Nature-positive trade: How can trade in support of the circular economy facilitate the delivery of biodiversity targets?

Circular economy is a system focused on extending the lifetime of materials. It moves away from a linear mode of production with waste at the end of the chain, to a circular mode of production in which materials are designed to remain in use as long as possible and where products and byproducts of production are re-used and recycled into new objects of value.

The third webinar of TRADE Hub’s Nature-Positive Trade webinar series was held on February 21, 2024, and brought together a range of trade, circular economy and biodiversity experts from various international organisations and initiatives. TRADE Hub Communications Officer, Aisha Niazi shares key messages from their discussions of the role of circular economy in achieving targets 7 and 16 of the Kunming-Montreal Global Biodiversity Framework, focused on pollution and consumption.

Key messages:

Climate change and pollution are two of the top five direct drivers of biodiversity loss, so trade policies and measures that support climate mitigation and adaptation or pollution reduction can directly support biodiversity. However, to ensure net positive outcomes across all areas, biodiversity must be explicitly considered as part of these policies and measures.

There is room at the WTO to discuss trade-related solutions to unsustainable resource use, offering windows of opportunity also for biodiversity. For example, smaller groups of member states are now in dialogue about specific trade and environment issues such as circular economy and plastic pollution.

Micro, small and medium-sized enterprises (MSMEs) have an opportunity to drive the transformation to a circular economy due to their huge share of the global market and being responsible for two thirds of jobs across the world.

However, MSMEs may not have the means to take up circular solutions, including money to buy machinery that helps turn used goods or production residue into high-value products. Support to access trade-related finance allows them to invest in circular business models, with a view to benefit from access to export markets.

Climate and pollution solutions are critical to tackle biodiversity loss

Climate change and pollution are two of the top five drivers of biodiversity loss, so trade policies and measures to address these areas are essential to address the loss of biodiversity. In particular, the circular economy, which limits greenhouse gas emissions and pollution in supply chains, can significantly reduce pressures on biodiversity. Resource use in production and consumption systems is responsible for 90% of land-use related to biodiversity loss and circular economy principles are all about increasing the lifetime of materials to reduce this extraction and encourage re-use.

However, biodiversity must still be explicitly considered as part of circular solutions, including those related to trade, to maximize net positive outcomes and to avoid any possible negative impacts to biodiversity.

Environment is becoming an increasing concern at the WTO

During the 12^th Ministerial Conference of the World Trade Organisation (WTO) in 2022, all 164 member states recognised the role of the WTO in addressing global environmental challenges including biodiversity. As part of the WTO focus on operating the global system of trade rules, the WTO rule book allows governments to restrict trade when the objective is protecting the environment. Recent discussions under WTO have strengthened considerations of environmental stewardship, recognizing the efficacy of trade measures also based on their environmental outcomes.

There is further room at the WTO to discuss solutions, including in the recently established thematic sessions at the Committee on Trade and Environment (CTE). Furthermore, smaller groups of member states are now in dialogue about specific trade and environment issues that have significant bearing on global biodiversity objectives, such as fossil fuel subsidy reform, circular economy and plastic pollution. These groups rely on the technical knowledge of subject experts, highlighting appetite and need for biodiversity experts to inform governments on issues relating to social and environmental sustainability, including how trade can support a shift to the circular economy in key sectors such as agriculture.

Members of the WTO are finding trade solutions to biodiversity risks

WTO members work together in the Trade and Environmental Sustainability Structured Discussions (TESSD) to consider how to best implement environmental sustainability within the WTO. One of the four working groups in these discussions is focused on the circular economy, and many members have implemented country-level policies related to circular principles. For example, Costa Rica developed a national strategy on bioeconomy that champions circularity.

Ecuador is also one of the WTO member states that is pioneering trade policies and measures that aim to protect biodiversity. For example, Ecuador’s Mission to the WTO was in support of the Ministerial Statement on plastics pollution adopted at the 13^th Ministerial Conference in February.

Ecuador’s envisaged actions for the future include:

Improve transparency, monitoring and understanding of trade flows across plastics value chains,

Technical assistance to support developing and least-developed members in developing measures to tackle plastics pollution,

Promote cooperative and supportive trade-related policies or measures to reduce plastics harmful to environment and human health,

Promote cooperation on trade that contributes to ending plastics pollution.

Outside of the WTO, the Food and Agricultural Organisation of the United Nations (FAO) has also identified circular bioeconomy, a circular economy with renewable biological resources at the centre, as a major priority. FAO have launched a dashboard for decision-makers, assessing data on existing global bioeconomy strategies against international biodiversity and climate targets. This dashboard, along with other initiatives set out to make the agricultural sector more circular.

MSMEs embedding circular economy principles within their business practices, with the help of trade

Regulation is a driver to provide incentives for MSMEs to adopt circular practices within their supply chains, including those reducing plastic pollution. However, MSMEs are not purely driven by compliance to regulation, and are shown to be motivated towards sustainable practices by other incentives such as being driven by cost-savings or market opportunities related to circular models, and by leadership choices.

Trade can be a great driver for MSMEs to take up circular solutions, both by opening up access to regional and international markets and also by helping to ensure the availability of reasonably priced technical solutions, machinery and services that support circular business models.

Trade that supports circular economy also supports less land-use

One of the major issues identified within circular economy discussions is land-use. The amount of land used for livestock and other food and biomass production has the greatest impact on terrestrial biodiversity. This provides an opportunity for trade policy to encourage circular principles in supply chains, such as gaining more value from existing agricultural land, to reduce the total amount of land used. The European Union deforestation-free products regulation (EUDR) encourages this within the EU as companies in the EU are barred from importing goods produced on recently deforested land. As such EUDR is foreseen to support shift to sustainable, including circular and regenerative, practices in land-use.

However, smallholder producers and MSMEs may not have the resources to take up such practices, including technology to support deforestation-free and regenerative approaches or money to buy machinery that helps turn used goods or production residue into high-value products. To do so, they require support to access finance – including trade related finance – that allows them to invest in sustainable and circular business models. With access to finance and wider markets, these businesses often generate many jobs and provide environmental value. One example of this, provided by UNCTAD, is the transformation of pineapple leaves, otherwise burnt, to textile fabrics. This initiative provided many jobs and made a high-value product with export market potential of what would otherwise be wasted material.

With the extraction and processing of natural resources driving 90% of land-use change related biodiversity loss, global economic models require re-thinking. Adopting the circular economy model, with the help of trade related measures, can reduce pollution associated with supply chains, addressing major biodiversity risks such as land-use. In doing so, it will drive the achievement of Targets 7 and 16 of the Kunming-Montreal Global Biodiversity Framework, aimed at reducing pollution and ensuring sustainable levels of consumption. An economy without waste is an economy in greater harmony with society and nature.

You can watch the webinar here.

The summary has been produced by TRADE Hub. It does not necessarily reflect the views of the organizations co-operating under or participating in the webinar series. We regret any errors or omissions that may have been unwittingly made.