A Threefold Assessment of the Romanian Economy's Eco-Efficiency

Abstract:The present paper assesses the ecological sustainability of the Romanian economy from three different angles. The first two applications use the economy's energy and material consumption as proxy for its overall environmental impact. The third assessment approach is a qualitative and context-based one: the main obstacles to and opportunities for incorporating sustainability-competitiveness synergies into the Romanian industrial firms' management are identified. In the period 2000-2007, GDP growth was an important contributor to the Romanian economy's eco-efficiency levels, while the material and energy consumption remained constant or even increased. The predominance of competitive advantages based on low labour costs, high potential of increasing labour productivity, deficient environmental and industrial policies, and lack of awareness in both business and policy environment as to the beneficial role of resource productivity increase constitute significant obstacles to adopting competitive sustainability strategies. Fortunately, the relatively low levels of eco-efficiency and eco-innovation in industry offer in fact a wide scope of still unexploited win-win solutions. On the basis of the results, further research directions are sketched and several desirable public policy actions for enhancing the ecological sustainability of the Romanian economy are put forward.Keywords: sustainability, eco-efficiency, energy efficiency, material flow analysis, competitivenessJEL Classification: M20; Q01; Q32; Q49; Q56Setting the sceneThe thinking on the relationship between economy and environment has evolved from a strictly functional treatment of the latter1 and a purportedly infinite substitutability2 of it in the economic processes to a progressive recognition of its intrinsic value and of the complex interplay between it and the socio-economic system3. Thereby a bio-centric and processual paradigm is replacing the anthropocentric and utilitarian one.The recently emerged transdisciplinary schools - i.e. environmental economics, ecological economics and economics of natural resources - have been focusing on i) the causes of the ecological non-sustainability of socio-economic development process and ii) the best ways of assessing its negative impact on the environment. Their main contributions to economic theory resides in: i) the extension of neoclassic economy's scope beyond the economic growth preoccupation and ii) in challenging the neoclassical assumption of the automatic socio-environmental spillovers of the economic growth (e.g. Kuznets Environmental Curve hypothesis; Beckerman 1992).Especially in the ecological economics perspective, economic processes mean in fact extracting, using and transforming natural resources (in essence matter and energy) according to the first two laws of thermodynamics4. As Boulding (1966) points out, the economic processes are included in an enclosed (and not open) thermodynamic system (Figure 1). Thus, the ecosystem's capacity of supplying energy and matter and assimilating waste proves to be rather limited. As an economic application of the laws of thermodynamics, the "material balance principle" has become an implicit assumption of ecological economics (e.g. Kneese ei al. 1972; Ayres 1978; Giljum 2006).These bio-physical limits of economic system would consequently demand: i) a more ecoefficient exploitation of natural resources, ii) identification of their substitution opportunities and iii) even setting up economy dematerial ization thresholds. On macro level, that brings about minimizing the socio-economic pressure on ecosystem's carrying capacity and preserving its essential functions by (a relative or even absolute) decoupling the environmental impact from economic growth.This explains why a good understanding of an economy's material and energy flows provides the ground for a proper formulation of natural resource and environmental policies. …