Environment and Planning A 2008, volume 40, pages 1331 ^ 1346

doi:10.1068/a38363

Reconsidering the economics logic of ecological modernization

Jouni Korhonen
Department of Industrial Management, Faculty of Technology, bo Akademi University,
Biskopsgatan 8, FI 20500 bo, Finland; e-mail: jouni.korhonen@abo.fi
Received 24 September 2005; in revised form 5 October 2006; published online 3 April 2008

Abstract. This paper shows the main limitations and difficulties in the efficiency argument of
ecological modernization. Eight limitations in the concept of eco-efficiency are revealed. Recommen-
dations to improve the use of eco-efficiency in ecological modernization policy and management are
derived from the critique. Eco-efficiency serves as an important technical tool, practical instrument,
or indicator in environmental policy and management, but is not suitable as the overall goal and
strategic vision.

Introduction
On ecological modernization
Ecological modernization (EM) is currently the dominant environmental social
science, environmental sociology, or environmental policy theory (Buttel, 2000;
Christoff, 2000; Gibbs, 2000; Mol and Spaargaren, 1993; Murphy, 2000; Murphy
and Gouldson, 2000; Spaargaren et al, 2000; Welford, 1998). EM has been developed
by environmental social scientists as a critical response to radical environmentalism
and environmental movements such as deep ecology (Buttel, 2000). It has shifted the
focus from the failures of state (see Janicke, 1990; Janicke et al, 2000), industry, and
technological systems to address both environmental problems and success stories
of environmental improvements. In other words, EM has provided a tool for those
who believe in the continuing and sustainable progress of modernity.
The basic position of EM is to view the future ecologically sustainable society as
a continuum from past and present (Welford, 1998). Gibbs (2000, pages 11 ^ 12; see also
Mol and Spaargaren, 1993) maintains that the EM theory ``envisages a process of the
progressive modernization of the institutions of modern society as opposed to their
destruction or dismantling.'' The roles of the state, business actors, scientific ration-
ality, and technology are as the vehicles of change in EM (Buttel, 2000; Murphy, 2000;
Murphy and Gouldson, 2000; Welford, 1998). A monetary value is placed on the
natural environment (Gibbs, 2000) in order to include environmental issues better in
decision making. The larger context of the environmental issues, and their cultural
and societal contexts, is usually given less attentionissues such as democratization,
redistribution, and social justice (Bluhdorn, 2000; Gibbs, 2000).
EM is in line with the prevailing economic growth ideology of the global market
economy: ``Instead of seeing environmental protection as a burden on the economy, the
ecological modernist sees it as a potential source for future growth'' (Weale, 1992, cited
in Cohen, 1997, page 109; see also Buttel, 2000). Hajer writes that EM is ``basically a
modernist and technocratic approach to the environment that suggests that there is
a techno-institutional fix for the present problems'' (1995, page 32, cited in Bluhdorn,
2000). Others agree and sum up what they see as the central vision of EM: ``the principal
objective of ecological modernization is to increase the environmental efficiency of the
economy by reducing the rate of environmental damage caused per unit of output''
(Gouldson and Murphy, 1997, pages 74 ^ 86, cited in Hills and Welford, 2002, page 321).
1332 J Korhonen

Along these lines, Welford (1998) notes that the `flagship tool' of EM is the concept
of eco-efficiency (EE), influenced by the neoclassical economics and business world.
Gibbs's (2000, page 17) analysis finds that ``ecological modernization can ... serve as a
cover for business-as-usual with a slight green tinge.''
It would be tempting to simplify a diverse set of arguments within a new scientific
field, approach, or conceptual framework and then attack this `straw man' with a
predesigned critique. This would be unfair towards EM, because EM has evolved to
also include other aspects beyond those in the efficiency-orientated and neoclassical-
economics-influenced or modernist techno-fix approaches (Christoff, 2000; Spaargaren
et al, 2000). However, given the powerful influence that economic science logic and
philosophy have on sciences originally deemed outside the discipline's realm and given
the influence of economics logic on societal progress in general, or what Lazear (2000)
calls `economic imperialism', it is important to critically focus on the EE component
of EM.
Christoff 's (2000) extensive review on the different positions and approaches within
EM finds that the field has evolved into a collection of diverse arguments. The
concepts of EM are deployed in a range of ways and, at times, the diverse EM
arguments are in conflict with each other. Christoff gathers the different positions
into two categoriesweak and strong EM. Weak EM includes arguments in favor of
incremental and continuous change, economic growth that can be achieved while
simultaneously protecting the environment (Bluhdorn, 2000). The points made in the
previous paragraphs illustrate the weak EM. Strong EM favors discontinuous change,
a break from business as usual, a paradigm shift, and a halt to economic growth
(Janicke et al, 2000).
Despite acknowledging the diversity of views within EM, Christoff 's review con-
cludes by warning about the consequences that may occur if the weak forms of EM are
to dominate the field: ``there is a danger that the term may serve to legitimize
the continuing instrumental domination and destruction of the environment and the
promotion of less democratic forms of government, foregrounding modernity's indus-
trial and technocratic discourses over its more recent, resistant and critical ecological
components'' (2000, pages 227 ^ 228). In fact, all of the authors cited or referred to
above seem to agree that the weak form of EM has been the dominant position within
EM. They also agree that it is very likely that this will continue to be the case in the
future, given, for example, the prevailing ideology of economic growth, science, and
technology, the increasing power of multinational corporations, and the widening gap
between the rich and poor parts of the globalized world.
On the EE argument of EM
Although EE is not the only position within EM discussion (although there are many
authors such as those above that argue it is), it is still clearly part of EM. Certainly,
it is a central tenet of the weak form of EM. Therefore, the objective of this paper is to
adopt a critical approach toward the specific concept of EEthat is, toward the
EE argument of EM. I want to conduct this critique within the EM discussion and
literature for two reasons. First, although EM has certainly been criticized within the
EM discussion and literature (see above), to my knowledge the specific concept of EE
has not been criticized within this literature in a thorough way. Perhaps the explanation
is that EM authors are mainly environmental sociologists. The sociologists have taken
the specific concept of EE from cleaner production, pollution prevention, cleaner
technology, industrial ecology, and, to certain extent, from ecological economics
literature. In turn, in these research communities, there are very few social scientists,
and, hence, few critical writings about the concept of EE. For example, in cleaner
Reconsidering the economics logic of ecological modernization 1333

production, EE seems to be a real breakthrough and a `paradigm shift' due to its ability
to bridge technology, environment, economics, and business economics. I fear that this
paper would, at this stage of the development of theory, be largely unnoticed within the
fields of cleaner production and environmental technology.
EE can be presented as ``units of value generation per unit of environmental
influence'' (Brattebo, 2005, page 9). EE can also be defined as ``the ratio of resource
inputs and waste outputs to final product'' (Cleveland and Ruth, 1997; Hinterberger
et al, 1997; Schmidheiny, 1992, page 98; WBCSD, 2000; Welford, 1998). Or EE can be
calculated as a turnover of a firm per kilogram of materials used (Hukkinen, 2003a;
Schmidheiny, 1992). Increased EE means a quantitative reduction of wastes and emis-
sions of production per unit of dollar output. EE has gained wide support in public
environmental policy and corporate environmental management. EE is in line with the
so-called `win ^ win' vision of economy and the environment (Porter and van der Linde,
1996). EU, OECD, and the World Business Council for Sustainable Development
promote EE as the universal concept in sustainable development and environmental
policy (CEC, 2001; Hukkinen, 2003a; OECD, 1998; WBCSD, 2000). In EE, the
industrial production system is transformed into cleaner production and cleaner
technologies. Such production processes would use less raw materials and fuels and
generate less wastes and emissions per unit of dollar output than conventional
production technologies.

Reconsidering the efficiency argument of EM: eight challenges

Efficiency vs substitution
Because EE is a quantitative and relative ratio, it allows interpretations in which only
one of the two main groups of actions and measures important for sustainability is
looked at. These two groups are dematerializations and substitutions (Robert, 2000;
Robert et al, 2002; 2004). The first of the groups, dematerialization (or decarboniza-
tion or energy efficiency), is covered in EE. Dematerialization studies material flows
measured in tons or kilograms, for example, of raw materials used. Energy efficiency
measures the efficiency of energy production and fuel use.
As noted earlier, EE can be calculated as a turnover of a firm per kilogram of
materials used (Hukkinen, 2003a; 2003b; Schmidheiny, 1992), or as the quantitative
reduction of wastes and emissions of production per unit of dollar output. EE does not
cover the second group of sustainability actions: substitutions. Substitutions are actions
and measures which substitute certain materials, substance, or energy flows with other
materials and energy flows. The substitutes are of different type and quality. Regardless
of their quantities or the efficiency in their use, complete substitutability or phasing out
is required for many harmful flows extracted, produced, and handled by society. These
include, for example, CFCs, DDTs, metals, and fossil fuels (I mean complete phasing
out eventually, see later in the paper for the discussion of temporal and spatial scales
and system boundaries), etc. For these flows, it makes no sense in the long term to even
begin to calculate and quantify the efficiency in use. The flows are inherently harmful
to the environment regardless of their magnitude (and the economic growth trends
of today imply that the use of many harmful flows is likely to systematically increase
in the future).
Substitutes have to be found in less harmful flows, in biodegradable or renewable
flows. It can be argued that it makes no sense to increase CFC efficiency, for example,
because it is clear that such flows must be abandoned altogether. Of course, transition
phases for certain flows must be allowed. It is difficult to rapidly implement large
structural changes and investments in existing industrial systems without prepara-
tion, technical, economic, organizational, political, cultural, and social preconditions.
1334 J Korhonen

However, it is important that when investing in the efficiency of existing systems and
their materials and energy flow use, which are based on substances that have to be
phased out (eventually), investments made are flexible enough for the future substitution
of the flows.
In sum, EE measures should not be used in isolation of substitution measures.
These two action categories are complements. The issues of spatial and temporal
system boundaries as well as the type and quality of the material and energy flow in
question decide how the measures are used and whether dematerialization should be
prioritized over substitution or vice versa.
Efficiency of cultures vs substitution of cultures
EE aims at the continuation and improvement of current production structures and
systems. EE is designed to make the existing technological systems more efficient in
what they are doing without changing their basic functions. The efficiency of current
existing cultural norms, world views, social forms, and production and economic
systems is preferred over their substitution with alternative norms, structures, world
views, organizational cultures, personal lifestyles, or need satisfaction. For example,
EE prefers to promote fuel efficient air travel, instead of considering alternatives to
meet the needs of resting, holidays, and free time. In this case, one could also seek
more sustainable alternatives than cultural perceptions and constructs of holidays that
are spent in distant foreign countries among unknown people. Leasing, renting, or
immaterial services are possible alternatives to the production and selling of physical
products (Welford, 1998) and the incremental improvements in their EE. Mont [2002,
page 238; see also Stahel's (1989) important work on the `service society'] notes that,
``In a functional economy, consumers are buying mobility instead of cars, cleaning
services instead of washing powders and movies instead of videocassettes.''
Johansson et al (2005) suggest substitutes for current centralized large-scale
production units, and efforts to increase their EE. The offered alternative is the
concept of distributed economies. Here a diverse range of activities is organized
into small-scale flexible units. Examples could include farm-scale integrated waste
management and energy production units arranged around the technique of anaero-
bic digestion. Anaerobic digestion is able to utilize waste flows from diverse actors
and processessuch as manure from agriculture, wood wastes from forestry/forest
industry, food industry wastes, biowastes from consumers, etcand produce elec-
tricity, industrial process steam, district heat, car fuels (techniques exist, not widely
implemented), and fertilizers for all of these actors and processes (Niutanen and
Korhonen, 2003). Such farm-scale units could be substituted for both centralized
large-scale energy production units as well as large landfills to which all the munici-
palities in a given province/region are currently transporting their wastes in many
industrialized countries.
The globalized market economy and the competitive forums therein are viewed as
a suitable context in which ecological improvements can be achieved according to the
EE position. ``The most recent ecological modernization literature has been ... con-
cerned with comparative perspectives, including ... the ways in which globalization
processes might catalyze ecological modernization processes in countries in the
South'' (Buttel, 2000, page 59). However, many authors have argued that, due to
the environmental difficulties of globalization, at least some trends in the global-
ization culture could be substituted for or phased out altogether. Substitutes could
be found in localized societal forms and institutions and more localized production
and consumption systems (Ehrenfeld, 2000; 2003; Korhonen, 2002; M'Gonigle, 1999;
Ring, 1997).
Reconsidering the economics logic of ecological modernization 1335

The environmental difficulties firmly wedded into the globalization culture

include the geographical separation of raw material extraction, production, and end
consumption. This interregional, international, or intercontinental product life cycle
(from `cradle to grave') consumes fossil fuel energy through transportation. Integrat-
ing the life cycle into a local system could reduce the overall energy consumption.
The global product life cycle makes it more difficult and costly to monitor and
control the life cycle and its environmental impacts. The same materials and energy
flows cause different kinds of ecosystem impacts in different countries, regions, and
ecosystems (Hukkinen, 2003a; 2003b; Robert et al, 2002). Biodiversity-affecting
flows, for example, create different ecological impacts in tropical rain forests than
they do in northern countries' forests that have lower biodiversities. Environmental
regulations and institutions vary substantially between countries as do the social and
cultural contexts. More localized product life cycles, again, could be easier to govern
and manage.
The culture of the global economy emphasizes specialization of individual key
products, their rapid mass production, and their increasing production efficiency,
cutting down costs and winning in the markets. Instead of only continuing with the
existing production and product structures and attempting to enhance their EE,
sustainability governance and policy should also consider substituting some parts of
this cultural trend with economies that focus on diversity instead of only on specializa-
tion (Gale, 2000; Korhonen, 2002; Matutinovic, 2001; 2002; 2003; Ring, 1997; Templet,
2004a; 2004b; Weitzman, 2000). Consider the case of many Third World economies
currently facing the danger of collapse, which creates many social and environmental
problems. In the global economy, developing countries are required to concentrate
almost solely on the mass production of individual specialized key products, such as
timber, sugar, or coffee, or raw materials (M'Gonigle, 1999). This is done at the
expense of the diversity of the production and product structures. When the markets
of the specialized products are disturbed or die out or are under conditions of other
external or internal disturbances, the poor countries' economies have difficulties recov-
ering. This is, at least partly, due to the lack of diversity in their production structures.
The modern paradigm is about competition in the global marketplace (Ehrenfeld,
2000; 2003). Alternative cultural perceptions would include cooperation and com-
munity. For example, since the physical flows of materials and energy cross product,
process, organizational, local, regional, and national borders, cooperation along the
product life cycle and beyond is needed to control and limit the environmental
impacts associated with the physical flows of materials and energy. In addition,
the vision of corporate social responsibility that is, the responsibility of the firm
towards the larger society including all the stakeholders, not only shareholders
(Welford, 2002) is difficult to realize without more cooperative cultures and a sense
of community.
In sum, EE lacks the dimension of cultural substitutions in its policy agenda. This
limits the innovation potential of the global society in terms of ecologically sustain-
able development and can actually make the existing unsustainable cultures stronger
or delay the emergence of global awareness about their problems. Because EE comes
from conventional neoclassical economics theories (Hukkinen, 2003a), and from
engineering, the cultural and social issues are rarely addressed when the concept
is used in policy programs and management systems. Without this link, EE cannot
be used strategically for long-term sustainable development.
1336 J Korhonen

Quantitative vs qualitative criteria or indicators

The institutionalization of ecological aims, the core of the EM position, includes
putting a monetary value on nature, natural resources, and ecosystem services: `` `econom-
izing ecology' by placing an economic value on nature and introducing structural
tax reform'' (Figge and Hahn, 2004; Gibbs, 2000, page 12). EE is a quantitative
measure. It is a figure or a number which is a ratio and does not represent the absolute
amount of, for example, pollution. What qualitative issues are excluded from EE?
Biodiversity, species connectance, local ecosystem species type, material and energy
flow types (eg toxic vs nontoxic), social and cultural issues including community, social
bonding, trust, organizational cultures and learning, human rights, working conditions,
or local cultural heritage are practically nonexistent.
All these excluded dimensions are important for sustainable development. Mac
(2002) finds that there are surprisingly many cases unnoticed in academic literature,
where firms use other than the efficiency criteria in decision making. These include
interpretations of society's and all its stakeholders' views, not only the interests of
the shareholders. In the classic piece by Dimaggio and Powel (1983) in American
Sociological Review they argue that the dominant neoclassical economics assumption
of firms behavior being influenced mainly by the efficiency criteria is in many cases
false. Issues such as image, pressure from peers, imitation of the successful firms in the
sector, legitimacy, or professional norms and societal acceptability are also important
criteria that firms use when deciding what to do. These criteria are beyond the ability
of quantitative indicators to measure. There are millions of species and interactions of
species unknown to man (Hueseman, 2001), and hence biodiversity and species con-
nectance are also issues impossible to quantify in an absolute sense. It is impossible
to quantify all the ecosystem effects of societal systems. Wackernagel and Rees (1997)
note that, because without water, air, or land there is no life, the value of nature and
ecosystems can, in fact, be argued to be infinite. Putting a quantitative monetary value
on nature and ecosystem services is an attempt to make the infinite value into a finite
value. Ring (1997) argues that using a single monetary value for ecosystems reduces
biodiversity into a quantitative figure, which cannot capture the reality and qualitative
diversity of ecosystems. Resulting policy interventions into ecosystems may ignore
biodiversity considerations.
The three dimensions of sustainable development are qualitatively different,
although interdependent. Social sustainability must be measured, for example with
indicators depicting social bonding, community values, relationships between individ-
uals and their organizations, happiness, trust among people, and the nature of the
organizational culture of a certain firm or political institution. Ecological sustainabil-
ity indicators must include physical flows of materials and energy that are measured,
for example, in terms of kilograms or tons, but also in terms of qualitative indicators
or criteria. Economic sustainability and economic performance measurements must
include monetary indicators. Quantification of qualitatively diverse issues into a single
indicator is impossible. It is obvious that monetary values and quantification are
needed for decision making in environmental governance, policy, and management,
but it is also clear that EE measures need alongside them qualitative criteria and
indicators.
Relative vs absolute quantities
Optimally loaded boats may still sink, even though they would sink optimally (Daly, 1996).
The quantitative EE is very difficult in terms of macroeconomic sustainability over the
long term. The notions of `Jevons's paradox' (Jevons, 1990; Mayumi et al, 1998) and
`rebound effect' (Berkhout et al, 2000) serve to illustrate the point. Production efficiency
Reconsidering the economics logic of ecological modernization 1337

reduces production costs. Reduced production costs imply reduced prizes of end
products, which boost up demand. The negative growth effects can more than offset
the efficiency gains. Demand may be directed towards other, more energy-intensive
products than before. Examples are surprisingly many and surprisingly seldom docu-
mented in the literature on sustainable development (Mayumi et al, 1998). During
the last 50 or more years, the food production efficiency per hectare doubled with
the Green Revolution, but hunger remains (Giampietro, 1994). The increased produc-
tion amount, measured in absolute terms, resulted in increased population. The
hunger problem remains, or is actually getting worse. New roads have not solved traffic
problems, because new roads have encouraged the use of personal vehicles (Newman,
1991).
M'Gonigle (1999) describes how efficiency-orientated policies by the centralized
federal government encourage and subsidize fishermen in the periphery or `hinter-
land' to modernize their fishing fleet in order to maximize capital efficiency. But later
on the government is required to offer special grants for the periphery. Capital
efficiency has resulted in high levels of unemployment, and the survival of the local
tradition and the periphery altogether is at risk. The centralized government and the
power concentration in the metropolis require the periphery and rural regions to
produce raw materials and resource flows to them. The social sustainability can
actually become more difficult to achieve through efficiency-orientated policies.
Correspondingly, one can assume that the efficiency-focused modern technologies
applied to fishing can endanger the survival of the fish population in the sea in the
face of negative growth effects.
It is straightforward to conclude that, by definition, EE as a relative number or
ratio cannot have absolute limits embedded in it. EE is not suitable as the overall
objective, goal, or strategic vision of environmental policy. What would be such an
overall goal and strategic vision for environmental and sustainability policies? Robe rt
et al (2002, pages 198 ^ 199; 2004) have used the four system conditions (SC) or
sustainability principles of The Natural Step (TNS) as the basis of future strategic
visions and overall goals of sustainable development. The principles provide qualitative
limits for economic systems. More fruitful use of EE could be possible when EE is
placed within these limits and constraints. In TNS, sustainability is achieved if nature
is not subject to systematically increasing concentrations of substances extracted
from the earth's crust (SC1), concentrations of substances produced by society (SC2),
degradation by physical means (SC3), and if in that society human needs are met
worldwide (SC4).
The important expression here is `systematically increasing'. We cannot sustain the
global society forever or over the long term, if we are systematically increasing
the extraction, production, and use of nonrenewable fossil fuels (SC1), and substances
foreign to nature such as CFCs (SC2) or if we are systematically overharvesting renewable
natural resources such as tropical rain forests (SC3).
The above examples of the Jevons's paradox and the rebound effect can be
considered in terms of the four SCs. The Green Revolution case serves to illustrate
how technological development continues to violate SC4. It may also violate SC3 if
forests and other ecosystems are destroyed due to the pressure to increase agricultural
activity and food production. Weitzman (2000) finds that the dominant economics
growth logic of specialization and mass production negatively impacts biodiversity
conservation. Mass production of individual key crops, species, or organisms in
agriculture, forestry, or the targeting of individual key fish species in fishing may result
in the physical degradation of ecosystems. The problem becomes worse when the
economic system is growing. For example, when the host organisms of pathogens or
1338 J Korhonen

parasites are artificially increased over a certain limit, the pathogens and parasites also
increase in number, eventually destroying the entire ecosystem. Single crop or individ-
ual target species strategies are in stark contrast to ecosystem diversity. The growing
use of cars violates SC1, because transportation relies on fossil oil. Building new roads
may do the same and also violate SC3 if roads occupy biodiversity-rich land areas and
ecosystems. When big cities and metropolitan areas grow at the expense of eroding
periphery, hinterlands, or rural regions and communities, SC4 is violated.
EE, similarly to all other concepts addressing sustainability, should be placed within
the limits posed by the qualitative four SCs. The success of EE must be measured in
terms of these limits. Naturally, there can be transition phasesfor example, including
rebound effectsif the long-term direction of the global society as a whole is the four
SCs. Correspondingly, at different spatial scales, rebound effects may be temporally
allowed provided that the global system as a whole benefits in terms of its sustainability.
I will return to these issues of appropriate scale, system boundaries, temporal and
spatial boundaries, and situational contexts later on in the paper.
EE is a powerful notion and attractive to economists and business actors. Economics
science and hence also business economics and management have always been about
efficiency (Lazear, 2000). EE may seem much easier to adopt as a part of the
immediate business strategy than other more radical or unfamiliar environmental
concepts. But the contribution of EE depends on the capability of the global eco-
nomic system, economists, business scholars, and politicians, policy makers, and
managers influenced by them to learn new criteria for growth policies the criteria
of limits and constraints. The economic system is a rapidly growing and materially
open subsystem of the larger parent global ecosystem, which is a nongrowing and
materially closed system (Costanza and Daly, 1992; Costanza et al, 1997; Daly, 1990;
Rennings and Wiggering, 1997).
It is important to note that the issue of limits must also be taken into account when
considering the possibilities of substituting physical products with immaterial services
discussed above. Consider `sustainability household services' developed for improving
the sustainability of consumption, which may include consulting, training, and educat-
ing the household consumer to be less material and energy intensive in his or her
everyday activities at home: for example, counseling services for improved waste
management and recycling in households (Halme et al, 2006). Other examples are
repairing products instead of buying new ones, choosing public transportation instead
of a private car, leasing or renting a car (ie sharing a car among residents in a certain
neighborhood), and care, supervision, and maintenance of gardens in an ecological
manner.
Halme et al (2006) show that when looking at the larger system-wide effects of
household services it can be seen that these, in fact, can increase the total materials use
when compared with a benchmark situation in which the service would not exist.
In the example given by Halme et al, services that are developed for improving security
or reducing energy use such as home automation require installation of additional
equipment or insulation. When an energy consultant provides a service (eg training
and educating the consumer in the household) and recommends a climate installation
or additional insulation, more materials will be needed. Halme et al further discuss the
rebound effects related to a Dutch example of housing organizations. They find that
when special `bonus points' are given to consumers for using more sustainable services
this may rebound in additional consumption. Bonus points are given in the form of
discounts in shops, which encourages consumers to buy more products that possibly
are more material or energy intensive than the original sustainability services the use
of which is encouraged by the bonus system.
Reconsidering the economics logic of ecological modernization 1339

System vs system boundaries

All material and energy flow studies face the problem of the definition of system
boundaries. As noted earlier, the physical flows cross process, firm, regional, and
national boundaries and borders. The associated environmental impacts are globally
dispersed in the global economic system, which geographically separates raw material
extraction, production, consumption, and waste disposal/management that is, the
product life cycle. Whether the EE assumption that increased EE is inherently bene-
ficial to the environment does or does not hold depends on the definition of the system
boundaries applied in the measurements of EE.
Consider the level of EE in a local/regional forest industry park in Finland
(Korhonen and Snakin, 2005). EE was observed, in this particular case in the form
of energy efficiency and materials efficiency, utilization of wastes and byproducts
as raw materials and fuels in saw mills, pulp mills, and energy production. But
does this come at the expense of reduced biodiversity in Russian forests? The current
trend is that increasing amounts of birch are imported to the Finnish forest industry
from the Russian side of the border, where biodiversity conservation is at a lower
level than in Finland (see Mayer et al, 2005). Similarly, how is it possible to measure
the EE of the Finnish forest industry local forest industry park when 90% of the
paper produced in Finland is exported? There must be environmental questions
that need to be identified and then measured at the consumption steps of the
product.
Another example of the importance of the system boundary definition in the
applications of EE comes with corporate environmental management systems (EMS).
Individual firm-based EMS such as ISO 14001 standard and the EU Eco-Management
and Auditing Scheme can be contrasted with tools such as those of eco-industrial parks
or industrial symbiosis. The industrial symbiosis approach concentrates on a network
of firms and other societal actors, say, in a region (Chertow, 2000). Is the increased EE
(for example, reduced wastes at the level of the ISO 14001 of an individual firm)
in accordance with the aim of increasing the EE of the firm network as a whole?
Improved EE on the level of the firm network could happen through substituting
imported fossil fuels with biomass wastes suitable for energy production. These flows
could be gathered from the firms in the local/regional network system, also reducing
the transportation costs and emissions. How can policy makers convince an indi-
vidual firm that it should adopt increasing its waste generation as the main goal of its
EMS?
In sum, when EE is applied in practice, it is important to first determine the
system boundaries of the application. The definition influences who will benefit more
from EE and who will benefit less, or who will lose. If the system boundary definition
is ignored, EE-orientated policy programs and management efforts may not lead to
long-term commitment and action by the parties concerned. The challenge of bridging
the interests of different parties and actors involved can become a severe limitation
of the adoption of EE in policy and management. More research is needed to over-
come these limitations. For example, actors may need to learn how to appreciate that,
at times, suboptimal outcomes at the level of an individual system component can be
important for optimal long-term outcomes at the level of the larger system. Statements
in policy programs or in EMSs of firms that state `we commit to increased EE'
do not tell much about the rationale for activities in terms of the net gain for global
sustainable development.
1340 J Korhonen

Universalism vs particularism
``Universalism is a temptation in scientific inquiry. It is tempting to argue that, once
a phenomenon has been observed in an adequate number of different settings, the
phenomenon can be explained in terms of a universal theory applicable everywhere''
(Hukkinen, 2003a). Universalism is particularly attractive in such a hybrid and multi-
disciplinary or transdisciplinary setting as that of environmental issues and sustainable
development (see Hukkinen, 2003a), which is characterized with dynamics and complex-
ities of interdependent but diverse economic, social, and ecological systems. Bluhdorn
(2000, page 223) has discussed the ecological modernization position in terms of its
presentation as a universal consensus on how to approach the environmental issue of
modern societies: ``ecological modernization succeeds in bringing about the agreement
ecological fundamentalism fails to achieve.''
EE, as a part of EM, has also been presented as a universal concept (Hukkinen,
2003a; 2003b; Stevenson and Evans, 2004; Welford, 1998). For example, EE has been
promoted by the Word Business Council for Sustainable Development (WBCSD, 2000)
to companies worldwide as a management philosophy (Hukkinen, 2003a). The pre-
vailing EU and OECD policies and strategies are other examples. EE accepts the
economics science paradigm as the dominant one, is technocentric, and relies on eco-
nomics, engineering, and business economics as sources of theory. Consideration of
social and cultural issues, such as the diversity of cultures and local situational contexts
in different continents, countries, and regions, is practically nonexistent in EE (Gibbs,
2000; Murphy and Gouldson, 2000).
An example of the limitations of the universal interpretation of EE is the definition
of waste. The definition is very important for international and national waste and
landfill legislation, directives, and waste management (Pongracz, 2002). The definition
of what is waste and what is a flow, substance, or product with value is affected by the
temporal context in which the definition is made. Before the fossil fuel era, in Finland
(and most likely in all other cold countries), the only possibility was to burn biomass,
or what is now labeled as wood waste, to generate heat (Korhonen and Snakin, 2003).
Some even argue that it is actually the modern definition of waste in Western indus-
trialized countries that has made it more difficult to utilize wastes (see Ehrenfeld
and Gertler, 1997). When a material or substance flow is determined as a waste, its
handling, including handling needed for waste utilization as a raw material or as fuel,
is prohibited by environmental regulation and policy.
Furthermore, the definition is also affected by its spatial and cultural context.
People in poor countries are much more flexible when defining what is waste and
what is a product with value than people in rich countries. Many poor actually live
from waste. It is an issue of survival to utilize whatever is available and around them
(for food, shelter and clothing, etc). The temporal, spatial, cultural, and local situa-
tional factors also affect the definition and measurements of EE for example, EE in
waste management of a certain industrial firm. More research is required to bridge
the technocentric EE concepts to social and cultural issues that strongly affect the
outcomes of EE policies and strategies.
Impacts vs principle mechanisms
Like all sustainability indicators, EE aims to reduce currently known negative
impacts on ecosystems (Figge and Hahn, 2004) (1). The message of EE is that negative
environmental impacts can be reduced through increased resource and energy
efficiency. Reduced raw material intensity and use may lower the impacts of natural
(1) For methodological frameworks to classify impacts and their categories used in EE see Heijungs

and Guinee (1992; cited in Figge and Hahn, 2004).

Reconsidering the economics logic of ecological modernization 1341

resource depletion, biodiversity degradation, and increased energy efficiency, such as

the impacts of acidification or climate change.
An important dimension is missing from EE. The underlying root causes and
principle mechanisms that cause negative environmental impacts are not the focus of
analysis. If the `not' is deleted, TNS SC1, SC2, SC3, and SC4 above serve to describe
the principle mechanisms causing the current known negative environmental impacts
and also future unknown impacts. Root-cause-focused principle level approaches would
focus on upstream mechanisms, instead of only on downstream impacts (Robert et al,
2002; 2004). For example, as given in SC1, avoidance of the systematic increase of
substances derived from the earth's crust in nature, such as metals or fossil resources,
is given priority in target setting and analysis, when the focus is on the principle
mechanisms upstream. The impacts of acidification or CO2 emissions are only the
secondary priority. This is despite the fact that the specific detailed quantitative
impacts of a certain metal or fossil fuel downstream are not known based on currently
available scientific knowledge.
It is important not to confuse this approach with preventative environmental
policies, such as cleaner production (see Stevenson and Evans, 2004), that have been
offered as an improvement to the so-called `end-of-pipe' policies (Janicke, 1990,
pages 44 ^ 54). End-of-pipe policies design filters or other purification devices that
handle the already produced emissions and wastes. Cleaner production, in turn, con-
centrates on the source of these emissions and wastes. Now the focus is on production
processes and techniques that do not pollute or create wastes or that pollute less.
Harmful pollutants and wastes that are to be avoided are defined based on currently
available scientific knowledge about the impacts of wastes and emissions on nature.
The four SCs of TNS go one major step backward towards upstream causes of all
negative impacts. They focus not primarily on the technologies and production pro-
cesses, but rather on societal decisions (carried out by government and business and
their stakeholders) on what flows to use, produce, and handle in the production
and consumption processes of the society. The SCs also take into account the currently
unknown negative impacts on ecosystems when they consider the principle mechanisms
that cause impacts on nature.
Sustainability science mainly focuses on current and known negative impacts
(Robert et al, 2002; 2004). Many examples of the problems inherent in this approach
exist. For decades, scholars focused on known impacts of fossil fuel use (eg on
SO2 emissions and air pollutants of NOx ). The potential climate change effects of
fossil-fuel-originated CO2 were ignored (Hueseman, 2001). The risks for possibly the
most serious environmental impacts of our time were observed and accepted only
recently. This was because of the impact-focused, instead of root-cause-focused, policy
and management. Systematic increase in fossil fuel use violates SC1, even though its
downstream impacts on nature would be unknown. CFCs (freons) were introduced as
nontoxic and nonharmful substances at the time they were discovered. CFCs violate
SC2. The decision was based on known current impacts, not on the underlying
principles that are the root causes of known impacts and future unknown impacts.
Despite success in resource and energy efficiency in quantitative terms (eg reduced
use of metals and fossil fuels per dollar of output) sustainability still cannot be
achieved. This can be the case even if rebound effects could be overcome, ie if the
efficiency gains exceed the negative growth effects. As long as the overall long-term
direction is such that qualitatively harmful materials and energy flows systematically
increase in nature, sustainability cannot be achieved. The efficiency of natural resource
or energy use can never create a situation in which the use of natural resources or
energy would be zero (Daly, 1996).
1342 J Korhonen

Innovation vs lock in
There is an inbuilt bias within the modern industrial company to prefer incremental
and small rather than radical and fundamental change (Murphy and Gouldson, 2000).
The incompatibility of new technologies and radical innovations with the existing
technological system reduces the attractiveness of new technologies as investment
decisions. They are yet to benefit from scale and learning effects that occur over
time. Incremental innovations or measures to fine-tune existing technologies, in turn,
are more in line with the existing systems. They do not create such radical transforma-
tion requirements, pressures to learn and improve managerial capacities, or needs to
overcome organizational inertia as the radical innovations and technologies do. Scale
and learning effects are enjoyed by the old and existing technologies that, thus, seem
preferable to business actors. Innovations commonly experience a period of increasing
returns as they are adopted. During this time period, costs are reduced and experience
and learning accumulate as the production expands. The quality of production is
improved. The problem is that, although efficient and easy to adopt in the short
term, incremental innovations to existing technological systems eventually encounter
diminishing marginal returns. In the long term, costs increase and can become unbear-
able. Consider an industrial company of today that would still try to use CFCs, instead
of available substitutes, and disregard the societal pressures.
Investments towards EE may lead to dead ends or `blind alleys'. Seemingly bene-
ficial investments for the short term can prevent the occurrence of more significant
benefits for the long term. EE has been applied to increase the energy efficiency of
existing technological systems relying on combustion and energy-generating technol-
ogies based on fossil fuels. Improved efficiency of these, although reducing the
economic costs and enhancing the energy efficiency of the present situation, does
not provide `flexible platforms' or stepping-stones for future sustainable technologies
(Robert et al, 2002; 2004). If current constraints, weaknesses, or scarcity of the
managerial time (eg for learning) are taken as the only priority in the formulation of
business and investment strategy, future losses, in terms of both environment and
economy, can occur. The price of renewables can decrease or fossil fuel taxation can
become unbearable for business in the future.
Investments generating short-term benefits but preventing gains in the long term
have been termed situations of technological `lock in' or `path dependency' (Hukkinen,
2003a; 2003b; Matutinovic, 2001; 2002; 2003; Norton et al, 1998; Salmi, 2003). A
hypothetical example could be an investment in the coproduction of heat and power
(CHP), in which waste heat recovery enables the production of industrial process steam
and district heat from the residual energy of electricity generation. CHP is a capital-
intensive investment, and has a long life and long payback times. The investment can
`lock in' the situation in that parties are tied to the investment made for long time
periods and are unable to adopt new, possibly better innovations in energy generation
and supply during that time period.
CHP investment into a plant, which uses fossil fuels, will significantly improve fuel
efficiency in the short term. The fuel costs are reduced. However, if the plant does not
have the fuel combustion technology also capable of utilizing low-grade fuels in the
future, such as biomass, wood wastes, or other waste-derived fuels, one may lose in
terms of the environment and the economy in the long term. Investment in a plant that
would be less energy efficient in its use of fossil fuels in the short term, but able to
switch to biomass combustion in the long term, could be a more sustainable solution
also securing long-term economic success.
Reconsidering the economics logic of ecological modernization 1343

Conclusions and discussion

How can we use EE?
EE is an attractive concept for the modernity paradigm and for the desire to produce
solutions to problems of progress that would have universal relevance. EE simplifies
complex problems, is easy to understand as a measure, is provocative, is in line with the
universal striving towards increasing economic growth, and can be tested with methods
of conventional neoclassical economics, with positivistic logic, with quantitative meth-
odologies, and with monetary value. But these features in EE also point to a paradox
in many parts of the current sustainable development and environmental policy dis-
course. While there seems to be a consensus emerging within sustainability scientists
that a change toward sustainability is a fundamental and radical change, at the same
time, increasingly, EE is offered as the solution to current unsustainability. The
paradox shows in the problems of unsustainability that occur if the eight observed
limitations and challenges of the concept of EE are not acknowledged. Because of
the complexity of the environmental issues, both in terms of natural science and in
terms of social sciences and cultural studies, the current oversimplification in the use
of EE is a risky endeavor.
Where and how, then, can EE be used if burdened by such severe limitations?
Because of its benefits, EE has lots of potential in environmental policy and manage-
ment. The critical point is that EE should not be used as the overall vision and
objective of environmental policy and management. It cannot serve as the vision. EE
can and should be used as a practical tool, concrete measure/action, instrument,
technique, metric, or indicator to measure the success of certain strategic environ-
mental policy programs and corporate EMS, but not as the overall goal or vision.
EE is an indicator among many other indicators and metrics. It is a fruitful one as long
as it is used within the constraints and limitations of visions and overall goals that are
in line with long-term sustainable development.
Hills and Welford's (2002) study provides a useful example of an EM approach to
regional policy that focuses especially on EE. In their case study, the Honk Kong
Special Administrative Region, EM interpreted as EE is more fruitful as the short-to-
medium-term policy solution than more fundamental visions and radical changes
toward sustainable development. Hong Kong traditionally desires economic growth
and efficiency. A rapid radical change would be utopian. In fact, it could result in
the abandoning of the sustainability agenda altogether. EE is more in line with the
current administrative and business system in Hong Kong and easier to implement
than a more fundamental change. EE can be seen as a transition phase toward
sustainable development in Hong Kong. However, Hills and Welford maintain that
the Hong Kong Special Administrative Region should develop a strategy for long-term
sustainable development. In this strategy, EE can serve its proper role: as the first step
and as a transition phase in the path governed and limited by long-term sustainable
development goals and visions that go beyond EE.
On future research challenges
The eight limitations and difficulties identified in the paper serve as initial research
questions that could be tested in case studies, in empirical studies, and with quantitative
and qualitative methods. For example, it would be interesting to construct scenarios
that depict alternative outcomes of different environmental policies (eg how would
emissions, costs, and employment situations measure when comparing policies of
dematerialization vs substitution?). What system boundaries yield the most environ-
mentally benign outcomes for EMSs of a certain industrial sector? Do rebound effects
affect policy outcomes, and if so under what kind of conditions? How could rebound
1344 J Korhonen

effects be anticipated and overcome? How long a time perspective is adopted in

investment strategies of environmental policies directed towards different industrial
sectors? How is EE interpreted and defined when comparing different cultures, con-
tinents, and countries? Does the public sector of a certain country approach EE in a
different light than the business sector of the same country (ie is EE an indicator or
strategic objective and vision)? What alternative indicators have been used in national
environmental policies and how do they compare with EE-derived policy suggestions
and recommendations? Hopefully, these and other research directions will yield more
critical and sustainability-orientated research on EM and EE in the future.
Acknowledgements. The support from the projects Regional Industrial Ecosystem Management
(RIEM) (code 53437), projects 216348 and 216349 on industrial ecology from the Academy of Finland,
and Emil Aaltonen Industrial Ecosystem Indicators (IEI) project (code 20721) is gladly acknowledged.
The research has been made possible in the Academy Fellow position.
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