02 LAC institutions and policies
The multi-sector approach of the circular economy poses a major challenge to the institutions of LAC. Strong institutions and policies are key to the success of the circular economy transition.
Institutional arrangements for accelerating the circular economy transition
Achieving circular economic development in LAC will require more transparent and accountable institutions across the region. Transparent democratic processes, supported by robust and accountable institutions, have been proven to have a strong bearing on the capacity of governments in Latin America to achieve economic development.55 Strong institutions are associated with high transparency, effective public spending and fiscal responsibility.56 This suggests that policymakers should take action to strengthen institutions in order to boost development, including circular economy initiatives.
There are important institutional and governance issues that are especially necessary to accelerate the adoption and implementation of a circular economy agenda in Latin America:
- The circular economy cuts across sectors and institutional boundaries. In general, it is misunderstood as solely an environmentally sustainable model. Thus, it is not surprising that Latin American environment ministries tend to be both the promoters and hosts of circular economy initiatives. However, the circular economy is just as relevant to the industrial sector as it is to the environment. As government ministries normally tend to work in ‘silos’, each being strictly accountable for particular programmes, the multi-sector approach of the circular economy model poses a major challenge to their institutional structures. The truth is that individual sectoral ministries, acting in isolation, are likely to face major obstacles in accelerating the circular economy agenda.
- Different approaches can be applied to resolve these institutional conundrums. First, inter-ministerial cooperation can facilitate policy coherence and firmly embed the circular economy approach in government business. For instance, the government of Chile created a circular economy unit within the Ministry of the Environment, which has forged strong links with the state economic development agency (Corporación de Fomento de la Producción – CORFO) and the Sustainability and Climate Change Agency (Agencia de Sustentabilidad y Cambio Climático – ASCC). This has resulted in a successful inter-agency collaboration to develop a circular economy roadmap, as well as a programme to finance innovative circular opportunities in Chile. Second, given the overarching nature of the circular economy agenda, other countries have relied on horizontal supra-ministerial institutions that have a stronger planning mandate but can still give strategic guidance for implementation at the sectoral or ministry level. For instance, in Uruguay, the Planning and Budget Office (OPP) within the office of the president has embraced the circular economy and incorporated it into its National Plan for Productive Transformation and Competitiveness, with sectoral ministries retaining responsibility for implementation.
- A major barrier to the implementation of a circular economy agenda in LAC is the lack of private-sector involvement. Firms are still broadly sceptical of the circularity concept, which is still frequently perceived as an ‘environmental tax’ on productive activity. If ministries of the environment are the only institutions to embrace the circular economy it may intensify this perception and reduce the uptake of related policies, such as extended producer responsibility (EPR) waste management regulations. Private-sector companies need to understand the value that the circular economy may bring through efficient resource usage and by generating value out of waste. In some countries, the private sector has already proved an important driving force behind the adoption of the circular economy. In Argentina, for instance, a private-sector coalition led by the Association for the Study of Solid Waste (ARS) has developed a National Strategy for the Circular Economy, inviting the government to strengthen the regulatory framework to support businesses in transitioning towards circularity.57
- Suppressed economic growth, due to falling commodity prices since 2011, has contributed to dramatic changes in government in some countries. Voters have favoured populist parties that promise prosperity, as occurred in 2018 in both Brazil and Mexico. There are concerns across the region that, in order to pursue economic growth, some incoming governments are reversing important gains in institutional accountability, peace, social protection and equity, and relaxing environmental protections,58 which would threaten the achievement of many social, environmental and economic SDGs and hinder a transition to an inclusive circular economy. In the context of the COVID-19 crisis such concerns have been exacerbated, with Mexican President Andrés Manuel López Obrador announcing in May 2020 an expansion of the role of the armed forces in public security,59 while criminal groups in Mexico and Brazil have been engaged in the distribution of aid and in imposing curfews on some of the lowest-income sections of those countries’ populations, where there has been a lack of state intervention.60 The absence of state accountability and social protection risks leaving the poorest members of society behind in a transition to the circular economy, leading to less resilient societies and missed opportunities to progress towards the SDGs.
Box 4. Institutional support for social innovation
Supporting social innovation can be a promising approach for promoting an inclusive circular economy in LAC. Social innovation can be defined as ‘a novel solution to a social problem that is more effective, efficient, sustainable, or just than existing solutions and for which the value created accrues primarily to society as a whole rather than private individuals.’61 Social innovation is a central component of a theory of social change, in which the variety of everyday inventions on the micro level can lead to changing wider social practices.62
There is a long history in LAC of social innovation promoting health, education, food and energy security, social responsibility and sustainable development, where government institutions have failed.63 The SI-DRIVE initiative (Social Innovation: Driving Force of Social Change),64 which conducted a global survey of social innovation projects, found that more than half of the programmes surveyed in Latin America successfully shared their social innovations with projects in other territories, but only at the local level. Non-governmental organizations were essential for the implementation of most of these initiatives. However, without sufficient state support at local, subnational and national levels these social innovations lack scalability.
There are some examples of social innovation initiatives supported by national governments in Latin America. Argentina, Colombia and Chile have all embedded social innovation programmes within government ministries. For instance, in 2012, the Colombian government founded the Colombian Centre for Social Innovation, which sits within the Department of Social Prosperity; Argentina launched its National Programme for Technology and Social Innovation in 2013; and Chile incorporated social innovation into the agenda of the national economic development agency, CORFO.65 One successful example of social innovation that has benefited from strong government support at the city level is the cable car system in Medellín, Colombia, which was introduced in the early 2000’s to provide transport into the city for the poorest people living in hillside communities – the initiative was supported by education and social programmes.66
Even so, government-backed social innovation programmes in LAC are generally more marginal, lacking the support to operate at scale. In Chile, for example, a group of young professionals, under the name Potential Chile, were able to design a product that retained 97 per cent of particulate emissions produced by combustion of biomass in domestic stoves, contributing to a reduction in air pollution in the city of Coyhaique without affecting the inhabitants’ ability to heat their homes. Prototyping and testing of the product was funded in 2016–17 by the Ministry of Energy and CORFO. However, the project now needs further investment to enable it to be scaled up.67 Policymakers must recognize the key role that social innovation has to play in a just transition to a circular economy.
Key policy measures for the circular economy in LAC
Most countries in the LAC region have introduced one or more of the six different types of policy measures that promote circular economy transitions:
- National circular economy roadmaps and strategies: Several governments – including those in Colombia, Chile, Ecuador, Peru and Uruguay – have developed, or are in the process of developing, dedicated circular economy roadmaps or strategies. Many countries have included circular economy elements in their national development plans and/or their environment and climate programmes, including targets for the recycling and reuse of waste materials as well as for linking circular economy and climate action, plans to stimulate innovation and job creation through the shift to a circular economy, and processes to bring together important national stakeholders.
- Waste management policies: All countries in LAC have introduced legislation on waste management. It is necessary to synchronize waste management policies with the concept of the circular economy and to align them with local and national government policies. Waste management policies should also take into consideration the greenhouse gas emission mitigation strategies needed to meet the targets of the Paris Agreement. A number of countries already have regulations for solid waste management that adopt a principle of shared responsibility.68
- Extended producer responsibility (EPR): This policy approach tasks certain producers of goods with the responsibility for recovering, treating or disposing of post-consumer waste, rather than it being the sole responsibility of national, subnational or local authorities. Such schemes could provide incentives to minimize waste at the source, promote more environmentally conscious product design, and support public-sector management of waste. Eight countries – Brazil, Colombia, Chile, Costa Rica, Honduras, Mexico, Peru and Uruguay – have established an EPR scheme to some degree for a number of product categories, including e-waste, batteries and tyres.
- Material resource efficiency and recycling targets: Material resource efficiency refers to the sustainable use of resources – through reduced use, optimization and recycling – to produce the same level of output. Material resource efficiency can be supported through efficient practices such as lean production and lifetime optimization, and can help with a range of environmental issues, including climate change mitigation and a reduction in water consumption and waste. Government policies across LAC have generally been slow to introduce resource-efficient production practices, as a result the region’s economies and industries are characterized by an intensive use of natural resources. In the LAC, material intensity – a measure of the amount of materials required for the provision of a good or service (usually expressed as a ratio of materials used to value) – is over one and a half times the global average.69 Of 33 LAC countries, 18 have plastics regulations, in general aiming to reduce superfluous plastics packaging and increase recycling.70 Under the Chilean Plastics Pact initiative (rebranded as Circula El Plástico in 2019), the country has put forward targets to ensure one-third of all plastic packaging is effectively reused, recycled or composted, and to incorporate 25 per cent recycled content into plastic packaging by 2025.71
- Fiscal policies (including taxation, incentives and subsidy removal): Public fiscal policies can provide macroeconomic support to industries and businesses that aim to shift to the circular economy model. These fiscal policies can include tax incentives (such as virgin material taxation or clean technology tax exemptions) or subsidy removal (for example, the elimination of virgin resource subsidies). An example from Uruguay is the introduction in 2003 of a tax exemption for machinery and premises intended for lead-acid battery recovery and recycling operations. Fiscal policies can complement other policy measures that support the circular economy. For example, the banning of plastic bags in Antigua and Barbuda was accompanied by tax exemptions for reusable bag imports in 2016,72 and a yearly incremental tax allocation for single-use plastic bags was implemented in Peru in 2018.73 Lastly, it is also important to evaluate and remove potential fiscal barriers. In Brazil, for example, recycled material is subject to double taxation, thus removing any incentive to use it as opposed to virgin materials.74
- Product policies (including eco-design, single-use product bans and product lifetime extension): There are not many existing examples of these initiatives in LAC countries, beyond single-use product bans. A number of national governments have approved bans on certain types of single-use plastics, for example Costa Rica’s ban on the import, marketing, and distribution of polystyrene containers, as part of a national strategy to drastically reduce the use of disposable plastics by 2021. Product lifetime extension and eco-design are a step further in the direction of the circular economy. Product lifetime extension refers to the refurbishment and remanufacturing of a product or component to return it to its original quality thereby extending its usage.
Eco-design for existing products can optimize the remanufacturing process, further saving resources. Eco-design for new products can include design principles such as designing for energy efficiency, reparability, recyclability, minimization of packaging and chemical safety. Product design as it is needs to change considerably in order to fit into a circular economy.
In Brazil, a number of examples show how modular design and integrating shared transport services into real estate offerings can make efficiency savings for both construction and transportation. For example, modular design was incorporated into some of the venues for the Rio Olympic Games in 2016, with structures that could be removed, rebuilt, and repurposed. And in a number of São Paulo apartment buildings, a Brazilian real estate developer has launched residential buildings with shared car, motorcycle and bicycle hire schemes.75 However, many products such as electronics and cars are not originally produced in the region. Eco-design standards need to be global or they will be limited to certain products and sectors.
According to respondents to the Chatham House survey, the most important policies to advance the circular economy transition in LAC countries are the introduction of improved waste management and waste prevention policies, fiscal policies and EPR schemes. Respondents also highlighted the wider need for policy harmonization across the circular economy, sustainable development and climate change agendas and the importance of integrating policy measures that support the circular economy into other cross-cutting national-level policies, such as infrastructure development. Furthermore, to enable just transitions, policies and legislation relating to labour rights are fundamental to inclusive circular economy structures. For example, in 2019, Mexico updated its Federal Labour Law, which has removed barriers for workers wishing to access the justice system.76
Map 1. Summary of key circular economy policy measures
— Source: Compiled by the authors.
Note: A more extensive database of circular economy policies in LAC will be published by Chatham House in November 2020 at https://circulareconomy.earth/.
Note: A more extensive database of circular economy policies in LAC will be published by Chatham House in November 2020 at https://circulareconomy.earth/.
Map 1. Summary of key circular economy policy measures
Note: A more extensive database of circular economy policies in LAC will be published by Chatham House in November 2020 at https://circulareconomy.earth/.
Box 5. Circular economy frontrunners in LAC
The following case studies highlight the leading proponents of the circular economy in the region. Their experiences shed light on the current state of policy design, implementation challenges and sectoral opportunities.
Colombia
After hosting the first Circular Economy Forum of the Americas in 2017, Colombia launched its National Strategy for the Circular Economy 2018–22 in November 2018 (Estrategia Nacional de Economía Circular– ENEC),77 with an updated version published in July 2019.78 The strategy aims to increase the rate of recycling and reuse of waste materials from 8.7 per cent in 2019 to 17.9 per cent by 2030.79 While this is the first strategy explicitly focusing on the circular economy in Colombia, this is not the first time that the country has created strategies and policies on green growth, sustainable production and waste management. The government produced a National Policy on Sustainable Production and Consumption in 201080 and green growth components – transforming the economy, generating low-carbon public policies and incentives, and increasing the involvement of the private sector – were included in its National Development Plan for 2014–18. A commercial carbon tax was passed into law in 2017; in October of that year, within months of its implementation, one of the country’s largest producers of concrete, Cemex, announced that it had become carbon neutral.81
Colombia was one of the first countries in the region to adopt EPR policies, introducing EPR into its first national policy on hazardous waste management, Decree 4741 of 2005, which regulates the prevention and management of hazardous residue and waste.82 In 2007, Colombia started implementing an EPR scheme to manage several end-of-life products containing hazardous waste materials, such as pesticide containers, expired medicines and lead-acid batteries. Light bulbs, small batteries, computers, mobile phones, and other household products as well as used tyres were added in 2010. The EPR scheme aims, in particular, to deal in an environmentally appropriate way with the estimated 110,000 tonnes of e-waste generated annually.83 However, the effective implementation and administration of the EPR system requires further improvement of the legal framework by defining clear targets. It also requires the active participation and collaboration of key actors in the product chain through legal requirements and economic instruments.84
Colombia has also been developing several strategies around the bioeconomy. At the World Economic Forum in 2016, the country announced its strategy for economic development, based on agro-industry, the service sector and tourism. In addition, the country’s National Planning Department conducted a Green Growth Mission, which proposed a shift to more socially inclusive, and resource-efficient, sustainable production processes.85
Chile
In recent years, the Chilean government has introduced several policies and strategies aiming to promote the transition to a circular economy. Among LAC countries, Chile has the most public initiatives devoted to the circular economy. In 2016, the country adopted Framework Law No. 20,920 for Waste Management, Extended Producer Responsibility and the Promotion of Recycling. It aims to protect public health and the environment by reducing the generation of waste as well as promoting recycling, reuse and other forms of valorization. The law established an EPR scheme and sought, inter alia, to enhance the inclusion of unofficial ‘waste pickers’.86 In 2018, Chile banned the commercial use of plastic bags, despite fervent efforts by the national plastics industry to block the process.87 Other examples of Chile’s engagement include the programme Construye 2025 (Build 2025), which seeks to promote sustainability and circularity within the construction sector,88 and the National Programme on Sustainable Consumption and Production, which covers areas such as sustainable construction, sustainable industry, sustainable lifestyles and waste management. The implementation of the latter is supported by the National Action Plan on Sustainable Consumption and Production (2017–22).89 Finally, the Chilean Plastics Pact initiative (Circula El Plástico, since 2019) brings together stakeholders from a range of sectors to promote a circular economy for plastics.
Uruguay
In 2016, Uruguay established the National System for Productive Transformation and Competitiveness (Transforma Uruguay), approved through Law 19472, with the commitment to promote productive and innovative economic development in the country. Participation in the design and implementation of Transforma Uruguay was not limited to government, it also included other public and private stakeholders, and incorporated social dialogue.
The final result of this process was the creation of a Circular Economy National Action Plan, which aims to strengthen human capacity; increase productivity and net savings in production costs; increase green job opportunities; achieve a greater visualization of initiatives and citizen participation; introduce greater innovation; and to bring about a reduction in CO2 emissions and negative impacts on watercourses and soil. Four ministries were involved in the design, and advisory councils were created to integrate workers, entrepreneurs, and academic institutions in the process.
The National Action Plan is made operational through projects such as Biovalor, which is funded by the Global Environment Facility (GEF), implemented by the UN Industrial Development Organization (UNIDO) and executed by three Uruguayan ministries. It aims to generate value from the waste derived from agro-industrial activities. Biovalor supported the Uruguayan National Development Agency (Agencia Nacional de Desarrollo – ANDE) in the design and implementation of the Oportunidades Circulares programme, which provides funding and other forms of support to circular economy start-ups. Biovalor has also developed its own project, Circularidad de Nutrientes en Tambos, an initiative to restore nutrient circularity in dairy farms.90
The Uruguayan government is also developing a national strategy for the bioeconomy,91 and recently launched a road map for Uruguay’s forestry sector.92 Since 2014, ECLAC, the World Bank and the World Wildlife Fund have identified Uruguay as a ‘green energy leader’.93 As early as 2004, its government introduced a law with the purpose of promoting reuse, recycling and recovery of packaging.94 The promotion of the circular economy and the bioeconomy are included in Uruguay’s national development plan.95
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