What is eco efficiency?

Green Growth emphasizes  the need  to  improve the ecological  efficiency of economic growth in the region. This will enable countries in the region to continue the much needed economic growth necessary for poverty reduction (MDG1) without compromising environmental sustainability (MDG7) of the region. Eco-efficiency was first promoted by the World Business Council on Sustainable Development as a business concept to improve the economic and environmental performance of individual firms.

The World Business Council for Sustainable Development maintains that eco-efficiency can be realized on the firm or micro-level through the provision of “competitively priced goods and services that satisfy human needs and bring quality of life while progressively reducing ecological impacts and resource intensity…in line with the earth’s estimated carrying capacity.”  When scaled-up to the national level, eco-efficiency can be described as the efficiency with which natural capital can be utilized to enhance socio-economic progress.  Clearly stated, improving eco-efficiency means enhancing the efficiency of how material inputs are converted into outputs with less impact to ecosystems and the environment as a whole.

Steps to improve eco-efficiency involve, for example, adopting a process or technology that reduces the amount of water or energy required to produce a good or service.  In a more holistic manner, it could also entail transforming the waste generated from that same production cycle into useable energy to power the process over again.  This byproduct could also be used as raw material in the manufacture of a secondary good.  Another solution could be to fulfill a consumer demand, such as that of transportation, by expanding access to public transit services.  An example of this might be the development of dense, diverse, transit-oriented communities, which by design offer attractive alternatives to automobile ownership.  

Innovations such as these provide examples of how eco-efficiency can bring about win-win solutions: benefiting the environment, increasing economic productivity through the generation of new green jobs, while contributing to the overall well-being of society.

Eco-efficiency is thus about reinventing and redesigning the method and manner in which we consume, produce, and fundamentally live our lives.  It is an opportunity to devise innovative solutions for adapting and coping within an ever-changing climate.  However, eco-efficiency is a temporary solution, feasible only as far as the transition towards sustainability can be achieved within an ever-expanding economy; that is, an economy based on finite natural resources and which leads to an increasing rate of externalites such as waste, pollution and climate change. 

Efforts to improve eco-efficiency have sometimes led to what is termed in the literature as the “rebound effect”. Rebound effects can be described as the loss of potential efficiency gains when a gain in resource efficiency corresponds with a lesser improvement in resource use”. An example of a rebound effect might be the more frequent use of airplane travel as such an option becomes more efficient in terms of cost and time. As history demonstrates, people are now traveling by air more frequently and further distances. This increase has outpaced the savings gained from increases in efficiency and is now having an even greater impact on the environment (e.g through greater levels of air pollution and GHG emissions). Increasing gains in eco-efficiency while avoiding the rebound effect can be achieved, in part, by continuously managing the market’s demand to pollute and use natural resources through clear price signals and regulation.

Eco-efficiency indicators

UNESCAP is developing eco-efficiency indicators (EEI) to better explain the linkages between economic activity, resource usage and environmental impacts in order to evaluate economic policies more effectively and thereby assist policy makers in improving the eco-efficiency of economic growth. The EEIs will measure how the environment is used for economic activity and how it is affected by economic activity. The EEIs are more policy relevant than other indicator initiatives, since they are being created in consultation with academics and policy makers from accross the region who have been using indicators to evaluate national and international policy making.

Ecological inefficiency: A failure of the market and price systems

Today, with 3.9 billion people or two thirds of the global population, 1.5 times the global population density, and the most limited access to natural resources per capita, the Asian and Pacific region must make cleaner and more thoughtful use of its scarce natural wealth. Ecological efficiency not only requires internalising the costs of extraction and processing, but also the ecological costs of usage of natural resources in the prices of goods, in order to make them more subject to the processes governing the markets.

Efficiency of resource use is one of the important variables for computing market price in the current economic system.  This price, however, does not reflect the full costs of the processing of inputs (natural resources) and outputs (wastes, effluents, emissions). For instance, if the effects on the natural system from the use of hydrocarbons were internalised into the cost of production, then a transition into renewables could be more effectively facilitated and the impact on the environment could be reduced. This transition has yet to occur.

As long as the environmental costs are considered as social costs and externalities, they will remain outside the workings of every transaction occurring in the market. This distorts the market and creates an ecological deficit, which in turn has a causal effect on the natural systems balance, often resulting in natural disasters and calamities. Uncalculated, these consequences bring additional market distortion by increased and unplanned costs for dealing with the aftermaths of such natural disasters.  To make matters worse, a multifold increase of payments for losses and compensations creates further disruptions in the functioning of the market forces.

This vicious circle could be reversed mostly through adopting the ecological efficiency as shown in the diagram below. This strategy does not require much additional costs and funding, as investments are recouped through improvements in efficiency.  For example, opting for eco-efficient modes of transport has the potential to substantially ameliorate congestion costs, which at present in some mega-cities is consuming a considerable percentage of the GDP.  Once these externalities become internalised figures in production cost, the private sector will have much more incentive to develop cleaner production methods, resource efficient production methods, full life-cycle production strategies, and so on.

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