Philip Sutton Director-Strategy Green Innovations 26 March 2005 (Version 1.b-long) Ensuring that Asia Pacific economic growth is truly environmentally.

Philip SuttonDirector-Strategy

Green Innovations

26 March 2005 (Version 1.b-long)

Ensuring that Asia Pacific economic

growth is truly environmentally

sustainable

Sections of the presentation

• Mindsets

• Definitions

• Theoretical understandings

• Real world experience

• Strategy for achieving ecologically sustainable economic growth in Asia Pacific

Methods and mindsets

• Double practicality

• No major trade-offs

• Backcasting from principles of success

• Whole-system design

• Innovation-driven

• Complex system management approach (think of area of responsibility, & one level above & one level below)

Definitions

• The ability to maintain particular parts or qualities of the physical environment

(eg. life support & resource ‘infrastructure’, resources, living species/nature, natural beauty, cultural features, etc.)

Environmental sustainability

• Economic growth is a measure of the rate of increase in economic output ie. the increase in output of product benefits sold in the market (these days assumed to be exponential)

• Economic growth is NOT physical growth(without policy intervention, physical output usually grows at 1% less than economic output)

Economic growth

Economic growth relates to the service flow (the ‘whole product’),

not to the physical platform

Theoretical understandings

Key is to de-link economic growth from environmental impact / waste

Economic growth

Environmentalimpact/waste

This means we need 100% decoupling between economic

growth and environmental impact

• but there is more to it than this….

Homeostatic management

Safety zone or mode

Restoration Prevention

Using ‘homeostatic management’ to achieve environmental

sustainability

• What needs to be to sustained?

• What is the ‘safety zone or mode’ for each thing to be sustained?

• To prevent divergences use Natural Step system conditions

• To overcome overshoot need principles, specific research and models (eg. climate)

The homeostatic approach needs to incorporate into its goals:

• The ‘end state’ conditions• The scale of change• The speed of change

What should we sustain?• The community of life – from Earth Charter

• Human life - survival

• Societies/communities/cultures

• The quality of human life

• The realisable potential of each human life

• Nature/ other species/ biodiversity

• Life support infrastructure

• Resource supply infrastructure

• The social/economic value of non-renewable resources

• The ability of society to function, despite resource depletion

Achieving environmental sustainability does not mean

everything remains static

• Things that need to be sustained will be maintained

• Fundamental things that need to be changed will be changed – without threatening the things that need to be sustained

Resolution• The conflict between economic growth and

ecological sustainability can only be resolved if…..

• all future economic development is 100% decoupled from the generation of environment impact and resource wastage (prevention)

• and further economic development enables:

- environmental impacts from current economic activity to be reduced to a sustainable level (prevention)

- and nature to be restored to sustainable condition (restoration)

Economic growth is an outcome not a goal

• If economic output expands, for any reason, we get economic growth

• We get desirable economic growth if, as a result of meeting human and environmental needs (with no major trade-offs), economic output expands

The problem is physical growth, not economic growth, due to ….

• Growing scale of physical damage from resource extraction, processing and disposal

• New types of physical impact (chemicals, biological agents, radiation, nanotech agents, etc.)

• Fast change that exceeds the capacity of the environment or people to adapt

Under what conditions is economic growth compatible with……

• once-off restoration of the environment?

• perpetual prevention of damage to the environment and of wastage of resources?

Near term economic growth is compatible with a major once-off

restoration of the environment if…..

• the total of all the physical platforms of all economic output can be changed in character and shrunk small enough physically to be compatible with the maintenance of everything that needs to be sustained, AND

• the real value of economic output does not collapse in the process of physical adjustment and can keep rising during the transformation period

Economic growth is compatible with perpetual prevention of damage to the environment and of wastage of

resources…….• if the total of all the physical platforms of all

economic output remains small enough and of the right character physically to be compatible with the maintenance of everything that needs to be sustained, AND

• the total service flow from economic output can keep increasing within that constraint

This means that once basic human physical needs are met …

• all future economic growth is generated through net qualitative change, not physical expansion, AND

• all the compatible productivity boosting mechanisms are tapped

What is the character of the physical platform shrinkage and change?

• A Factor 20 or more dematerialisation (for developed countries), and then maintenance of a capped quantity of materials and energy for all purposes

• The creation of a virtually closed-loop economy (everything recycled)

• Stabilisation of population (after gentle shrinkage??)

• Declining use of oil from now

• Effectively zero greenhouse gas emissions

• Full transition to renewable energy

• Sequestration of past greenhouse gas emissions to stay below or get below 400 ppm CO2 fast and to trend towards 280 ppm over time

• Major restoration of habitat for threatened species

• Move to zero toxic emissions

• etc.

Stock enhanced while in use

New capital

Fixed (or declining) flow of renewable

energy

Fixed (or declining) stock of

materials maintained in a closed-cycle (with minuscule

top up from nature)

Continually rising service flow

- to benefit a stable population at a

sustainable level

Reuse & recycle

The conditions under which a truly sustainable economy could have continuing economic growth

Does all this mean we have too many things to achieve?

No, win-win possible in 2nd best world

• Static optimisation theory claims only one parameter can be optimised …..

• But in a complex world, that is a long way from ideal, multiple-objective ‘optimisation’ is possible – with sufficiently profligate innovation (eg. zero defects with low cost)

• The key to win-win is effective innovation – beyond incremental change to present systems.

The barriers to evolving to super optima

Low

High

High Low

“Global” optimum

Special issue value

Eco

nom

ic v

alue

Local optima

Warning: a 3D view opens more options if valleys connect or innovation ‘helicopter’ used

“To be able to achieve economic growth.....

“To be able to achieve economic growth.....

in a physically constrained world,....

“To be able to achieve economic growth.....

and to be able to get to this condition really fast and on a huge scale.....

in a physically constrained world,....

“To be able to achieve economic growth.....

and to be able to get to this condition really fast and on a huge scale.....

in a physically constrained world,....

we first have to.....

“To be able to achieve economic growth.....

and to be able to get to this condition really fast and on a huge scale.....

in a physically constrained world,....

we first have to.....

be able to imagine economic growth occurring naturally in a physically

constrained world!”

The barriers to evolving to super optima

Low

High

High Low

“Global” optimum

Special issue value

Eco

nom

ic v

alue

Local optima

Warning: a 3D view opens more options if valleys connect or innovation ‘helicopter’ used

How can service flow be boosted in perpetuity?

• via improved qualities

• via more qualities

that benefit the user and the environment/community

• achieving this depends on compatible sources of productivity growth

• and this depends on continuing innovation to overcome diminishing returns

Major sources of productivity growth that needn’t drive physical expansion and can co-exist

with physical contraction:• Lean production / closed-cycle production

• Increased knowledge & information intensity / intensified education

• Internet communications

• Fast, needs-based leapfrogging-innovation system driven by sustainability transition

• Whole-system design

• Green chemistry / nanotechnology / biotechnology (miniaturisation)

• Physical proximity (new model of urban form)

• Reduced scale & therefore opportunity to mass produce/speed up creation of production capacity & infrastructure

• Reduced environmental damage / reduced wastage

• Full employment

• Artificial intelligence

Sources of productivity diminished by shift from

physically growing economy

• Cheap physical resources and abundant supply (materials, energy, water, land) (But this source of productivity is being constrained anyway)

• Quick and easy single-purpose decision-making on most things

Sources of productivity boosted by shift to environmentally

sustainable economy

• Speed and ease of proximity (in urban design)

• Increased skills in whole-system design opening up greater access to leapfrog innovation

• Necessarily ubiquitous application of lean thinking

• Necessarily ubiquitous application of smart technology and AI

• Low levels of health/environment damage

• More highly skilled workforce / community

• Reduced real expenditure on raw materials

• Drag on economy released due to low unemployment / underemployment

Can the necessary short-term physical shrinkage/change be achieved without collapsing

economic growth?

• there is a big enough increase in investment, with temporary shrinkage of discretionary consumption, plus really effective redeployment of sunk capital (cf. WW2 US)

• Arguably yes, if there is sufficient innovation to keep boosting productivity, and

• there is enough time, so that normal investment levels can cover the restructuring, or

• for a short-duration transition,

Theoretical support for environmentally sustainable growth

For example:

• Sustainable Technology Development (2000)- Factor 20+ innovation possible and designed to be cost effective

• Sustainable Europe Research Institute 2003-06- MOSUS econometric modeling showing strong environmental transition performing better than standard neoclassical base case

• Azar & Schneider (2002)- stabilising CO2 had miniscule GDP penalty

• Double dividend research with strategic ecotax income recycling shows net increases in GDP compared to business as usual - for Europe and the US (Brinner et al., 1991; DRI et al., 1994; Jacobs, 1994) and for Australia (Common and Hamilton 1994).

Global GDP

0

50

100

150

200

250

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Year

Trillion U

SD

/yr Bau

350 ppm

450 ppm

550 ppm

Figure 4. The development of global income, with and without climate policies. Climate damages are not quantified

and thus not included in the graph. Source: Azar & Schneider (2002).

Opportunities for economic growth in a physically constrained world

Zone of intermediation

The living world(includes humans)

Protected slower zone

Fast changing or accelerating zone Protected slower zone

The social world

BenefitBenefit

Impact Impact

Car

eful

ly m

anag

e in

terf

ace

Car

eful

ly m

anag

e in

terf

ace

Imp

rove

men

tof

ser

vice

qua

lity

Exp

ansi

on

of c

over

age

by s

ervi

ce o

fth

e po

pula

tion

Further theory/mental models to be drawn on for the strategy

process.....

Theory of natural capital

• In perpetuity: Natural capital as ‘infrastructure’ with service flow – ecosystem services and renewable resource flow

• Once-off: draw down / economic take off / payback: restoration/resequestration is the payback – those who benefit from the drawdown (through economic take-off) should pay for the restoration (eg. fossil energy use > CO2 resequestration)

Price

(factor cost)

Elasticity

Signals Financial imperative

Responsiveness building

(technical, social, financial)

How can we drive the change?

Macroeconomics Factor price

Investment flows

• Gross drivers• Rebound control

Mesoeconomics

• Industry level lifecycle management

• Industry policy

• Regional economics

• Infrastructure shaping• Structural innovation level• Strategic mobilisation

Microeconomics

• Product level lifecycle management

• Innovation

• Organisational capability building

•Bottom up influence•Mass mobilisation

Theory of ecotaxation & related instruments

• Ecotaxes (& related economic instruments) are regulatory tools – they should be managed for regulatory effect – in innovative system revenue should fall if ecotaxes are effective

• The way revenue is recycled from ecotaxes etc. is critical to maximising productivity and minimising inflation

How can we avoid rebound?• Through macroeconomic management using:

– ecotaxes

– tradable permits

– regulation

• Rebound is a symptom of the failure of macroeconomic management.

• Rebound is also a symptom of 300+ year old institutional arrangements that cause resources to become systematically cheaper than labour intensive products (factor price problem).

The eventual relative size of domestic economies

China, India, Indonesia, etc.

Europe, US, Japan, etc.

Innovations in the domestic economy can be used to give Asia Pacific the lead in the new economic paradigm (environmental sustainability/quality-driven economy)

Real world experience

Real world examples of substantial GDP / environment decoupling

• US, for seven years after the OPEC oil price shock of 1979 the economy grew by 19% while energy use fell by 6%

• UK, in last 30 years GDP’s has doubled while CO2 emissions fell slightly and energy use has increased by only a few percent.

• The Netherlands, in last 20 years has made well over 50% reductions in many pollutants while maintaining normal rates of GDP increase

Annex C: Sustainable development in the UK http://www.number-10.gov.uk/su/resource/annexc.htm

UK GDP growth vs energy usage and CO2 emissions from 1970

Positive correlations

• In the developed world, generally the countries and provinces with the strongest environmental controls have the strongest economies.

• In the developed world, generally the countries and provinces with the strongest environmental controls have the leading exports of related technologies

Human-centred development

• Curitiba, Brazil: In 1980’s per capita GDP was only just 10% above the national average. By 1996 its per capita GDP was 65% above the national average.

Fastest industrial restructuring

• Korea: from agricultural nation to world competitive manufacturing economy in 20 years

• US: after Pearl Harbor: from world’s largest consumer economy to world’s largest war economy in 1 year

(complete infrastructure change)

(complete change to how infrastructure is used)

Strategy for achieving ecologically

sustainable economic growth in Asia Pacific

Framing issues

• The more economic development we want the stronger our environmental policies need to be (to get 100% decoupling)

• How big and how urgent does the environmental restructuring program need to be?

• How do we want to position our economies within the world economy?

Backcasting strategy methodology

• Where are we now? (judged by success principles)

• Where do we want to be, when?(with the least loss along the way)(based on success principles)

• What do we have to do to get there, in time?

• For an effective start, what should we do now?

Where are we now?

SWOT analysis of Asia Pacific:

Strengths?

– very high economic growth in many areas

– high levels of investment / lots of new development

– large diverse population (heading to stabilisation)

– poverty decreasing in some areas much more than expected

– growing manufacturing and services industries

– growing domestic market

– rapidly rising education levels / technological sophistication

– low wages that attract foreign investment

– the region is now taken seriously on the world stage

Where are we now?

– don’t have the same innovation density as most of the developed countries

– high population densities and large overall populations putting pressure on the environment and leading to resource shortages

– dependent on low wages as a major attractor for investment

– high levels of poverty

– shortage of clean water

– congested (sometimes gridlocked) cities

– agricultural systems are being overstretched and damaged

SWOT analysis of Asia Pacific:

Weaknesses? (in many but not all parts of the region)

– high levels of air pollution

– not yet geared up to be part of an environmentally sustainable world – growing oil consumption, growing releases of greenhouse gases (apart from oil, China now uses same resource quantities as

– material from the earth’s crust and from factories is systematically building up in the biosphere, and physical impacts (harvesting, clearing, fragmentation are systematically reducing the viability of biodiversity (ie. the Natural Step system conditions are being violated)

Where are we now?

– because this region has the fastest rate of development (so the need and the opportunity is the greatest) (Concept: David Wallace, (1996). Sustainable Industrialization. Earthscan/RIIA.)

SWOT analysis of Asia Pacific:Opportunities?

–to build up the economies of all the region’s societies so that they are equal to the best anywhere

–to eliminate poverty within 30 years

–to build the local market so that desperate dependence on exporting to developed economies is eliminated

–to be the region in the world where the new “sustainable economy” paradigm emerges first in its fullest form

Where are we now?

– social instability due to rapid change

– damage to agriculture, water supply from climate change

– large oil price rises due to demand/supply imbalance

– post-Kyoto demands to contain greenhouse gas emissions

– trends in developed countries that might lead to the relocalisation of manufacturing in developed countries – or perhaps all countries (lean production, material recycling)

– in the next couple of decades development of advanced general artificial intelligence could remove cheap labour advantage

SWOT analysis of Asia Pacific:Threats?

Where do we want to be, when?

Peak in discovery of giant oil fields

Production peak in cheap oil

We are probably near the peak of world oil production

• The price rises prompted by the Iraq war, may be masking the peaking of world oil supply ie. once we get out of supply limits induced by the Iraq war we might find that world oil production is not able to be increased in total – prices may well stay high until demand tracks falling supply

Global average surface equilibrium temperature change for various stabilization targets.

Source: Azar & Rodhe (1997). Dashed line a) refers to an estimate of the maximum natural variability of the global temperature over the past millennium, and dashed line b) shows the 2oC temperature target.

Per capita emissions under contraction and convergence by 2050

0

0.5

1

1.5

2

2.5

2000 2010 2020 2030 2040 2050

tC/c

ap/y

ear

The European Union

China

550 ppm

450 ppm

350 ppm

Per capita emission trajectories for China and the EU towards 350 ppm, 450 ppm and 550 ppm, under contraction and convergence by 2050. Azar, 2005

Dangerous climate change

• UK Met Bureau: http://www.stabilisation2005.com/

• There is a strong hypothesis that:

– heating of 2ºC or more over pre-industrial level will cause impacts that are even more dangerous than those in train already

– there is about a 30% chance (according to one estimate) that 400 parts per million (ppm) CO2 will, after some years, cause 2ºC warming

– at current rates of increase of CO2 in the air (ie. at least 2 ppm per year) we will get to 400 ppm CO2 in less than 10 years.

http://news.independent.co.uk/world/environment/story.jsp?story=603975

If we take global warming seriously there is a need to ….

• bring CO2 emissions down to very low levels (zero?)

• take large amounts of CO2 out of the atmosphere so that we can get down to tolerable levels (280 ppm through to 330 ppm at the most?) (if biomass capture used will have big effect on land use policy and energy supply strategy)

• have major results on the ground in a very few years (ten?)

Sustain

Scale of change

Speed of change

Industry mix

More

Less

50 year

20 year

10 year

1-3 years

100% New

100% Old

100%50%

20%

How big is the challenge?

needed to deliver preferred end

state

So, where do we want to be, when?

• we want to be in an environmentally sustainable state as soon as possible, with the least loss (to people and nature) along the way

• exactly what that means should be determined by careful assessment – the ideas in this paper are merely a crude illustration of such an assessment process

• the assessment process in this paper suggests that:

– possibly we have an immediate issue to deal with the peaking of world oil supply – requiring major and continuing demand reductions to rebalance supply/demand

– at the same time we need to make massively deep cuts in greenhouse emissions (down to zero?) and begin sequestration of past emissions

– at the same time as these transitions are made, solutions to other pressing environmental, social and economic issues should be built in – so that timely solutions are not pre-empted and opportunities for ‘economies of renewal’ are not lost – this is comparable to the advantages that have accrued to economies rebuilding after the devastation of major wars

Pulling all the issues together……

Major end-state integrated goals• To create an environmentally sustainable economy

very fast

• To be the global pioneer of the full “environmentally sustainable economy” paradigm

• To create economies based on the new quality-driven paradigm

• Having used the low wage strategy to kick start economic take-off, to end the dependence on this strategy for driving economic growth

• To spread the benefits of the new economy through the whole of society

What do we have to do to get there, in time? 1

• Educate decision-makers and innovators in areas of society about the need for change, the possibilities for change and the methods/technologies for change

• Build institutional capability to drive fast structural change to achieve an environmentally sustainable economy

• Proactively seek the most environmentally demanding customers in the global economy

• Preferentially encourage the most creative environmentally minded investors to be active in the region

• Develop very strong sustainability R&D and innovation programs

• Make sure that all long-lived investments are compatible with an environmentally sustainable economy

What do we have to do to get there, in time? 2

• Try to shorten the lifecycle of traditionally very long-lived infrastructure

• Lobby to establish international treaty obligations to mandate the adoption of production systems that are compatible with an environmentally-sustainable economy

• Build the most advanced environmentally sustainable urban systems

• Expand the domestic and regional economy – and build it on environmental sustainability principles

• Build a social movement to promote the rapid achievement of an environmentally-sustainable economy

For an effective start, what should we do now?

• create methods and scenarios for the fast achievement of an environmentally sustainable economy – use these for discussion (& then action)

• create a network of professionals to build skills and promote the idea, within mainstream society, of creating an environmentally sustainable economy

• Promote the “Race to Sustainability” program as a way of engaging societies

http://www.green-innovations.asn.au/Race-to-Sustainability.htm

Catalyse change

SCOPE OF BUSINESS

OPPORTUNITIES -ARISING FROM THE

RESPONSE TOENVIRONMENTAL

ISSUES

Certain businessopportunities

Possible additionalbusiness opportunities

F

A

E

B C

A Double-dividend economicperformance

B Trend line of economicperformance - not a prediction

C Pessimistic view of economicperformance under the influence ofgreen measures

D Economic growth begins to bedecoupled from resource use

E Economic growth curve traditionallycorrelated with resource use

F Material resource use ‘bell curve’:quantity consumed per year

D

Key ‘take away’ message

Crisis and opportunity

• We have a crisis on our hands – ie. the need to actually achieve environmental sustainability, very fast

• But this can be an opportunity to make the paradigm shift to create a quality-driven economy, based on compassion, wisdom and creativity

Thank you

Extra slides

The principle of eco-efficiency(dematerialisation)

• Aim for Factor ‘x’ improvements in eco-efficiency

• Don’t lock into arbitrary Factor 4 or Factor 10 goals

• Calculate afresh See Dutch “Sustainable

Technology Development” book

The principle of closed-cycle

• Power with renewable energy

• Physical products and materials & energy should be managed to retain their entropic quality as long as possible: through combined processes such as:

Strategies/initiatives forzero waste - 1

- Maintenance / containment

- Repair

- Reuse (whole systems)

- Re-manufacture (component reuse plus)

- Reprocessing / waste warehousing

- Up-cycling

A new waste hierarchy for a zero waste society

Winding down the transit ion

Gearing up/ mobilising resources

The big leap - making it

happen on the ground

Awakening

Cruising

#### delayed takeoff

Imagin ing/ mobilising people

Action on the ground

The constipation stage (partial action, major resistance)

Transition time: 30 years or

less

Earth’s crust

Biosphere(zone of

life)

Earth’s crust

Biosphere(zone of

life)

Philip SuttonGreen

Innovations19 May 2002Version 2.e

Producing the physical platform

Delivering services via a

physical platform

Using services on a

physical platform

Meeting individual,

social &environmental needs of the

world’s human population; and

meeting the needs of nature

Reprocessing / resource

stewardship / closed-cycle production

Reverse processing /

reverse mining (sequestration)

The new sustainability-orientated economy

Reverse processing /

reverse harvesting

All powered by renewable

energy

and mining from the biosphere

•Eco-efficiency / Dematerialisation(ratio of service value/materials)

•Product stewardship (attached to the dominant brand

managers)

•Closed-cycle•greenhouse-

friendly•biodiversity-

friendly, renewable

Processing

Biological resource harvesting

Miningfrom the earth's crust

Introducing broad-based ecotaxation

Introducing broad-based ecotaxation

$

Time

expand

Investment/subsidy

Wagesupplements

Eliminate payroll taxes

Research and development

Education

Year X

Peak 1

Downswing 1

Trough 1

Upswing 1

Peak 2

Downswing 2

Trough 2

Start regulatory

taxes

Spread new paradigm

Reach consensus on new paradigm

Prepare initiatives

Sell new paradigm products

Cost saving, risk management &

customer loyalty measures

Early moversexplore 

Cost saving, risk management & customer loyalty measures

Early movers explore

Lock in initiatives

Start new investments

Year X+1 Year X+2 Year X+3 Year X+4 Year X+5 Year X+7 Year X+9Year X+6 Year X+8

Managing for sustainability-promotion through the business cycle

Opportunity to develop the economy

Scope for quality improvement

Scope for extending service provision

Enjoyment / challenge

Poverty elimination

Health

Caring, community building, family friendliness

Material economy transformation, env. & restore

Peace & anti-corruption

Plus:; Knowledge expansion; Wisdom & decision-making; What else?

Can

acc

eler

ate?

Can

acc

eler

ate?

Impo

rtan

ce

Development areas that can grow strongly in physically constrained world

Str

ong

boos

t to

prod

uctiv

ity?

Attr

activ

enes

s to

pu

rcha

ser/

inve

stor

s?

Cheap materials

nowOldparadigm

New paradigm

Powerful knowledge

Freedom is knowing the line of least resistance!

past

new future

old future

Waves of Innovation. Including proposed 6th wave of innovation driven by the challenge to achieve ecological sustainability. (Natural advantage of Nations, 2005)

Entraining the necessary with the highly desirable