Many European companies innovate but large material efficiency gains often remain elusive. This is leaving much untapped potential for economic and environmental improvement.
The European Innovation Observatory (EIO)’s first annual report pulls no punches: European companies are innovating but their efforts are far from what is needed in the context of resource-efficiency policy. The EIO is an EU-funded platform collecting data on eco-innovation to advise businesses and policymakers on how to dematerialise the European economy and make it more competitive. It is part of the Eco-Innovation platform under the Europe Innova initiative, which aims to help enterprises innovate.
Europe has managed to decouple materials use from growth in gross domestic product (GDP) but the absolute level of material consumption has increased – by 8% from 2000 to 2007. The picture darkens if imports are included – Europe more than any other region shifts the environmental cost of resource use abroad. The challenge for the future, according to the authors of the report, is to further improve resource productivity, while ensuring the absolute decoupling of economic growth from material consumption.
For the EIO, eco-innovation is no longer just about inventing green technologies to curb pollution, but about minimising natural resource use across the whole life cycle of a product. The anticipated benefits range from lower materials costs and new markets for businesses to less environmental damage, materials security, a higher quality of life and green jobs.
What the EIO report contributes is a first-ever country-by-country analysis of eco-innovation performance. This European Eco-innovation Scoreboard is based on 13 indicators in five areas: eco-innovation inputs (e.g. total level of financial support for eco-innovation), activities (e.g. share of firms taking part in eco-innovation), outputs (number of patents), environmental outcomes (e.g. water, energy and carbon intensity), and socio-economic outcomes (e.g. employment in eco-innovation industries).
The top slot is grabbed by Finland, followed by Denmark, Germany, Austria and Sweden. A second group of countries is clustered around the EU average: Belgium, the Netherlands, the UK, Ireland, Spain, Italy, France and Luxembourg. The third and final group bringing up the rear consists of the rest of southern and eastern Europe.
A closer look at how countries score across each of the five component areas reveals that not a single one could serve as a role model for them all. In the ranking for environmental outcomes for example, overall number one scorer Finland drops to 19th position. Indeed, all of the top five scorers do relatively badly in this category. “Good performance in eco-innovation does not automatically translate into good environmental performance in absolute terms”, conclude the authors.
This could be because the innovations take place in countries with high GDP growth that cancels out their beneficial effects, or because they need more time to take effect. A strong correlation between eco-innovation and GDP, and with competitiveness, suggests why it might be harder for newer, less well-off Member States to eco-innovate. Country success on eco-innovation depends on economic and social structure, and varies with access to human capital and financing plus historical trends and natural resources.
The biggest challenge for policymakers, the report argues, is to find ways of inspiring eco-innovation in the countries undergoing economic and environmental modernisation. In those countries the potential for resource savings is often greatest, but the capacity for realising them the least. Equally, it is important to identify where the leaders of the pack sit in the value chain – how important are they and how can their impact be maximised? Establishing targets for resource consumption is necessary if companies are expected to invest seriously, say the EIO report’s authors. The report presents scenarios for Factor 2 (reducing absolute material consumption by 50%) to Factor 5 (reducing consumption by 80%) for an absolute reduction in material consumption by 2050. It points out that to be effective such macro-level targets would need to be differentiated, taking into account the regional and sectorial context, and transformed into concrete incentives for companies.
According to the German Material Efficiency Agency (DEMEA), the potential of SMEs to improve their material productivity may be even higher than that for large enterprises. The EIO will use German case studies to develop a marginal cost curve for material efficiency. This will provide an aggregated view of different material efficiency measures, their costs and potential. It is intended to help SMEs in particular make strategic decisions on what they can do. The idea is to provide a reference framework useful to all, to be complemented by company-specific analyses.
Already the EIO report provides good practice examples SMEs may find useful, from a web platform to facilitate the reuse of construction materials in Hungary to recommendations for “urban mining” to recycle raw materials already in use in cities.
According to the Eurobarometer 2011 survey, over three-quarters of eco-innovating companies had improved material efficiency by no more than a fifth. Only two out of a hundred said their innovation had cut material use per unit output by at least 60%. So far, eco-innovation is driving incremental rather than fundamental change. If such incremental eco-innovations are implemented continuously, a significant change in terms of material use could be delivered, says the EIO. But if they are one-off measures, the eco-innovation intensity of European companies is not enough to achieve Factor 2, never mind Factor 5 targets, it warns.
The economics make sense, the authors point out: case studies in Germany reveal that companies could save an average of €200,000 with investment costs of under €10,000 for nearly half of the companies involved.
Meeting the Factor 2 to Factor 5 targets will require both intensified public policies and more private investment both towards resource efficiency and absolute dematerialisation, the EIO concludes. Any targets should be based on comprehensive indicators that include indirect consumption based on international trade.
After the summer the European Commission will present a resource efficiency roadmap as part of its resource efficiency flagship initiative under the EU’s 2020 strategy for growth and jobs. EU environment commissioner Janez Potočnik wants targets to be a part of this.