10 minute read
SUSTAINABLE FUTURE
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Will the circular economy fly us to the moon?
by Joan Marc Simon*
Increased recycling has come at the expense of greener activities like reuse. The European Union now needs to adopt a multidimensional approach to tackle Europe’s waste problem and move towards circularity. “When a wise man points at the moon, the imbecile examines the finger.” This famous quote from Confucius could be applied to the last 40 years of waste legislation in the EU – and it is interesting to take a closer look at it as the activities of this year’s EU Green Week unfold under the motto ‘Zero
Pollution for healthier people and planet’.
Waste management in the 80s and 90s was mainly a public health issue, and the purpose of legislation was to reduce the impact of waste disposal operations on the communities nearby. Those were the days of the EU landfill directive and the push for incineration. In the 2000s, the idea of recycling gained traction and, in 2008, the EU approved recycling targets of 50% for 2020 whilst continuing to push for incineration.
In 2014, we realised that accelerating the pace in a linear economy was a one-way street; this epiphany was branded the Circular Economy. This stopped the incineration fever and the focus was put on recycling. Then came the time of directives on plastic bags and single-use plastics, which pinpointed that waste pollution was not a waste management issue after all.
Looking back, in the last 30 years, Europe has reduced landfilling by around 30% and doubled recycling and
incineration figures. At the same time, reuse/refill has been decimated and we are generating 20% more waste per capita. In other words, the bottom of the waste hierarchy has been getting fatter at the expense of the upper side. This confirms that, when the wise man pointed at the moon, all we could see was the waste accumulating on the finger.
But it was just a pointer, a symptom. The good news is that we are finally collectively understanding that the solution lies elsewhere. The motto “The best waste is that which is not generated” needs to be translated into the economic, legal and social drivers necessary to lead the transition. It is common sense that if things can be repaired, washed, refurbished and reused they will last longer.
Therefore, the waste generated and the environmental impact will go down. However, we need to replace half a century of legislation and economic incentives favouring disposability with a new paradigm in resource management. This means going well beyond the “closing the loop” approach, based on the assumption that the problem with waste is the underperformance of recycling.
Disposability was engineered as a way to increase throughput in times of economic recession: the quicker something becomes waste, the faster we can sell another product. More sales mean more economic growth, more jobs, more salaries which can be spent on buying new things … and the wheel keeps on turning as long as environmental and health externalities remain hidden.
Waste seemed like a fair price to pay in exchange for the other benefits that a linear economy was bringing. Today, this model is obsolete: Europe is mainly a consumer of disposable items that are produced on the other side of the world; the quantity and quality of our employment is decreasing; fertility rates have halved in the last 40 years because of our exposure to chemicals; and we generate more waste than ever.
Because of the historical context that we find ourselves in, it is clear that waste is only a variable of a complex equation. The new paradigm requires that we leave behind disposability – not only because it is a waste of resources and an ethical crime, but also because it drains our economies and pollutes our lives.
We need a socio-economic system that is good and healthy for the people, rebuilds natural capital, and generates local economic activity rooted in the community.
The EU is finally on the right track when addressing the complexity of the challenge. It only makes sense that the existing waste legislation is linked with the newly presented Chemical Strategy, the Sustainable Product Initiative, and the European Green Deal as a whole, since a true circular economy should not only be green and regenerative, it should also be clean and socially responsible.
This is why a multidisciplinary approach is key for good policymaking. For instance, when developing policies about packaging, we should not only consider the best way to protect the product and reduce the environmental footprint, but also make sure the packaging is safer from a food contact material perspective, and supports local jobs and local economy through shorter supply chains whilst keeping its value after several uses.
The resilience shown by natural ecosystems is partly due to its multidimensionality. In contrast, we produce legislation based on one or two variables and this explains the undesirable externalities of the linear economy. Holistic policy-making is one of the biggest challenges of the circular economy.
Transitioning from a linear, socially unfair, and polluting economy to a circular, toxic-free, and fair society is not something that can be done overnight. However, as of today, most of us have our homes filled with toxic chemicals present in packaging, furniture, or floorings.
We don’t have access to locally produced seasonal food or are able to make responsible choices when buying clothes, IT equipment, or toys. When shopping, it is impossible to know whether a product is safe, repairable, recyclable, or durable.
People are ready to move away from disposability into a more resilient and fulfilling way of living – one that is based on wellbeing instead of throughput. The next three years of EU policy-making are key to change product, chemical, and food policies, and lay the foundations of a healthier and fairer society.
*Joan Marc Simon
is the executive director of the NGO, “Zero Waste Europe” First published in: www.euractiv.com
5 ways to boost clean energy investment in developing economies
For emerging and developing economies to meet their energy development and net-zero climate goals, tens of trillions of dollars in investment will be required. This is significantly more than can be expected to be raised from public funds alone, and thus private capital must provide the difference. Yet there remain many obstacles to the deployment of private capital in clean energy projects in emerging economies, as they can impose additional risk and cost and thus dampen investor interest.
A new International Energy Agency report, written in collaboration with the World Bank and the World Economic Forum, puts this point starkly: “The world’s energy and climate future increasingly hinges on whether emerging and developing economies are able to successfully transition to cleaner energy systems, calling for a step change in global efforts to mobilise and channel the massive surge in investment that is required.”
WE HAVE IDENTIFIED FIVE BROAD AREAS THAT CAN BE ADDRESSED TO LOWER THESE OBSTACLES, AND THUS HELP STIMULATE INVESTMENT.
1. Regulated, transparent power arrangements. Broadly, policies must establish transparency and predictability, which provides confidence for investors in the ability to recover investments in power generation. Examples of such policy include allowing independent power producers (IPPs); having bankable, standardized power purchase agreement (PPA) templates; holding transparent auctions; and having transparent and fair rate adjustments and public participation. One example is a recent transmission line auction in Brazil, which failed to attract investors when it was first launched in 2016. Revised terms, which included higher maximum tariffs and a transparent tariff revision formula that was based on inflation and long-term interest rates, encouraged BTG Pactual and other investors to participate. 2. Specific clean energy/climate incentives. Having an integrated, multi-year energy strategy with short-term targets for retiring fossil fuel plants, if applicable, and building renewable energy helps lay the foundation for conducive policies. Establishing a carbon market or other carbon-pricing mechanism, as well as governance/legislation around carbon removal, is also of value. Chile offers an example: it passed a binding decommissioning schedule for coal-fired power plants; engaged with private power plant owners to develop coal phase-out schedules; and implemented a tax on carbon for larger coal-fired power plants.
3. General business-friendly measures. There exist several general (that is, not necessarily specific to energy) policies that can facilitate investment. These include tax policy (such as not withholding taxes on profits, and no VAT on clean power sales), allowing foreign direct investment (FDI), improved permitting processes, and foreign currency/ability to repatriate profits.
4. Innovative financing mechanisms. Financing mechanisms of different types can be useful in mitigating risk, offering additional return potential, or creating more investment opportunities. Masala bonds, which are Indian Rupee-denominated bonds issued in foreign countries for investment in India, offer an example of risk mitigation (in this case providing a currency hedge).
Separately, the cost of financing, and therefore a project’s financial return, can be conditioned on achieving decarbonization targets. For example, the European Bank for Reconstruction and Development’s €56 million bond investment in a €233 million offering by Tauron Polska Energia includes lower financing costs if Tauron meets its 2030 decarbonization objectives.
Other financial innovations being considered seek to create more investment opportunity. Examples include
1) synthetic corporate power purchase agreements (CPPAs), which can offer a hedge against a corporate buyer’s fluctuations in power cost while providing demand for renewable energy; and 2) an energy transition mechanism (ETM), which gives investors the opportunity to buy high carbon-emitting assets, retire them and replace them with renewable energy (financial returns in an ETM investment come from operating the high carbon and renewable-energy assets supplemented by, for example, carbon credits for accelerated retirement). The World Economic Forum’s Taskforce on Mobilising Investment for Clean Energy in Emerging and Developing Economies is working to flesh out operational details on several of these innovations.
5. Early risk assumption. Several successful projects have included an early sponsor that was willing to assume various risks. Once certain risks in the project had been ameliorated, the sponsor was able to attract additional, or less expensive, capital. BTG Pactual in the aforementioned transmission project in Brazil was one such example. The company assumed full equity risk initially, but was able to find debt financing once construction was completed. This role can also be fulfilled, or at least supplemented by, international development organizations. For example, InfraCo Asia’s early-stage equity in a smart solar network in the Philippines supported the initial 4,000 homes of a 200,000 home prepaid mobile-based metering clean energy project and only later found another investor.
Much of the responsibility associated with these five areas falls to government. Governments in emerging economies must enact supportive legislation to ameliorate some of the risk and improve financial return prospects on energy projects. They should request multilateral development banks and other international financial institutions raise their risk instrument offerings and financing capacity. They must also work with the private sector to set the parameters and goals for investment opportunities. And they should be receptive to financial innovations that can increase the flow of private foreign capital for clean energy projects. Meanwhile, governments in developed economies must commit to mobilize more funds to climate finance as well as to provide greater technical advisory assistance.
Given the pressing need to invest in the near term to expand low-carbon energy access globally, the key is that governments across both the developed and developing economies must act quickly. Actions taken this decade can threaten to lock in emissions for decades to come — or they can set the stage for fulfilling the world’s sustainable development goals.
This agenda blog is part of a series dedicated to mobilising investment for clean energy in emerging and developing economies. Learn more about the related initiative, a project driven by multiple stakeholders associated with the World Economic Forum with the goal to uncover barriers, identify solutions and enable collaborative actions to significantly scale investments for clean energy in emerging and developing markets.
*Bradley Handler, Morgan Bazilian and Michael Hayes
Senior Fellow, Payne Institute for Public Policy and Director, Professor of Public Policy, Payne Institute for Public Policy and Global Head, Renewables, KPMG First published in: www.weforum.org
