Decoupling: Thematic Strategy for Sustainable Development

1. Decoupling: Thematic Strategy for Sustainable Development Chung-Huang Huang Department of Economics National Tsing Hua University 能源經濟模型國際會議

2. CONTENT • Motivations • Concept and Issues of Decoupling • Types and Measurement of Decoupling • Problems with Decoupling Factors • Choice of Decoupling Factors • Concluding Remarks 能源經濟模型國際會議

3. Motivations • “ensuring that the consumption of resources and their associated impacts do no exceed the carrying capacity of the environment and breaking the linkages between economic growth and resource use” (common position adopted by the EU Council 27/9/2001) • Commitment to promote a 10-year framework in support of more sustainable patterns of consumption and production. (WSSD, 2002) 能源經濟模型國際會議

4. Thematic Strategy on Resources Studies (1/2) Source: EC DG Environment (2003). Sustainable Resources, Consumption and Waste 能源經濟模型國際會議

5. Thematic Strategy on Resources Studies (2/2) Public-Private Interface Resources: A Dynamic View • Review of efficiency of policy • measures and impact of • Subsidies • Inventory of objectives and • targets • Economic drivers and • competitiveness • Directing innovation • Establish goals and targets • Encouraging and review of • progress in resource • productivity and eco-efficiency • Review of growth trends • Environmental threats Estimates of Materials and Waste Streams • Overview of resource use • Material flow analyses • Criteria for priority setting • Accession countries 能源經濟模型國際會議

6. Major Subjects in Decoupling for Sustainable Development • Agriculture─ Decoupling agricultural subsidies from production • Energy─ Decoupling a utility’s kWh sales and its recovery of revenues to cover fixed costs • Environment─ Decoupling environmental pressures from economic growth • Transport─ Decoupling economic and transport growth 能源經濟模型國際會議

7. Decoupling: CAP • The approach of the Common Agricultural Policy (CAP), introduced during the MacSharry reform in 1992, is based on a reduction of price supports and an introduction of direct payments in order to offset the negative impact on farmers’ revenue. • The Agreement on Agriculture of the Uruguay Round is to introduce income-support tools that are decoupled from production, which they are if they do “not influence production decision of farmers, and permit free market determination of prices” (Cahill, 1997). • A single farm payment will replace existing payments under the main sectoral schemes (arable, beef and sheep); the single farm payment will be based on support payments received during a historic reference period (2000-2002). 能源經濟模型國際會議

8. Decoupling: Energy • An accounting technique that separates the amount of a commodity sold from the total revenues expected from those sales. This technique is often recommended for use in the energy industry by conservationists and some financial planners since it provides a means of insuring that utilities don't oversell energy to meet cost requirements or maintain profit levels. • Advocates of energy-efficiency programs favor decoupling because current ratemaking practices collect substantial revenues for fixed costs through a utility’s energy charge ($/MWh). 能源經濟模型國際會議

9. Decoupling: Environment • Decoupling environmental pressures from economic growth is one of the main objectives of the OECD Environmental Strategy for the First Decade of the 21st Century. • The strategy was adopted by OECD Environment Ministers in May 2001 and subsequently endorsed by the OECD Council at Ministerial level. • The Ministerial Council Communiqué, adopted at the latter meeting, asked the OECD to continue to assist its member governments in their efforts to achieve sustainable development. 能源經濟模型國際會議

10. The Concept of Decoupling • Typically, the term “decoupling” has often been used to refer to breaking the link between “environmental bads” and “economic goods.” In particular, it refers to the relative growth rates of a pressure on the environment and of an economically relevant variable to which it is causally linked. Source: OECD (2002). Indicators To Measure Decoupling Of Environmental Pressure From Economic Growth. 能源經濟模型國際會議

11. Two Types of Decoupling • Relative decoupling ─ Decoupling is said to be relative when the growth rate of the environmentally relevant variable (i.e., pollution) is positive, but less than the growth rate of the economic variable: the link has been weakened. • Absolute decoupling─ It occurs if environmentally relevant variable (pollution) is stable or decreasing whilethe economic driving force is growing: the link has been broken. Source: Belgian Presidency of the Council of the European Union, 2001, p. 70; OECD, 2002, p. 5). 能源經濟模型國際會議

12. Relative and Absolute Decoupling Growth of economy Decoupling Factor Growth of resource use Relative decoupling Growth of environmental pressure Time 1 Decrease of resource use Absolute decoupling Increase of environmental pressure 能源經濟模型國際會議

13. Measurement of Decoupling • Decoupling indicator is typically formulated as the ratio of the indicator containing the particular environmental pressure (preferably a “bad”) and that of the particular driving force (preferably a “good”) of interest. • Numerator and denominator will usually be several steps removed from each other in the cause‑effect chain of events. These synthetic measures may be calculated as ratios of averages, marginal quantities, or rates of change (to yield elasticities). • Many of the variables that feature in decoupling indicators also appear in the concepts of resource efficiency, resource intensity, and resource productivity. 能源經濟模型國際會議

14. Decouple Indicators: OECD (2002) • This report explores a set of 31 decoupling indicators covering a broad spectrum of environmental issues. 16 indicators relate to the decoupling of environmental pressures from total economic activity under the headings of climate change, air pollution, water quality, waste disposal, material use and natural resources. The remaining 15 indicators focus on production and use in four specific sectors: energy, transport, agriculture and manufacturing. 能源經濟模型國際會議

15. Typical Measurement: Average Depends on conversion efficiency and the fuel mix Depends on end‑use energy intensities, fuel mix, activity and structure of the economy Depends on emission factors and fuel mix TPES = Total primary energy supply TFC = Total final consumption of energy 能源經濟模型國際會議

16. Impact = Population × Affluence × Technology Or the Kaya identity equation (Kaya, 1990): CO2 Emissions = Population × (GDP/Population) × (Energy/GDP) × (CO2 /Energy) 能源經濟模型國際會議

17. Decoupling Strategies Total Impact = Efficient use of materials Recycling Substitute services for products Extended duration Modularity Multifunctionality Substitute materials Environmental Technologies End-of-pipe solutions Change in production patterns Change in consumption patterns Sufficiency 能源經濟模型國際會議

18. Total GHG Emissions per unit of GDP and per capita: 1990‑1999 Source: OECD (2002). 能源經濟模型國際會議

19. Decomposition of Energy Productivityin Selected OECD Countries Source: Peter Mulder and Henri L.F. de Groot (2004). Decoupling Economic Growth and Energy Use. 能源經濟模型國際會議

20. Carbon Intensity and Energy Intensity Carbon intensity Energy intensity Carbon intensity = Fossil carbon emissions / primary energy supply Energy intensity = energy / GDP in market exchange rates (fixed at the 1990 level). Source: Azar et al. (2002). 能源經濟模型國際會議

21. 18 CO2 Emissions in Taiwan: by Energy Kilo Tons Carbon Dioxides Solid fuels Liquid fuels Gas Total Source: ITRI (2004). 能源經濟模型國際會議

22. A Baseline Scenario in Taiwan Real GDP CO2 emission Trend Energy consumption Source: ITRI (2004). 能源經濟模型國際會議

23. International Comparison 能源經濟模型國際會議

24. Alternative Measurement: Elasticity where EP = Environmental Pressure; and DF = Driving Force. If the ratio is less than 1, decoupling has occurred during the period — although it does not indicate whether decoupling was absolute of relative. To avoid displaying (on a bar graph) small values when decoupling is significant, a decoupling factor is defined as: Decoupling factor = 1 – decoupling ratio The decoupling factor is zero or negative in the absence of decoupling and has a maximum value of 1 when environmental pressure reaches zero. 能源經濟模型國際會議

25. Decoupling Factor: GHG 能源經濟模型國際會議

26. Decouple Factors: NOx and VOC 能源經濟模型國際會議

27. Environmental Kuznet Curve (EKC): Alternative Measurement Pollution EKC Turning point Per capita GDP 能源經濟模型國際會議

28. Environmental Indicators and Per capita GDP Source: World Bank (1992). 能源經濟模型國際會議

29. Implications from EKC • The existence of EKC is sometimes misunderstood to imply that economic growth automatically leads to reductions in emissions. • In reality, improvements in local environment have generally been brought about as a consequence of specific environmental policies, rather than as a result of general economic development. • We can not expect technology or economic growth to automatically solve present and future environmental problems. This will generally not happen when there are externalities, when property rights are not fully allocated, when there are public goods or other factors that hinder the market from operating optimally. Rather, policies are required. 能源經濟模型國際會議

30. Driving Force: Impact of San-Tung on Taiwan’s GDP and CO2 Emission 能源經濟模型國際會議

31. Driving Force: Impact of Tariff Reduction on Taiwan’s GDP and CO2 Emission Carbon dioxide intensity (ton/NT$) GDP per capita (1,000NT$) Source: Huang, Lin and Su (2004). 能源經濟模型國際會議

32. Decoupling: Transport • In most developed countries, there has traditionally been a strong positive relationship between economic growth and transport growth. However, transport activity leads to negative side-effects or externalities such as air pollution and congestion. • Given that economic growth increases the welfare of a country, and these negative externalities reduce welfare, policymakers are considering how a country can experience economic growth without facing the negative side effects of transport growth. • Breaking or weakening the link between economic growth and transport growth is also known as ‘decoupling’. 能源經濟模型國際會議

33. Why Decoupling: The Transport • Environmental argument─ To reduce the level or growth in negative externalities (pollution, congestion, etc) associated with transport growth without dampening economic growth. • Efficiency argument─ To reduce the amount of transport required per unit of output generated by the economy. If less inputs are used to produce a given level of output, a productivity gain is generated. This increases GDP. Therefore, even in the hypothetical case where there were no externalities from transport activity, a government may still wish to decouple. 能源經濟模型國際會議

34. Current Research Focus on Transport Decoupling • Developing indicators of decoupling. • Define the various types of transport activity to a disaggregated level. • Examine the drivers of each type of transport. • Consider how these drivers will change in the future. 能源經濟模型國際會議

35. Why More Concern in Europe • The increased political presence of ‘green’ political movements in Europe. • The higher opportunity cost of land in Europe means that transport infrastructure policy and decisions require more in depth studies than in other countries where land is at less of a premium. • The continuing integration of Europe has led to calls for a coordinated policy approach to transport policies in the future. 能源經濟模型國際會議

36. Decoupling Issue in New Zealand • The government released its New Zealand Transport Strategy (NZTS) in December 2002. The NZTS outlines the government’s vision for the development of the New Zealand transport system to 2010. • The NZTS’s overall goal is to “achieve an affordable, integrated, safe, responsive and sustainable transport system by 2010”. • In the long run economic development and transport growth need not be directly related…[and the government’s] approach will minimize the extent of transport growth necessary to achieve economic development goals, and in particular minimize transport-related energy consumption. (New Zealand Government, 2002). 能源經濟模型國際會議

37. Economic and Transport Growth in New Zealand Annual growth rate (%) Ratio of TRGDP to overall RGDP This figure shows that this ratio (also know as the transport intensity of GDP) has increased over the last 15 years. This figure shows that growth in the transport and storage industry tends to rise and fall with overall economic growth. These series are positively correlated with a correlation coefficient of 0.67. This signifies that the two series are linked in a linear fashion but does not necessarily imply any cause-and-effect relationship. Source: Statistics New Zealand, NZIER. 能源經濟模型國際會議

38. Ideal Measurement of Transport Decoupling • A measure of welfare – consisting of economic, environmental and social aspects. Some form of socially and environmentally adjusted GDP would be preferable (i.e. a ‘triple bottom line’ GDP measure). • A measure of mass movement (MMM) for the transport involved in moving people and goods. This MMM would be a volume measure that takes into account both the distance and weight of freight movements, and the distance and number of passenger movements. Note that ideally a mass movement indicator would cover all modes of travel, from walking to air travel. • Decoupling Ratio = MMM / triple bottom line GDP 能源經濟模型國際會議

39. Problems with Decoupling Indicators (1/3) • Ad hoc in decomposition and inconsistent with empirical evidences • Concept of decoupling is not well defined. • Correlation vs. Causality The strong correlation between environmental pressure and economic activity does not mean that economic growth causes environmental pressure growth, or that environmental pressure growth causes economic growth. Quantitative techniques struggle to isolate causation effects between the two variables. 能源經濟模型國際會議

40. Problems with Decoupling Indicators (2/3) • Problems with the Use of GDP • Time period of data • Excluding negative externalities • Measuring value-added, not gross output To illustrate, consider the case where the transport sector becomes more efficient. That is, it uses less inputs to produce the same output. In other words, transport GDP increases. If all other sectors remain constant, overall GDP would rise but by a smaller percentage than GDP in the transport sector. In this case, the ratio of transport GDP to overall GDP would rise, suggesting transport intensity rose despite the transport sector becoming more efficient. This apparent contradiction is a direct result of transport GDP not being a strict output measure of the transport sector. 能源經濟模型國際會議

41. Problems with Decoupling Indicators (3/3) • Other Constraints • Decoupling indicators, like all other types of indicators, shed light on particular aspects of a complex reality but leave out other aspects. For example, the decoupling concept lacks an automatic link to the environment’s capacity to sustain, absorb or resist pressures of various kinds (deposition, discharges, harvests). • Also, decoupling indicators, when evaluated at a country level, do not capture the cross-border flow of various pollutants embodied in the international trade of goods. 能源經濟模型國際會議

42. Choice of Decoupling Indicators (1/2) • The choice of decoupling indicator depends on the problem to be elucidated. • Decoupling is usually conceived as an elasticity focusing on changes in volumes, whereas efficiency and intensity are more concerned with the actual values of these ratios. Which usage is chosen depends on the context and, often, on the audience being addressed. • Decoupling indicators can also be formulated at the product or enterprise level, as is being attempted at present by the Global Reporting Initiative (GRI). 能源經濟模型國際會議

43. Choice of Decoupling Indicators (2/2) • Decoupling indicators are primarily intended to track, for a single country, temporal changes in the relationship between environmental pressures and economic driving forces. • When decoupling indicators are used to compare environmental performance among countries, the national circumstances of each country must also be taken into account. These include factors such as country size, population density, natural resource endowments, energy profile, (changes in) economic structure and stage of economic development. Moreover, the initial level of an environmental pressure and the choice of time period considered can affect the interpretation of the results, because countries do proceed according to different timetables. 能源經濟模型國際會議

44. Concluding Remarks(1/2) • Much of the international literature on the subject tends to ignore the difficulties of defining precisely what decoupling means. • The lack of accurate definition renders quantitative studies of decoupling progress difficult and inconclusive. • Exacerbating the definitional problem is a lack of consistent and long run time series on the key variables needed for decoupling measurement. • Without an adequate analytical base, the assessment of policy options to achieve decoupling is likely to be highly judgmental and incomplete. 能源經濟模型國際會議

45. Concluding Remarks(2/2) • More research on justification for decoupling desirability and the impacts of decoupling on environment, economy, social justice, etc. • Stating clearly how progress towards this goal should be monitored – defining a suitable quantitative measure of decoupling trends. • Developing the appropriate variables necessary to calculate this measure, and ensuring that they cover a period of time that is sufficient to allow researchers to conduct trend analysis. • Decoupling indicators need further development in terms of underlying concepts, choice of variables and data availability and quality. 能源經濟模型國際會議

46. 敬請指教 能源經濟模型國際會議

47. Options to Curtail the Emissions • In order to bring down emissions, we need primarily to reduce energy demand (by improving efficiency, structural changes and limiting population growth) and to reduce CO2 emissions per unit of energy. • This could be achieved through the use of CO2-neutral energy technologies or through carbon sequestration from the combustion of fossil fuels, or biomass, which would actually lead to negative emissions. (See Obersteiner et al., 2001). • See World Energy Agency for a detailed analysis of current and future options to curtail the emissions (WEA 2002). 能源經濟模型國際會議