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Outsourcing: implications in a globalized world

Outsourcing: implications in a globalized world

The Magic Nexus team

In this issue we look at the role of outsourcing in European industry. The question is, what role does outsourcing play in the effectiveness of EU policies to reduce greenhouse gases emissions, promote renewable energies, increase recycling and reduce environmental impact of agriculture?

Industrial and agricultural production are often outsourced to countries with lower production and labour costs, and the impacts of these activities are externalised along with production. Outsourcing may be the direct result of policy decisions, such as when a country exports its toxic waste, or may be a secondary effect of decisions taken at firm level, such as relocation driven by labour costs and tax reliefs. Outsourcing is also referred to as displacement by Dryzek (1987), and externalisation, with reference to the concept of externalities in economics (the consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices).

Due to the difficulty of keeping track of externalized activities, they are difficult to measure and are often kept hidden from public view. For example, efforts to increase recycling may not lead to the desired results, as there is little information on what happens to exported waste. In our first article, we explore the question of waste outsourcing by taking China’s recent ban on plastic waste imports as an example. Waste exports draw attention to the fact that waste disposal is costly, requiring a high level of energy and labour resources.

In the case of energy, the challenge is dependence on energy imports. While energy imports are often analysed in terms of energy security, we argue that from a nexus perspective imports also imply outsourcing the production of inputs which are particularly “costly” in terms of resources or labour requirements.

In the case of water, we use the water footprint approach to show how trade of agricultural commodities also implies trade of “virtual water” used to produce fruits and vegetables. The trade of virtual water flows is of interest within Europe, as water-scarce Mediterranean countries are the main exporters of fruits and vegetables to Northern European countries.

These articles are aimed at initiating a discussion on the importance of outsourcing for the study of the nexus. We welcome any comment and contribution to the discussion. You can either use our discussion forum or write to us.

References:

Dryzek, J.S. 1987: Rational ecology: environment and political economy. Oxford: Basil Blackwell

What if Europe had to process its own waste?

What if Europe had to process its own waste?

Tessa Dunlop and Zora Kovacic

A great deal Europe's waste is exported to the Global South, including electronic, chemical and incinerator waste. Despite recent policy action to reduce plastic waste, the EU still plans to export a significant amount of plastic to other countries. But what if  Europe did not export any waste at all?

In the case of plastics, the EU generates a whopping 25.8 million tonnes of plastic waste per year, with packaging making up 40%. Most of this packaging waste (70%) is either incinerated or sent to landfill, with less than 30% collected for recycling. But almost half of the plastic packaging material collected for 'recycling' is sent to third-party countries - the exported plastics are included in the official recycling rate. While plastics packaging cannot be seen as a representative study of other types of exported waste, it is a worthwhile sector to analyse given recent policy announcements by the EU.  The EC is updating its plastic strategy following the announcement by China in late 2017 that it would ban imports of single-use plastics, including from the EU.

So why is collected waste sent far overseas?

Because it is still cheaper to do so than to process it in Europe. Labour costs are higher in Europe, and the high fragmentation of collection and sorting means that high-quality recycling is difficult to perform cheaply at scale. Not to mention a great deal of collected material is of 'poor' quality, meaning that it has been contaminated by food or other substances. Contaminated waste materials are difficult to recycle and require intensive treatment to produce high quality recyclates. Furthermore, the manufacturing processes (injection, extrusion, blow moulding, thermoforming, etc.) can differ significantly depending on the product-specific requirements that define the resistance, weight and aesthetic aspects of the product.

The performance of sorting and recycling varies greatly from country to country, as do the commitment pledges to improve waste recycling and sorting practices. Recycling targets have generated some controversy in the European Parliament, as many of the Eastern European countries are reluctant to face the high costs of recycling given their limited relative contribution to waste generation. Returning to the case of plastic waste, in 2014 five countries generated approximately 70% of Europe's plastic packaging waste – namely Germany, Italy, the UK, France and Spain. Only Germany in 2014 was close to reaching a 55% recycling target. France, on the other hand, has the lowest performance – even though it is responsible for approximately 13% of the total EU generated waste.

So how is the EU responding to China’s ban on plastic waste?

  • The Circular Economy Package aims to increase packaging recycling to 70% by 2025. But this ambitious target may be watered down, especially under pressure from the plastics industry. Plastics Recyclers Europe has commissioned a study showing that a 55% recycling target can be achieved by 2025, or by 65% if extra exports are included.

  • In 2017 the EC also proposed a new plastics package to ensure that all plastic packaging is reusable or recyclable by 2030.  

  • Recycling does not mean that waste is processed. Slovenia for example has one of the highest recycling rates in Europe and also one of the highest waste export rates. The EU imposed legislation to reduce landfilling to less than 10% of waste output by 2030 – which has been a successful strategy in Germany to increase the recycling performance – but risks increasing incineration rates if measures aren't imposed on this practice too. Waste processing methods are not mutually exclusive and may generate trade-offs.  

  • Calls have also been raised to place a tax on single-use plastics, although it is expected to be politically unpopular. Also, this would only tackle one waste stream, ignoring the considerable amount of non-plastic waste generated including construction and energy waste.

While China's import ban is expected to lead to a significant reduction of the extra-EU exports, it is assumed that exports of plastic packaging waste will remain at half their 2014 level (50%)  to countries including Malaysia, Indonesia and Vietnam, according to the Plastics Recyclers Europe study. There is little information about what happens to this waste after it is exported, as it is costly to monitor.

MAGIC diagnosis: waste outsourcing is a question without a straight answer.

Waste in general (not just plastic packaging) is difficult to monitor, measure, keep track of and dispose of. Measurements are more easily available for specific waste streams (such as plastics, electronic equipment, construction waste, food waste) than for total waste. Policies break waste down by each waste stream, and sometimes classify waste by economic activity. As a result, it is difficult to get an overall picture of how much waste is produced and discarded. How relevant is it to focus on plastics? According to a recent report published by the European Commission (European Commission 2018), plastics represent less than 3% of material flows.

Secondly, how should waste be measured? By weight, construction materials contribute to about 35% of total waste in the EU-28 (European Commission 2018), but other factors are also important: e.g. the proper disposal of hazardous substances is needed to avoid health and environmental hazards, and the recovery of rare earth metals may be an important measure against scarcity and price fluctuations. When the quality of materials contained in waste is taken into consideration, measurements may change from relative quantities to chemical properties.

Third, there may be blind spots in waste management. While many initiatives - not least in the Circular Economy Package - deal with recycling, reuse & repair, eco-design, waste prevention and sharing economies, the issue of waste outsourcing is not mentioned. The issue of outsourcing points at the fact that waste management is not just a matter of individual behaviour or recycling methods, but is linked to the way economic activities are organised. The question “What if Europe didn’t export any waste?” requires a complexity-based approach that takes into account the ramifications of economic activities, including the interdependencies with foreign trade. 

References:

Deloitte. 2018. Sustainability Blueprint for plastics packaging waste: Quality sorting & recycling
<http://www.plasticsrecyclers.eu/sites/default/files/PRE_blueprint%20packaging%20waste_Final%20report%202017.pdf>

PlasticsEurope, 2015. Plastics 2015 – An analysis of European plastics production, demand and waste data
<http://ec.europa.eu/environment/circular-economy/pdf/plastics-strategy.pdf>

The World Bank Group, 2012. WHAT A WASTE. A Global Review of Solid Waste Management
<https://siteresources.worldbank.org/INTURBANDEVELOPMENT/Resources/336387-1334852610766/What_a_Waste2012_Final.pdf>

European Union, 2015. Waste Shipment data.
<http://ec.europa.eu/trade/import-and-export-rules/export-from-eu/waste-shipment/>

European Commission, 2018.  Commission Staff Working Document - Measuring progress towards circular economy in the European Union – Key indicators for a monitoring framework.
<http://ec.europa.eu/environment/circular-economy/pdf/monitoring-framework_staff-working-document.pdf>