Sustainable Consumption – what incentives?

Posted by Greening the Economy on 30/01/08

Reducing the environmental impact of consumer products – from the provision of raw materials over the production phase to consumption and disposal – is a challenge the Commission sought to address in its 2003 Integrated Product Policy (IPP) proposal.

This European Business Summit workshop will discuss how Sustainable Consumption in the EU can be brought forward. The EBS organisers welcome comments and contributions: use the comment form, below, or write your own post on this or any other “Greening the Economy” issue. More: see About this blog, or go straight to the ‘Submit A Post’ form.

The IPP has been criticised both by NGOs, who argue the policy lacks teeth since it contains no legislative provisions, and businesses, who say its focus on the environment is too narrow and that it should be up to business rather than public regulators to ensure the sustainability of products.

Partly in response these criticisms, the Commission has consulted stakeholders and is formulating an action plan on SCP as part of the EU’s Sustainable Development Strategy (EU SDS).

Much like in the case of the IPP, the main challenge of SCP is to find ways to decouple the resource intensity and environmental impact of consumption-driven economic growth.

In its first report on the EU SDS, the Commission notes that in the EU’s average material intensity is “approximately 1 kg/EUR, which is slightly less than in the United States, but twice as high as in Japan. The EU could save at least 20% of its present energy consumption in a cost-effective manner, equivalent to €60 billion per year, or the present combined energy consumption of Germany and Finland.”

What to expect from the action plan

To date, the Commission has been somewhat vague concerning its approach to SCP, putting a wide range of options on the table and leaving many stakeholders scratching their heads about what to expect from the action plan.

In a presentation on the preliminary outcomes of the SCP consultation, the Commission points to three challenges for SCP, providing several options (listed below in alphabetic order) for addressing them:

1. Creating a dynamic internal market for ‘better performing products’

a. Framework for Eco-design of products
b. Strengthening the EuP (Energy using Products) Directive
c. Dynamic Performance Requirements
d. Environmental Product Declarations
e. More dynamic standardisation

2. ‘Leaner and cleaner’ production

a. Targets: resource & material efficiency, eco-innovation
b. Reinforce eco-innovation & eco-technologies (ETAP)
c. Boost Eco-Management & Audit Scheme (EMAS)
d. Sustainability labelling of imported products
e. SMEs support and advice

3. Changing behaviours towards ‘smarter’ consumption

a. Environmental performance agreements with retailers
b. Market-Based Instruments
c. EU Eco-label overhaul
d. Misleading advertising/false environmental claims
e. Green public and private procurement
f. Education/awareness raising campaigns

The presentation notes that a priority list of products should be established, and that any new EU measures should build on, and be coherent, with existing ones.

The Commission also seems to have taken into account some recommendations made by the Centre on Sustainable Consumption and Production (CSCP) in Wuppertal, Germany, which calls for varying VAT rates according to eco-efficiency of products as well as “clear sustainability targets, concrete steps to internalise environmental costs into prices and a [new] Directive on green public procurement”.

Beyond case-by-case?

In a reflection of the IPP debate, many industries argue that any SCP policy would need to be flexible enough to accommodate the vast diversity of products on the EU market, and that a voluntary, case-by-case approach is more appropriate given the different challenges faced by individual sectors.

But given the increasing pressure on ecosystems, scarcity of raw materials and resources, as well as the imperative to address climate by reducing CO2 emissions, a voluntary framework in which each sector chooses its own goals and means to achieve them may no longer be appropriate.

Rather a sound policy framework with clear incentive structures appears necessary so that businesses can proceed with the necessary investments to correct or adjust production practices.

Consumers also need to be educated about – and be able to trust – any future labelling schemes, for example, so that they can make informed purchasing decisions based on the environmental impact of products on the market.

Weighing the incentives – question for debate

But what incentives are best suited to foster more sustainable consumption and production patterns?

To fuel discussion and debate, the following (non-exhaustive) list provides some examples of potential incentive measures:

  • Tax policy revision, including preferential VAT rates for ‘green’ products and services;
  • Preferential loans and financing conditions for sustainable production;
  • State subsidies (opportunity for participants to discuss recent proposed revision of environmental state aid rules);
  • More support for SMEs;
  • …

Further questions for debate

  1. Is the CO2 output of products – either during production or during their entire life-cycle – a reliable and transparent indicator of sustainability?
  2. What other indicators would be useful? Are there any indicators – water quality and usage, waste by-products, chemical content, etc – that should be absolutely mandatory in any scheme that measures the sustainability of products?
  3. What is the best driver for the creation of ‘better’, ie more sustainable, products? Sound regulation with proper incentives? Or should the market be left to decide?

Further reading/viewing

This post was submitted by Greening the Economy.

briefing, English, greeneconomy, sustainable consumption
Comments [RSS 2.0]

3 Responses to Sustainable Consumption – what incentives? »»

  1. Christophe Leclercq
    Comment by Christophe Leclercq | 2008/02/18 at 17:14:42

    Tax incentives to support sustainable consumption

    As I prepared my moderation of this EBS session, I felt our briefing could be more specific regarding incentives.

    Here below is what EurActiv’s journalist on sustainable developement wrote on this topic:

    Tax incentives are considered by many experts to be among the most effective tools for stimulating the development of cleaner yet more expensive goods, such as energy efficient appliances, cleaner cars, or renewable energies.

    In the case of the latter, Spain and Germany’s experiences have shown that guaranteed buy-back prices for electricity produced with renewable sources (feed-in tariffs) can provide a tremendous boost to a market that, in other EU countries like the UK, has been slowed by high investment costs and lacking incentives structures.

    The European Commission is certainly aware of the benefits of tax incentives and has, as part of the 23 January climate and energy proposals, enlarged the scope of what is permissible in terms of state aid for environmental protection purposes. Companies can now benefit from longer exemptions from certain environmental taxes, and the level of state support has been increased on average by 10% for activities such as waste management improvements and environmental impact studies.

    Going beyond the setting of guidelines towards the coordination of national tax policies at European level is difficult, however. A recent joint proposal by the UK and France in favour of reduced (and harmonised) VAT rates for green goods and services, for example, did not receive broad support from other member states, who must agree on such measures unanimously. Thus emerges a panoply of different tax incentive structures from one member state to the next, a situation that creates uncertainty for businesses and consumers alike.

    But even if tax incentives could be harmonised across member states, these kinds of market support mechanisms can hardly be considered successful if, after their expiry, the fledging markets they helped to stimulate simply collapse. In other words, a ‘tipping point’ must be achieved at which markets can become self-sustaining rather than subsidy-addicted.

    In the case of biofuels, for example, drivers in most EU member states enjoy a tax break at the pump when they choose these fossil fuel alternatives. But even though such support is permissible until 2018, most member states are expected to withdraw support much earlier. If, by that time, second generation biofuels are not readily available on the market and global competition for first generation transport fuels becomes more acute, there is a risk that biofuels will remain indefinitely more expensive than fossil fuels.

    It is important therefore to go beyond a discussion of tax incentives and to discuss a range of other incentive tools that could stimulate cleaner production and consumption patterns…

  2. Jim Murray
    Comment by Jim Murray | 2008/02/19 at 17:21:36

    Main points to be addressed as this EBS panel by Jim Murray, ex-director of consumer organisation BEUC:
    “My main theme will be that most of the initiatives to promote sustainable consumption have been rather disappointing in terms of their results.
    Two things are perhaps needed:
    A more combined approach,with different initiatives complementing each other.
    A more realistic understanding of consumers as they actually are, and not as we would wish they were.”

  3. Erika Mink
    Comment by Erika Mink | 2008/02/25 at 11:06:40

    Here’s my EBS presentation on the issue:


    By rob

    Erika Mink, Environment Director, Tetra Pak Europe


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