27,8

31,3

23,5

31,2

28,5

Market dominated by established enterprises

23,9

22,1

21,2

21,9

16,3

Lack of qualified personnel and technological capabilities in the enterprise

23,2

22,8

12,7

22,7

27,5

Technical and technological lock-ins (e.g. old infrastructure)

25,8

21,1

22,4

20,5

Reducing energy use is not a innovation priority

30,5

23,1

20,7

26,6

25,8

Lack of suitable business partners

11,2

14,7

12,2

17,1

16,5

Lack of collaboration with research institutes and universities

19,3

13,4

20,5

12,2

9,7

Reducing material use is not a innovation priority

18,2

14,2

17,4

19,4

15,8

Limited access to external knowledge, incl. technology support services

14,4

15,6

13,3

16,3

Insufficient access to existing subsidies and fiscal incentives

35,1

30,5

19,7

30,3

28,7

Existing regulations and structures not providing incentives to eco-innovate

33,1

25,6

28,5

24,9

20,4

Economic factors

BARRIERS (% of companies considering the barriers "very important")

Agriculture and fishing

Lack of funds within enterprise

Regulatory and policy framework

Socio-cultural factirs

Technological capital

Lack of external financing

Legend: red shading indicates three most serious barriers (the darkest colour indicates the most serious barrier in a country) Source: data from Eurobarometer (EC 2011b); analysis and presentation by Eco-Innovation Observatory

Annual Report 2010

Figure 6.7

Eco-innovation drivers in sectors according to CIS2008 Existing and espected environmental regulations or taxes

Availability of government grants, subsidies and other financial incentiveS

Industry (except construction) Professional, scientific and technical activities Financial and insurance activities

50 %

Mining and quarrying

40 %

30 %

Manufacturing

20 % 10 %

Electricity, gas, steam and air conditioning supply

Construction Services of the business economy

Wholesale and retail trade; repair of motor vehicles and motorcycles

VOLUNTARY CODES OR AGREEMENTS FOR environmental GOOD PRACTICE

20 %

Water supply; sewerage, waste management and remediation activities

Transportation and storage

While new Member States report widely about the lack of expertise, also leading nations like Denmark and Finland feel a need to attract world class foreign specialists to keep their leading positions.

30 %

10 %

Information and communication

50 %

Current or expected market demand from customers

50 %

40 %

30 %

20 %

10 %

for environmentally friendly services, is a serious driver of eco-innovation in a few forefront countries (Germany, Denmark, the Netherlands, Belgium), as well as in Greece and Romania.

Technical and technological knowledge base Technological capital is a highly relevant determinant in the majority of EU countries. Availability of relevant expertise and human capital in research and post R&D project implementation was mentioned as an important driver for success in the eco-innovation areas. While new Member States report widely about the lack of expertise, also leading nations like Denmark and Finland feel a pressing need to attract world class foreign specialists to keep their leading positions.

eco-innovation observatory

Socio-cultural factors Among the socio-cultural factors, weak linkages and cooperation between research and industry appears to be one of the most common (both in cases of EU leaders and followers; see the scoreboard in chapter 3) barriers to eco-innovation, especially as regards translating inventions onto the market, defining priorities, and knowledge exchange (information flows). Lack of entrepreneurship in ‘green markets’ is said to be due to cultural risk aversion among citizens, SMEs and potential investors. That said, awareness about environmental issues is increasingly becoming a catalyst for the demand of green products and services, and forming the basis for favourable governmental policies, in several Member States.

Natural capital Lack of natural resources and materials has been driving solutions toward more efficient use, as well as the search for more viable alternatives (like renewable energies, water recycling schemes, etc.). These developments have been particularly important for isolated regions (e.g. Malta). Growing uncertainties about future prices of natural resources are already defining the innovative strategies of companies in technologically advanced EU countries. This is especially becoming critical for smaller, resource poor and export-oriented countries like The Netherlands and Belgium.

Growing uncertainties about future prices of natural resources are already defining the innovative strategies of some companies.

In summary, Figure 6.8 presents an indicative overview of eco-innovation determinants most commonly mentioned in the EIO country profile analysis. For a more detailed breakdown of specific barriers and drivers identified in the EU country briefs see Annex I.

> Future Work Plan: Barriers and Drivers

The work on the drivers and barriers in the countries and sectors will be extended by adding additional dimensions and variables to the analysis mostly based on the micro-level data sets of Eurobarometer (2011) and CIS 2008 (2010). The thematic reports will give a specific attention to analysing the relevance and perceptions of eco-innovation determinants in the selected sectors and areas. In particular the following questions will be tackled: ● How do the determinants of eco-innovation differ depending on the size, the turnover and the investment in eco-innovation of the company? (based on micro data from Eurobarometer and CIS) ● What are key drivers and barriers of different types of eco-innovation? (based on micro data from Eurobarometer and CIS) ● Which factors drive and hamper radical and incremental eco-innovations? (based on micro data from Eurobarometer and CIS) ● What are the expected future drivers and barriers of eco-innovation in selected sectors? (based on Delphi surveys and scenario approaches) ● Can the barriers and drivers help to explain the eco-innovation performance of countries and sectors? Does the perception of barriers and drivers relate to the structural profiles and long-term trends identified in the countries and sectors?

Annual Report 2010

Figure 6.8

Eco-Innovation determinants identified from EU 27 country profile analysis AT BE BG CY CZ DK DE EE

DETERMINANTS

EL ES FR

LU HU MT NL

PL PT RO

SK SE UK

Economic factors

R&D investments & support VC&seed fund for start-up & techtransfer EU & national funding programs

economic benefits/ profitability

Regulatory and policy framework

Socio-cultural factirs

Natural capital

Technological capital

demand for "green" products/services Availability of relevant expertise & human capital

R & D capabilities

Access to material and natural resource Uncertainty about future resource prices Awareness of consumers & industries Linkages & cooperation

Entrepreneurship capabilities Env. & innovation policy regulation/ standards Government's commitment

"Red-tape"/ governance

Driver

Barrier

Dual (positve and negative) effect

eco-innovation observatory

7 | Future Outlook: Visions of a resource-efficient Europe Improving resource efficiency is certainly one of the important strategic goals for the upcoming decade. But it is not enough to ensure a long-lasting prosperity. For this, systemic change is needed. In the following chapter we look beyond resource efficiency to ask what kinds of systemic changes are needed, and what the possible eco-innovations to get us there entail. We will present visions19 of how we think a â&#x20AC;&#x2DC;sustainable societyâ&#x20AC;&#x2122; could function. These visions do not attempt to be realistic scenarios of what we expect or roadmaps of what we think will happen, nor are they complete. They are a starting point for idea sharing and debate on long term policy objectives. The EIO hopes to spark further ideas and discussions about the future: with policy makers to develop a responsible, long-term orientation for policy guidance, with businesses to discuss the kind of innovations that will be competitive in the future, and with the public to develop a vision of how they perceive sustainability and prosperity in the future20.

We look beyond resource efficiency to ask what kinds of systemic changes are needed, and what the possible eco-innovations to get us there entail.

To present our ideas we take the perspective of a citizen of the future (living around 2100), reflecting back on how sustainability was achieved over the course of the 21st Century.

The perspective of a citizen of the future, reflecting back on how sustainability was achieved over the course of the 21st Century, is taken.

7.1 | The transition and resource consumption targets The transition was characterized by an increased mimicking of natural systems to create a more dynamic system of production, consumption and reuse. Figures 7.1 and 7.2 illustrate the scope of this change, depicting the industrial metabolism at the turn of the century (linear system) and the sustainable metabolism at the end of this century (a more circular system). Around 45 tonnes/person21 (TMC) were consumed annually in the year 2000. By 2050 a Factor 5 had been achieved, and in 2100 a Factor 10 (4.5 tonnes/ person). This transition required a mixture of technological ingenuity, social acceptance and creativity, and forward-looking policies combined with ambitious targets. Systemic change was gradual, beginning with greater life-cycle-wide resource-efficiency efforts, especially focused on waste recovery, which triggered the need for better product design to optimize recovery and ultimately enhanced systems thinking in innovation efforts. Key characteristics of systemic change included the greater utilization of sunlight for energy and material production, accompanied by the recycling of carbon flows, and the coinciding maturation of the physical growth rate of the built environment (buildings and infrastructure) until it eventually steadied out (through greater renovation, refurbishment and urban mining). The latter significantly reduced the primary material input needs while carbon recycling marked a turning point in climate change mitigation efforts. The biggest milestone was reached recently (around

19. The visions presented here are mostly based on the visions presented in Bringezu (2009) 20. The EIO invites your feedback and comments to the visions presented here under: www.eco-innovation.eu 21. In the EU-15, no data is available for the EU-27

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Figure 7.1

Industrial metabolism 2010

AIR

AIR EMISSIONS BIOMASS MINERALS

LAND-BASED RESOURCES

SOCIETY METALS

WASTE

FOSSIL FUELS WASTEWATER

WATER Note: A simplified version of resource flows is depicted. Indirect flows are not shown; these are the flows associated with resource extraction and can contribute significantly to the environmental pressures associated with resource consumption.

Figure 7.2

Industrial metabolism 2100

AIR CARBON CAPTURE AND REUSE

AIR EMISSIONS

BIOMASS MINERALS

LAND-BASED RESOURCES

SOCIETY METALS FOSSIL FUELS

REUSE & RECYCLING

WASTE

WASTEWATER

WATER Note: The sustainable metabolism is characterized by 4 key conditions (see Bringezu 2009); (1) stabilization of the net physical growth (infrastructures, buildings) of society through better reuse (renovation) and recycling (urban mining), (2) the drastic reduction of primary resource extraction (by about 90%;), (3) steady or slightly increased harvest of biomass, primarily for food, utilizing sustainable practices on existing cropland窶馬o cropland expansion past 2020), (4) Better use of sunlight for power and material production (designing the industrial ecology based on the example of natural systems), ultimately including the recycling of carbon and capture of CO2 from air for industrial photosynthesis.

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the turn of the century) when industrial photosynthesis became technologically and economically feasible. We will take a closer look at the progression of some of the major concepts and innovations characterizing the 21rst Century, including how people and institutions adapted to new circumstances. Major events, milestones and turning points are presented together on the transition timeline (section 6.6), summarizing key aspects of all the visions: 1) dematerialization and rematerialization as stepping stones to a steady-stocks society, (2) harnessing the power of the sun and (3) the balanced bioeconomy.

7.2 | Dematerialization and rematerialization: stepping stones to a steady-stocks society In the 2nd and 3rd decades of the 21st Century, substantial gains were made in resource efficiency and recovery efforts. This was mostly driven by the rising prices of materials (notably fossil fuels, metals and minerals) as former transition and developing countries rapidly built up their physical stocks (buildings and streets). In Europe, especially in Western countries, the physical stock of the built environment was already extensive. As population growth steadied out, and even started declining in some member states around 2020 (Eurostat 2008), it not only became clear that remodelling and renovating the built environment were the most cost-effective options, but also that the existing building stock (which increasingly included empty buildings) held valuable material components that could be mined for re-use. Urban mining thus became a popular and profitable practice. Renovation efforts also vastly improved the energy efficiency of buildings22, consequently reducing fossil fuel requirements. For these reasons, the growth rate of the physical environment in the EU began to slow down23, and finally, to steady out. Of course, it didn’t happen alone, but was aided by smart public policies24 as well as by a growing social acceptance of energy and material efficient products.

It not only became clear that remodelling and renovating were the most cost-effective options, but also that the existing building stock held valuable material components that could be mined for re-use. 22. At the turn of the century heating and lighting buildings contributed to the largest share (42%) of EU final energy consumption (EC 2007). 23. Of course, the phase out of physical growth is unavoidable (in Germany, about half of the country is made up of agricultural land and 1/3 of forestry land; but if the expansion of settlement and infrastructure areas were to have continued at the average rate of expansion between 2003 and 2007, it would haven

While the construction sector certainly offered the largest amount of materials for re-use, this trend extended across the entire material stock. Of course, the recycling of consumer products like paper, plastics, glass and aluminium was already common in 2010, but these processes were improved, broadened and complimented by other processes to optimize resource use. Indeed, a major lesson learnt was that recycling was not always the best option, but that cascading use (downcycling) and energy recovery could lead to higher environmental and economic benefits. It became common practice to utilize methods like material flows analysis, Life-cycle assessment and material input per service unit (MIPS) to compare and identify ‘best’ end-of-life options. Possibilities for ‘rematerialization’ -- the reuse, recovery and refining of metals, minerals and organic (carbon based) compounds -were dependent on a number of factors, the most decisive of which was the material itself. For instance, metals continued to be used in the construction sector, but use also increased in operational functions, like in electronic goods. Different applications meant different recycling strategies. First, in order for recycling to become the primary source for new products (including buildings), the material stock entering and leaving the industrial metabolism had to roughly balance out, so that demand could be met with secondary supplies. For construction, this meant when the physical growth of the built environment slowed down and

take 750 years, but eventually the entire surface area of the country would be covered (Bringezu 2009)). The only real questions are; at which level will it happen and will countries will be prepared for it to avoid significant losses of financial capital. In other words, will the bulk of investments have shifted from ‘fixed’ material stock to intangible assets such as knowhow, software and patents soon enough? 24. They included, for instance, cap-auction-trade systems for natural resources, environmental tax reforms, and promoting technology transfer and international ecosystem protection (Daly 2010; Jackson 2009).

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Between 2030 and 2040 the world market was flooded with steel scrap, spurring the shift of production from primary - ore based to secondary – scrap based – production.

the end-of-life of significant shares of buildings and infrastructures was reached. The turning point occurred between 2030 and 2040 when China demolished the first bulk of short-lived medium to high rise buildings, which had been constructed in the early boom phase (Müller 2006; Wang and Müller 2007). As a consequence, the world market was flooded with steel scrap. This coincided with a similar trend in the EU, where rising scrap volumes from endof-life products met the demand for steel in about the same decade (Moll et al. 2005). This spurred the shift of production from primary - ore based - to secondary – scrap based – production. Primary resource extraction continued to be practised in the latter half of the 21st Century, but to a much lesser degree, and eco-innovation efforts paid off with the development of underground drilling technologies capable of minimizing the amount of unused extraction. Primary extraction also shifted almost exclusively to geographical locations rich in mineral ores, but typically far from densely populated regions. In contrast, centres of steel and aluminium scrap sampling and smelting were built up in major urban regions, bringing them much closer to demand.

Product innovation not only focused on utility, comfort and look, but also on improving the possibilities for recycling.

As regards products, rising prices triggered the search for substitutes (e.g. platinum free fuel cells) and increased the trend towards miniaturisation (e.g. mobile phones). At first, this impeded recycling efforts—it created unbalanced input/output flows and high costs for recovering small quantities of rare metals in mini products. However, over time this impedance led to product innovation and development that not only focused on utility, comfort and look, but also on improving the possibilities for recycling. The European Union took a forefront in this development as it provided incentives for incorporating end-of-life design options in product innovation already in the 2020s. Designing mainstream products for improved and easier re-use and recycling marked a critical turning point. It 1) transformed the concept of ownership and product-service systems and 2) coincided with a slow change of consumer understanding of ‘living green’.

Producers started selling the performance of a product, but remained owners of the good.

Regarding 1), companies which invested in end-of-life design also had a vested interest to recover end-of-life products as a feedstock for their own production (cradle-to-cradle). In addition to horizontal and vertical supply chain orientation, cyclical supply chains were born. Of course, this did not work for all products, but forerunners sparked a surprising number of innovative ideas. Companies began offering customers a greater amount of maintenance and cleaning, as well as renewal options. At big enough scales, this also led to ‘pick-up’ and replacement options, causing logistic departments to expand into the area of ‘reverse logistics’. An early example was the Shaw Contract Group, which offered customers a guarantee of reclamation and recycling of their ‘Ecoworx’ carpet. Naturally, this process took time, as it depended on products being in circulation in order to work. But, it signified the greater attention to service combined with resource-efficiency. In the 3rd and 4th decades leasing goods, such as electric vehicles or even computers, not only became common for companies, but also for individual customers. Producers started selling the performance of a product, but remained owners of the good. This was considered an easier way to ensure the producer’s extended responsibility imposed by stricter regulations.

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Eco-innovation good practice 12 Biomimicry, the example of jellyfish light Biomimicry, or innovation inspired by nature, became very popular around the beginning of the 21st Century. For instance, while energy-efficient light bulbs underwent a large amount of innovation in the first decade, natureinspired lighting started to become popular in the 2nd. For instance, studies showed how jellyfish, squid and fungi produce light; brightness is activated by calcium, in its turn activating protein which releases energy in the form of light. The result is blue light rather than the human standard preference of white light. However, through optical effects Source: Gordonisimo 2010

white can be obtained without additional chemistry (Pauli 2010). The greatest benefit is that this type of lightening requires no mercury. For more examples of biomimicry see the Biomimicry Institute and Pauli (2010), as well as the EIO online repository of good practices.

Indeed, stricter regulations and consumer awareness have developed hand in hand. Consumer protection regarding product durability, sustainability and fair trade is much more stringent today. This is because as Europeans became more aware of the entire life-cyclewide impacts of the products they bought, a demand for better labelling and control was sparked. It also marked the beginnings of a social change. In 2100 quality of life is not linked to excessive material wealth; social values towards living space, mobility and ownership have adapted with the overall shift towards dematerialization. Urban mobility concepts such as Car2go (see Good Practice Box 11) have come into style, aided by public education about issues of well-being, values and ecology, and a gradual reduction of the structural incentives towards materialistic consumption that powered the economic boom of the industrial period. Policies today are supported by innovative indicators and indicator sets for measuring quality of life and well-being (see Box 7.1). Both the public and private sector invest in public

Policies today are supported by innovative indicators and indicator sets for measuring quality of life and well-being.

goods and social infrastructures (such as open public space in cities, recreation areas, sport facilities) and social innovation. In 2020 resources became more heavily taxed than labour (see Ekins and Speck 2011), which have led to gradual changes in the patterns of work, the work-week, and the life/work balance (see also Jackson 2009). Without such socioinstitutional shifts and changes toward consumption behaviours, the absolute reduction of material consumption necessary to achieve targets would not have been possible.

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Eco-innovation good practice 13 Car2go The ‘next level’ of car-sharing may be the concept of Car2go. This is an ‘urban mobility’ concept designed by Daimler, which involves a vehicle fleet of ‘smarts’ that are accessible to registered users at all times. It was first launched in Ulm, Germany, where there are now around 20,000 customers with a vehicle fleet of 200 smarts. The main concept is that cars can be spontaneously ‘hired’ (customers use a chip to unlock the car), kept for as long as needed and left anywhere within the city borders when finished. The customer is charged per minute (19 cents), or for longer trips per hour or day, whereas the company pays for fuel and cleaning. Since March 2009, customers in Ulm have driven more than 4 million kilometres with the fleet, with 9 out of 10 rentals ending at a different Source: 2010 car2go GmbH. location from where they started. Daimler has already Copyright 2009 Daimler AG.

expanded the concept to Austin, Texas, and has plans to start Car2go in Hamburg and Vancouver BC, as well as to produce a series specifically for car sharing—the car2go edition, which will be outfitted with solar roofs and touch screens—in 2011 (Daimler AG 2010). The concept of Car2go may present a new mobility concept for densely populated cities in developing countries, such as China. For more information visit the EIO online repository of good practices.

Box 7.1 Social and institutional changes to achieve the vision Quality of Life How content we are with our life and how well we feel about it does no longer have to go hand in hand with high resource consumption. Over time, people recognized that material affluence does not per se guarantee a high quality of their life. Today the overall target is to increase people’s quality of life instead of increasing GDP and material affluence. Policies that supported this re-orientation included the development of indicators for measuring quality of life and wellbeing. Economic growth For this transition it was necessary to discuss alternative development models. A new macroeconomic framework and politically acceptable solutions that respect the planet’s ecological boundaries had to be found. Policy options for moving there included cap-auctiontrade systems for natural resources, environmental tax reforms, or promoting international ecosystem protection. Through policies and related behaviour changes it is today possible to have a job and live comfortably in an economy that is no longer strongly growing in GDP terms. Low growth rates have not led to economic crisis. This does not mean that the economy has come to a standstill. It is in flux and innovations are mushrooming, but the targets are different. 82

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Work The aim of employment policies today is to guarantee sustainable working and living conditions for the entire population. A reorganization of the employment system was essential to face increasing income disparities, increasing cases of burn-out and other forms of work-related diseases, precarious working arrangements and other undesirable trends. For the design of employment policies it was essential to keep in mind that economic growth alone would not solve the unemployment problem. In addition to “old” labour market instruments, alternative approaches were needed. A key part of the transition towards more and better jobs was achieved by a re-design of the tax system. A comprehensive, long-term, cost neutral environmental tax system is in place to trigger both positive effects for the labour market and at the same time a reduction of resource use. Distributional aspects and social justice It was realized that a resource-efficient Europe also needs to take into account a fair international distribution of resources. This required implementing instruments to limit consumption in material terms, e.g. by introducing cap-auction-trade systems for basic resources or higher taxes on resource intensive products. Other measures for promoting social justice include fair prices for natural resource exports, international standards for sustainable resource extraction, promotion of fair trade, and the establishment of a global climate adaptation fund for developing countries, among others.

Research and development activities also continued looking for ways to reduce the total amount of materials needed—both in the production of the product (process eco-innovation) and the products themselves (product eco-innovation). The biggest incentive turned out to be price, but resource-light products also became more and more trendy. This trend had already started in consumer electronics at the turn of the century, as marked for example by the demand for paper-thin laptops and flat screen televisions. It extended to resource-light buildings. Resource-light construction started to become more and more common in the 2020s; it meant not only using light weight materials, but also applying the most appropriate materials and building techniques to meet the specific needs of a built object in the most efficient way. A standard house in 2050 required practically zero fossil energy and demanded less than 10% of the primary material resources per square meter of a standard house built around the turn of the century. Resource-light innovations and rematerialization became parts of a larger trend of dematerialization. Combined with bionic principles learned from nature, molecular design and nanotechnologies continued to contribute to the dematerialization of the product world in unforeseeable and elegant ways. Over the 21st Century the total material requirement, of European society especially, sank. However, it was not all smooth going. Enhanced product service systems, for instance, have developed hand in hand with resource efficient technology, but were also accompanied by the rebound effect in some cases. It wasn’t until the 2030s that policy measures to tackle the rebound effect, most notably, resource certificates (cap-and-trade systems) came on board. These followed the principle of GHG emission trading schemes, and were based on per capita resource consumption levels. 83

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Eco-innovation good practice 14 Resource-light construction Resource-light construction aims to identify the best material for each specific application. This process goes beyond the built object and accounts for the local conditions, the userâ&#x20AC;&#x2122;s behaviours and the economy. It is achieved when the characteristics and interactions of all construction materials maximize the performance of the building as a whole, while reducing energy and material flows, carbon emissions as well as other harmful emissions to humans and/or the environment. In R129, by architect Werner Sobek, the building envelope consists of a plastic material which is extremely light and transparent. An electrochromatic foil enable the envelope to be controlled electrically, so that it can be darkened or made completely opaque either in sections or as a whole. The structural frame consists of carbon box sections, with a technical installations floor that provides storage facilities and connections for electrical energy, water, compressed air and communications lines. The Kitchen and sanitary facilities Source: Werner Sobek. R129: Planning time: 2001 - 2012

are housed in a central, non-stationary module; the interior of the building is devoid of fixed partitions or walls. For more information visit Werner Sobek and the EIO online repository of good practices.

They made significant inroads towards monitoring and regulating the level of resource consumption to ensure it remained within the boundaries of the planet. Whereas at the beginning of the century the net additions to stock (NAS, annual additions to buildings and infrastructure) amounted to about 10 t/cap in Europe, it has reached values

Economic growth and physical growth are no longer co-dependent.

around zero today. This does not mean that the economy has come to a standstill, but rather that economic growth and physical growth are no longer co-dependent. Innovations in this â&#x20AC;&#x2DC;steady-stocksâ&#x20AC;&#x2122; society are thriving. This development was key to meeting the EU target of a factor 10 by 2100, which not only meets the global threshold of acceptable resource extraction, but has enabled a more equal distribution of resource use between world regions.

7.3 | Harnessing the power of the sun In 2100 solar energy is not only used for heat and electricity production, but also indirectly for the synthesis of materials. At the turn of the century, the prospect of replacing fossil fuels with biofuels was extremely popular. It took some time to realise that this was not the most effective strategy. That was because in 2010 average solar technology could already transform 10-20% of sunlight into energy; typically 15% for commercial solar cells (EPIA 2010). Highly efficient crops could utilise no more than 6% (Woods et al. 2009). When looking at the industrial metabolism, scientists quickly realized that it made much more sense to directly utilize sunlight as 84

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Eco-innovation good practice 15 Floating Solar Islands Dedicated ‘solar islands’ were developed. These were not only built in the desert, but when the technology was ready were also mounted on ocean floats as ‘floating solar islands’. Their basic operation involved using solar thermal or photovoltaic systems to generate electricity, in order to produce hydrogen through electrolysis. Storing the hydrogen in floating tanks allowed it to be directly loaded to tankers. The systems have advanced so far that these floating islands can be steered out of the way of hurricanes Source: Photo from CSEM; the Nolaris project

and even dive to escape tsunamis. For more information see the Nolaris project.

an energy source rather than planting, harvesting and processing biomass for energy. Politicians also realised that cropland expansion was contributing to the irretrievable loss of biodiversity and international resource conventions came together to monitor and regulate not only onsite production, but also demand to ensure it didn’t exceed levels which could be met with a sustainable supply of global biomass. This led to the continued solarisation of the technosphere, meaning that building surfaces

It made much more sense to directly utilize sunlight as an energy source rather than planting, harvesting and processing biomass for energy.

and roads became multifunctional surfaces that also produced electrical and heat energy. Highways were equipped with side walls or light roofing carrying photovoltaic panels to add to domestic electricity supply while reducing the requirement to agricultural or natural areas for energy production. Technologies to cool buildings using sunlight also became widespread, especially in countries receiving large amounts of sunlight (see for instance

Fraunhofer 2010). While using the surfaces of buildings and infrastructures, as well as deserts and oceans, has resulted in more land for agriculture, forestry and natural areas, it has also had its costs. The mineral resource requirements for the construction and maintenance of solar panels, concentrated solar panel systems, and photovoltaics have been significant (see Box 4.1).

There was a trade-off between renewable energy and mining activities.

Recycling made inroads toward reducing parts of this load, but it took a few decades to build up a material stock ready to recycle, and in the meantime there was a trade-off between renewable energy and mining activities. Innovation made it possible to efficiently use solar energy to produce hydrogen from water (hydrolysis). While gains were made to utilize this hydrogen as a fuel for mobility, the first turning point came when scientists figured out how to cost-effectively combine hydrogen with carbon dioxide to synthesize a number of carbohydrates. Thus, further mimicking natural processes. In the beginning, the carbon dioxide was sourced from carbon recycling 85

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The key milestone happened around the middle of the century when highly efficient absorption technologies were developed that could capture carbon dioxide directly from the air.

stations—for instance from dry organic waste, but also from fossil fuels. Gasification or pyrolysis were used, along with synthesis technologies and solar power. Of course, the evolution of this technology system began gradually, encouraged by policy incentives and funded by ‘green investments’. The key milestone happened around the middle of the century when highly efficient absorption technologies were developed that could capture carbon dioxide directly from the air. The first successful attempt to capture C02 from the air was performed in 2008 by Klaus Lackner (Lackner 2010). But it wasn’t until much later that the potential for carbon capture and reuse was realised. Efforts toward ‘Industrial photosynthesis’ intensified in the latter half of the 21st century and reached commercial scale around 2100. Industrial photosynthesis is the use of captured carbon dioxide and solar energy to produce energy rich compounds for materials and fuels. It has made incredible gains in climate change mitigation and eased conflicts over land use and land use change. While using industrial processes to produce food will probably never be the case—and hopefully not—it could be used to synthesise the materials of the future.

7.4 | The balanced bioeconomy It was the cultivation of biomass that originally allowed hunter-gatherer societies to settle and develop into cities. Their industrial metabolism was largely based on biotic resources— crops for food and wood for shelter (especially in Europe)—or local resources like stone and clay. With the technological advances in the latter half of the 20th Century, it was thought by some that a return to a largely bio-based economy was one way to reduce fossil fuel dependence and mitigate climate change. However, it was quickly realized that the limited systems perspective of agrofuels was too narrow to take in greater impacts and that a growing population of more than 6 billion needed to use its agricultural land to produce food. In the EU leaders realised that biofuels meant substituting one supply dependency (fossil fuels) with another (biomass), and that by stimulating production and consumption of liquid biofuels, demand would grow in such a way that, regardless of how efficient these processes became, it could only be met by cropland expansion—leading to an unforgivable and irreversible loss of biodiversity. In the 2nd decade international conventions were formed that first abolished all biofuel quotas25 and then agreed to halt all cropland expansion beyond 2020 (van Vuuren and Faber 2009). Forced to use land resources more effectively, massive efficiency gains across the food chain—from the field to the fork—were made and better practices to maintain soil fertility of existing cropland were implemented by farmers throughout the world (aided by new assistance programmes).

25. Replacing them with technology-neutral policies like a carbon tax, which still gave biofuels an advantage over fossil fuels.

In the 2010s, hype for bio-based products started to emerge, as customers were keen to buy ‘green’ products and governments were happy to encourage this trend. However, lessons from the biofuel hype had been learned and biomaterials were put through systems-wide scrutiny. It was determined that organic wastes made an excellent feedstock for rematerialization and that to some extent, fast growing, non-food plants rich in lignocelluloses (switchgrass, poplar, ect.) could be used in so-called cascades. This meant as a material first, and then re-used,

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recycled and refined until it made more sense to retrieve the energy from it. Biorefineries became processing and re-processing facilities, as well as decentralized energy suppliers. For instance, better separation and sorting capacities based on the product’s basic polymer structure were established, enabling material specific recycling of dry organic wastes (plastics). Wet organic wastes (from food and feed) were increasingly separated and used to produce biogas, so that the left-over nutrient content could be returned to the soil and the natural carbon and nutrient loops could be closed.

Biorefineries became processing and re-processing facilities, as well as decentralized energy suppliers.

In order to ensure that land use demands for biomaterials did not encroach on agricultural land needed for food (it could not encroach on natural land as all cropland expansion was halted in 2020) or contribute to problem shifting between countries, the method of land use accounting (see Bringezu et al. 2009) was employed. In this way, EU countries could monitor their total land demands and employ governance to keep these demands within the levels dictated by a fair share of acceptable resource extraction. Over time, the use of biomaterials did increase, especially as innovation efforts intensified and new and better applications were created to make better use of the limited harvest. A pre-indicator of this was, for instance, the creation of ‘liquid wood’ (see good practice Box 15). ‘White biotechnology’, i.e. the breeding of biochemicals in closed fermenters, also using GMOs, increased somewhat over the years and was used only for material/chemical applications. ‘Green biotechnology’, i.e. the use of GMOs in the open field, was deemed too uncertain and hazardous, and could not effectively overcome the limitations of biomass production set by natural conditions and regulatory requirements (e.g. nutrient pollution thresholds). Finally, technologies became so advanced that solar energy and carbon dioxide could be used for industrial photosynthesis. It was a development that enhanced independence from open field agriculture and forest plantations. This meant that the socio-industrial metabolism did indeed transition to a sort of bioeconomy, only it wasn’t based entirely on land or ocean based harvest. Instead, it marked the beginnings of the transition toward a photoautotrophic system. All in all, the 21st Century can be characterized by rapid and incredible amounts of innovation achievements that transformed the prevailing concepts of ownership, responsibility, functionality, design and life-quality in ways that had not yet been imagined at the beginning of the century. Ingenuity, technical innovation, socio-institutional changes and human adaptability have created a resource efficient and prosperous society that functions within the finite boundaries of the earth.

All in all, the 21st Century can be characterized by rapid and incredible amounts of innovation achievements that transformed the prevailing concepts of ownership, responsibility, functionality, design and life-quality.

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Eco-innovation good practice 16 ARBOFORM®: 'Liquid wood' ARBOFORM®’ combines the properties of natural wood with the processing capabilities of thermoplastic materials; it is a biodegradable and renewable polymer which has, to some extent, substituted plastics. With it, the SME TECNARO GmbH won the European inventor award 2010 in the SMEs/research category. Today t is in high demand from the automotive sector and for applications in children's toys, furniture, castings for watches, designer loudspeakers, degradable golf tees and even coffins. While this ‘bioplastic’ can be formed into very precise shapes and is extremely stable, it can also, just like wood, eventually decomposes in landfills instead of lingering around for thousands of years like "normal" plastic. For more information see Tecnaro and the EIO online Source: TECNARO 2009

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7.5 | The transition timeline The transition timeline summarizes these corresponding visions and the progression from resource efficiency to resource sufficiency. It shall be developed further in the context of the EIO project as new insights into eco-innovation and eco-innovation potential are gained.

Expansion of cropland is halted worldwide Biomimicry takes off as a design principle of ecoinnovation

Urban mining becomes common practice Resource certificates are established as a part of international sustainable resource management efforts

New business models on leasing and materials stewardship are developed

Secondary sourcing of metals becomes more common than primary sourcing

China demolishes first bulk of short-lived buildings, flooding the market with steel scrap

Highly efficient absorption technologies capture CO2 from the air

Biorefineries are processing and reprocessing centres, as well as decentralized energy suppliers

Material supply chains are commonly cyclical (involving for instance reverse logistics— companies typically provide services to collect their products at the end of the product’s useful life to regain the material for re-use)

2100

2090

The first carbon Europe enters the recycling station photoautotrophic period is established in Europe

2080

2070

Growth rate of the physical environment in Europe peaks; renovating is more common than building new

2060

European population growth peaks around 520 million citizens

European buildings and roads serve multifunctional purposes; producing heat and electricity with solar energy

2050

2030

Solar cooling becomes common in the EU

2020

2010

2000

Europe is in the industrial period

A standard Light-weight European zero emission cars are mass house requires practically zero produced fossil fuels

2040

The EU takes a forefront in recycling rare metals by providing incentives for incorporating end-of-life design options in product innovation

Industrial photosynthesis goes commercial

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8 | Main findings and key messages Resource efficiency, material productivity and the eco-innovation challenge 1. The rate of annual increase in material productivity in the EU over the past few years was 3.2% (GPD in purchasing power standards) or only 1% (GPD in market exchange rates). With around 16 tonnes of material consumption per capita, however, Europe is among the world regions with the highest consumption levels. Although the EU has achieved a relative de-coupling of economic growth from material use, absolute levels of consumption also grew by around 8%. An absolute reduction can only be realised, if the annual growth rates of material productivity are higher than the economic growth rate. 2. The eco-innovation challenge is to improve the resource and energy efficiency performance of the EU by promoting eco-innovation and by ensuring that the benefits of new solutions are widely disseminated. It is also to ensure that the efficiency gains are not offset by growth in the total consumption of natural resources. Both efficiency gains and absolute dematerialization are needed for achieving a decoupling of environmental impact from economic growth and to meet the vision of a resource-efficient Europe. 3. Initiatives like “Resource-efficient Europe” provide key orientations for innovation activities over the short term. Long-term targets to reduce the absolute levels of material consumption are also critical for facing the eco-innovation challenge. Such targets can act to frame policies and strategies and to significantly de-risk the investment decisions of companies, governments, financial institutions and research organisations.

EU performance 4. In order to monitor and compare the eco-innovation performance of EU member countries the EIO has developed an Eco-Innovation Scoreboard. According to this new tool, Finland, Denmark, Germany, Austria and Sweden are the most eco-innovative countries in the EU. However, no EU country has a high performance across all eco-innovation-related indicators. Thus, within the EU-27 there is no model country which could serve as an example of best practice across all areas observed in the scoreboard. 5. High eco-innovation performance in EU countries is strongly correlated with both GDP and competitiveness. However, environmental performance of the “eco-innovation leaders” in the EU is often poor; many of these countries consume high levels of material and energy and emit high levels of GHGs.

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Eco-innovation good practice 17 Network Resource Efficiency, Germany The "Network Resource Efficiency" (NeRess) pools knowledge about the efficient use of resources to intensify communication between business, research and politics. It builds on the MaRess project (Material Efficiency and Resource Conservation) and intends to foster eco-efficient innovations while at the same time providing a permanent base for technological progress. Designed as a cross-sector, open â&#x20AC;&#x153;learningâ&#x20AC;? platform, it aims at bundling know-how and experience regarding resource efficient production, products and management, as well as successful applications. It provides possibilities for the mutual exchange of information to intensify communication and cooperation between actors from enterprise, industry associations, advisory and educational institutions, academia, politics and the media to mobilise their central competencies and create a broad awareness of the issue resource efficiency. Furthermore, it develops proposals for the design of framework requirements that provide incentives and reduce barriers. For more information visit the NeRess website, Wuppertal Institute and the EIO online repository of good practices.

Company performance 6. According to the 2011 EU-wide Eurobarometer survey, 45% of European companies in manufacturing, construction, agriculture, water and food services have implemented at least one eco-innovation over last 2 years. 7. The manufacturing sector has the highest share of companies implementing eco-innovations to reduce material use while the electricity, gas, steam and air conditioning supply sector has the highest share of companies eco-innovating to reduce the use of energy. It should also be noted that these recent figures by far exceed the numbers of previous analyses â&#x20AC;&#x201C; indicating a landslide shift towards energy and material efficiency among companies. 8. However, only about 4% of eco-innovating companies declared that the eco-innovation they have introduced led to a more than 40% reduction of material use per unit output. The results suggest that the intensity of the recent eco-innovation activity of companies is not sufficient to achieve a Factor 2, let alone Factor 5, resource-efficiency target. The overwhelming majority of companies report incremental improvements. Clearly, incremental innovations can also be of key relevance toward achieving goals, but only if they are introduced continuously and if they are part of a wider strategic objective of the company.

Drivers and barriers 9. According to the Eurobarometer (2011) survey, a majority of companies expect raw material prices to increase in the future and realise the opportunities of saving material costs. The strongest drivers for eco-innovation are the current and expected high prices of energy as well as expected future scarcity of materials. Existing regulations and taxes are another key driver: nearly every fourth innovating firm in the EU introduced environmental innovation in response to those policy instruments. 90

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10. Most important barriers are related to economic and financial factors, notably to the lack of funding and the uncertain market demand. Thus, the European Union has a role to play in fostering eco-innovation via intelligent regulation, economic incentives and smart funding mechanisms.

The EIO believes that realising a resource-efficient Europe in the next decades is possible. As a special feature of this report we offer a positive vision of life in the year 2100 and illustrate how the implementation of eco-innovation technologies and products, as well as changes in the socio-institutional context, can bring Europe onto a sustainable development pathway.

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Jackson, T. (2009). Prosperity without Growth. Earthscan, London KfW (2009). KfW research, Perspektive Zukunftsfähigkeit – Steigerung der Rohstoff- und materialeffizienz (A sustainable perspective--Improvement of resource and material efficiency). Frankfurt. Kim, J. (2010). Recent Trends in Export Restrictions. OECD Trade Policy Working Papers, No. 101. Kleijn, R., and E. Van der Voet (2010). Resource constraints in a hydrogen economy based on renewable energy sources: An exploration. Renewable and Sustainable Energy Reviews 14: 2784–2795. Lackner, K.S. (2010). Washing carbon out of the air. Scientific American (Environment, June 2010): 66-71. Lettenmeier, M. H. Rohn, C. Liedtke, F. Schmidt-Bleek (2009). Resource Productivity in 7 Steps, How to Develop Eco-Innovative Products and Services and Improve their Material Footprint. Wuppertal Special 41. Lund, R. (1998). Remanufacturing: an American resource, Proceedings of the Fifth International Congress Environmentally Conscious Design and Manufacturing, June 16 and 17, 1998, Rochester Institute of Technology, Rochester, NY, USA. Lutz and Giljum (2009) Global resource use in a business-as-usual world until 2030. Updated results from the GINFORS model. In: Bleischwitz, R., Welfens, P.J.J., Zhang, Z.X. (Ed.), Sustainable Growth and Resource Productivity. Economic and Global Policy Issues, Greenleaf Publishing. Gordonisimo website. Dive Stories. http:// gordonisimo.com/content/jellyfish. Accessed 29.12.2010. M2i, Materials innovation institute (2010). Material Scarcity, M2i Study. Malerba, Franco (2007). Innovation and the dynamics and evolution of industries: Progress and challenges; International Journal of Industrial Organization, 25(4): 675-699. Moll, S., J. Acosta, and H. Schütz (2005). Iron & Steel – a Material System Analysis. Pilot study 96

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Welfens, P.J., J.K. Perret, D. Erdem (2010). Global economic sustainability indicator: analysis and policy options for the Copenhagen process. Int Econ Econ Policy 7: 153–185. Woods, J., M. Black, and R. Murphy (2009). Future feedstocks for biofuel systems. Pages 207-224 in R.W. Howarth and S. Bringezu (eds.) Biofuels: Environmental Consequences and Interactions with Changing Land Use. Proceedings of the Scientific Committee on Problems of the Environment (SCOPE) International Biofuels Project Rapid Assessment, 22-25 September 2008, Gummersbach Germany. Cornell University, Ithaca NY, USA. http://cip.cornell.edu/biofuels/. World Bank (2010). Rising Global Interest in Farmland: Can it yield sustainable and equitable benefits? WWF (2010). Living Planet Report 2010: Biodiversity, biocapacity and development. Produced by the Worldwide Fund for Nature (WWF) in collaboration with the Zoological Society of London and the Global Footprint Network. http://assets. panda.org/downloads/lpr2010.pdf.

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Glossary Biomimicry

“Biomimicry (from bios, meaning life, and mimesis, meaning to imitate) is a new discipline that studies nature’s best ideas and then imitates these designs and processes to solve human problems” (Biomimicry Institute 2011). It is thought of as “innovation inspired by nature.” Back to Good Practice Box 11.

Circular economy

The circular economy is one in which used materials are recycled back into production stream. It is the better use of waste for new materials. Back to Ch 7.

Critical metal

A metal which is essential to an industrial process and for which there is no actual or commercially viable substitute. Back to the critical metals Box 5.1.

Decoupling

Decoupling compares resource use to economic growth. There are 2 types: relative and absolute. Relative decoupling means that resource use may increase, however, at a lower rate than economic growth. Or, resource use remains constant while the economic output increases. Absolute decoupling is achieved when resource use declines over time while the economy grows (Schütz and Bringzu 2008). Back to Ch 2.

Dematerialization

Dematerialisation is the supply and use of products and services with less and less materials. It means a decrease in material flows, i.e. reduced material input due to greater efficiency (Schütz and Bringzu 2008). Back to Ch 1, Ch 7.

Direct Material Input

DMI is an indicator derived from national material flow accounts. It measures the direct flows of materials that physically enter the economic system as an input, i.e. materials that are used in production and consumption activities. DMI equals domestic (used) extraction plus the direct mass of imports. Back to Ch 2.

Domestic Material consumption DMC is an indicator derived from national material flow Consumption accounts. DMC subtracts the direct mass of exports from DMI, thus illustrating the consumption of materials by the domestic economy. Back to Ch 2. Downcycling

Downcycling means converting waste into a new product of lesser quality and reduced functionality. For instance, plastic is recycled into a lower grade plastic. The goal is to re-use raw materials to the most effective degree, reducing the need for primary extraction. Back to Ch 7.

Eco-industries

Those industries which produce goods and services with the intention of reducing environmental risk and minimizing pollution and resource use. They are often called clean tech or green tech innovations. Back to Ch 1.

Eco-innovation

Eco-innovation is the introduction of any new or significantly improved product (good or service), process, organisational change or market99

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ing solution that reduces the use of natural resources (including materials, energy, water and land) and decreases the release of harmful substances across the whole life-cycle.

100

Eco-innovation paradox

The potential for benefiting from eco-innovation is often highest in the regions and sectors where the capacity to develop or apply ecoinnovations is limited. Back to Ch 3.

Ecological rucksack

The ecological rucksack describes the resource requirement of producing products and offering services. For products, it is the complete material input needed to manufacture that product from the cradle to the point of sale, minus its own weight. For services, it is the sum of the shares of the rucksacks of the technical means (“Service delivery machines”) employed (for example, vehicles, refrigerators, buildings, etc.), plus the sum of materials and energy used to deliver a unit of service (Schmidt-Bleek 2011). Back to Ch 1, Ch 2.

Frugal innovation

Eco-innovations designed to be inexpensive, robust and easy to use. This kind of innovation has been dubbed as “reverse” or “constraintbased”. It also means being sparse in the use of raw materials and their impact on the environment. Back to Ch 5.

Hydrolysis

Hydrolysis is a chemical reaction in which water is split into hydrogen cations. Back to Ch 7.

Incremental innovation

Innovations concerned with improving components of products or services, processes or streamlined organisational set-ups that do not lead to a substantial change in a short time. Over time, however, incremental innovations or sequences of incremental innovations may cause systemic, positive or negative changes. On a large scale they may lead to significant impacts in e.g. energy efficiency gains as in the example of the insulation of buildings. Back to Ch 1.

Indirect flows

Indirect material flows refer to up-stream material requirements of imported or exported products, which are used as material inputs along the production chain in foreign countries. In contrast to direct flows of traded products, indirect flows do not cross the national boarder. Back to Ch 2.

Industrial metabolism

A sustainable development perspective which regards societies and their economic systems as embedded in the larger environmental system. Societies are shown to have a “metabolism” with the surrounding natural systems in a similar way to plants, animals or humans. The ‘inputs’ in industrial metabolism include resources such as raw materials (including fossil fuels), water, air and land. These resource inputs are transformed into products (goods and services) and are finally disposed back to the natural system in the form of outputs; mainly solid wastes, waste water and air emissions (Schütz and Bringzu 2008). Back to Ch 7.

Industrial photosynthesis

The use of captured carbon dioxide and solar energy to produce energy rich compounds for materials and fuels. This is a vision for the future. Back to Ch 7.

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Land grabbing

The large scale land acquisition – be it purchase or lease – for agricultural production, often by foreign investors. Back to Ch 5.

Life-cycle assessment

Life-cycle Assessment (LCA) is the assessment of every impact associated with all life stages of a product, from raw material extraction, over production, selling and application and up to disposal or re-use, often in comparison with another, competitive product. Back to Ch 7.

Life-cycle wide

Refers to all life phases of a product, from raw material extraction over production and use to recycling/disposal.

Material flow analysis

Material flow analysis (MFA) refers to the monitoring and analysis of physical flows of materials. It can be applied to a wide range of economic, administrative or natural entities at various levels of scale (world regions, whole economy – economy-wide MFA, regions, industries, firms) and can be applied to materials at various levels of detail (individual materials or substances, groups of materials, all materials) or products (Schütz and Bringzu 2008). Back to Ch 2, Ch 7.

Material flow innovation

Material flow innovation captures innovations across the material value chains of products and processes that lower the material intensity of use while increasing service intensity and well-being. It aims to move societies from the extract, consume, and dispose system of today’s resource use towards a more circular system of material use and re-use with less total material requirements overall. Back to Ch 1.

Material productivity

At the company level, material productivity expresses the amount of economic value generated by a unit of material input or material consumption. On the economy-wide level it is calculated as GDP per material input/consumption. Back to Ch1, Ch 2.

Material security

The availability and access to the material resources on which economies depend, as well as the ability to cope with volatility, increasing scarcity and rising prices. Back to Ch 1.

Material stock

The materials contained within the built environment of an economy. Back to Ch 7.

MIPS

MIPS means the material input per unit of service. It is “the life cycle-wide input of natural material (MI) which is employed in order to fulfill a human desire or need (S) by technical means” (Factor 10 Institute). It is used to compare the material and energy requirements of functionally comparable goods or services. Back to Ch 7.

Organizational EI

Eco-innovation (EI) towards organizational methods and management systems that improves environmental issues in the production and products. The EIO considers such organizational changes to be the socio-economic dimension of process innovation, especially as it is closely linked to learning and education (see Bleischwitz 2003). Back to Ch 1.

Problem shifting

The displacement or transfer of problems between different environmental pressures, product groups, countries or over time. Back to Ch 1. 101

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Process eco-innovations

Process eco-innovations minimise or reduce effects and emissions of production and consumption, for instance through recycling. Examples of types of process eco-innovations include the substitution of harmful inputs during the production process (for example replacing toxic substances), optimization of the production process (for instance improving energy efficiency) and reducing the negative impacts of production outputs (such as emissions) (Reid and Miedzinski 2008). Back to Ch 1.

Product eco-innovation

Product eco-innovation includes both goods and services. Eco-innovative goods are those produced in such a way that the overall impact on the environment is minimized. This includes environmentally improved material products, such as passive houses, and eco-design is a key word in this area. Back to Ch 1.

Radical innovation

Radical innovations are those changes that lead to substantial improvements of products and processes that, however, do not necessarily lead to a systemic change. Radical innovations may in fact preserve the existing technological regime (Kemp 2010). Back to Ch 1.

Raw Material Consumption

RMC is an indicator derived from national material flow accounts. RMC equals RMI minus exports and their RMEs. Back to Ch 2.

Raw Material Equivalent

RMEs transform the mass of direct imports and exports into the corresponding mass of raw materials. For example, one ton of imported steel is transformed into the equivalent of crude iron ore, which had to be extracted and processed in order to produce one ton of steel.

Raw Material Input

RMI is an indicator derived from national material flow accounts. RMI includes the so-called raw material equivalents (RMEs) of imports. Back to Ch 2.

Remanufacturing

Remanufacturing is the process of disassembly and recovery. Lund (1998) describes remanufacturing as â&#x20AC;&#x153;â&#x20AC;Ś an industrial process in which worn-out products are restored to like-new condition. Through a series of industrial processes in a factory environment, a discarded product is completely disassembled. Useable parts are cleaned, refurbished, and put into inventory. Then the product is reassembled from the old parts (and where necessary, new parts) to produce a unit fully equivalent and sometimes superior in performance and expected lifetime to the original new product.â&#x20AC;? See World News Remanufacturing for more information.

Rematerialization

The reuse, recovery and refining of metals, minerals and organic (carbon based) compounds. Back to Ch 7.

Resource curse

Instead of being an advantage, resource endowment can become a curse for countries under certain conditions. This is because it can open the door for corruption; for instance, governments that rely primarily on revenues earned from natural resources do not need citizens to provide a tax base, and thus avoid an important form of accountability. Without accountability, funds generated from natural resources may be mismanaged, poorly invested or siphoned-off to an elite minority that seeks to concentrate power. In such cases, social

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inequity and poverty may actually rise while long-term economic growth falters. In addition, macro-economic conditions such as exchange rates and wages are crucial to avoid related risks of ‚Dutch Disease’ and other negative impacts. Back to Ch 1, Ch 2. Rebound effect

The rebound effect is when a positive eco-innovation on the micro level actually leads to negative impacts on the meso/macro level. This can happen due to a change in consumer behaviour, i.e. consumers using more of a product, which outweighs the efficiency improvements to that product. Back to Ch 2.

Resource intensity

Resource intensity indicators are the inverse of productivity indicators. They are often used to discuss energy and emissions, and are calculated as resource use / value added. Back to Ch 1.

Resource efficiency

An overarching term indicating the general concept of using less resources to achieve the same or better outcome (resource input/ output). It is an input-output measure of technical ability to produce “more from less”. Back to Ch 1.

Resource productivity

Resource productivity has a monetary component, it refers to the economic gains achieved through efficiency. It is calculated as value added / resource use. Back to Ch 1.

Social innovation

Innovation that considers the human element integral to any discussion on resource consumption. It includes market-based dimensions of behavioural and lifestyle change and the ensuing demand for green goods and services. The Forum on Social Innovation defines it as innovation that “concerns conceptual, process or product change, organisational change and changes in financing, and can deal with new relationships with stakeholders and territories”. Back to Ch 1., Box 3.1.

Steady-stocks society

The steady-stocks society is one in which the inputs to the economic system roughly balance with the outputs. It is an econonmy in which the physical environment remains more or less balanced (remodeling and renovation occur, but not expansion). Back to Ch 5.

System innovation

System innovations lead to systemic changes in both social (values, regulations, attitudes etc.) and technical (infrastructure, technology, tools, production processes etc) dimensions and, most importantly, in the relations between them. System innovation may include elements or combinations of all types of innovations (product, process, marketing, organisational or social) and are, by definition, developed and implemented by many actors. Back to Ch 1.

Total Material Consumption

TMC is an indicator derived from national material flow accounts. TMC equals TMR minus exports and their indirect (=used and unused) flows. Back to Ch 2.

Total Material Requirement

TMR is an indicator derived from national material flow accounts. It refers to the total ‘material base’ of an economic system (i.e. the total primary material requirements of production activities). TMR measures the total mass (weight) of materials that are required to support 103

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an economic system, whether for use in production and consumption activities or not, and whatever their origin is (domestic, rest of the world). Back to Ch 2. User-led innovation

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Innovation in which new goods or services are driven by customer demands or developed with stakeholders, thereby minimizing the risk of superfluous product features or functionality. Back to Ch 3.

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Annex I. Barriers and drivers of eco-innovation in the EU-27 The drivers and barriers in this annex are based on the EIO country profiles and depict the main determinants identified by country experts based on data analysis, literature review as well as interviews with national policy makers.

Eco-innovation drivers in sectors according to EB2011

Austria

Belgium

Bulgaria

Cyprus

Drivers

Barriers

• High environmental standards • Generous funding for research • Uncertainty about future energy prices

• SME-type structure of the industry • Lack of linkages • Funding for high-risk/long-term research and demonstration projects

• Strong greening policy agenda (regional and national) • Strong national technological capabilities (HC,R&D efforts) • Increasing local and international demand in green technology and products

• Economic payback • Targeted funds (programmes and credits)

• The high quality and educational level • Growing financial support for Innovation and R&D • Flexible policy formulation, coordination and dissemination due to the small size of country • Focus on exchange of experience through participation in funded schemes

• Pitfall in inter-regional coordination, integrated planning and decision making • “Picking the winner strategy” (bias towards climate related areas)

• Lack of information • Lack of educated and experienced specialists • Lack of efficient organisational forms • Psychological barriers in the realization of innovative ideas • Indifferent to eco-innovation regulation

• Lack of linkages/ communication between research and industry • No support in transfer of technologies. • Lack of financial instruments supporting eco-innovations in the private sector

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Eco-innovation drivers in sectors according to EB2011 Drivers

• Non-systematic and non-effective State support for eco-innovations • Lack of cooperation between research and business • The absence of VC and economic stimuli (subsidies, taxes, amortization), • Lack of human capital

Czech Rep

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Barriers

Denmark

• Strong green profile in policy • High market demand for green products • Strong NIS

• Less-competitive and productive ecoinnovation sector in comparison to other leaders • Fragmented policies and knowledge • Difficulties in attracting foreign experts

Estonia

• Progress as a knowledge based society • Targeted funds • Pursuits of profits

• Limited progress in eco-awareness raising • Limited political interest • Low spending on eco-innovation

Finland

• High public investment in R&D and collaboration between financiers • Functionality combined with strong knowhow & high standard of education • Strong commitment to env. policy of all levels

• More emphasis on technical aspects and less emphasis on commercialisation of innovation • Overlap in public services/need for streamlining activities of various ministries • Scarcity of world class human capital, foreign R&D and cross-border venture capital.

France

• Governmental and EU regulation • Increased public funding mechanisms for env. R&D • Profits from commercialisation of green products

• Low innovative behaviour of SMEs • Weak knowledge circulation and transfer among key stakeholders (no clusters/ platforms) • The low levels of public awareness and lack of environmentally-oriented consumer behaviour

Germany

• Advanced regulation and strict standards • Lack of local natural resources (which pushes material intensive industries to innovate) • High technological & technical capital

• Awareness gaps and information deficits at all action levels (political, economic, industry, enterprise, consumers, etc.) • Weak green public procurement

Greece

• Direct funding from Structural Funds and the Development Law • Significant number of research and educational institutes, research labs and collaboration among them • Growing market for green products and services

Hungary

• Potential Economic benefits, cost savings and securing market niche • Targeted (national and international) funds • Accelerated integration into the international setting, collaboration and the innovation networks

• Uncertainty in financial and environmental policies • Limited access to funding (loan) for business exploitation of eco-innovative concepts, especially for SMEs • Regulatory and policy restrictions/red tape/ lack of flexibility in setting up start-ups

• Very low demand for eco-innovation & low societal awareness • Investment difficulties for commercialisation of innovations • Lack of trust in potential investors

eco-innovation observatory

Eco-innovation drivers in sectors according to EB2011 Drivers

Barriers

Ireland

• Tax /penalties prompted waste minimisation & material recovery

• Regulatory and planning barriers • Green public procurement is well behind EU leaders • Lack of access to ‘green’ finance (incl. VC)

Italy

• Potential economic benefits • Public incentives mechanisms and funding • Internationalisation

• Low cultural awareness and readiness for eco-innovation • Start-up difficulties (costs, taxes, lengthy bureaucracy, rigid market) • Exclusion of the 'naturally' most innovative (young citizens) from the innovation process

• Weak involvement of private businesses and lack of entrepreneurship • Weak R&D • Lack of policy on eco-innovation • Economic crisis related finance cuts for innovation

Latvia

• Good examples in the media • National state and EU funding

Lithuania

• Direct financial support and economic incentive mechanisms • Progressing innovation policy mix

• Lack of understanding of environmental problems by many SMEs • Limited external financial support for R&D • Weak links between research and industry actors

Luxemburg

• A strong set of national environmental and innovation laws and standards • Societal challenges (population growth, cross-border traffic, strict EU standards) • Economic diversification strategy

• Small and open economy depending on cooperation and interaction with its neighbours • Immaturity of eco-innovation technologies and sectors

Malta

• Lack of natural resources • High environmental pressure (featured for small island economies) • Growing transparency, flexibility and stringency of environmental regulation

• Lack of industry-research collaboration • Immature innovation system • Lack of human resources in new sectors

Netherlands

• Potential economic benefits • Strict regulatory and policy framework & standards • Limited natural resources and growing prices for NR • Growing image of green companies and green products

• Difficulties in translation of R&D into business (lack of entrepreneurial spirit, risks seen by VC investors) • Cultural barriers such as the aversion to risk, growing climate scepticism, growth VS environment conflict, mental fatigue with env. issues

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Eco-innovation drivers in sectors according to EB2011

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Drivers

Barriers

Poland

• EU initiatives related to energy and climate • Growing stringency of environmental regulation • Some increase in understanding of importance of eco-innovation • Identification of a potential for ecoinnovative products and services by foreign capital.

• Lack of belief in progress through ecoinnovation • Red-tape in initiation and implementing projects • Lack of well-qualified and experienced staff • High investment risk in eco-innovation/ products • Low demand for eco-innovative products/ services

Portugal

• Continuous promotion of an “innovation environment” as a national objective • New redefined Portuguese energy paradigm (policy) • Existing and forthcoming environmental regulations and/or taxes • Voluntary codes or agreements for environmental good practice

• Comparatively lower educated Human capital • Still low R&D investment by companies • Companies and citizens are culturally averse to risk & low entrepreneurship • Low seed & VC investment

Romania

• Growing interest in green products • EU and national fund for eco-innovative projectsx

• Insufficient knowledge of market situation & potential for environmental technologies • Lack of private finance for eco-innovation

Slovakia

• Increase in the mobility of researchers and the exchange of knowledge • Good organizational capital • National ETAP roadmap and regulatory provision for its implementation

• Lack of investment in human and knowledge capital and R&D • Insufficient investment in new projects • Lack of regulatory and policy incentives

Slovenia

• Growing human & knowledge capital • Growing technological and technical capital • Growing culture of environmental awareness

• Poor links between research and business • Poor entrepreneurship culture

Spain

• Environmental regulation • Growing env. management system application • State policy and efforts in RES • Increasing public awareness about environmental issues

• Disperse situation on the institutional level • Poor awareness of consumers about ecoinnovation • Lack of collaboration between business and research agents • Limited research effort • Low budget for research

Sweden

• Political Consensus about environmental issues • High level of env. expertise • Eco-innovation is seen as an opportunity to strengthen the competiveness of Swedish business • Cultural attitude to environment

• Unsustainable consumption patterns • “Relaxing” image on being a leader

• Governmental commitment to greening (greening the procurement, etc.) • Growing concern about resource and material efficiency • Striving for independency from imported fuel

• Red tape in planning and approval of ecoinnovations • Lack of understanding • Economic recession

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About the Eco-Innovation Observatory (EIO) The Eco-Innovation Observatory (EIO) is a 3-year initiative financed by the European

Commission’s Directorate-General for the Environment from the Competitiveness and Innovation framework Programme (CIP). The Observatory is developing an integrated information source and a series of analyses on eco-innovation trends and markets, targeting business, innovation service providers, policy makers as well as researchers and analysts. The EIO directly informs two major EU initiatives: the Environmental Technologies Action Plan (ETAP) and Europe INNOVA. This first annual report of the EIO introduces the concept of eco-innovation into the context of the resource-efficiency debate, in particular considering the EU flagship initiative “Resourceefficient Europe” and “Innovation Union” of the Europe 2020 strategy. Bringing about the notion of the “eco-innovation challenge”, the report opens a discussion on the potential benefits of eco-innovation for companies, sectors and entire economies. The evidence suggests that eco-innovation is already occurring in countries, sectors, and markets across the EU, but not to the degree necessary. The EIO aims to demonstrate existing solutions and to explore the untapped potential of eco-innovation. In this context, this report addresses the following key questions: What are the mega-trends relevant for eco-innovation, notably in the context of the resourceefficiency debate? ● What do we know about eco-innovation activity in countries and markets? ● What types of eco-innovative good practices can be seen in different EU Member States? ● What are the drivers and barriers of eco-innovation? ● What policy approaches are the most effective for promoting eco-innovation?

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