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The circular economy grows up

Aug 01,2021 - Last updated at Aug 01,2021

By Andrew Sheng and Xiao Geng 

HONG KONG — Every year, 400 million tonnenes of heavy metal, toxic sludge  and industrial waste are dumped into our waterways. At least 8  million tonnes of plastic end up in our oceans. Some 1.3 billion tonnes of food — about one-third of all that is produced — is lost or wasted, while hundreds of millions of people go hungry. Our oceans are being overfished, our lands degraded and biodiversity rapidly eroded. Meanwhile, devastating natural disasters — flash floods in Europe and China, forest fires in the United States, and locust infestations in Africa and the Middle East — are becoming more frequent.

The unsustainability of our linear “take-make-waste” pattern of global production and consumption has never been more obvious. In fact, if we do not abandon it by 2050, we will need the equivalent of almost three Earths to provide enough natural resources to sustain current lifestyles, and annual waste generation will increase by 70 per cent. But there is a better way: We can embrace the circular economy.

The circular economy would decouple growth from the consumption of finite resources, keep products and materials in use, and regenerate natural systems. The European Union is already embracing this approach. Its Circular Economy Action Plan — a pillar of the European Green Deal — introduces legislative and non-legislative measures that would affect the entire life cycle of products, with a view not only to saving on materials, but also to creating jobs, improving human well-being and protecting nature.

The manufacturing sector is a case in point. As the plan notes, up to 80 per cent of a product’s environmental impact is determined at the design phase, yet manufacturers do not have sufficient incentives to design sustainable (or circular) products. The EU plans to strengthen these incentives through legislation.

Ultimately, this will help manufacturers. Given that raw materials currently account for about 40 per cent of manufacturers’ costs, on average, closed-loop models can significantly increase their profitability and protect them from resource-price fluctuations. This latter point highlights the circular economy’s geopolitical dimension: As the Dutch plan for developing a circular economy by 2050 notes, “of the 54 materials that are critical for Europe, 90 per cent must be imported, primarily from China”.

The EU estimates that applying circular-economy principles comprehensively could increase its total GDP by an additional 0.5 per cent by 2030 and create around 700,000 new jobs. Crucially, measures aimed at implementing the circular economy in the EU would be introduced in a broad-based manner, including initiatives by communities and local and regional governments.

Given that the EU is a manufacturing powerhouse, it can help to set global standards for product sustainability and influence product design and value-chain management worldwide. But Europe is also taking a more direct approach to driving forward global progress towards a circular economy. This past February, it launched the Global Alliance on Circular Economy and Resource Efficiency. It is also pushing circular-economy principles through global trade negotiations and in its partnerships with African countries.

But, if this effort is to succeed, we must first understand why it has taken so long for the circular-economy concept to take root. Part of the answer lies in how mainstream economic ideology regards nature.

As John Ramsay McCulloch put it in his introduction to the 1828 edition of Adam Smith’s “The Wealth of Nations”, “water, leaves, skin and other spontaneous productions of nature, have no value, except what they owe to the labour they required for their appropriations”. More broadly, the prevailing economic models since Smith have been linear and mechanical — an approach that is out of step with cyclical natural systems.

In a recent report, Partha Dasgupta was diplomatic in excusing mainstream economics for ignoring nature (defined interchangeably as natural capital, the natural environment, the biosphere and the natural world). In the immediate post-World War II period, he noted, absolute poverty was endemic in much of Africa, Asia and Latin America, and much of Europe lay in ruins. It was therefore “natural” to focus on the accumulation of physical capital [infrastructure and goods] and human capital [health and education]. “To introduce Nature, or natural capital, into economic models would have been to add unnecessary luggage to the exercise.”

The unwillingness to carry the “luggage” of nature has meant that economic accounting has focused almost exclusively on GDP growth — the more, the better — for over 70 years, without any regard for the impact of economic activity on the natural environment. No surprise, then, that the situation has gotten so desperate.

But there are promising developments. In March, the United Nations Statistical Commission adopted the System of Environmental-Economic Accounting Ecosystem Accounting, a framework for organising data about habitats and landscapes, measuring ecosystem services, tracking changes in ecosystem assets, and linking this information to economic and other human activity. And both the Japanese G-20 Presidency in 2019 and the current Italian presidency have pushed for global action on the circular economy.

China has also taken important steps in this direction. In August 2008, it became one of the first countries to pass a law aimed at promoting the circular economy. As Dasgupta noted in his report, China also enshrined the concept of an “ecological civilization” in its constitution in 2018. And China’s dual-circulation strategy — a feature of its 14th Five-Year Plan (covering the 2021-25 period) aimed at cushioning the blow from economic decoupling — evolved from the circular economy model.

While the EU and China might disagree about the circular economy’s technical, economic, and political uses, their shared commitment to moving toward such a system is good news. More economies should follow suit, with targeted multilateral aid and technical assistance provided to emerging economies.

The circular economy is our only hope of achieving the 17 UN Sustainable Development Goals and ensuring humanity’s long-term survival. If great powers must compete, it is here that they should be doing it.


Andrew Sheng, distinguished fellow of the Asia Global Institute at the University of Hong Kong and a member of the UNEP Advisory Council on Sustainable Finance, is a former chairman of the Hong Kong Securities and Futures Commission. His latest book is “From Asian to Global Financial Crisis”. Xiao Geng, chairman of the Hong Kong Institution for International Finance, is a professor and director of the Institute of Policy and Practice at the Shenzhen Finance Institute at The Chinese University of Hong Kong, Shenzhen. Copyright: Project Syndicate, 2021.

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