An inclusive circular economy

This report from the UK think tank Chatham House looks at opportunities to coordinate regional trade policies and investment programmes to rapidly scale up the circular economy in the developing world.

Developing economies will struggle to grow sustainably without significant investment in recycling, reusing and repairing used raw materials and products. Radical transformation in the way we use natural resources is central to meeting the needs of future generations. Current trends in global resource extraction are incompatible with internationally agreed targets to limit the rise in global average temperature to below 1.5°C above pre-industrial levels. Diverting to a sustainable growth pathway will require both substantial improvements in the efficient use of primary resources and a significant degree of displacement of primary resources with secondary materials – those recovered from waste streams and repurposed or remanufactured for further use. The ‘circular economy’ (CE) concept is fast becoming a new model for resilient growth. A circular economy is one in which products and materials are recycled, repaired and reused rather than thrown away, and in which waste from one industrial process becomes a valued input into another. Creating and optimizing resource ‘loops’ along value chains could help meet the material needs of growing populations through drastically lower rates of per capita primary resource use.

The CE is now a core component both of the EU’s 2050 Long-Term Strategy to achieve a climate-neutral Europe and of China’s five-year plans. Japan has tabled the CE as a priority for the 2019 G20 summit. Insufficient attention has been paid to CE pathways in developing countries, despite considerable innovation and policy progress. Structural and political conditions, and the rapid pace of growth and industrial development, will require different solutions to those adopted in developed countries; for example, the agricultural sector has been afforded minimal attention in global CE discussions to date, but will need to take a central place in developing-country CE pathways. Innovation is already under way in developing countries, in the agricultural sector and beyond, and developing-country governments are beginning to adopt ambitious strategies for more resource-efficient and circular patterns of industrial growth.

The CE offers a promising alternative strategy for industrial development and job creation to the traditional manufacturing-led growth pathway. The CE continues to be understood primarily as a waste management and recycling strategy, but the economic opportunities are far broader and more diverse. With the right enabling conditions, the CE could provide new opportunities for economic diversification, value creation and skills development. Developing countries are in a strong position to take advantage of the new economic opportunities. Their large informal sectors already practice ‘circular’ activities – in areas such as electronic waste (e-waste) and phone repairs, for example – and could engage in higher-value CE supply chains. Moreover, with enough investment, developing countries can ‘leapfrog’ developed countries in digital and materials innovation to embed sustainable production and consumption at the heart of their economies.

A transition to a CE brings certain trade-offs that require careful management. In the absence of a coordinated and strategic approach to the CE at national or international level, there is the risk that companies will adopt tokenistic – or, at worst, harmful – activities under the umbrella of the CE which preclude more sustainable or higher-value material use. Waste-to-energy initiatives using sub-standard incineration practices, for example, may bring environmental and human health risks and may also be drawing on waste streams better suited to second-life products. Trade-offs may also arise where circular solutions imply significant shifts in industrial policy: in resource-intensive economies, for example, circular approaches can support value addition but may also risk job losses among those employed in resource extraction and primary processing. The success of the CE in developing countries will be critical to global efforts to ensure sustainable growth.

Developing countries are already global centres of production and are set to become the global drivers of consumption. Success now in embedding circular principles in industrial growth and infrastructural development strategies can help to meet the needs of growing and urbanizing populations while mitigating against a continued rise in primary resource use, associated emissions and environmental pollution. For example, in adopting modular, adaptive and resilient design principles, the CE can help to deliver quality housing and infrastructure at low economic and environmental cost. Greater focus is needed on circularity in international value chains, and on the governance and investment frameworks required to enable a global CE. In 2015, East African countries proposed a ban on imports of secondary textiles to protect their domestic industries, concerned about large volumes of cheap second-hand clothes from China entering the market. After the US threatened retaliation, the ban was replaced with an import tax, but the episode highlighted how the trade in secondary materials, if not carefully managed, can lead to tensions with traditional sectors and between countries. And in 2018, China’s imposition of a de facto ban on solid waste threw light on the importance of developing integrated, transparent supply chains in waste and secondary materials if harmful waste-dumping practices are to be avoided and CE value chains are to emerge at scale.

Greater cooperation is needed at the global level to agree on common rules and standards for international circular value chains, particularly where they risk displacing traditional workers or are associated with environmental or health risks, as is the case with e-waste. There is an urgent need to widen the global CE conversation to include developing countries and to invest political and financial capital in promoting the development of an inclusive, global CE. Developed-country governments have an important role to play in facilitating a meaningful dialogue on how the international dynamics of CE policies may best be managed. Support from international agencies such as the UN Industrial Development Organization (UNIDO) and the UN Environment Programme (UNEP) will be critical to facilitating the piloting of CE solutions among small and medium-sized enterprises (SMEs) in developing countries and along international value chains to demonstrate the viability of cross-border circular value chains at scale. And proactive engagement by multinational companies with suppliers in developing countries – including SMEs and those operating in the informal sector – will be necessary for circular activities to be scaled up in a manner that is inclusive and avoids the displacement of vulnerable workers.

The next two years present a moment of opportunity to develop a global vision for the CE aligned with climate action and the broader sustainable development agenda. There is much scope for aligning CE strategies with climate action and sustainable development commitments at the national and international level. Key international milestones in global climate change talks, in the delivery of the UN’s Sustainable Development Goals (SDGs) and in the agreement of a global treaty on biodiversity protection in 2019 and 2020 present a unique opportunity to integrate the CE into existing global political and environmental agendas and catalyse increased public and private investment in the roll-out and scale-up of CE solutions in developing countries.

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