Energy Efficiency in the context of Sustainable Development
Björn Stigson, President
World Business Council for Sustainable Development
American Council for an Energy Efficient Economy Summer Study 2003
It is a great pleasure to have been invited to your bi-annual meeting, and to be speaking to you today about the WBCSD’s perspective on the role of energy efficiency in the grand scope of sustainable development.
I spent 25 years of my working life in four different multinational corporations –
eight of those years as CEO. In this capacity I attended many stakeholder meetings like this one here today and I know the challenges in selecting the right topics and speakers. This is why I am honored and pleased to have been asked to address you today.
Energy efficiency is a topic of high relevance. It is on the agenda of environmentalists as well as government representatives and business. The first group sees energy efficiency as an effective way to reduce greenhouse gases, the second as a way to strengthen energy security and independence from OPEC countries. In fact, with the shortage of natural gas in the US currently being a high policy priority, the government has lately pushed the agenda of energy efficiency. For business, energy efficiency represents just one more way to cut costs and achieve a competitive advantage.
My principle message is simple: energy efficiency is the first step in addressing climate change and presents a widely unexploited opportunity on our way toward sustainable development. Given today’s technology
standards there is great potential to reduce energy consumption without compromising the desired outcomes. There are many examples of industry leaders who are realizing significant benefits of energy efficiency – and I will
later tell you about a few of them – but mainstream industry, and in fact
society as a whole, has still a long way to go before realizing the full savings potential.
Before I dive further into the subject matter, I would like to introduce the organization that I represent.
Today, the WBCSD is a coalition of 165 international companies united by a shared commitment to sustainable development. Our members are drawn from 35 countries and more than 20 major industrial sectors and are represented in the council by their CEOs or equivalent. We have 7 members from Canada, 33 from the US and 3 from Mexico. Many of our American members come from energy-related industries such as pulp & paper, automotive, mining and minerals, chemicals, petroleum refining and oil production, and from the energy generation industry.
We also benefit from a Regional Network of 40 national and regional Business Councils for Sustainable Development (BCSD) and partner organizations involving some 1,000 business leaders globally. The USA also has a local BCSD located in Houston. Our Regional Network gives us a particularly strong platform in the developing world.
Our objective is to participate in policy development to create a framework that allows business to contribute effectively to sustainable development. We work to demonstrate business progress in environmental and resource management and corporate social responsibility and to share leading-edge practices among our members. We recognize the importance of global outreach to contribute to a sustainable future for developing nations and nations in transition.
To give a further idea of the scope of the WBCSD, member company turnover aggregates approximately 4,000 billion US dollars. The full market capitalization of the WBCSD members is close to 3,400 billion USD and they employ approximately 11 million people. Furthermore, our member companies combined touch about 2 billion customers daily, a third of the world’s population, either through the sale of a product or the provision of a
From Stockholm to Johannesburg
The history of sustainable development is a modern one; it has been a 30 year journey. It started in 1972, when the UN Stockholm Summit took place, with a focus on the environment. Twenty years later, in 1992, at the Rio Earth
Summit, the focus broadened to include both environment and development. And in Johannesburg, at the World Summit for Sustainable Development (WSSD) last September, for the first time, a global summit looked at all three pillars of sustainable development in an integrated way.
The journey from Stockholm to Johannesburg has been focused on norms and principles for sustainable development. Johannesburg marks the start of a new phase with an emphasis on implementation of sustainable development. The Summit in Johannesburg was clearly marked by a shift from an environmental focus to the broader social and sustainability challenges. This is also changing how these issues are being managed. These issues are on the board-room agenda and are actively being integrated into brands and business models.
From 1992 to 2002, we could also witness a shift of the balance between the key elements of society. We have moved from a bipolar world made up of Governments and NGOs to a tripartite world of Governments, Business and Civil Society working in partnership to find solutions to sustainable development issues.
Setting the Scene: Post-Johannesburg Legacies
The WSSD left some important legacies:
1. SD Goals: It reconfirmed the Millennium Development Goals (MDGs) and the target for Official Development Assistance (ODA) of 0,7% of GDP that was agreed in Rio. These goals do surprisingly and unfortunately not address the need for access to energy for the 1.6 billion people who are currently not connected to an electric network. 80% of these live in South Asia and in Sub-
1. Saharan Africa
1 IEA, World Energy Outlook 2001
Agenda is a 2. The Plan of Implementation of Agenda 21: This
comprehensive plan of action to be taken globally, nationally and locally by organizations of the United Nations System, Governments, and Major Groups in every area in which human impacts on the environment. This
document was agreed upon by all of the governments that were represented at the Summit. It is long and tedious to read, but it gives a hint of where the government priorities lie. It is important to note that the successful implementation of Agenda 21 is highly dependent on providing access to energy for the poor.
3. Corporate Accountability: Corporate accountability was a key campaigning theme for NGOs in Johannesburg. However, they did not manage to get any strong language into the government declarations. Even so, it is a topic that will be of significance to the business community for a long time. Interestingly, the debate has also turned on the need for NGOs to become more
transparent and open.
4. The Multilateral System? The shortcomings of the international multilateral system were evident in Johannesburg, and its functionality was debated and challenged by governments. It is likely that there will be strong ambitions for reforms of the UN system with regard to SD. However, reforming the UN is not an easy task. From governments, there is very little appetite for another large world summit in the foreseeable future.
5. Partnerships: This was one of the prevalent themes of the WSSD. It is clear that no party can resolve the SD challenges on their own. So, what kind of partnerships do we see going forward?
There is a growing interest from business to look at the sustainability performance and challenges for the whole value chain of an industry sector. They want to better understand future challenges in order to create more stable platforms for long-term investments, and to strengthen their “license to
operate”. A typical example is the WBCSD Sector Projects. These are
projects conducted and funded by member companies that are jointly in one specific industry sector and that are interested in exploring SD issues in the entire supply chain of their industry. We currently have several projects in this category: forest products, mining and minerals, cement, and mobility. Companies can also influence the performance of their peers via voluntary, industry-specific standards, such as the chemical industry has done successfully with its Responsible Care program.
Sustainable development is a relatively new concept for which the proper framework conditions have yet to be established by governments. Business has to remain an active player in designing these policies and therefore should engage in open dialogues and partnerships with governments.
With Civil Society
The involvement of civil society (NGOs or other interest groups) in a company’s efforts toward sustainable development is a way to gain credibility and the trust by the public. In addition, specialized NGOs provide expertise and new perspectives, which can help a company improve their sustainable development performance. However, we see a substantial problem with a lack of capacity and funding within the NGO community. Foundations, and particularly those of the US, have been a major source of funding for NGOs. However, with the foundations’ endowment value having drastically declined, the issue has come further into focus.
Over the past years, the roles of Government, Business and Civil Society have changed:
； The power of Government has diminished
； Business has become an accepted and wanted partner in finding solutions. ； Civil society has switched from primarily activism and awareness creation
to engaging as a constructive partner in dialogues and solutions.
Looking toward the future, there are two sustainable development agendas that business needs to address.
; The first agenda is a Public Policy Agenda driven by forces outside of
business. This agenda is dealing with the framework conditions and
policies that are set by society for business. Key issues of the Public Policy
Agenda include topics like the following:
o Globalization and global governance
o Poverty eradication
o Sustainable production and consumption
o Health of the ecosystems
o Role of innovation and technology
o Accountability and reporting
o Energy and climate change
Let me underline that this agenda is not something companies can choose
to deal with. It is coming our way whether we like it or not.
; The second agenda, the Business Agenda, is focusing on the Business
Case for Sustainable Development. It has to do with why corporate
sustainable behavior makes business sense.
Energy and Climate
Having set this background, I would now like to give a more detailed overview of the Energy and Climate debates going on at both national and regional levels. This topic is not just part of the Public Policy Agenda. Energy efficiency makes business sense, because it reduces cost. Therefore, it touches on the Business Agenda for Sustainable Development.
The challenges connected with Energy and Climate Change are numerous. I
am not going to elaborate on the content of scientific debates about cause and effects of the warming of our planet, since I assume that you are all well
informed about the situation. Rather, I would like to touch upon the connected policy discussions.
As opposed to a decade ago, the debate on energy and climate change now focuses considerably more on energy than on climate. Today, it is taken for granted that we must address climate change in some way. How we do that is highly dependent on the future energy infrastructure.
The IEA estimates that global energy demand will increase by 66% between 2000 and 2030. Their World Energy Outlook from last year gives a sobering perspective on this. The share of fossil fuels in primary energy demand with present energy policies will grow from 87% to 89% by 2030. Hydro and nuclear power are going down due to political constraints. Renewables are growing, but not fast enough to make up for the reduction in hydro and nuclear, which explains the increase in fossil fuel use.
To generate the electricity needed for this growth in energy demand 5,000GW generation capacity needs to be installed over the next 30 years, in order to both replace obsolete power stations and to catch up with the ever-increasing energy demand. To put this in perspective, the total installed electricity generating capacity today is 3,400 GW. To give you an idea how massive the amount of 5,000 GW is:
; A nuclear power station has normally 1GW of capacity
; A typical coal fired power station has a capacity of 350 MW, or 0.35 GW.
This means that 5,000 GW equals 5,000 nuclear power plants or
approximately 15,000 coal fired power stations, all to be installed in the next 30 years. Of course the capacity mix that will be installed will be very varied but there is limited time available to develop and install completely new technologies. The make-up of the portfolio of this new capacity will influence energy infrastructure for a very long period of time.
There is one fact in the climate debate that everyone seems to agree upon, namely, that the carbon concentration in the atmosphere is increasing and what cannot go on forever will eventually come to an end. Against this background, we could see a growing debate at the COP 8 (Eighth Conference of the Parties to the United Nations Framework Convention on Climate Change) in Delhi in November 2002 about how to adapt to climate change.
We have entered a new era – a carbon-constrained world. We can assume
with much certainty that carbon emissions will therefore carry a cost in some form: Carbon taxes, emission reduction targets, research and development, and the introduction of new technologies.
Climate change is a global problem that needs a global response. However, we still lack an agreed global framework, which is creating uncertainties and is slowing down actions by business.
The Kyoto Protocol is a case in point. Ratification of the Protocol depends on Russia, but it is unclear when they will take a decision. Depending on Russia’s decision, we could have a divided world: a Kyoto part and a non-Kyoto part. Or we could end up with a non-Kyoto world after six years of global negotiations.
What is the business community doing about climate change? Progressive business leaders are looking to stay ahead of the curve. They are addressing climate change through voluntary emissions limits, offset schemes, internal trading, and other forms of corporate voluntary activity that let them make use of market mechanisms to move beyond or ahead of regulation.
In the United States, for example, despite the government's decision to not ratify to the Kyoto Protocol, many U.S. companies have made their own commitments to reducing greenhouse gas (GHG) emissions. DuPont, for instance, has committed to reducing its GHG emissions by 65 percent from a 1990 base, and by 2000 had already cut them by 60 percent.
The Chicago Climate Exchange is another example of corporations voluntarily reducing emissions. The voluntary cap-and-trade scheme includes fourteen participating organizations including companies from the energy, agricultural, forest product, chemical, electronics and service industries together representing 19 percent of GHG emissions in the US. They agreed and bound themselves to a voluntary emissions reduction of a total of 4% below baseline ( =average of emissions 1998-2001) by the end of 2006. When a company has reduced emissions by more than the prescribed cap, it can sell its credits to other members in the trading scheme who have not yet reached their target.
Also, government sponsored incentive programs encourage companies to improve their energy efficiency. The US Departments of Energy and
Environmental Protection Agency have pursued several significant programs, such as the appliance standards and the ENERGY STAR labeling program, aimed at improving the efficiency of appliances, buildings, computers and lighting. The EPA estimated in 1999 that $100 billion could be saved by Americans if the ENERGY STAR program was fully adopted.
We can also note an increased investment in R&D for new energy related technologies by both government and business.
Different countries and regional governments are moving ahead with their own emissions trading programs for GHGs. The UK government, for example, announced in July 2001 the world's first domestic emissions trading scheme with government support of $42 million in 2003-2004 to kick-start the scheme by providing a financial incentive for companies to take on binding emissions targets.
In Europe, efforts remain geared toward implementing the Kyoto Protocol. The EU has established a mandatory emissions trading scheme on a multilateral basis, which will be launched in 2005. The goal is in correspondence with the Kyoto Protocol: to reduce emissions by 7% below 1990 levels.