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The Path to a Green Economy – Lessons From Germany

What green economy deals with is the idea of running our businesses in a sustainable way. All of them. All of us. Running a business in a sustainable way means that, while doing business, you preserve the basis of your business. One business may be based on a talent, another one on an idea, a third one on luck. There are capital intense businesses, risky businesses and there is dad’s business. What they all have in common, every single one of them, is they all require a certain state of affairs to run. I don’t refer to the classic triangle of land, labor and capital here – I stretch the point to emphasize that without air there is no combustion engine, without fertile soil there is no food production, and without biodiversity there is no tourism industry.

By this wider definition, it all comes back to mother earth. Whatever we call it – Gaia, Patcha Mama, planet, Earth – our businesses are all based on having this planet in good shape. If the Earth is unbalanced, eventually our businesses will fail. A diminishing stock of natural capital, in the vocabulary of economics, eventually destroys our revenues. Extinction of species, paving over of soil, loading the atmosphere with pollutants beyond its capacity – we are facing an incredibly short-sighted destruction of our capital. Preserving this incalculable capital is the goal of the green economy. In a few simple words: green economy deals with making money without destroying the basis for making money.

Printing a Green Economy in Blue

It reaches as far back as 1989, when the term was first introduced into the political discussion. The heavily cited Blueprint for a Green Economy, having never lost its capacity to fascinate, defines five goals that the economy has to comply with:

  • constant reduction of emissions
  • 100% closed loop recycling
  • drastically diminished resource consumption by increasing energy and resource efficiency and by substituting fossil resources with renewables
  • use of 100% renewable energy in the long term
  • preservation of biodiversity and revitalization of negatively affected environments

Sounds good. But how do we get there? Let’s see how Germany, a country with a green image of world-wide renown, is trying to make a substantial shift towards a green economy. As an excellent starting point, I will introduce you to the “2011 Report on the Environmental Economy”. This document, published jointly by Germany’s Federal Environment Ministry and the Federal Environment Agency, contains some sophisticated data and some comprehensive statistics in its 200 pages. I show you the most interesting findings and the most important steps Germany will take in the next ten years. In English, there is only a press release available. But never mind that the full report is in German. I will review the findings for you in English.

How to Shift to a Green Economy

What a state can do, in order to encourage its population to participate, is to foster green innovations on all levels. This implies the promotion of green innovations not only in production, but also in research & development, in the market introduction phase, and through technology transfer to other countries. But the responsibility lies not only with the government. The realization of a green economy also requires that companies invest in the qualifications of their personnel. Banks should develop easier finance models for green investments. And, above all, an environmental policy framework is needed that allows all stakeholders to pull in the same direction.

Practical Indicators: How Green is the Economy?

One important indicator of an economy’s sustainability is energy productivity. Energy productivity measures the relation between gross productivity (GDP) and primary energy consumption. In a sense, how much money does a country earn and how much energy does it use to do so? Germany has the goal of doubling its energy productivity in 30 years, from 1990 to 2020. There is some work left since productivity increased by only 39% between 1990 and 2010. In the last 10 years, energy productivity has increased by only 1.1% – so in order to achieve the 2020 goal, it should rise by at least 3.7% annually.

Another important indicator is resource productivity, which deals with the relation between GDP and raw materials. All abiotic raw materials are included here – those imported from other countries as well as those extracted inside national borders. Germany’s sustainability goal foresees a doubling of resource productivity from 1994 to 2020. So far (’94 to ’09), it has increased by 47%. One way to increase raw material productivity is to increase the lifespan of products, and to facilitate reuse of their components once they become obsolete.

There is another indicator you have certainly thought of: total greenhouse gas emissions. Germany’s goal is to reduce them by 40% from 2011 to 2020. Other indicators are land conversion due to urbanization and transportation, which is measured in additional space taken per day, and air quality, measured in total emission of pollutants per year.

External Effects: Taking into Account the True Costs

It is argued by many economists that subsidies for renewable energy are too costly. In a serious discussion, however, we should include both the direct and the indirect costs of, for instance, power generation. The indirect costs are mostly long-term costs, e.g., when the health system has to pay for problems linked to the emission of pollutants. Not the polluter, but the general public will pay. This is referred to as an external cost. External costs, are costs generated by a business, but not paid for by that business. So when we compare the true cost of fossil fuels to that of renewable energy, a holistic approach is necessary, one that assigns the true costs of each power source. The following graphic gives you an impression of how cheap, or rather expensive, fossil energy is, compared to renewable energy.

However, the loss of biodiversity is not included in this calculation because it is hard to monetize. Hydro power, for instance, will generate more costs than the displayed 0.1 cent per KWh because the destruction of fluvial ecosystems and loss of habitat is linked to the installation of hydro power plants. On the other hand, this impact is trivial compared to the cost of fossil fuels. It is striking that coal power generates 8-9 cents of external cost per KWh! If this were to be included in energy bills, cheaper renewable energy, like wind power, would be fully competitive on the marketplace.

Benefits of Environmental Management Systems

What an Environmental Management System like ISO 14001 or EMAS can do for the environment is clear. However, it will also benefit your organization. While systematically reducing emissions, you also systematically reduce raw material and energy costs, improve your relationship with all your stakeholders, and lay the basis for a business beyond the oil era.

Life Cycle Cost Analysis for Public Sector Purchasing

In Germany, public procurement results in annual purchases of 260 billion euros. When calling for proposals, it is not the purchase cost, but the total life cycle cost that should be the deciding factor. All costs – for the purchase, for use and for disposal of a product – are included in its life cycle.

To conclude, we can see that there are infinite possibilities for moving toward a green economy. If you want to take a closer look at the report, you will find it here (in German).

Article image by Moritz Buehner, based on the image “nature” by wot nxt and tjuel‘s German flag, found on flickr.

moritzbuehner

4 comments

  • Interesting figure on the true cost of power generation. I missed nuclear power, though. That issue is too sensitive, I guess, given that the German government has issued the report. Nuclear power would actually do quite well in terms of air pollution and global warming, but not so if it comes to health issues and risk considerations….

    • That issue is too sensitive, I guess

      Probably, yes. Another option would be that since the Fukushima events, nuclear energy is out of discussion in Germany, anyway. Concerning the climate related emissions of nuclear power, we should not forget to include the fossile fuels consumed in uranium mining and the methane emissions of all the concrete used for power plant construction.

  • Thanks for the info, good article. There are many hurdles Germany still has to take in order to realize the sustainable future it’s been envisaging for so long. The ongoing “Endergiewende” shows very well how difficult sustainability gets once it leaves the academic ivory tower and is put into practice. Nevertheless, every hurdle is worth the effort as not only will Germany benefit in terms of reputation, it will also be more competitive once energy things turn sour for others.