There are significant environmental, social and economic impacts of material extraction. Mining of minerals, metals, and other natural resources often occurs in ecologically sensitive areas rich in biodiversity and home to a significant tribal population. Additionally, as India imports a lion’s share of its requirements for strategic minerals like Cobalt, Nickel, and copper, it becomes highly import-dependent.
Despite this, figures show that the relative decoupling of production value from resource use is occurring slowly. The numbers have definitely not kept pace with the pace at which energy efficiency or reductions in energy consumption have occurred in the country. By material consumption, I mean the country’s consumption of resources related to construction (limestone, sand, etc.), metals and materials used in manufacturing processes, fuels, biomass, etc. Thus, while fuels are a part of this larger whole, they have followed a different trajectory as far as reduction in production intensities is concerned. Historically, material consumption patterns have followed sector-specific storylines. While rapid urbanisation has no doubt driven greater material use, India’s manufacturing sector growth has also necessitated greater use of minerals and metals.
For definitional purposes, some metrics of how efficiently a nation uses materials could include material consumption per unit of production or material consumption per unit of gross domestic product (GDP). Other popular measures include material footprint, total consumption, and circularity rates, which measure the proportion of waste materials circulated back into production systems.
Tracing the steps back to how the energy efficiency improvements were implemented shows that it involved both target setting and incentive provision, such as the ESCerts market. Can something like this be done for the materials sector as well?
While mandates have worked in some cases, bereft of an economic argument, reducing material consumption would be nearly impossible. Some successful cases of material reduction, such as fly ash blending in cement and the use of slag in steelmaking, occurred mainly on the backs of economic incentives stemming from reduced production costs.
The intrinsic problem is that the monetary gains from energy efficiency, or the reduction in energy consumption, are directly recouped by the firm through lower fuel costs. Compared with virgin materials, the use of recycled materials reduces material consumption at the systemic level but often increases costs at the individual firm level as recycled materials are often costlier. While the argument for lower import dependency still holds, cost efficiency no longer prevails. This is a classical environmental economics problem in which the gains to society are much larger than the costs borne at the micro level. In this case, is there a way to transfer some of the gains to society to individual entities engaged in recycling or using recycled products? This could easily be thought of as a Pigouvian tax on material consumption, with the revenues or monetised gains transferred to beneficiaries of various types – recyclers, consumers of recycled products, etc.
The imposition of such a measure will, at the first level, encourage improvements in material and product design so that the production process consumes less material. A good example of this is using advanced materials in automobile production, which also makes the vehicles lighter and more fuel-efficient. There are many examples of Industry 4.0 technologies that also optimise manufacturing processes to minimise waste. There is an immediate need to encourage design for efficiency and longevity (DfE) or eco-design principles, which make products that use fewer materials, are made from more sustainable materials, last longer, and are easily recyclable. Ministry of Environment, Forests and Climate Change’s (MoEFCC) recent directives on battery labelling are an important step in this regard as they improve recyclability, material recovery, and traceability.
At the second level, the tax recoveries could be used to provide incentives for recycling, to create physical capacity, to offer tax breaks for firms that use recycled materials, and to support priority government procurement from such firms for infrastructure and other projects. While ringfencing tax revenues is an important prerequisite for this step, I believe it is necessary.
There are certain points to keep in mind, though, for such a process to succeed. First, we need a robust accounting framework, such as the UN System of Environmental-Economic Accounting (SEEA), for material flow accounting. There are often data mismatches between national data sources, such as the Ministry of Statistics and Programme Implementation’s (MoSPI’s) Annual Survey of Industries (ASI) and the Central Pollution Control Board’s (CPCB’s) data on industrial waste, E-waste, and hazardous waste. While in ASI, firms report both their waste generation and reuse by product categories, the aggregate numbers differ vastly from CPCB’s numbers. There is a dire need to prepare robust material balances for certain key materials, in the same way as energy balances are prepared by MoSPI. Once this data set is established, the nation can periodically measure its resource productivity indicators for these materials and set improvement goals.
The second policy ask is the development of markets for secondary materials, which will aid uptake from the demand side. While promoting circularity as a policy is normatively well and good, it needs to be accompanied by deeper markets for recovered materials. The government could lead from the front by either using the materials directly or prioritising the consumption of products made using these recovered materials. In addition to market making, there is a need for stringent quality standards for recycled materials to assuage doubts and ensure that the recovered materials can viably substitute for virgin materials.
The last step in this chain would be measures that help from the supply side. While there are policies that aid the establishment of recycling facilities, there are often complaints that the essential feedstock for the process (i.e., waste) is not available in sufficient quantities. Often, waste streams are diverted to informal channels that process waste with suboptimal technologies and recovery rates. While one could argue that these low-tech processes generate much employment, they are not desirable at the systemic level from the perspective of job quality and decent work. There is a need to encourage entities that operate across the recycling value chain (i.e., collection, transportation, and material recovery) or, at a minimum, are technologically ahead of the curve in terms of recovery efficiency.
In sum, both materials and energy are key parts of the production process. However, a similar decoupling witnessed in fuels has not been seen in materials. While differences in where the final benefits lie have led to split incentives and a widening of the differences between trajectories, there are many lessons from our energy efficiency improvement journey that could be applied to this purpose.
(Views expressed are the author’s own and don’t necessarily reflect those of ICRIER)
