INTEGRATING SUSTAINABLE DEVELOPMENT AND INDUSTRY POLICY

 

I. Introduction

1. This report is a response, in view ofthe EC Treaty as amended by the Amsterdam Treaty and in particular articles 2, 6 and 157, to the invitation of the Vienna European Council, continuing the process initiated by the Luxembourg and Cardiff European Councils, to submit a report on the integration of environment and sustainable development into industrial policies.

2. The report is based on the Council conclusions adopted on April 29th 1999. The Council has also examined the Commission working paper "Mainstreaming of environmental policy".

 

 

II. Objectives of sustainable industrial development

 

1. Industrial development is sustainable when all three criteria of sustainable development are met:

- production is economically sound, growth-oriented and safeguards the opportunities of future generations;

- employment is improved and other social aspects such as social security, equity, occupational health and labour market relations are taken into account;

- pollution, waste, environmental health risks and other pressures are minimised to the level of carrying capacity of ecological systems while using natural resources effectively and safeguarding natural capital and its productivity.

2. The three pillars are mutually re-enforcing and indispensable, and failure in any one of them will lead to unbalanced non-sustainable development. The consequences of a failure in integrating sustainable development may be long-term and even irrevocable. Industrial policy is sustainable if its aims and action meet all of the three criteria mentioned above.

3. Industrial policy is a broad collection of actions, affecting also the service sector and having competitiveness consistent with sustainable development and framework conditions for small and medium sized enterprises in its focus. Sustainable development should also be integrated to other policy areas which influence industrial development such as trade, competition, energy, transport, taxation, corporate governance, research, education and also environment.

The negative as well as positive effects of globalisation of industries, markets, environmental and social issues, in particular on developing countries reinforce the need to integrate sustainable development in trade and development policies.

 

 

III. Cross-sectoral issues

1. Production and consumption patterns play a key role in sustainable development. Changes therein are indispensable if prosperity is to be increased and emissions and other harmful effects diminished. Industry takes a large share of the environmental consequences of production. With new technologies, better awareness and management industrial production nowadays is achieved with less energy, raw materials and natural resources and with less harmful emissions than before. In the European Union, from 1985 to 1995 industrial output grew a fifth, but energy consumption remained stable and CO2 emissions decreased over 10 %; relative SO2 emissions were halved. However, for several environmental issues, more is required to improve the environmental quality and ensure progress towards sustainable development including reduction of emissions.
  1. In the longer term consumers’ habits and preferences and the development of technology determine the production pattern. Policies should create incentives to consumers to change their habits and business should actively develop new products to respond to more sustainable consumption patterns. Development of sustainable products and production methods will require substantial R&D efforts. Co-operation between governments, industry and their social partners is necessary to respond to this challenge.

3. Industry is increasingly adopting approaches which address environmental effects of products over their whole life cycle, i.e. acquisition of raw materials, production, use and disposal or recycling. The integrated product policy (IPP) approach is based on these life-cycle approaches and designed to develop new eco-product schemes (eco-design, eco-product development and product-related eco-services). The IPP should also aim at integrating environmental aspects in the framing of industrial standards. The IPP in itself is not meant to lead to additional regulation, but to facilitate evaluation of the need for measures and how to design efficient policies and enhance eco-management. The business sector should be closely involved in the development of integrated product policies and take the lead in voluntary actions so as to minimize the need for detailed regulation and to improve competitiveness. Other relevant stakeholders should also be involved in the process.

4. Eco-efficiency is an innovative concept launched by the business sector that combines both environmental and economic efficiency to create more value with less environmental impact. It aims at increasing the productivity of natural resources, diminishing material flows, especially non-renewable and toxic materials, enhancing recycling and product durability and the service intensity of products, while maintaining the competitiveness and economic efficiency of production and national economies. It encourages and facilitates industries to adjust their functions to meet requirements and goals of sustainable development. The long-term objective of eco-efficiency is decoupling economic growth from environmental degradation. Natural resource productivity must gain equal attention as labour productivity.
  1. Pursuit of sustainable development has its repercussions on employment. One of the three pillars of sustainable development is the social dimension, and the need for a high level of employment is a major factor. Competitive economies generate more jobs than stagnant economies. Changes in research and development and in production and consumption patterns into more sustainable direction diminish material flows, increase the share of services and the service intensity of products thus raising demand for human input. Moreover, recycling, revival of services and similar changes in habits may create additional jobs.
  1. Enlargement of the Union will present challenges and opportunities in respect of sustainable development as well. Community environmental requirements cannot be softened to facilitate the entry of new member states, but those States have to modernize production and policies. On the other hand, since environmental quality is best advanced through new and environmentally sound investment, enlargement will also promote progress towards sustainable development and create new business and employment. Industries in candidate countries need to become more competitive in order to generate resources for implementing environmental and social objectives. Substantial efforts are thus needed, and the Community should assist the process with measures including capacity building and promoting of transfer of technology.

 

 

IV. Climate change

 

1. The Cologne European Council recalled the Kyoto commitments and stated that policies on climate change are the most important example of obligations under the Amsterdam Treaty to integrate environment and sustainable development into policies of other sectors.

2. Substantial reductions in energy intensity have been achieved in the past. The Kyoto protocol sets a target for the Community to reduce greenhouse gas emissions 8 % by 2010; demonstrable progress should be made by 2005. While overall CO2 emissions in the EU area are increasing again, direct industrial CO2 emissions on the contrary are projected to decrease by 15 % between 1990 and 2010. Industry is affected in one way or the other, however, by virtually every action to curb emissions taken in other sectors.

 

 

3. Investment has to be based on well-defined long-term framework conditions. Therefore climate change policies should be stable and predictable. All measures whether market-based or regulatory need also to be combined into a cost-efficient mix, taking into account global considerations and to give industry flexibility, i.a. through Kyoto mechanisms, in the way it responds to reduction requirements.

4. Besides energy efficiency, there are many other ways where industry can help combat climate change. For example, reducing emissions of the greenhouse gas N2O seems to be possible with reasonable cost. The whole sphere of environmental management, labelling and standardisation is producing promising progress.

5. Numerous voluntary agreements have been concluded to combat climate change. The agreement with car manufacturers, to be implemented in the industry sector, is intended to contribute to sustainable transport by reducing the growth of CO2 emissions from passenger cars.

 

V. Actors and instruments of implementing sustainable development to industry

 

1. Governments should create appropriate general conditions to enable enterprises to proceed towards sustainable development. Tools that are most efficient to meet each of the three pillars of sustainable development should be selected. Horizontal measures should be applied taking into account specific sectoral problems as well. Reliance on traditional sector policies to change the production and branch structure is not necessarily efficient. E.g. shifting away in one region from energy-intensive production does not per se bring about global benefits as long as consumption patterns remain unsustainable and the outside supply is there. In all measures, functioning of the internal market is to be ensured.

2. To attain overall environmental targets and also not to distort competition positions it is necessary that enough attention at Community and national levels is paid to the special problems of small and medium sized enterprises (SMEs) and proper guidance and support given them. Larger firms have better conditions to adjust to new requirements, educate their employees and invest for cleaner production as well as to develop eco-products and create alliances to finance such innovations.

3. Economic measures, including e.g. tradable permits, are market-based and generally cost-effective. It is important to define policy-mixes and reach common positions that simultaneously are environmentally sound and maintain competitiveness. Subsidies may be needed to promote e.g. alternative energy sources and other sustainable action in various sectors, but subsidies that are harmful to sustainable development should be phased out without delay.

 

 

4. Regulatory measures have been applied especially in controlling local and regional emissions, harmonising product standards and when creating permit systems for individual plants. Regulation may, in certain cases, be economically sub-optimal and cause problems to SMEs. Regulation is still needed to guarantee a minimum level of environmental and health protection but more and more it should be complemented by other measures, such as negotiated agreements.
  1. Voluntary (also known as negotiated or environmental) agreements are a result of co-operation between enterprises and authorities, and hence industry is committed to goals and progress. Voluntary agreements should reflect interests of all companies, large and small, speed up necessary action, be transparent, flexible, cost-efficient and effectively monitored. The success of voluntary action is likely to be enhanced if mandatory legislation is clearly understood to be the alternative.

6. Through responsible entrepreneurship, eco-management (e.g. benchmarking, eco-labelling, eco-design, environmental reporting and accounting) and strategies for eco-efficiency individual firms may contribute to sustainable development. Mere compliance to regulations is not enough, but active adjustment of production patterns and business procedures, innovation and investment in technology are needed to achieve rapid progress. Business codes, such as the Responsible Care programme in the chemicals industry, have been developed, and more and more companies have adopted genuinely proactive attitudes and try to transfer the environmental challenge into competitive advantages (eco-competitiveness) and new business.

 

 

VI. Community action

 

1. Taking into account the Council [Industry] Resolution of 3 December 1992, concerning the relationship between industrial competitiveness and environmental protection, the Commission launched several studies, projects and initiatives to develop methodologies for cost-benefit and cost-effectiveness analysis, to promote the use of voluntary agreements, to monitor the integration of environmental aspects into company strategies, to increase the diffusion and implementation of cleaner technologies and environmental best practices and to promote the implementation of eco-efficiency strategies and environmental management tools. These were monitored in the Industry Competitiveness Report (1997) and the Report on the implementation of a Community Action Programme to strengthen the Competitiveness of European Industry (1998).

 

 

2. The Commission is a partner in the European Eco-Efficiency Initiative, a joint project of all stakeholders, which is an example of implementing integration of sustainable development and industry in a way that pays adequate attention to competitiveness.

3. Several projects have been carried out in the field of promotion and implementation of environmental management tools and best practices in industry. The Commission will support the creation of a European Environmental Benchmarking Network The Commission is invited to consider the development of initiatives for further promoting these tools and practices, including innovative sustainable product development projects. National experiences should be taken into account in this context.

4. European standards have been developed regarding the testing and sampling for environmental emissions, packaging and packaging waste and environmental management systems (EMAS regulation).

5. In the field of environmental agreements, which may constitute a basis for emission reductions in specific industrial sectors, the Commission has invited interested industrial associations to indicate the scope and modalities of their commitment before the end of 1999.

6. Industrial co-operation activities with third countries, which offer a great potential to spread European environmental know-how, to build local capacities and create new partnerships where European and local industries has competitive advantage, is foreseen to be initiated with business organisations from Asia and Latin America.

7. Community action would be desirable particularly when it complements national policies. In the field of energy taxation, the Council [ECOFIN] has on its table a proposal for a Council directive.

 

 

VII. Indicators and monitoring

 

1. Policy and performance indicators provide a tool to monitor the implementation of an integration strategy in industry. Those indicators should take into account the objective of industrial policy, i.e. increasing the competitiveness of the European industry, and allow for an evaluation on how industry and industrial policy are integrating environmental requirements and contributing to the achievement of sustainable development.

2. Specific sectoral indicators are under development jointly by the Commission services and the European Environmental Agency. As for industry, most of these indicators deal with companies. Eco-efficiency indicators provide measure also for assessing the commitment of companies and their contribution to sustainable development. Developing indicators at the level of a specific industry branch needs to take into account the availability of aggregated data and the different characteristics of the various sub-sectors.

 

3. The Commission is launching a study to identify policy and performance indicators as described above, and the results are expected by end-2000.

4. Indicators serve as a measure of progress. They are not a substitute for policy. They are indicative of the magnitude of achievements and possibly also of further progress to be aimed at.

 

 

VIII. Role of the Industry Council

 

1. The Council reaffirms its conclusions from April 29th 1999 and underlines the need to improve co-operation and exchange of information between the relevant formations of the Council in relation to sustainable development and competitiveness of industry.

2. The Industry Council will continue to play a key role in improving the competitiveness and innovativity of European industries and thus in promoting employment in industry and in related sectors. Parallelly, a strong contribution from the industry sector is required to enhance sustainable development in the economies.

3. Industrial development is affected by action in many policy areas. Mainstreaming of sustainable development and competitiveness into policies of all Council formations is called for.

4. The Industry Council needs to be well informed of planned policies and measures in many sectors. Similarly, other Councils should be aware of the competitive stance of European industry and the impact on it of their planned policies. Integration of sustainable development, i.e. the three pillars of it, would be promoted through openness in the Union. All relevant documents should be given wide and early distribution and be made available to all stakeholders whenever possible.
  1. Co-ordination within national governments should ensure that various Council formations and respective working groups take into account all relevant aspects and impacts of their action on economic objectives including competitiveness, social development and on environment.

 

 

IX. Conclusions

1. The integration of sustainable development with industry should be based on the Amsterdam Treaty and the main principles dealt with above:

- competitiveness is the focus of industrial policy, within the three dimensions (economic, social, environmental) of sustainable development;

- policies and measures should be cost-efficient and preferably market-based,

- voluntary action should be promoted when appropriate;

- co-operation with all stakeholders is essential;

- special attention to small and medium sized enterprises (SMEs) is important.

2. The ambition level of sustainable industrial policies at national, community, and global levels should be high, and this holds for the economic including competitiveness, social and environmental component. The European Union should maintain its position in the global avant-garde for sustainable development. Environment does not merely present threats and limitations to industry but will offer huge business opportunities, which in turn contribute to taking full account of the social dimension of sustainable development.

3. Integration of sustainable development and industry will contribute to climate change policies and measures to meet Kyoto commitments.

4. Through all sectors, pursuit of eco-efficiency can respond to many long-term challenges, and active input is called for not only from governments and enterprises but from other stakeholders as well, notably from consumers.

5. The process towards enlargement of the Union will require new efforts to modernise industrial production to meet the requirements of sustainable development. Through new and environmentally sound investment the three pillars of sustainable development will be mutually re-enforcing, and the Union should assist candidate countries to access the path of sustainable development.

6. The Council intends to continuously monitor progress towards sustainable development within all three pillars and to reassess policies.

7. The Council will continue its work towards a strategy including objectives, a timetable for further measures and a set of indicators taking into account this report and conclusions of the Helsinki European Council. The Council invites the Commission to submit, as soon as possible, to the Council, as a contribution to the strategy, an action plan for promoting integration. On this basis, the Council will flesh out the operational parts of this strategy until the end of the year 2004.

 

 

 

ANNEX II

STATEMENTS MADE RESPECTIVELY BY THE GERMAN AND DANISH DELEGATIONS


The utilisation of tax and duties by a Member State for environmental protection purposes encounters resistance in practice since the additional charge places the enterprises concerned at a competitive disadvantage. This is particularly the case in the field of indirect taxation insofar as no harmonisation has been achieved at Community level. It would be desirable, therefore, for Member States introducing or raising such taxes for these purposes (e.g. in the context of an ecological tax reform) to be given the opportunity to grant subsidies to economic sectors facing international competition in order to alleviate the effect of this competitive disadvantage.".

 

By now, Denmark would therefore have liked to see a genuine strategy with specific targets, means, timetables and indicators or an action plan for the integration process.

Denmark welcomes the fact that agreement has been reached on the need to work out a genuine environmental integration strategy to satisfy the requirement in Article 6 of the EC Treaty. Such further integration work should be pro-active and take account of the fact that industry policy can help to improve the environment.

Denmark would like the future strategy to include specific targets, means, indicators and timetables. It must also include a deadline for defining the strategy's short-term targets in the period up to 2004.

It is furthermore necessary to ensure that continued economic growth is not accompanied by a corresponding growth in consumption of resources and environmental damage.

 

The EC Treaty's long-term goals for promoting sustainable development should be achieved in the next two to three decades, and Denmark would therefore like to ensure that European industry has a clear basis for planning its activities with a view to promoting a wealthy and sustainable EU in which the environment, the economy and social conditions go hand in hand.

It is therefore necessary in a concrete strategy to set a long-term goal and a number of medium- and short-term targets which can and will be achieved in the spirit of the Treaty."

 

 

 

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