3 Opportunities – Strategic options for the manufacturing sector
In its Vision 2050 report, the World Business Council on Sustainable Development (WBCSD) (2010) describes a world in which the manufacturing industries follow life-cycle approaches that enable dematerialisation and expanded service systems. In a sustainable world of about 9 billion people by 2050, a complete range of new products and services is offered, based on high longevity, low embodied water, as well as low-energy and material content. This transition will not happen overnight, and it will require substantial investment. A major challenge is one of transition in industrial production, to become less carbon and material intensive while at the same time preserving jobs or reinvesting in completely new employment opportunities. This is particularly relevant for developing and emerging economies that currently invest heavily in conventional production infrastructure. Both at the country and industry sector level, improved resource-efficiency and decoupling offers the opportunity of competitive advantage and a sustainable future.
To what extent will green investments in efficiency have a more favorable payoff than conventional investments? Big companies normally set their hurdle Rate of Return on Investment (ROI) at around 25 per cent, pre-tax. There is overwhelming evidence of significant opportunities for efficiency investments that yield much higher rates of return, even under current economic conditions. The economic opportunities increase dramatically at higher carbon prices.
3.1 Decoupling and competitive advantage
As indicated earlier, historical evidence shows that declining energy intensity in industry and relative decoupling have typically been offset by increases in energy demand associated with higher levels of GDP. In addition, there may have been additional demand for energy as an input owing to a decline in its relative price and to the increase in economic growth owing to the gain in resource efficiency itself; the two effects together are sometimes called the rebound effect. Overall emissions, energy use and material use have kept on growing despite lower emission, energy and material use per unit output as seen in Figure 7 (Krausmann et al. 2009). Resource extraction per capita has been stable or increasing only slightly. What economies world-wide need is absolute decoupling of the environmental
pressure associated with resource consumption from economic growth. This will be easier to achieve to the extent that resource use itself becomes more efficient.
In recent decades, OECD countries have decreased their extraction intensity per US$ of GDP, reflecting some decoupling of primary resource extraction from economic growth. This trend is expected to continue. The main drivers are increased applications of more material-efficient technologies (technology effect), shifts from the primary and secondary sectors towards the service sector (structural effect), and associated increases in material-intensive imports (trade effect) owing to outsourcing of material-intensive production stages to other world regions (OECD 2008). For the world as a whole, of course, there is no trade effect because one country’s imports are another country’s exports.
The decoupling of material use from GDP growth has been less pronounced in fast-growing transition economies that need to build infrastructure, which requires more
225 200 175 150 125 100 75 50 1980 1985 1990 1995
Gross domestic product (GDP) Resource extraction Population Material intensity
Figure 7: Global Relative Decoupling trends
1980-2007 Note: This figure illustrates global trends in resource extraction, GDP, population and material intensity in indexed form (1980 equals a value of 100).