4. Towards a Just Circular Economy Transition
As outlined in the previous section, the transition to a circular economy can address several of the most pressing challenges of our time. However, the transition entails a profound systemic transformation of the way the world’s economies function. While it is likely that it will generate a net-positive outcome in terms of employment opportunities, many workers, industries and communities could be adversely impacted. Furthermore, the technological change through digitalization, automation and other Industry 4.0 technologies (such as additive manufacturing and smart sensors) that the circular economy will rely on in order to increase resource productivity, optimize production systems and reduce waste can potentially also exacerbate wage inequality and displace workers and jobs. Preparing to reskill a large number of the workforce will be a major challenge in the coming years and decades.
Already, through the use of digital platforms and complex algorithms to analyse extensive customer data, the digital sharing economy has enabled increasingly better use and sharing of assets. But digital sharing platforms also tend to favour existing asset owners, including as regards ownership of data. This has concentrating market effects, and crowds out the businesses and often less well-educated workers that have traditionally occupied sectors such as hospitality or mobility services. Moreover, there is a real risk that the sharing economy worsens economic security by entrenching workers in uncertain, low-pay employment with limited rights.
Table 2: Employment impacts in the circular economy transition
Type of impact
Circular economic activities will increase the demand for labour in some sectors (e.g. product repair, materials reprocessing and recycling), generating new employment opportunities in some countries. New product system services (PSS) and digitalization are likely to create new types jobs in the ICT sector.
Some employment opportunities will shift from companies, sectors and countries associated with the linear economic model to those that operate according to the circular model. One such example is job substitution through sharing economy platforms and new business models.
In an advanced circular economy, there will be no direct replacement for certain types of employment, in particular jobs linked to linear extractive industries (e.g. mining), and jobs that are already threatened by automation (e.g. textiles).
Job transformation and redefinition
Many existing jobs across multiple sectors are likely to be transformed or redefined as a result of the circular economy transition, requiring new skills and retraining of the workforce.
As set out in Table 2, the implementation of climate mitigation policies, circular economy business models and new technological innovation will likely affect employment in four areas: job creation, job substitution, job elimination, and job transformation and redefinition.
How might these dynamics play out across various sectors of the economy and in different countries? In the long-term, the enhanced circularity and slowing of material flows through reduction, reuse and repair of products, recycling and sharing of assets will, all other things being equal, lower the demand for fossil fuels and other non-renewable primary resources. As a consequence, workers, firms, regions and countries that rely on the extraction and export of fossil fuels, metals and minerals will be adversely affected by the circular economy transition. However, lower revenues will increase the pressure to diversify, which may, if successful, eventually generate developmental benefits in terms of job opportunities and increased productivity.
Applying just transition approaches to the circular economy is important for identifying which countries, sectors, communities and workforces may be adversely affected by the process, as well as for developing policies and programmes to support those at risk of being left behind. It also involves including relevant stakeholders in decision-making processes, and recognizing their rights. Three types of justice – distribution, procedures and recognition – need to be taken into consideration when planning for and designing interventions to support the circular economy transition, raising important questions and principles for a just circular economy transition:
- Distributive justice. In the circular economy context, distributive justice concerns access and rights to resources – including waste, by-products and secondary materials – and the impact of the transition on employment. Pertinent questions to ask are: How are the costs and benefits of the current linear system distributed, and how will the burdens of transition be distributed? In which sectors and countries are jobs gained, and where are jobs lost? And who carries the burdens of the transition?
- Procedural justice. Inclusion and exclusion in decision-making processes are central components of procedural justice. It is essential that various stakeholders, especially communities that are particularly adversely affected by the transition, are included in discussions at an early stage, to ensure that social justice considerations are taken into account. Pertinent questions to ask are: Who has influence, who decides, and who is involved? Is the decision-making process managed or inclusive, and do all stakeholders have a seat at the table? And do all stakeholders have adequate capabilities and skills to participate in the circular economy, contribute their ideas and, if necessary, voice their concerns?
- Recognition of rights. This aspect includes a range of rights, for example ownership rights over natural resources and land, rights to repair of products, and consumer protection rights. Pertinent questions to ask are: How are marginalized circular economy views and narratives, knowledge and values recognized and integrated into dominant narratives? How can competing development interests be resolved through participatory processes? And which institutions can guarantee recognition and protection of rights during the transition processes?
Box 2: The social dimensions of the circular economy transition
In visual diagrams, the circular economy is generally explained as redirecting flows and closing loops of materials, resources and waste along the life cycle of products. However, critical groups such as consumers, workers and communities are often missing from the descriptions. To ensure a just transition, the needs and concerns of various stakeholders need to be considered. Furthermore, active involvement and participation is required along different stages of value chains. Some of the priorities and needs for a successful and just transition from linear to circular value chains are summarized in Figure 2.
Figure 2: Priorities and stakeholder needs for just transition
Source: Author’s own analysis.
Discussed below are three key industry sectors, and their value chains, that are the focus in many circular economy agendas – mining and electronics, textiles and garments, and waste management and recycling, as examples of how the just transition approach applies to the circular economy.
Mining and electronics
The transition to a circular economy poses significant challenges to the way the mining sector operates. As the lifetimes of electronic products such as smartphones and laptops expand, their reuse, repair and recycling rates increase, and the sharing economy becomes ever more salient, it can be anticipated that the need for primary extraction of minerals will decrease. The example of electronic companies’ circular economy strategies has the potential to severely disrupt the way the current extractive system operates. Apple’s push to become a closed-loop manufacturer and end mining – starting with bauxite and cobalt – is a case in point.
Current recycling rates of some metals are already encouraging. Copper and aluminium can be recycled repeatedly without any loss of performance, and recycling requires up to 85 per cent less energy than primary production. At present, about 67 per cent of scrap steel, more than 60 per cent of aluminium, and 35 per cent of copper (45–50 per cent in the EU) are recycled. Metal recycling provides 40–50 per cent of the US metal supply. However, to date, less than 5 per cent of rare earths are recycled from end-of-life electronic devices. Many of the technologies that can facilitate the transition to a low-carbon economy – such as digital devices, battery storage systems and electric vehicles – are dependent on metals and minerals like lithium, copper, cobalt, uranium, gold and rare earth minerals. Demand for some of these resources exceeds what can currently be obtained through recycling. As a consequence, demand for these commodities is likely to increase as the transition progresses. In the case of cobalt, a critical material for batteries, this increased demand is already expected to lead to potential supply bottlenecks over the next several years. In the case of copper – essential to power renewable energy systems, which use up to 12 times more copper than conventional power systems – recycling rates are already about 50 per cent but would still need to increase substantially. The circular economy, and recovery and recycling of these materials, is essential to ensure reliable long-term supply to enable the low-carbon transition.
Many of the technologies that can facilitate the transition to a low-carbon economy – such as digital devices, battery storage systems and electric vehicles – are dependent on metals and minerals like lithium, copper, cobalt, uranium, gold and rare earth minerals. Demand for some of these resources exceeds what can currently be obtained through recycling.
The circular economy may also help optimize tailings valorization in the mining sector, and reduce the dangers of chemical leaching and dam failure stemming from the 3,500 active tailings dams currently in existence globally. Tailings valorization means the recovery of residual metals and utilization of the minerals, and otherwise hazardous waste can potentially be transformed into valuable secondary metal resources. However, the current value chains for tailings valorization are lacking or incomplete, and it is important to involve innovative small and medium-sized enterprises (SMEs) that could fill needs gaps.
For many European and other high-income countries, the negative effects on primary sectors are likely to be limited, as extractives do not play major roles in their respective economies; notable exceptions here would include Canada, Australia and Russia. High-income countries are likely to see job gains through enhanced ‘urban mining’ activities – i.e. recovering raw materials from electronic waste in cities, or mining municipal landfills – as the economic case for these becomes more attractive and profitable than that for classical mining. Mining companies and countries that best understand changing patterns of demand, and position themselves accordingly, are likely to gain competitive advantage and reap significant economic benefits.
The circular economy transition would entail enhancing the longevity of electronic and electrical products, as well as increasing their sharing, reusage, repair and recycling rates. This can be expected to reduce the demand for newly produced items, with likely substantial negative financial implications for many firms – and workers – in the manufacturing sector. The implications will vary across the long value chains of electronics. On the other hand, it is likely that many new business opportunities will emerge as the transition to the circular economy progresses. Likely winners from the transition are the firms, countries and regions that are able to produce new products in an environmentally friendly and ‘waste-free’ way using recycled materials. New business opportunities are also likely to emerge in recycling, repair, rental and sharing services.
Box 3: Can metals and minerals leasing models mitigate impacts on producer countries?
One possible way to address the negative impacts on countries heavily dependent on extractive sectors, and thus facilitate a just transition in the mining sector at an international level, could be through new models of leasing metals and minerals. Leasing is an established practice for traders and refining companies in the precious metals (gold, silver, platinum group) sectors. In an advanced circular economy, a range of mined minerals and/or manufactured metals could be leased, rather than sold, to companies by producer countries, with the country of origin retaining ownership. The idea is that the resource, in whichever form, is leased for a certain period of time and then ‘returned’. The country would receive revenue from leasing the materials, while a failure to return would lead to purchase at a premium price.
This type of leasing mechanism would thus help ensure that producer countries retain long-term ownership of their natural resources, to the intended benefit of lower-income economies. It would also provide high incentives for recycling and improved design of high-tech equipment and electronics to ensure easier recovery of metals from devices. Metals would be extracted from waste by-products during processing and from end-of-life devices, and reintroduced to the manufacturing cycle. Transparent governance measures at both international and country level would be critical to ensuring a just transition: this would entail channelling revenues from leasing of minerals and metals to national transition funds, and potential direct cash transfers to the communities and workers affected by the transition.
In terms of implementation and governance, it has been suggested that multilateral organizations such as the World Trade Organization (WTO) would need to play a facilitating and supervisory role. A multilateral mechanism could also enable technology transfer to producer countries in the developing world, and ensure that the minerals needed for high-tech products are made available, while a lease is transferred to the developing world using new technologies such as blockchain to ensure high degrees of transparency. Furthermore, the development of digital product passports, as intended by the EU in the context of its Circular Economy Action Plan, would facilitate the implementation of metal leasing models.
Textiles and garments
The circular economy is seen as one of the strategic areas of innovation for the future development of the textile and clothing sector. The industry has begun engaging with the circular economy in multiple ways. Many global brands are supporting the transition to circularity by nurturing and scaling innovation, and leading companies in the garment industry have committed, at CEO level, to creating a circular fashion system. The frontrunners in the sector will be: companies that are able to produce new clothes from ‘old’, e.g. through redesign or retailoring or from recycled materials; companies that use renewable resources such as hemp fibres or bamboo and produce fashion items in an environmentally sustainable way; and companies that are able to successfully establish clothing rental business models. All these models are expected to expand as the transition progresses, providing new business opportunities, especially for local economies, and reducing the amount of clothes currently sent to landfill.
The transition to circular will require critical shifts in how the international textile sector functions, and in how consumers behave. Clothes and fabrics will have to be ‘eco-designed’ to ensure recyclability from the outset, and produced using environmentally friendly material inputs that do not include harmful substances or plastic microfibres. Items will also have to be used for a much longer period of time than at present. Sharing or renting clothes is one way of achieving variation. Eventually, when clothes cannot be used or repaired any longer, their materials and textile fibres will have to be recycled.
Clothes and fabrics will have to be ‘eco-designed’ to ensure recyclability from the outset, and produced using environmentally friendly material inputs that do not include harmful substances or plastic microfibres.
As demand for clothes changes, it is possible that some existing textile manufacturing firms will go out of business and that workers will be displaced. A circular textile sector could even see the demise of the current ‘fast fashion’ industry, with production volumes of wholly new garments decreased in tandem with increased rates of reuse and repair of higher quality textiles and recycling of fibres. And in a circular textile system with high degrees of automation and other disruptive technologies such as 3D printing, which, by reducing costs, could potentially bring production closer to markets, it is possible that parts of production may be ‘reshored’ back to Europe and North America, with negative effects on workers in low- and middle-income countries with large textile manufacturing sectors. There would still be a need for garment workers in countries where production is currently concentrated, but there would potentially be fewer of these workers, and they would need to be upskilled to handle new technologies.
The impact on workers, especially women, in for example Asian or North African countries that specialize in textile and garment industries may be especially stark, particularly if the degree of automation in the garment sector increases as the transition progresses and production shifts to places with a higher-skilled workforce. Garment value chains linked to fast fashion are major contributors to the economy and employment for women in many of these countries, including Bangladesh, Cambodia, Vietnam, India and China. To take just two examples of the potential scale of the impact, there were some 3.7 million workers in the textile, clothing and footwear sector in Indonesia in 2014, accounting for almost 25 per cent of the country’s total manufacturing employment; in Vietnam there were around 2.6 million workers in the equivalent sector in 2013, or 36 per cent of total manufacturing workers.
Box 4: Social entrepreneurship in Bangladesh’s circular textile industry
Bangladesh’s ready-made garment industry is already experiencing increased ‘circular’ demands from international brands – including better waste management, recycling of products and the components used, controlling carbon emissions, and greater control of microplastics. The textile industry produces some 500,000–700,000 tons of waste material annually, comprised of yarns, cutting scraps and rejected garment pieces. In some cases, the waste per output can be almost half of the total raw material input needed for the final garments produced. With a combination of different reuse and recycling techniques, the textile waste could be repurposed into about 1 billion new garments. While lower-value scraps end up in landfill, higher-quality garment scraps are passed on to a chain of traders, eventually being transported to India or China to be recycled into yarns for export-grade products by third-party suppliers. Bangladesh is missing an opportunity to use the garment waste products effectively.
Social entrepreneurs in Bangladesh have started finding new uses of the textile waste, developing innovative solutions to address a broader spectrum of issues related to the sustainability of the textile sector, including basic hygiene needs for women, education and skills development, and improving the working lives, health and well-being of millions of garment factory employees. The Ella Pad initiative, for instance, works with women in garment factories to produce washable sanitary pads using scraps from textile manufacturing for their own use as well as for distribution to others. Begun in 2012, the initiative aims to reach the 4 million women working in the garment industry in Bangladesh, and 10 million girls in education, as well as to promote a zero-waste textile sector. The initiative is helping women become entrepreneurs by supporting them in working with factory owners and developing business skills.
Inclusive circular economy initiatives like Ella Pad demonstrate that addressing environmental issues of waste can go hand in hand with social objectives to reduce gender inequality, improve education and health, and generate new employment opportunities for women.
Waste management and recycling
The transition to a circular economy will entail the end of many single-use plastic items used today. Already, many countries are implementing or planning legislation to phase out production and ban the sale and use of single-use plastics. However, these policy efforts are often strongly opposed by companies that might suffer from narrower profit margins under bans. Examples from India show that effective implementation of bans both at state and national level has been difficult. Reduced demand for virgin plastic will have a large and negative impact on the plastics industry and the petrochemical industry. There are strong parallels with the issue of carbon lock-in of energy systems, where incumbent actors and existing infrastructure inhibit transitions.
The transition to a circular economy requires significantly improved recycling practices. Countries that put adequate facilities in place could reap rewards in terms of increased revenues and enhanced access to critical resources. In addition, several studies suggest that employment opportunities in the waste management and recycling industry will increase as a result of the circular economy transition.
Addressing the challenge of eliminating single-use plastics can create new winners. Already, for instance, there are companies taking advantage of new product packaging rules and plastic waste policies. As the circular packaging economy advances, new forms and materials (such as mushrooms or seaweed) to manufacture food packaging will replace unsustainable single-use plastics. However, more durable types of plastics that can also be easily reused and recycled may remain in circulation, to the benefit of certain producers – especially if they are able to use renewable materials in their processes.
In many developing countries, informal waste pickers and collectors play an important role in municipal waste collection, sorting and recycling. Many of these workers are exposed to hazardous conditions, and subsist on very low incomes. As countries and cities seek to modernize their waste management and recycling processes, this group is at risk of being marginalized and seeing its livelihood endangered. Some countries have made efforts to include informal waste pickers in new processes; these are mostly bottom-up initiatives, offering services that create synergies between local authorities, private enterprises, state and citizens.
As part of a just transition, more targeted support measures will be needed to formalize substandard, informal jobs in sectors such as recycling and waste management, in order to transform them into decent employment. Municipal governments will need to work with waste pickers’ organizations and collectives to build workers’ capacity and develop new skills. It should be noted that in many cases, waste management solutions developed in highly industrialized countries or cities do not work for developing countries (see Box 5). To counter this, it is critical to contextualize and ground transition schemes at country and local level.
Box 5: Informal settlements and waste management reform challenges in Lagos
The largest city in Nigeria, with its dynamic high-tech and creative industries, Lagos is a city of opportunities for many, including people arriving from poorer parts of the country. With a growth rate of 3.25 per cent a year, it is estimated that the population of Lagos could double to reach 27 million in the next 20 years. Its public infrastructure has not kept pace with the city’s rapid expansion, and many new arrivals end up in the more than 200 informal settlements where living conditions are often poor and unsafe. The growth of these settlements is also accelerating the city’s waste crisis, with cascading environmental and health impacts particularly for the most vulnerable inhabitants.
While in the past two decades there have been some promising improvements in basic infrastructure and tax compliance in Lagos, resulting from a combination of technocratic management, improved bureaucratic capacity and, critically, buy-in from local elites, the more recent failure of a ‘circular’ reform initiative for waste collection and management services exemplifies the combined impact of poorly planned reforms, short-term political aspirations and vested interests.
In 2016, in an attempt to solve the city’s waste problem once and for all, the then governor of the state initiated the Cleaner Lagos Initiative. It terminated the long-standing waste collection agreement with state-run Lagos Waste Management Authority and instead signed a 10-year contract with a Dubai-based company that proposed to deliver a waste and recycling service on a circular economy model. Disputes quickly emerged between the new contractor and the local collectors who had fulfilled the previous collection contracts. Existing door-to-door collection systems were changed, without sufficiently consulting and informing the public, and as a result municipal waste soon started piling up on the streets. By the time the new state governor assumed office in 2019, waste collection operations in the city had been completely broken down.
As the example from Lagos illustrates, a perhaps well-intended but badly executed transition, entailing reforms that are incompatible with local circumstances and the needs of affected communities, can have more harmful environmental and social outcomes than the status quo. An inclusive circular economy transition in the waste management sector cannot be achieved overnight; rather, this requires policy coherence, education of consumers, and well-planned integration of the informal sector and social protection, particularly for those likely to be adversely impacted by the change.
The role of governments and policy in guiding transitions
Well-designed public policy is critical for advancing the circular economy transition and ensuring that it is inclusive. To promote a circular economy, many governments have already started deploying smart industrial policies, new infrastructure developments for waste management and reverse logistics, and have established targets in specific areas, notably in recycling, recovery and resource efficiency. Examples include China’s Circular Economy Promotion Law of 2008, Colombia’s National Strategy for the Circular Economy for 2018–22, or the EU’s updated Circular Economy Action Plan of 2020. However, more holistic approaches and multi-stakeholder collaboration are needed in order to create decent, high-value work throughout value chains, and with a focus on vulnerable communities and regions affected by the transition. Not only does the circular economy have to become an integral part of national industrial strategies; governments also need to achieve policy integration and coherence with socio-economic planning and employment policies. For instance, policies that enable job creation in sectors such as eco-design, services, repair, recycling, remanufacturing and materials reprocessing may compensate for job losses in sectors that will be negatively impacted by the transition, and contribute to generating tax revenue to fund the social protection mechanisms needed to support displaced workers and marginalized communities.
A combination of policy tools including regulation, taxation, training and incentives are considered to be the main instruments that foster a circular economy with maximum benefits for society.
A combination of policy tools including regulation, taxation, training and incentives are considered to be the main instruments that foster a circular economy with maximum benefits for society. Social protection schemes – including, inter alia, skills training, the provision of financial support during a transition phase, and early retirement schemes – are a critical component of just circular economy transitions, and must be planned for and put in place to help ensure social equity for affected workers and communities. The EU’s Cohesion Policy, designed specifically to support regions in transition and to reduce economic and social disparities, is one pertinent example. The new European Green Deal will need to build on existing experience and advance its aims through the Just Transition Mechanism and other social support policies. Transparency and accountability will be crucial to ensure that transition funds do reach the intended workers and affected regions.
Extended producer responsibility (EPR) programmes, which can help reduce waste for a wide range of product categories including packaging, electronic equipment, textiles or end-of-life tyres, represent an important set of policy levers for the circular economy. EPRs require manufacturers to take financial and/or physical responsibility for managing their used or end-of-life products, often involving the creation of take-back schemes so that consumers return these products, for which currently only limited incentives are in place. EPRs can also enable public–private partnerships to share the costs of waste management and recycling between the public sector, producers and consumers.
From a just transition perspective, it is important to note that EPRs can have different impacts on different consumer and income groups. Critically, they must be designed and implemented in such a way that they are not regressive, notably including active stakeholder involvement. For example, Quebec’s EPR regulation for electronic waste, implemented in 2011, included consumers, labour organizations and other stakeholders on the demand side in the consultation process, and its objectives critically included supporting local employment. Encouraging refurbishing and reuse, and reducing the environmental impacts of products through modulated fees, can reduce negative impacts on local businesses and employees.
It is necessary also to establish monitoring frameworks to measure progress of circular transitions. In addition to ‘hard’ indicators about resource productivity, material footprint, waste generation or recycling rates, progress can be measured using indicators that report circular economy achievements in systems that fulfil societal needs such as housing, mobility, nutrition, health and education.
Box 6: The role of national circular economy roadmaps in guiding transitions
Some national governments, among them Colombia, Finland, France, Malaysia and Slovenia, have initiated circular economy policy roadmaps. These can be designed in inclusive and participatory ways to involve various stakeholder groups, including governments, municipalities, the private sector, academia, citizens and labour unions. The evolution of Finland’s circular economy roadmap, with the first roadmap developed in 2016 and an update in 2019, is one example of how deliberative processes can catalyse action towards ambitious targets. The roadmap for 2016–25 exemplifies a policy toolkit, examples of best practice and pilot programmes that can be easily replicated and provide added value on a national scale.
Since 2019 the UN Industrial Development Organization (UNIDO) and the Climate Technology Centre & Network (CTCN) have initiated analytical roadmapping processes in selected countries in Latin America. The objective is to assess the current state of the circularity of the respective national economies, and to develop an initial roadmap proposal for a specific circular economy model for each country. The roadmaps will be general, sectoral, and focused on processes, taking into consideration the particular needs of each country. The analysis leading to the final roadmaps will identify the key actors, stakeholders, public and private initiatives, and geographic areas, as well as opportunities and barriers to implementation of a circular economy.
As part of the circular economy roadmap processes, specific policies can be identified, including support schemes, key projects in priority sectors, and pilot regions or cities, which can be used to initiate a country’s transition towards a circular economy.
The role of circular economy finance and transition funds
Investments in new infrastructure are crucial to making the transition to a circular economy happen. The financial sector has a key role to play in connecting action on climate change, minimizing waste and pollution, and advancing inclusive development pathways. At COP24, in 2018, more than 120 institutions with a combined $6 trillion in assets under management made a public commitment to support a just transition. Large institutional investors are now beginning to offer thematic circular economy funds as a way for investors to tap into the circular economy trends. An important question that arises in the context of distributive justice is: Who will benefit from these investments?
How to finance just transitions has until recently been missing from the majority of climate investment, and even more so from circular economy investments. In the context of climate change, a global framework for investor action on the just transition has been developed to mobilize investors to pursue a just transition as part of their core operating practices. These frameworks can be tailored to the circular economy transitions to integrate concepts and solutions for zero-waste, circular value chains, or product-service systems.
Part of financing just circular transitions will include the creation of funds for affected sectors and communities to support the economic redevelopment of affected regions and communities. Tax reforms that promote better environmental practices and reform of environmentally harmful subsidy schemes for fossil fuels and other non-renewable resources can create an important source of revenue for just transition funds. Planning for the transfer of funding from industry subsidies that encourage the use of non-renewable resources to transition funds is an important starting point, and should be considered in long-term policy and financing strategies.
In Indonesia, for instance, where national fuel subsidies were reformed in 2015–16, the removal of major energy subsidies cut government subsidy spending, for which some $22.6 billion had been allocated in 2012, to $8 billion in 2015, and then to $4 billion in 2016. Although the overall impacts of the reforms are as yet difficult to evaluate, the reallocation of Indonesia’s fuel subsidies is considered a major step forward in improving public expenditure. Money not disbursed as a result of the phasing-out of subsidies has been used to finance increases in social protection and transfers to villages, and poverty reduction programmes. Although the diverted finance did not reach all vulnerable groups, and the fuel price increases resulting from the reduction in subsidies gave rise to public protests, the reform overall is considered to have generated positive social outcomes. In particular, it improved the efficiency of social welfare policies by replacing indiscriminate fuel subsidies (whereby a disproportionate share of subsidies went to the wealthiest households) with the Bantuan Langsung Tunai (BLT) Cash Transfer programme targeted at low-income households. The challenge for the future will be sustaining these reforms once political and international market conditions change, in particular as regards energy prices.
Just transition funds have some similarities to ecological compensation funds, but their objectives are different. Ecological compensation is a mechanism to protect biodiversity and ecosystem service by counterbalancing ecological damage caused by infrastructure developments in a specific region. In China, for example, ecological compensation schemes have been in place since 1998, with a value to date of approximately $150 billion. Such mechanisms include not only direct payments for environmental services, but also an array of comprehensive measures taxes, fees, subsidies, funds and compensation payments. The aims are to resolve issues resulting from unequal development, imbalanced and ecological economic interests, and unequal distribution of ecological assets.
The aim of dedicated just transition funds, in contrast, is to help affected communities withstand the impacts of industrial restructuring, and to build strong, resilient and diversified new economies. They can create economic opportunities and industrial restructuring in places hardest hit by the energy transition, and help scale community-based transition efforts. In 2019 the European Parliament issued the call for the creation of a new €5 billion ‘Just Energy Transition Fund’, the objective of which would be to ‘address societal, socio-economic and environmental impacts on workers and communities adversely affected by the transition from coal and carbon dependence’. Relevant funds and investment plans have since been included under the Just Transition Mechanism of the European Green Deal, and are also highlighted in the new European Circular Economy Action Plan. The mechanism currently focuses chiefly on local energy transitions, but as implementation progresses it will need to include additional considerations beyond energy and support other industrial sectors to reduce resource consumption and waste generation.
In 2019 the European Parliament issued the call for the creation of a new €5 billion ‘Just Energy Transition Fund’, the objective of which would be to ‘address societal, socio-economic and environmental impacts on workers and communities adversely affected by the transition from coal and carbon dependence’.
As well as support for large industries during the transition, investing in SMEs will also be critical to making the circular economy happen. In 2019 the European Investment Bank (EIB) and five major European national banks launched a Joint Initiative on Circular Economy (JICE) to provide loans, equity investment and guarantees to eligible circular economy projects, including for SMEs. This and similar initiatives point to the development of innovative financing structures for public and private infrastructure, municipalities, and private enterprises of various sizes, as well as for research and innovation projects. However, as most value chains have global dimensions and involve many suppliers in lower-income countries, it is important also to consolidate and streamline existing and new development and climate finance outside Europe. Only if this happens can the circular economy be successful globally.
Furthermore, investments are also needed to formalize the waste management and recycling sectors in low-income countries. Donor agencies and NGOs should invest supporting the creation of more formal and equitable work structures for waste pickers, specifically in contexts where formal associations currently do not exist or are weak. The process of integrating waste pickers requires governments and the private sector to understand the complexities of this work, as well as willingness to think creatively in order to facilitate inclusion, the development of higher-value employment opportunities, and better livelihoods.
The role of multilateral cooperation for trade
High levels of public awareness of the issue of marine plastic pollution are among factors that have contributed to greater engagement in thinking about current problems in the trade of waste plastics. China’s 2018 import ban on certain types of low-grade plastic waste highlighted the injustices in the current global trade in waste and recycling value chains, the lack of transparency and accountability in the international waste trade, deceptive practices such as the mislabelling of waste shipments as recyclable materials, and low levels of law enforcement and customs inspections, all of which have facilitated the proliferation of illegal waste trafficking under the guise of recycling. Notably, it had an immediate impact in disrupting trade flows in plastic waste – in some cases directing plastic waste from consumer societies like the UK to low- and middle-income countries with inadequate waste management infrastructure, in many cases illegally.
Issues of power, corruption, marginalization, and unequal distribution of burdens and access to resources are all in strong evidence in the current global trade in waste. Effective governance mechanisms to regulate waste trade will be required to reduce tensions between high- and lower-income countries in all these respects, as well as to make equitable use of the circular economy opportunities associated with the hundreds of millions of tonnes of waste generated each year. One example of these trade tensions between exporting and importing countries can be seen in the issue of plastic scrap import bans and plastic waste shipments that violate the newly amended Basel Convention. In 2019 parties to the Convention adopted a legally binding framework to regulate and enhance transparency in the global trade of certain plastic waste streams. Notably, the new hazardous waste classification for certain plastic waste streams prohibits participating countries from accepting shipments of these kinds of waste from non-parties, such as the US. It also prohibits shipments of hazardous waste without the consent of the importing country. To give one example of the scale of the challenge, Malaysia’s imports of plastic waste from its 10 biggest country sources – including the US, the UK, Japan, Spain and Australia – reached 456,000 tonnes in January–July 2018, up from 316,600 tonnes for the whole of 2017, after China’s ban on imports of plastic scrap and other waste entered effect at the beginning of 2018. With the adoption of the amendment to the Basel Convention, the government of Malaysia began sending non-recyclable plastic back to its country of origin.
The momentum of the circular economy offers the opportunity to energize discussions on the environment and trade, including on a new role for the World Trade Organization (WTO) in tackling plastics pollution. In particular, the WTO’s Aid for Trade initiative, which aims to assist developing countries to overcome constraints to engaging in international trade, could help support paradigm shifts in trade relations for waste and secondary resources. New trade-related programmes could support the circular economy, improved trade performance and reduce poverty. As a strategic priority, these programmes would focus on development needs along with the environmental and economic interests of developing countries.