Begegnungen
Schriftenreihe des Europa Institutes Budapest, Band 20:139–149.
STEFAN P. SCHLEICHER
From Environmental Policies to Sustainable Development:
Lessons from the Austrian Experience
1 Introduction
To what extent can Central Europe benefit from the experiences of Austrian environmental policies? We put forward the proposition that conventional environmental policy has become redundant with the advent of the paradigm of sustainable development. In the Treaty of Maastricht (1992) and in the Declaration of Gothenburg (2001), the European Union took a lead role in the promotion of sustainable development.
Although the concept of sustainable development is far from being fully agreed upon on an academic as well as political level, consensus seems to emerge on a few basic guidelines as to how the transition to sustainable economic structures should be performed: substitution of flows by stocks in order to reduce material throughput; phasing out of exhaustible resources, in particular fossil fuels, by emphasizing renewables; stimulation of technological change in order to promote this restructuring process.
We draw the conclusion that sustainable development signals the next transition process both for the current members in the European Union and the accession candidates of the economies in transition.
2 Landmarks for Understanding the Transformation of Austrian Environmental Policy
Two features seem to characterize Austrian environmental policy: First, it was very often mixed with other political intentions; second, the public profile of environmental policy has diminished over recent years. We will discuss these issues by looking at energy policy and climate policy.
2.1 From Zwentendorf via Hainburg seemingly to Temelin
In retro respect, Austrian energy policy has mainly focused on the electricity sector and thus neglected many aspects that are considered indispensable in the current status of academic research for designing energy systems: emphasis should be put on the energy services which are generated by energy flows and the relevant capital stock; the efficiency of an energy system should not only be evaluated by the First Law of Thermodynamics (mass efficiency) but also by the Second Law (entropy efficiency). Two policy recommendations result from these efficiency criteria: the energy system should also give attention to demand side issues and thermal processes always should be designed for co-generation technologies, i.e. the joint generation of heat and electricity.
Up to the seventies Austria mainly continued to expand the electricity sector along the lines that can be traced back to the strategies of Hitler Germany during World War II. Large hydro power plants were built in the Alps for peak electricity and on the Danube river for base load electricity. These production structures of the Austrian electricity sector have provided up to now more than two thirds of electricity production from hydro power.
A major conflict about the need for a nuclear power plant that was built during the seventies in the village of Zwentendorf culminated 1978 in a referendum. At that time the Zwentendorf nuclear power plant was ready for starting production. An emerging green movement questioned with convincing arguments this project: In the foreseeable future Austria would face no electricity shortages; many options for a more efficient use of electricity have not been exploited; the long-term hazards and costs of nuclear power question the economics of this technology. Facing a defensive position, Bruno Kreisky, at that time chancellor of the federal government, linked the referendum with a vote of confidence for his government. Many observers claim that it was this link that tipped the vote in favour of a very narrow no-margin. Only after the Tschernobyl disaster in 1986 the final decision was made to dismantle the one-to-one model of a nuclear power plant that never went into operation. The remaining building serves as a monument for what originated as an environmental issue but ended in a political conflict.
The next conflict about electric energy arose about plans for a hydro power plant on the Danube at Hainburg close to the border to Hungary. Again the green movement opposed this project: The loss of unique river marshland would be unjustified in view of the unchanged economic arguments against an expansion of electricity production. With strong support of the green movement by the Austrian tabloid Neue Kronenzeitung this conflict threatened to escalate in fights between hundreds of activists of the green movement who spent day and night at grim winter temperatures in the marshlands to protect them from logging and workers from the construction companies that were brought in by buses. At the height of tensions this conflict was resolved by the Austrian political system–at that time still dominated by the highly influential representatives from labour unions and industry–by the surprising decision to stop this project. The Hainburg events triggered off for the following years a greening of Austrian politics, visible in a high profile of environmental issues even in the traditional parties, thus limiting the votes for the green party.
After the Zwentendorf and Hainburg events Austria heavily pushed an anti-nuclear energy policy for Europe, partly supported by Scandinavian countries and in the late nineties also by Germany. Austria brought to international attention the security risks of the outdated nuclear power plants in its eastern and southern neighbour countries that were in the process of transformation from a Soviet style economy to a western style market system. Although Austria has not succeeded in achieving a shut-down of these plants, it seems that the security issue has been given more attention, in particular in the negotiations for membership with the European Union.
A new conflict has developed recently with the Czech Republic about the new nuclear power plant in Temelin located close to the Austrian border. Interventions by the Austrian government against this project with international financial institutions in the early nineties failed. The Temelin nuclear power plant was built and became operational in 2000. A strong citizen movement against Temelin especially in the neighbouring province of Upper Austria inspired the Freedom Party (FPOe – Freiheitliche Partei Österreichs), characterized by a right-wing populist profile, to get involved in this controversy by requesting the shut-down of the Temelin plant. Again an environmental issue seems to be mixed up with political intentions. Presumably the FPOe intervention against Temelin shall serve as a symbol for shaping the image of this party against immigration and expansion of the European Union.
2.2 From Toronto via Marrakech hopefully to Kyoto
A look at the brief history of Austrian climate policy reveals the increasing discrepancy between ambitious targets and modest performance.
Climate policy has been on the international political agenda since the first global environmental summit in Rio de Janeiro in 1992. The United Nations Framework Convention on Climate Change (UNFCCC, 1992) laid out the cornerstones for an internationally coordinated effort to combat a highly probable manmade climate change. Austria belonged to the few countries that immediately committed themselves to emissions reductions, the Toronto target, which called for a 20% reduction of CO2 emissions by 2005 over 1988 levels.
The Toronto target posed a challenge for the Austrian economy. Heated debates concerning the economic costs and benefits about this reduction target initiated a new line of economic research: Which structural changes of an economy will support specific emissions targets for greenhouse gases, which modifications in economic analysis are needed to handle this problem, and how shall we evaluate the economic impacts of such a structural change?
This research was coordinated by the Austrian Council on Climate Change in the Toronto Technology Program. It represented also in an international perspective an innovative approach to climate policy. Climate policy in these policy guidelines is considered as an incentive for improving the economic structure of the economy in terms of international competitiveness, domestic welfare and employment by stimulating technological change. Emphasis is given to improving the capital stock of buildings (in terms of energy efficiency), to equipment in production (in terms of factor productivity), to energy services (in terms of fuel efficiency and fuel shift), but also to elimination of redundant mobility and improved material flows by recycling and waste management. This integrated approach to climate policy was radically different from the conventional approach to emissions reductions that was inspired, e.g. from SO2 reductions, and emphasized the costs of added end-of-the-pipe equipment.
Austrian climate policy faced a first test of credibility after the agreement about the Kyoto Protocol (1997) which committed the European Union to a reduction of six greenhouse gases of 8% during the so-called first commitment period 2008-2012 over 1990 values. Heavy lobbying by a few companies of Austrian industry lowered the Austrian contribution to the EU Kyoto target from an envisaged 25% to a 13% national reduction target. Although both the Kyoto Package, again coordinated by the Austrian Council on Climate Change (1998), and the Long-Term Energy Scenarios of the Austrian Institute for Economic Research (Kratena and Schleicher, 2000) supported the view that an adequate mix of measures would not only enable Austria to fulfil the national commitment for the Kyoto Protocol but also serve as an innovative impulse for the Austrian economy, the Austrian Federal Government switched to a rather defensive position.
Austria ratified together with the other members of the European Union the Kyoto Protocol in June 2002. A National Climate Strategy is available but still lacks formal legislative procedures by federal and provincial political authorities. Meanwhile Austria is facing deteriorating performance indicators within the European Union. Although the EU as a total has met the target of stabilizing greenhouse gas emissions by 2000 on 1990 levels, this is not true for Austria. In the distance-to-target indicator, which measures the discrepancy between actual and committed emissions, in 2000 Austria ranked only eleventh out of 15 countries.
3 The turning point: EU Summit in Gothenburg
3.1 The European Strategy for Sustainable Development
In a number of key political decisions, ranging from the Treaty of Maastricht (1992) to the Gothenburg European Council (2001), the European Union took a lead role in the promotion of sustainable development (SD).
At the Gothenburg Summit in June 2001 the European Strategy for Sustainable Development was adopted. This strategy aims at restructuring of the European economy by an integration of economic welfare, environmental integrity and social coherence. The transition to these innovative economic structures poses a major challenge to economic policy design.
From the very beginning the concept of sustainable development was meant to be relevant for more than just environmental issues. The pioneering work of the World Council on Environment and Development (WCED, 1987) refers to sustainable development as „development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
Although in the sequel many political discussions link sustainability to environmental problems, the original intention for proposing this new economic paradigm shall be emphasized: Which economic structures are able to support economic welfare in the long-run without creating burdens on social, economic and environmental resources?
3.2 Searching for operational concepts for sustainable development
Although the concept of sustainable development is far from being fully agreed upon in a political as well as economic perspective, consensus seems to emerge on a few basic guidelines as to how the transition to sustainable economic structures should be performed:
– Emphasis on the generation of economic welfare not only by flows of goods but also by stocks of physical, human, and natural capital.
– Substitution of these flows by capital stocks of higher quantity and quality in order to reduce material throughput.
– Phasing out of exhaustible resources, in particular fossil fuels, by emphasizing renewables.
– Stimulation of technological change in order to promote this transition to sustainable economic structures.
– Design of measures of welfare that are compatible with these guidelines.
Obviously, these guidelines will have far reaching consequences for the design of economic policy. We want to illustrate the transition to sustainable economic structures by sketching the changes that are needed in the current generation of economic models in order to meet the design elements that seem to be essential for the analysis of sustainable economic structures.
4 Modelling the transition to sustainable economic structures
We propose the hypothesis that switching from the paradigms of mainstream economics to the emerging paradigm of sustainability can be characterized as a transition from flow-oriented concepts to a new class of economic reasoning that emphasize the role of stocks for generating economic welfare.
4.1 The starting point: Flow-oriented economic paradigms
Current mainstream economic paradigms, both in a Keynesian or neoclassical flavour, focus on flows for describing economic activity. In particular, these paradigms emphasize the flows of production q (gross domestic product) and (private and public) consumption c as most relevant for describing the state of welfare of an economy.
In a nutshell these flow-oriented paradigms can be described by the following three equation model (1). This focuses on the production of products using reproducible resources. By using production technology q(), the flow of current inputs rq and the stock of reproducible resource Rq (equipment and buildings), yield the flow of products q which can be used either for investment into reproducible resources iq or for consumption c. The stock of reproducible capital is affected by the depletion of current inputs rq and investments iq. Welfare W is measured in terms of available flows for consumption c, alternatively by the flow of produced products q.
W = W(c)
(1a)
c + iq = q(rq, Rq)
(1b)
Rq = Rq(Rq-1, iq, rq)
(1c)
The economy represented by this model is driven by the decision about investments for reproducible capital iq, with consumption c being the residual left after this decision has been taken, thus putting a limit on actual consumption.
An important improvement in the framework of this flow-oriented paradigm is the introduction of recycling activities g() that enable the reuse of wastes from production or consumption, thus providing the same volume of products for consumption and investments with lower flows of newly produced products q. This means that in addition to the stock for reproducible capital Rq, the corresponding investment iq and input flows rq, the same interactions have to be taken into account for the capital stock for recycling activities Rg and corresponding input flows rg and investments ig;
W = W(c)
(1a)
c + iq + ig = q(rq, Rq) + g(rg, Rg)
(1b’)
Rq = Rq(Rq-1, iq, rq)
(1c)
Rg = Rg(Rg-1, ig, rg)
(1d)
Again the dynamics of the economy represented by this model is driven by the decision about investments for reproducible capital and investments for recycling capital. The relation of these two types of investments determines the extent to which consumption and investments can be supplied from recycling activities.
4.2 The transition: Stock-oriented economic Paradigms
Economic models or paradigms that put their emphasis on the relevant stocks of an economy lead to a fundamental change in policy design.
As a first step it is observed that welfare results not only from flows but also from (reproducible) stocks. An excellent example is the heating of a room to a comfortable temperature. This needs much lower flows of energy if the thermal structure of the building – the relevant stock – is of higher quality:
W = W(c, Rc)
(2a’)
The implication is that the same level of welfare may be maintained with a much lower flow of economic activity, e.g. in terms of production flows. Of course substitution of flows c by stocks Rc depends on the available technologies. Pilot projects for buildings, for example, indicate that energy flows can be almost completely substituted by a capital stock that provides the adequate thermal quality.
In order to obtain a more complete picture of the impact of economic activities we now introduce emissions which result from production (and implicitly also from consumption). We assume that the flow of emissions e increases with the level of production flows q but decreases with the amount of current inputs re and capital stock Re devoted to emission abatement:
e = e(q, re, Re)
(2f)
In addition we take into account the stock or concentration of emissions E (e.g. CO2 in the atmosphere) by observing the absorption capacity of the relevant environment:
E = E(E-1, e)
(2g)
The final extension of our stock-oriented paradigm involves the inclusion of natural capital N, ranging from the stock of fauna and flora to the stock of glaciers. Two consequences of this perspective have to be observed. First, the stock of environmental resources and the stock of natural capital should be included in our measure of welfare:
W = W(c, Rc, E, N)
(2a)
Second, we should attempt to model the interaction of natural capital with the stock of environmental resources (air, water and soil) and economic activity:
N = N(N-1,E, q)
(2i)
Thus we end up with the following model that represents the fundamental building blocks of a stock-oriented paradigm of economic activity which is also capable of considering interactions with environmental and natural resources:
W = W(c, Rc, E, N)
(2a)
c + iq + ig + ic + ie = q(rq, Rq) + g(rg, Rg)
(2b)
Rq = Rq(Rq-1, iq, rq)
(2c)
Rg = Rg(Rg-1, ig, rg)
(2d)
Rc = Rc(Rc-1, ic, rc)
(2e)
Re = Re(Re-1, ie, re)
(2f)
e = e(q, re, Re)
(2g)
E = E(E-1, e)
(2h)
N = N(N-1, E, q)
(2i)
This model emphasizes the crucial role in the investment decision for four stocks of capital: capital used for new and recycled products, Rq and Rg, respectively, capital that is relevant for the provision of services to consumers, Rc, and capital that is employed for emissions reductions, Re. These specifications indicate the wide span of economic structures that are compatible with a desired level of welfare, ranging from high-flow to low-flow structures.
The following issues are all addressed in this comprehensive model:
First, the evaluation of economic welfare is not limited to the flows of consumption (or production) but also considers the stocks of reproducible, environmental and natural capital.
Second, the flow of production can be lowered by increasing recycling activities.
Third, flows for consumption and production can be substituted at least to some extent by the corresponding capital stocks (this option was only considered for production in the stage one model).
Fourth, the fact that environmental and natural capital have only limited absorption capacities with respect to emissions and production activities can be addressed (in terms of the functional form of N()).
4.3 Guidelines for policy design
This refined modeling framework not only reveals the use of a deficient economic paradigm as the source of many current conflicts (e.g. as seen in the implementation of the Kyoto Protocol), it also serves to identify recommendations for policy design.
The first recommendation relates to the use of GDP as a measure of economic welfare. It is obvious from the refined specification of welfare in equation 3.2a) that the role of flows should gradually be de-emphasised. In addition, incentives should be provided to aid the substitution of consumption flows by stocks of reproducible capital as long as the efficiency of the whole system suggests to do so.
The second recommendation concerns the role of recycling activities as seen in equation 3.2b). From waste paper to waste heat there are lots of opportunities to lower material flows without lowering the level of welfare. The level of recycling appears to be too low in present day economies.
The third recommendation deals with the level of emissions which, according to equation 3.2c, can be extensively reduced by abatement investment. The extent to which this should be done again should be guided by efficiency criteria of the whole system.
The fourth recommendation reveals the crucial role of the choice of technologies for production, recycling and emissions abatement. This choice also involves switching from high to low carbon and ultimately potentially carbon free, primary inputs, if the challenge of greenhouse impact is acknowledged.
The fifth recommendation concerns changes in the institutional settings that are needed to stimulate structural changes in the design of economic activity along the lines suggested above. Obviously a wide range of options, from stimulating R&D in fossil-free energy technologies to arranging crucial international agreements on emissions, can be employed.
5 Some lessons to be learnt from Austria
Is Austria already a model case for the ambitious European Union Strategy for Sustainable Development?
A first answer may be yes: The Austrian economy has been thriving without nuclear energy; one quarter of total energy stems from renewables; more than two thirds of electricity is produced by hydro power.
A second answer may be no: The momentum of an ambitious environmental policy that originated in the events around Zwentendorf in 1978 and Hainburg in 1984 has slowed down since Austria became a member of the European Union in 1995. The discrepancy between ambitions and realizations has become increasingly evident in the performance of Austrian climate policy.
This, however, might not be the final answer. There is emerging evidence that the European Union for strategic reasons will push the transition to sustainable structures at least for two reasons: first, to gain a competitive technological advantage over the Unites States and Japan; second, to become less dependent on fossil energy from politically sensitive regions as the Middle East.
Therefore, the transition to sustainable economic structures will rank high on the political agenda of the European Union. For the member candidates of the European Union this means an opportunity to engage in this transition without the detours and dead ends that even countries as Austria could not avoid.
References
Abele, H., T.C. Heller, S.P. Schleicher, Eds. (2001). Designing Climate Policy. The Challenge of the Kyoto Protocol. Vienna: Service Fachverlag.
Bergh, J.C.J.M. van den and M.W. Hofkes, 1999, Economic Models of Sustainable Development, in: J.C.J.M. van den Bergh (ed.), Handbook of Environmental and Resource Economics, Ch. 72, pp. 1108–1122, Edward Elgar Publishers.
Chichilnisky, G., G. M. Heal and A. Vercelli, Eds. (1998). Sustainability: Dynamics and Uncertainty. Dordrecht: Kluwer.
European Commission (2001). A Sustainable Europe for a Better World: A European Union Strategy for Sustainable Development. COM(2001) 264final
European Commission (2001). Consultation Paper for the Preparation of a European Union Strategy for Sustainable Development.
European Council (2001). Presidency Conclusions. Gothenborg European Council, 15 and 16 June 2001.
Gerlagh R., R. Dellink, M.W. Hofkes, and H. Verbruggen (forthcoming). A Measure of Sustainable National Income for the Netherlands. Ecological Economics, accepted December 11, 2001.
Gupta, J. and M. Grubb, Eds. (2000). Climate Change and European Leadership: A Sustainable Role for Europe? Amsterdam: Kluwer Academic Publishers.
Heal, G. 1998. Valuing the Future: Economic Theory and Sustainability. Columbia University Press, New York.
Heal, G. 2001. Optimality or Sustainability? Paper prepared for EAERE 2001.
IPCC (1999). IPCC Special Report on the Regional Impacts of Climate Change. Geneva: Intergovernmental Panel on Climate Change.
IPCC (2001). IPCC Third Assessment Report. Geneva: Intergovernmental Panel on Climate Change.
Kratena, K. and S.P. Schleicher (1999). Impact of Carbon Dioxide Reductions on the Austrian Economy. Economic Systems Research, 11, 245-261.
Kratena, K. and S.P. Schleicher. (2001). Kyoto- and Sustainability Scenarios with Embodied and Induced Technological Change – Evaluating the Economic Impacts for Austria. IIASA: Energy Modeling Forum 2001.
Kletzan, D., A. Köppl, K. Kratena, S. P. Schleicher and M. Wüger. Forthcoming. Modeling Sustainable Consumption: From Theoretical Concepts to Policy Guidelines. Empirica.
Loeschel, A. 2001. Technological Change in Economic Models of Environmental Policy: A Survey. Mannheim: Center for European Economic Research (ZEW).
Schelling, T.C. (1992). Some Economics of Global Warming. American Economic Review 82(1), 1-14.
Weyant, J. P. (2000). An Introduction to the Economics of Climate Change Policy. Washington, DC: Pew Center on Global Climate Change.
World Commission on Economic Development (WCED) (1987). Our Common Future. Oxford: Oxford University Press.