Sector News

Closing borders to plastics can create even more barriers to a circular economy

June 19, 2019
Energy & Chemical Value Chain

Tired of being the world’s dumping ground for recycled waste materials from other countries, Asian nations are striking back with punitive environmental trade regulations which is set to leave waste-exporting nations in delirium.

A few weeks ago, the Malaysian environment minister, Yeo Bee Yin, stated clearly that countries should manage their own waste, and that Malaysia will take care of its own.

Modern economic theory maintains that the trade of global “goods” and services should happen between countries who each have something to trade with one another, embracing their competitive advantages — letting others excel where their own advantages exist. This theory has been widely adopted in the case of waste recovery and recycling, where the high costs of processing in developed countries mean that on-shore solutions for processing do not happen at the same rate that trash is being created.

What the theory does not account for is the trade in “bads” between nations. Specifically, a country’s externalities (in this case, waste) are sent to another’s shores to take advantage of that country’s “competitive advantages” — low labor costs and lax environmental enforcement. Making matters worse is that hollowed-out manufacturing industries in waste-exporting countries, which also have followed cheap labor and lax environmental standards, mean that local capacity to use recycled content in new products has been minimized. Without the incentive or even capacity to reuse recycled content in onshore facilities, the cycle of exporting waste offshore continues.

As a result of the planet’s awakening to the vast challenges of what do to with plastic in its second-life, we now have two large-scale trade wars to contend with. One is not related to plastic directly and involves the two largest economies, the United States and China. The other is much broader in scope and interrogates previously perceived values of globalization: Countries are putting up trade barriers to protect their own environments.

These green trade barriers should be expected to continue, as plastic pollution is not the only ill which countries share with one another, but it is one currently generating the most mindshare and momentum across virtually every country on the planet.
Countries that stand to lose heavily in the short term (until they greatly innovate their way to large scale domestic capacity building) include Canada, the United States, Spain, Britain, Australia and Japan. All of a sudden, the ideas of Extended Producer Responsibility (EPR) [HS1] — that is, the approach in which producers have responsibility for the environmental costs and disposal of post-consumer products — has evolved to global level, in the form of Extended Exporter Responsibility (EER) — in which countries must also take responsibility for their post-consumption. For those who have an ear on this issue, they know that the plastic pollution puzzle is only going to get more complicated.

Countries with good EER that are standardizing and monitoring plastic for recycling should be able to trade to those countries who have the ability to process and absorb (use) the materials. Closed borders, on the contrary, mean that each country has to replicate resources, technical know-how and capacities for their own waste management efficiencies. However, this is not likely to happen for many years, and likely even decades to come.

Stranded assets of valuable waste resources will not be able to be sent to the processors that can use them. Simultaneously, poor domestic recovery of materials in most countries means that the entrepreneurs and innovators taking advantage of free trade and the New Trade Theory (with its focus on increasing returns to scale and the benefits of network effects) may not be able to easily find domestic feedstocks to keep their machines running.

To put the scale of this logjam into context, one can conservatively estimate (PDF) that just 10 percent of the plastic waste sent to Asia for recycling was of quality too poor to make value from. If all of this “poor quality” material from the EU alone was returned to its rightful exporting countries for the past 10 years of their exports, they would receive over 95,000 40-foot containers, each containing 35 metric tons of material. This would create a line of containers over 750 miles long — Amsterdam to Budapest.

It may not be likely that all 95,000 containers will be returned to their ports of origination, but it is clear that the ability to keep moving this volume of material offshore will quickly evaporate.

Improperly thought-through trade restrictions will cause considerable medium-term pain in terms of plastic pollution reduction; however, this is also where opportunities will present themselves. We see all types of disruptions and innovative interventions needed to solve the complex plastic waste challenge.

As a result, Canada may be a leading example of turning this trade confrontation into a chance to truly focus and engage on the creating its own, domestic circular economy. The EU is also making great inroads on circular economy activities, yet much more work is needed to actually remove the volumes of “exported recycling materials” from their definition and metrics explaining recycling.

New collaborations, problem solving and innovative trade policies with proper management and enforcement can help steer us in the right direction for improvements across countries with reduced plastic waste.

By Doug Woodring and Trish Hyde

Source: GreenBiz

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