Raising resource productivity in global value chains

22 January 2007

UNEP/Wuppertal Institute Collaborating Centre on Sustainable Consumption and Production (CSCP)

Hagenauer Straße 30 42107 Wuppertal | Germany

Phone | +49.202.45 95 8.10 Fax | +49.202.45 95 8.31

www.scp-centre.org [email protected]

Contributors: Martin Herrndorf, Researcher, [email protected] Michael Kuhndt, Head of the CSCP, [email protected] Fisseha Tessema, Consultant, [email protected]

This paper was written within the project “Resource Productivity and Resource Savings – A Future Dialogue” (“Rohstoffproduktivität und Ressourcenschonung – Zukunftsdialog”), commissioned by the Federal Environment Agency under a research grant of the Environmental Research Plan (UFOPLAN), grant number 206 93 100/01.

The opinions expressed in this publication do not necessarily coincide with those of the contracting body.

Raising resource productivity in global value chains – spotlights on international perspectives and best practice

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Preface

Responding to the recent attention drawn to resource efficiency and resource productivity, this paper displays how the public and private sector can raise resource productivity in global value chains by providing some spotlights on international perspectives and topics and showcasing best practice examples. It builds on results from material flow analysis that show how material flows are increasingly crossing national boundaries (Moll,

Bringezu and Schütz 2005). As a central structure the paper takes a ‘value chain’ approach: Resources are followed from their extraction through the manufacturing and use phase towards their end-of-life.

This paper has been written by a team of the CSCP in the scope of the project “resource productivity and resource savings – a future dialogue” (“Rohstoffproduktivität und Ressourcenschonung – Zukunftsdialog”)1 of the

Wuppertal Institute, the Institute for Futures Studies and Technology Assessment (IZT) and the UNEP/Wuppertal Institute Collaborating Centre on Sustainable Consumption and Production (CSCP), funded by the German Federal Environment Agency. Within this project, workshops have been held in the fields of Copper, Steel and Housing and Mobility that served to identify resource productivity potential and activating measures and intervention points through a dialogue with business, government and civil society.

This paper builds on and extends the results of this project by showing perspectives on the topic from an international perspective, especially focusing on emerging best practices of public and private actors. It aims to broaden the discussion in order to show how international action can be applied to supplement national activities. Not only could this serve to extend national achievements to the global scale, it could also safeguard them against unintended indirect and side effects from the relocation of resource flows and help German stakeholders to benefit from opportunities in global markets for resource productivity. It also supports recent international activities on the topic, including the Marrakech Process and the International Panel for Sustainable Resource Management (Resource Panel).

As resource productivity is a quite new topic on the international agenda, this paper serves as a first exploration and is only a starting point for future investigation and discussion.

1 For more information on the project, see www.ressourcenproduktivitaet.de (German only)

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Table of Content

Preface ................................................................................................................................................... 2

Table of Content .................................................................................................................................... 3

1 Matching German and international trends in resource productivity ................................... 4

1.1 International trends in resource productivity................................................................................ 4

1.2 Classifying instruments and approaches ..................................................................................... 5

1.3 Scope, boundaries and limitations ............................................................................................... 5

2 Spotlights in international collaboration for resource productivity ..................................... 7 2.1 Resource productivity during extraction....................................................................................... 7 2.1.1 Selected facts and trends............................................................................................................................7 2.1.2 Selected instruments and approaches.......................................................................................................9 2.1.3 Implications for German stakeholders......................................................................................................12 2.2 Raising resource productivity in global manufacturing ............................................................. 13 2.2.1 Selected facts and trends..........................................................................................................................13 2.2.2 Selected instruments and approaches.....................................................................................................14 2.2.3 Implications for German stakeholders......................................................................................................18 2.3 Global markets for resource productive products and services ............................................... 19 2.3.1 Selected facts and trends..........................................................................................................................19 2.3.2 Selected instruments and approaches.....................................................................................................20 2.3.3 Implications for German stakeholders......................................................................................................22 2.4 Close material cycles and promote sound end-of-life treatment .............................................. 23 2.4.1 Selected facts and trends..........................................................................................................................23 2.4.2 Selected instruments and approaches.....................................................................................................25 2.4.3 Implications for German stakeholders......................................................................................................28

3 Conclusions and recommendations ......................................................................................... 30 3.1 German processes and initiatives to raise resource productivity ............................................. 30

3.2 European processes and initiatives to raise resource productivity .......................................... 31

3.3 International processes and initiatives to raise resource productivity...................................... 32

References............................................................................................................................................ 34

Abbreviations....................................................................................................................................... 38

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1 Matching German and international trends in resource productivity

1.1 International trends in resource productivity Europe, and Germany in particular, have seen a relative decoupling in their direct

resource consumption in recent years – energy and materials in Europe get converted into ‘economic value’ ever more efficiently, as displayed in Moll, Bringezu and Schütz (2005). Still, this trend has partly been due to an international ‘burden shifting’, where resource intensive steps in global value chains have been relocated to other countries. Evidence for this trend can be

found not only in the macro-data on global material flows, but also in the growing involvement of German and European businesses in international trade and the changing nature of the goods that get exchanged on these global markets.

At the same time, progress of countries towards their development objectives, e.g. as embodied in the Millennium Development Goals (MDGs), has been slow, not uniform and some regions lack notably behind (UN 2007). As one trend, reduction in extreme economic poverty (people living under $1 a day) has not been matched by progress on quality of life and environmental sustainability. Burden shifting could be one explanation for these trends: While the involvement in global value chains results in growing economic activity, this trend does not translate into social and environmental achievements due to growing resource flows in developing countries.

Raising resource productivity thus extends beyond the question how countries extract or produce and process resources in their own territories. I should cover resource productivity within the value chains they are involved in, including issues like:

• Conditions and repercussions on resource productivity in resource-rich, exporting countries and the policies implemented by German and foreign actors to improve these (see 2.1);

• Resource productivity in the manufacturing of the products and services that German companies increasingly source or import from abroad (see 2.2);

• Resource productivity in the consumption phase in other countries, in particular developing ones, through the export of German products and services (see 2.3);

• Products exported by German companies for recycling or end-of-life treatment (see 2.4).

Within the scope of the paper, Germany / Europe will thus appear in different roles:

Figure 1: Trade Flow of the Iron in the World (2003), including iron ore, iron & steel and scrap iron for recycling (Source: INES 2006)

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• As an importer / purchaser of a) raw materials and commodities and b) goods and services;

• As an exporter of a) new or reusable goods and b) used or recyclable goods and waste.

For the ‘complementary roles’ to the ones played by Germany, the paper’s scope is limited to developing countries. The activities analysed within this paper can thus be structured along the value chain as this:

Extraction Manufacturing Consumption End-of-life

Germany / Europe as

Importer / purchaser Importer / purchaser Exporter Exporter

Raw materials and commodities

Goods and services

New or re-usable goods

Used or recyclable goods and waste

Developing countries as

Exporter Exporter Importer / purchaser Importer / purchaser

1.2 Classifying instruments and approaches This paper will highlight some selected instruments

and approaches for improving resource productivity in global value chains. Due to the integrative, holistic and crosscutting nature of resource efficiency, initiatives were selected that do not singularly focus on improving resource productivity, but aim to promote wider environmental, social and economic objectives as side effects. In order to assess the

relevance for German stakeholders, a model was developed that allows to evaluate how German stakeholders can either get involved in local initiatives in developing countries and support these on the one hand, and how they can develop their own initiatives with indirect effects on resource productivity in the selected value chain phases on the other hand. The paper will also describe strategies of private and public actors as well as the potential for partnerships at each ‘interface’ between the different value chain stages. Figure 2 provides one example (for the end-of-life stage) presenting the matrix for structuring the

instruments and approaches. Figures for the other life cycle stages are included in the respective sections of the paper.

1.3 Scope, boundaries and limitations As raising ‘resource productivity in global value chains’ is quite a broad topic, the following decisions were taken to focus the paper and limit its extension:

• The paper focuses on non-renewable resources, especially minerals and metals. Renewable resources and their existing hot spots and sustainability impacts, e.g. land use competition and the food vs. fuel debate, are excluded from this paper.

Figure 2: Example for instruments and approaches of different actors regarding exports of recyclable waste

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• The paper focuses on resource productivity in developing countries, the linkages with Germany / Europe

and implications for key German stakeholders. The impact of German activities and actors on resource productivity in other European or Western countries is not being dealt with in this paper.

• The presented spotlights on international perspectives and best practice serve as an illustration of existing approaches. While data on success and impacts of the chosen initiatives was included where

existing, the boxes cannot replace a thorough analysis neither of direct and side impacts nor of the specific success factors and the transferability of the cases described.

• The paper does only touch the complex determinants of global trade and coupled resource flows, and does not deal extensively with the impact of global trade regimes and regulations. While some first indications are given, a more thorough investigation from a trade-theory perspective would be needed to display these interdependencies.

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2 Spotlights in international collaboration for resource productivity

This chapter undertakes a more in-depth analysis how Germany is involved in four distinct phases of global value chains, and how this involvement links to changes in resource productivity. Selected approaches and instruments

applied by private and public stakeholders are briefly presented to discuss options that exist as well as the boundaries and barriers they present. In a final section, brief conclusions will be drawn to show some implications for German businesses and governmental actors. While these recommendations are held quite generally, they will be focused on existing programmes on the German, European and international level in chapter 3.

2.1 Resource productivity during extraction As resource extraction increasingly moves abroad, especially to developing countries, the resource use associated with extracting and early processes activities (e.g. smelting) has also moved abroad. (Bleischwitz and Bringezu 2007). Throughout these activities, lower rates of resource productivity during extraction are frequently observed, leading not only to international burden shifting, but most likely letting these burdens grow. Furthermore, for several metals the risk of running over known reserves emerges from predictions based on estimated GDP growth (Halada 2007). This chapter will map some facts and trends on the relocation of extraction activities and the related consequences, and further introduce concepts to manage resource productivity in these areas based on real-life examples.

2.1.1 Selected facts and trends

Growing extraction in developing countries

During the past decades, extraction activities have

increasingly been globalised and moved to developing countries. Moll et al. (2005) summarise that “EU resource requirements are increasingly met through imports, particularly metals and industrial minerals”. In Europe, the total metal consumption came to about 2020 million tons in 2001, but only 20 percent of this was produced domestically. And while domestic consumption has been more or less stable, domestic extraction has fallen by about two thirds

between 1970 and 2000 (EEA 2005). The indirect ‘hidden’ flows associated with imports are showing an increasing trend”. According to BMU (2006, p.10), world market prices for raw materials imported into Europe rose by 81 percent between 2000 and 2005.

Figure 3: Metal ores: domestic extraction, imports, exports, and domestic consumption, EU-15, 1970–2001 (Source: EEA 2005, p. 35)

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As one example for Europe’s dependency on raw materials imports, the German

copper imports rose by 55 percent in weight, and by 338 percent in value from 2000 to 2006 (Destatis 2007), illustrating both the growing dependency on foreign imports and the price development for copper (Lucas, Röhr and Scharp 2007, p.5). The mentioned paper also shows that at the same time, due to the evidently growing demand of minerals, there has been a geographical shift in the trade of resources as most materially intensive processes of raw material extraction are being externalised to developing countries (ibd., p. 6 ff.).

Extraction of iron ores in Germany has been abandoned, due to the low ore content (below 10%) compared to imported ores (around 60%) (see graph in Ritthoff 2007, p.11), with a developing country, Brazil, being the main exporter to Germany (55%). Worldwide, growing extraction can also implicate usage of lower-quality ores, resulting in lower resource and energy efficiency (Ritthoff 2007, p. 14).

Asia’s share in global resource extraction has increased considerably as a consequence of rapid industrialisation in countries such as China and India. In China, for example, extraction of metal ores grew by 160% between 1980 and 2002 (http://www.materialflows.net). The total increase in used extraction was 123%, as compared to an increase of 70% in India. Other than in Asia, a considerable part of the Latin American increase in domestic resource extraction results from specialisation in resource-intensive export products, such as metal ores. The regional used extraction of metal ores thus increased by 161%.

High ratios of hidden flows and low resource efficiency during extraction

With the significant shift in resource requirements from domestic sources towards the use of imports from developing countries, there is also a shift of environmental burden of resource use to those regions. While the resource productivity in EU-Countries is increasing, developing countries struggle to cope with the environmental impacts of rising extraction rates: huge amounts of waste, wastewater and dissipative losses. Lucas, Röhr and Scharp (2007, p. 10) point out that 98% of resource flows in the form of excavation residues occur in production countries and quote an index that categorises copper amongst the ten most resource-intensive materials.

According to a survey of the Wuppertal Institute, metal ores and industrial minerals account for about 9% of the materials directly used and processed within the EU, which is referred to as the Direct Material Input (DMI). However, when considering life-cycle-wide resource consumption associated with metals and industrial materials,

the share increases significantly. They account for one fourth of the total materials required to satisfy the EU consumption levels of the EU, i.e. the Total Material Requirement (TMR). These “hidden flows” stem from resource intensive extraction and treatment activities outside Europe, especially in developing countries. Since the domestic extraction decreased on the account of imports, the overall TMR of metals and industrial minerals has been significantly increasing throughout the observation period (1980-2000) (Wuppertal Institute 2005, p. 49ff.).

Figure 4: German copper imports in weight (tons) and value (EUR), Source: www.destatis.de

1 ton of copper creates – 100-350ts of residues

– 50-250ts of extraction waste. – 30-100 GJ of energy – 200-900 m3 of water.

– Up to 300kg of S02 during the extraction process.

Source: Erdmann 2006 in Lucas, Röhr and Scharp (2007, p. 10)

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Looking at the consequences for developing

countries, a study by the World Bank (2006) shows how many resource-rich nations fail to set up adequate regimes for benefiting from the exploitation of their natural resources. Many countries, as resource-rich Bolivia depicted on the right, have thus negative savings rates despite high incomes from natural resources, leading to a long-term decline of wealth in these countries.

2.1.2 Selected instruments and approaches

Extractive activities in developing countries involve both local, small-scale mining operators and big, multinational companies

holding stakes in mines around the world, depending on the sector: three quarter of iron extraction are done by three single companies (Ritthoff 2007, p. 5).

Lack of good governance and governmental resources, presence of informal extraction activities and internal conflict on resource returns have sometimes affected the ability of local governments to establish strong regulatory frameworks for mining activities, and have impeded their implementation. Claims have thus been made on multinational companies and developed country governments to set up rules and guidance to increase ‘transparency and good governance’ in the mining sector.

Examples for the following approaches will be provided in this section:

• Governance co-operation for resource efficient extraction activities

• Private sector approaches for resource efficiency technology development and transfer

• Partnerships for capacity building in developing countries

• Business approaches for managing resource consumption during extraction

2.1.2.1 Governmental cooperation for resource efficient extraction activities

Long-term oriented governmental cooperation can help to address shortcomings in implementation and enforcement of environmental standards in the extractive sector. The Norwegian Oil for development programme (see box below), is one example how these can be embedded with the official foreign affairs and foreign aid

Figure 5: Adjustments in the Genuine Saving Calculation for Bolivia, showing the impact of natural resources depletion (Source: World Bank 2006, p. 40)

Figure 6: Initiatives to raise resource productivity during extraction

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institutions. Despite the lack of strong environmental components, especially to raise resource productivity, the programme could provide a blueprint for future resource productivity programmes.

Case study: Opportunities for resource management in the Oil for Development programme

Norway which sets an example with its “Oil for Development” initiative as the result of the Norwegian government decision to increase assistance to developing countries seeking Norwegian expertise and experience in the petroleum sector. “Oil for Development” builds on three main thematic pillars: resource management (optimisation of extraction techniques, increase of resource productivity), revenue management and environmental protection. The programme builds on existing activities and expands support to countries requesting cooperation on petroleum governance. Support is provided to governments and government agencies in countries of cooperation, by/through a range of Norwegian expert bodies and regional and international organisations. As of 2006, Norway cooperates with more than 20 countries, amongst them Angola, Sudan and Nigeria, covering areas such as legal frameworks, administration and supervision mechanisms, organisation of public/private interfaces of petroleum governance and revenue management. Environmental challenges have been added only recently to the programmes as implemented on the ground, and in a fractioned fashion (Norad 2007, p.29).

(Source: www.regjeringen.no).

Governmental cooperation might also involve technology transfer, to provide assistance to developing and transformation countries that wish to apply advanced technologies that are currently being used in the developed world. Especially within the extractive sector, advanced, up-to-date exploration as well as extraction technologies (satellite image analysis, geological and geochemical surveys etc.) are inevitable to control and minimize environmental costs.

2.1.2.2 Private sector approaches for resource efficiency technology development and transfer

The early stages of processing ores to metals result in a number of by-products that can potentially be used when appropriate technology for separation and preparation of these by-products into usable materials is installed. This can significantly reduce the waste streams associated with extractive industries that make up a significant portion of most environmental back-packs.

Some businesses in extraction have started to make resource efficiency a part of their operations. The example of Anglo-American (Anglo-Platinum) below illustrates some current efforts by businesses to engage in eco-efficiency and introduce more responsible business practices in their own operations.

Case Study: Business strategies for resource efficiency in the mining sector Anglo Platinum, the largest primary platinum producer in South Africa considers mining optimisation a key priority towards business improvement. According to its annual report 2006, it applies innovative product technology and education to “ensure the sustainability of its operations”.

• In order to reduce sulphur, dioxin and furan emissions Anglo Platinum has installed a new high-grade incinerator, as well as an activated carbon absorption system, that should reduce dioxin and furan emissions.

• To optimise energy usage of which mining operations, the company has hired HVAC International, an energy services company, which is installing a remote-controlled supervisory control and data acquisition system to optimise energy use. The system will also facilitate improved compressed air operating pressure by starting the required machines in time as predicted by the system.

• Anglo Platinum drills approximately 50 million blast holes per annum to access and extract the ore bodies, and now uses electric drills as a replacement for compressed air drills. Electric drilling is also vastly more energy efficient in comparison with compressed air drilling (0,12 kWh/metre drilled compared with 8 kWh/metre).

• In its mines it plans to use the “Voltex Mine Light (VML)”, an industrial-quality compact fluorescent light. In a pilot rollout at the Amandelbult mine some 30 640 lamps were fitted underground, which resulted in saving 2.4% of the mine’s energy.

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Lamp replacement at all mines was planned.

These activities were acknowledged by the Nedbank Green Mining Awards, which awarded the contribution that responsible mining makes to South Africa's economic development. (Sources: http://www.angloplats.com/, http://www.angloamerican.co.uk/cr/sustainabledevelopment/sd/, http://www.nedbank.co.za)

In the case of artisanal or small-scale mining, new governance problems arise. These relate not only to social issues like working conditions or health services, but also to resource productivity (Hentschel, Hruschka, Priester, 2002). Root causes include outdated technology and low capital employment, but also a lack of integrated local

management and governance procedures for productive utilisation of local resources by many small actors with a short time horizon. The case example in the next box describes how a large trading company in the diamond business engages with informal miners to enhance governance standards and resource productivity.

Case Study: Partnership for raising resource productivity in diamond mining

In Tanzania, around the Williamson mine in Mwadui, De Beers, the Government and local communities are working in partnership to address a range of challenges facing the small-scale informal diamond-mining sector. This work is being undertaken through the Tanzanian-led Mwadui Community Diamond Partnership (MCDP). Tanzania is the only country where informal small-scale diamond mining and significant De Beers’ operations co-exist. Therefore, Tanzania is where De Beers considered it could best make a difference to the challenges posed by informal small-scale diamond mining. The aim of De Beers’ intervention measure is to transform the diamond mining and trading business in organised and profitable small-scale mining enterprises that operate within the provisions of the mining legislation and that are environmentally acceptable. Like other informal operations, the technology used for diamond mining and processing in the area is rudimentary. All activities are manual, where miners use picks and shovels, and locally fabricated sieves. This limits resource productivity, increases health and safety risks as well as the impact on the environment. De Beers is committed to provide the technology and other necessary resources that could transfer Mwadui Community informal recyclers into formal producers, which could increase resource productivity of the community and boosts the tax revenue of the Tanzania’s government. The Partnership hopes that, the solutions developed in Tanzania, will be transferred to other small-scale informal diamond mining economies, such as Sierra Leone, Angola, Guinea and the Democratic Republic of Congo, at the invitation of their governments.

(Source: MCDP n.d., De Beers n.d., Mutagwaba, Seegers, Mwaipopo 2007)

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2.1.2.3 Business approaches for managing resource consumption during extraction

Businesses that calculate their global resource consumption or ‘environmental footprint’ have included more issues along their supply chains, starting to include data on resource consumption during extraction.

Case study: Measuring and managing resource use during extraction in the supply chain

Canon has measured and set goals for their whole environmental burden measured in the form of CO2, including the burden caused by the extraction of raw materials and the production of parts outside their factories. Selected results of Canons measurement activities are displayed in the figure on the right side (Canon 2007). The bars show overall impacts separated according to value chain steps, and the lines relate to impacts consolidated per sales. While the impacts from the extraction of raw materials and the production of parts purchased are not displayed separately, they make up impacts extending even those of customer usage, the second biggest effect. And while the impacts from customer usage have been relatively stable, the environmental burden from raw materials and parts production has risen by 23 percent from 2000 to 2006.

Figure 7: Graph on “Environmental Burden, Factor 2 Targets and Achievements” from Canon Sustainability Report (Source: Canon 2007, p. 15)

2.1.3 Implications for German stakeholders The different actors within the German government might:

o Stronger link initiatives to enhance the transparency of payments for resource extraction (like Oil for

Development) to programmes for improving operational and resource efficiency standards and reducing

resource backpacks.

o Promote exchange of knowledge, technologies and best experience on how to increase resource

productivity in the extraction phase, e.g. through an international platform on the issues involved;

o Set up internationally harmonised labelling and information systems on the (embodied) resource

consumption of raw materials and commodities which would facilitate to assess the resource productivity

of products and services imported and sourced by German companies.

German businesses might…

o as mining companies operating in developing countries, introduce resource efficiency standards and

practices globally to ensure equal standards and capitalise on cost savings through resource efficiency.

Special attention might be dedicated to raise resource productivity in partnerships with artisanal or small-

scale mining.

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o as purchasers of raw materials, engage in partnerships with raw material suppliers and intermediary to

enhance operational standards and promote exchange of best practice between suppliers in different

parts of the world;

o as manufacturing companies, revise their procurement practices, especially when they are buying bulk

materials or those with high resource backpacks. By doing so, they might target to buy from suppliers

that have resource efficient operations and can prove comparatively small resource backpacks of the

raw materials and commodities delivered.

2.2 Raising resource productivity in global manufacturing As manufacturing activities increasingly move ‘offshore’, and markedly to developing countries, governments and businesses are facing the challenge to develop policies and instruments that serve to increase resource productivity in manufacturing abroad. This section will introduce some key challenges for raising resource productivity in supply chain manufacturing, and instruments and initiatives that can be applied to these ends.


Strong foreign sourcing among German business

German businesses are strongly involved in international importing and sourcing. A 2007 survey (DIHK 2007) revealed that 36 percent of the participating businesses are involved in importing, and that sourcing reaches an almost equally high share of 32 percent. The main sourcing regions identified are Eastern Europe and Asia, followed by Latin America and Africa. A study by the Fraunhofer Institute states that, depending on the sector, up to 36 percent of businesses had moved parts of their activities offshore between 2001 and 2003 alone (Fraunhofer Institute 2004, p. 11). This includes 36.2 percent of ICT device manufacturers, and 34 percent of manufacturers of equipment for the production and distribution of energy. While lower personnel and other costs was a main driver for sourcing abroad, these expectations have mainly been fulfilled for larger companies (DIHK 2007, p. 24), and a certain trend of ‘in-sourcing’ or ‘in-shoring’ can be witnessed.

Impacts of growing offshoring on resource productivity

For some activities, resource efficiency potentials can be realised through offshoring, e.g. of energy-intensive production steps to countries producing energy with relatively low material inputs (like hydropower). For other activities, offshoring might reduce resource productivity not only by inducing more transport, but also due to lower

technological standards and less resource efficient production methods in countries that receive the off-shored activities. In general, material flow analysis reveals that imports from foreign countries carry significant ‘ecological backpacks’ (Bringezu et al. 2005). While these accounts do not allow differentiating whether these ‘foreign hidden flows’ of German imports result primarily from resource extraction or manufacturing, the general difference in resource efficiency between developed and developing countries indicates lower resource efficiency in off-shored manufacturing activities.

Increasing industrial pollution, waste, and sanitation problems illustrate these low levels of resource efficiency. For instance, 70 percent of China’s pollution problems stem from industrial activities, and is primarily generated by seven industrial sub-sectors. Over 200 of more than 650 cities surveyed in China are surrounded by hills of waste. However, to mitigate such kind of problems the domestically produced environmental technologies’ quality

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and innovative character is widely known to be poor, and the countries’ demand for reliable, affordable, and

effective environmental protection equipment has not been satisfied (USA Department of Commerce, 2002). Collaboration efforts with developing countries to promote transfer of resource efficient technology can thus help not only to reduce the resource consumption for German imports, but also help to address local environmental impacts that are caused by high material flows.

On the business level, the ‘SME challenge’ in environmental management also occurs in global supply chains that often rely on broad networks of rather small suppliers in developing countries, and poses special challenges for designing instruments and initiatives.


Promoting resource efficiency in supply chains in

developing countries requires initiatives both by policy makers and businesses. Adding to weak regulatory frameworks, business might lack the knowledge and capability to comply with regulation or efficiently react to economic incentives. Furthermore, proactive measures to implement resource productivity require complex, systemic solutions and might rely on human and organisational resource local businesses often lack of.

This section will thus describe selected private and public approaches to foster resource productivity:

• Local government frameworks to support resource productive manufacturing

• Collaborative capacity building for resource productive manufacturing

• Resource efficiency management tools for SMEs in global supply chains

• Private sector initiatives for resource productive manufacturing in their supply chain

2.2.2.1 Local government frameworks to support resource productive manufacturing

Strategies that governments apply to promote resource efficiency can range from ‘rewarding / penalising’ businesses by changing the external incentives, to those ‘supporting’ them to take action by addressing internal capacities (see Table 1). One can also distinguish between policy instruments that address soft (intangible) or hard (tangible) factors. The first ones deal with aspects such as consumption behaviour, human resources and organisational structures; while the second ones concern financial issues, regulation and compliance, state of technology etc.

Reward / Penalise Motivate Support

Governments can reward resource efficient behaviour of businesses and consumers, or penalise inefficient producers, thus providing external incentives to direct attention to resource efficiency.

Governments can engage with producers and consumers on resource efficiency, by activities that provide both resource efficiency incentives while at the same time supporting producers.

Governments can support producers and consumers to take advantage of existing resource efficiency opportunities by multiple measures.

Table 1: Governmental strategies to promote resource efficiency (CSCP, WI & GTZ 2007).

Figure 8: Business and government partnerships for promoting resource productivity in offshore manufacturing

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A range of policy instruments is collected in the compendium ‘Policy Instruments for Resource Efficiency’ (CSCP, WI & GTZ 2007) 2, a compendium that supports governments who aim to implement policy instruments to promote resource efficiency by providing a pragmatic overview of selected policy instruments and accompanying case studies from various countries, with such different set-ups as Bangladesh, Chile, Germany or Sweden. The

compendium builds on the recent discussions and practical experience with these instruments, both from developed and developing countries, and directly targets politicians, NGOs and SCP practitioners in intermediary organisations. The instruments described in the compendium are depicted in the matrix below. Two examples how these policy instruments could be applied in the reality of developing countries are included underneath.

Figure 9: The resource efficiency policy matrix that structures the policy compendium (Source: CSCP, WI & GTZ 2007). The matrix has also been specified for policy instruments that promote resource efficiency in housing, food or mobility. (CSCP, EEA & RoS 2007)

Case study: Environmental Fund Tunisia – Promotion with grant financing

The Tunisian government initiated the industrial environmental fund (FODEP) with support of German Financial Cooperation. This measure became necessary when stricter environmental legislation obliged industrial companies to comply with new environmental standards and to carry the additional costs according to the polluter-pays-principle. The background for the implementation of strict environmental standards was the strong concern that the pollution from industrial production of agro-, textile-, leather-, construction material and chemicals threatened drinking water resources and was endangering public health as well as causing other sorts of environmental degradation associated with water pollution. Given the scarcity of water in the country this was a major problem. In the course of strict monitoring by the national environmental authority many companies were identified contributing to pollution. Consequently, an arrangement was made with respective companies to comply with the relevant standards within a given time frame. The environmental fund was to assist them by subsidising the necessary investments. (Source: GTZ / CSCP / WI 2007)

Case study: Trade Tax Reductions for Cleaner Production at Municipal Level, Paraguay

The principal idea of this cooperation project is to promote cleaner production in cities and municipalities and thus create win-win situations whereby companies can reduce tax burdens while municipalities face reduced environmental pollution from industrial activities. In close cooperation with three medium-sized cities - Caaguazú, Villarica and Coronel Oviedo - an economic instrument was designed that intended a step-wise tax reduction (to a maximum reduction of 20% of tax payable) for those industries that implement cleaner production programmes and can actually demonstrate measurable and independently verified results such as increased natural resource use

2 http://scp-centre.org/RESOURCE_EFFICIENCY_INSTRUMENTS.1049.0.html

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efficiency. On the whole, the design of the system provides advantages to enterprises under a cleaner production programme. The introduction of the tax reduction was accompanied by awareness building, information and training measures for public authorities, industries and independent consultants. The project was put forth within the framework of a Technical Cooperation initiative between the MERCOSUR trade organisation and Germany.

(Source: GTZ / CSCP / WI 2007)

2.2.2.2 Collaborative capacity building for resource productive manufacturing

Local governmental initiatives to improve resource productivity in developing countries can be complemented by international, collaborative programmes to build local capacities to implement resource productivity. The more prominent of these include the UNEP / SETAC Life Cycle Initiative as an international focal point for training businesses and intermediaries in developing countries on life cycle thinking, and the National Cleaner Production Centre’s, that provide tailored support to local businesses.

UNEP/SETAC Life Cycle Initiative workshops and materials The UNEP/SETAC Life Cycle Initiative aims to enable users to put life cycle thinking into effective practice and at improving supporting tools through better data and indicators, especially in developing countries. A range of programmes provides support on issues like Life Cycle Assessment and Management, Supply Chain Management, Life Cycle Costing and the simulation of material and energy flows. The initiative has also published handbooks, training material, manuals, electronic libraries and workshops to share experience between different stakeholders and conducts capacity building for developing countries through conferences and training workshops. Current activities of the initiative include – ESTIS, a multi-language Information System to assist the transfer of Environmentally Sound Technologies

– The establishment of a LCM roundtable with the World Business Council for Sustainable Development (WBCSD) (Sources: www.uneptie.org/pc/sustain/lcinitiative/home.htm; http://www.estis.net)

The National Cleaner Production Centre network

To promote the application of cleaner production, especially an efficient utilisation of resources, by enterprises in developing and transition countries, UNIDO and UNEP set up National Cleaner Production Centers (NCPCs) in countries around the world. These are operating independently in their countries, promoting cleaner production through training programmes, pilot cases, databases and consulting on resource efficient production. Training programmes like the “Capacity Building in Cleaner Production Centres – A Training Resource Package” and the “Environmental Management Navigator” have been developed and applied together with NCPCs around the world. (Sources: www.unep.fr; www.unido.org)

2.2.2.3 Resource efficiency management tools for SMEs in global supply chains

While SMEs are prominent in offshore manufacturing, their resource efficiency may often be lower. Several initiatives have developed materials and training modules to address smaller businesses, especially in developing countries, to empower them to implement proactive measures for resource efficiency in their operations.

Lifecycle Management Navigator / Environmental Management Navigator

The ‘Lifecycle Management Navigator’ builds on the original ‘Environmental Management Navigator’, a tool to assist enterprises in developing and transition countries to improve their resource efficiency and meet demands from their customers. The Navigators are capacity building guides specifically designed for corporate decision-makers in small and medium sized enterprises who could gain an understanding of the appropriate selection, adoption and usage of today’s most important environmental management tools. Focal points of the toolbox include Life Cycle Assessment and Design, Cleaner Production Assessment as well as Green Supply Chain Management. Various trainings have been conducted in countries like Sri Lanka, Ugana, India etc., involving local businesses as well as intermediaries in special "Train-the-Trainer-Workshop" sessions. (Source: www.em-navigator.net)

The Efficient Entrepreneur Calendar

The Efficient Entrepreneur Calender is another toolbox directed at SMEs to assist them on their path towards sustainable entrepreneurship. The calendar provides month-by-month comprehensive hands-on tools to increase

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resource productivity and profits by adopting cleaner production measures. The need for life cycle assessment and reduction in material consumption are also highlighted in this calendar. It includes reporting issues both throughout the calendar as well as in a separate section at the end of the year to help SMEs to report towards external stakeholders, including their international costumers in supply chains, on their progress regarding resource efficiency. It further aims to expand the issues from eco-efficiency towards corporate responsibility. (Source: www.efficient-entrepreneur.net)

2.2.2.4 Private sector partnerships for resource productive manufacturing in their supply chain

Private sector initiatives to increase resource efficiency in their supply chain are being implemented in different sectors. The collaboration between MAS Holdings from Sri Lanka and Marks & Spencer from the UK illustrate a ‘North-South’ partnership in building a resource efficiency textile production park and factories.

Fashion retailer and manufacturer join in developing model eco-manufacturing plant

An eco-friendly fabric and apparel-manufacturing zone, called MAS Fabric Park (MFP), has started operation in Thulhiriya, Sri Lanka on October, 2007. An eco-manufacturing factory by MAS Holdings (MAS Intimates Thurulie ) which produces clothing for UK retailer Marks & Spencer has joined other companies. This company is Asia’s first zero emission lingerie factory, and was developed at a cost of US$ 5 million – at full capacity it provides employment for 1,200 people. Marks & Spencer has been engaged in reducing the carbon footprint and waste from its operations in Europe. The MFP is its initiative to work with its suppliers to reduce the impact in the countries in which it sources its product supplies. Being operational by March 2008, the new facility is expected to deliver more than 50% and 40% savings on water and electricity respectively in comparison to a standard factory, through the use of renewable energy sources on site. Rainwater harvesting is also planned for the full roof area, and incentives will be offered to management and employees to promote the use of bicycles and reduce fuel consumption. Notably, eco-friendly construction material including Forest Stewardship Council (FSC) certified wood and cement-stabilized-earth bricks are used for construction. The project will be independently certified by the US Green Building Council's (USGBC) Leadership in Energy and Environmental Design (LEED) Green Building Rating System. (Sources: ATA 2007, MAS Holdings 2007)

The potential of sector initiatives to increase transparency in the supply chains of large companies is illustrated below for the case of the ICT industry.

Case study: How ICT companies join to develop supply chain instruments on a sector basis Leading information and communications technology (ICT) industries have joined the Global e-Sustainability Initiative and developed a supply chain instrument for companies in the sector. The main aim of this collaborative effort is to develop and deploy a consistent set of tools and processes to measure, monitor and improve supply chain corporate responsibility performance across the ICT sector. The ICT Supplier Self-Assessment Questionnaire is a self-assessment tool to help companies clearly introduce their social and environmental expectations and engage with factory level management of their supply chains. This is a screening tool to identify labour, ethics, health, safety or environmental issues that may require more in-depth assessments such as a supplier audit.

The ICT Questionnaire is available as an online tool called Electronics-Tool for Accountable Supply Chains (E-TASC). E-TASC is a web-based information management tool that aims to allow its subscribers to use a cost-effective sector approach in a manageable fashion. (Sources: UNEP 2005, GeSI, EICC (2007)

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o Strengthen domestic demand for sustainable products, e.g. through regulatory or economic instruments

or information and education, to encourage companies to include resource efficiency as a criterion in

their purchasing and supply chain management activities.

o Raise awareness for resource productivity in the supply chain among German companies, e.g. by

including life cycle aspects into information and education programmes, including education and

vocational training as well as university education.

o Internationally harmonised labelling and information systems on the (embodied) resource consumption

of products and services would facilitate to assess the resource productivity of products and services

imported and sourced by German companies.

o Negotiations of international and bilateral trade agreements might consider the differential potential of

certain regions for resource productivity and the implications of offshoring manufacturing on resource

productivity.

German businesses, especially those importing or sourcing from developing countries, might:

o Incorporate capacity building on resource efficient production into their outsourcing strategy to safeguard

cost savings realised by outsourcing and prevent burden-shifting;

o Further develop, distribute and evaluate tools for increasing resource efficiency in companies’ supply

chains, especially among small and medium sized enterprises;

o Form long-term partnerships / enter joint ventures with suppliers to allow for mutual cost savings through

resource efficiency and preserve competitiveness of supply chains in the face of rising prices for raw

materials.

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2.3 Global markets for resource productive products and services Global consumption levels are rising, especially in

emerging economies, with implications on resource availability and pricing. Due to its current rapid process of industrialisation and infrastructure development, China has already become the largest

copper consumer in the world, responsible for 22 percent of worldwide demand (Lucas, Röhr and Scharp 2007, p. 6). Ritthoff (2007, p. 14) states a growing demand in developing countries as a main driver in the steel sector. This section will highlight the importance of resource efficiency in export markets for German businesses and the potential contribution they can make to raise resource productivity in consumption worldwide.


Growing activities of German businesses on foreign markets

Accessing new markets is the main motivation for German businesses for going abroad. 95 percent of entrepreneurs participating in a DIHK (2007) survey gave access to new markets as the most important reason for their foreign activities. Second came the better competitive situations or special markets for the product (84 percent). Being closer to customers is the third important reason (81 percent). Businesses that started foreign activities to access new markets found their expectations met in 78 percent of all cases, with smaller numbers for retailers.

Looking at steel, Germany is a significant exporter of high-quality, e.g. stainless steel (Ritthoff 2007, p. 15) that is used in a wide range of products, besides also significantly exporting steel embedded in final products.

Resource productivity potentials through German product and service exports

Consumption in developing countries offers high potentials for resource efficiency, as it often is less resource efficient than consumption patterns in Germany or Europe (even if overall levels of consumption might be lower). LBL (2005) states that the use of efficient power supplies in 12 major end-uses in China alone would reduce energy consumption by 1.23 TWh, resulting in $86 million saved in consumer electricity charges. Products and services exported by or fabricated under license from German companies could make a huge contribution towards realising these potentials.

Especially for copper and steel consumption, the development of infrastructures in developing countries requires significant resource consumption, with potentials to improve resource efficiency in different areas. As a product-example, Ritthoff (2007, p. 18) cites efficiency potentials of using high-strength steel amounting to 40% weight reduction in car design.

The potential in German exports to raise resource productivity can also be seen in the position of German export businesses within the global market for environmental technologies. This market has been rapidly growing in the past, with most of the growth occurring in renewable energies and efficient household devices. A third of all the

Figure 10: Urban ownership of appliances in China in number of units per 100 urban households. Rural ownership rates tend to ‘lag’ by ten years (Source: LBL 2005)

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solar cells and almost half of the wind turbines worldwide are today produced in Germany (Deutschland

Magazine, 2007). Global markets for environmental technologies are expected to grow by around EUR 500 billion by the year 2010, triple the size of the global aerospace industry (DTI and DEFRA 2006). Further, a 2006 study for the German Ministry for the Environment estimates that ‘eco-technology’ will quadruple its share of the total turnover of all economic sectors in Germany, from 4% in 2005 to 16% in 2030 (DIW, FhG ISI, Roland Berger Strategy Consultants 2007).


2.3.2.1 Positioning resource efficient products and services on foreign markets

Companies that want to position resource

efficient products and services might face challenges beyond those entering the market with ‘normal’ goods. Companies would need to consider local circumstances for preserving high levels of resource efficiency and providing a product that combines resource productivity characteristics with an appeal for the buyer in the target market.

As an example for a product that works for both developed and developing countries, Volkswagen has decided to launch models from its range of fuel-efficient cars in the Chinese market (see box below).

Case study: Introducing efficient cars in China as a foreign automotive company

Volkswagen's Polo BlueMotion has debuted in China as the ‚Magotan’ in Spring 2007. The Magotan defines state-of-the-art technology in China with its economical and low-emission engines. Right from the start, when the model concept was developed in Germany, the intention was to have this Volkswagen fulfil all requirements of the Chinese market and be relevant to the tastes of contemporary Chinese society. The Magotan is a globally successful model under the name Passat. In China, the 59 kW / 80 PS strong Polo BlueMotion has commended itself as the most economical five-seater with an average consumption of 3.9 litres per 100 kilometres and CO2 emissions of just 102 g/km. The Volkswagen Group has further targeted a 20 percent reduction in fuel consumption and emissions of the cars it offers by the year 2010. (Sources: Volkswagen 2007, Treehugger 2007)

Business might also innovative new products and services that are not part of their traditional product portfolio to access customers outside of their established target markets. While this approach offers new business

opportunities, it requires significant re-thinking of existing business models (Prahalad and Fruehauf 2004). The box below describes how a German appliance manufacturer introduced a plant oil cooker especially targeting poor consumers in several developing countries.

Figure 11: Initiatives to promote global markets for resource productive products and services

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Case study: Developing and marketing biofuel cooker for developing countries

The Bosch and Siemens Home Appliances Group (BSH) biofuel cooking stove called Protos was designed to work with a wide range of liquid fuel sources including the full range of both edible and inedible oils. In addition to pure plant-oil it is also possible to burn used frying oil and plant oil esters (biodiesel).The fuel can be refined or unrefined. It also generates positive ecological, economic, health and social benefits. The protos uses 2 liters oil per week for a family of 4-5 with 40-50% efficiency. Its emissions are ten times lower than with high quality kerosene. BSH introduced protos to the broader public with commercial market availability on the islands of Leyte and Samar in the Philippines and the clear promise of further expansion to other developing countries such as India, Indonesia and Tanzania. (BioPact 2007, HEDON 2007)

2.3.2.2 Promoting resource efficient architecture and infrastructure

Building and infrastructure design has a high impact on material flows induced by consumption patterns (Kaiser 2007, p. 4), presenting a challenge for European architects and construction engineers involved in projects in developing countries. The case studies below show projects currently in their development phase: the designs for office towers self-sufficient in Energy – Burj al-Taqa – proposed by the German architect Eckhard Gerber, and the plans by the UK-based engineering firm Arup for a sustainable city in Dongtan, China.

Case study: Self-sufficient skyscraper – Burj al-Taqa – proposed by German architect

German architect, Eckhard Gerber, has developed plans for self-sufficient office towers for the middle east that have 60% lower energy consumption, and produce 100% of their own electricity supply from renewable sources. It is modelled on historical “wind towers” build in the Arab region, and would have 68 storeys, making it the 22nd tallest building in the world. The following design shall enable energy sufficiency: – The cylindrical shape is designed to expose as little surface area to the sun as

possible. A protective solar shield reaches from the ground to the roof, covering 60 degrees of the giant circular building. It protects the side most affected from the sun's glaring rays, making sure that none of the rooms are exposed to direct sunlight. The diffuse light on the other sides of the building is tempered by a mineral coating on the windows.

– New vacuum glazing windows transmit as much as two thirds less heat compared to today's products, reducing the need for air conditioning.

– Seawater will be used to cool air, as well as three large cooling units in the building's cellar. – The roof will house a 197-foot wind turbine and 161,459 square feet of solar cells. A floating solar panel island that

drifts in the sea, close to the tower, will handle the additional energy requirements. – Any excess electricity will be used to extract hydrogen from seawater, which is used by fuel cells to generate

power at night.

(Source: Gerber Architekten 2007, Spiegel International 2007)

Case study: Plans for a sustainable city in Dongtan, China

Arup, a global planning, engineering and design consultancy, has signed a contract with Shanghai Industrial Investment Corporation (SIIC) to plan the world’s first sustainable city – an eco-city – at Dongtan, in Shanghai, China. Key targets are to create a city with lower energy consumption and one which is as close to being carbon neutral as possible within economic constraints. Arup is providing a range of services, including urban design, planning, sustainable energy management, waste management, renewable energy process implementation, economic and business planning, sustainable building design, architecture, infrastructure and even

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the planning of communities and social structures. Dongtan is three quarters the size of Manhattan and will be developed as a sustainable city to attract a whole range of commercial and leisure investments. The intention is to evolve Arup’s sustainable urban design and planning into a blueprint for the future planning of Chinese cities.

The first phase of Dongtan is planned to be completed by 2010 when the Expo will be held in Shanghai. This phase will include a wide range of developments with urban parks, ecological parks and world-class leisure facilities. Community waste management recycling will generate clean energy from organic waste, reducing landfills that damage the environment. Combined heat and power systems will provide the technology to source clean and reliable energy. Dongtan aims to be a model ecological city, and its buildings will help to reduce energy use, making efficient use of energy sources and generating energy from renewable sources. (Source: Arup 2005)


o Draft regulation to expand producer responsibility towards the whole life cycle, including production

usage in foreign countries;

o Set up export promotion schemes for resource efficient products or adjust current export promotion

mechanisms to account for opportunities and special needs lying in environmental technology markets;

o Consider the resource efficiency potentials (and drawbacks) of international trade relationships when

negotiating trade arrangement and agreements;

o Broaden traditional environmental cooperation dialogues, e.g. between ministries on a strategic level, to

cover market transformation issues and trade in resource efficient products and services.

Depending on their exposure to the trends presented above, German businesses might:

o Adopt life cycle cost optimisation methods, for example resource efficient design, also considering to use

patterns and other factors determining resource use in developing countries (e.g. climatic conditions,

maintenance infrastructure, etc.)

o Adopt internationally comprehensible labelling schemes for displaying resource efficiency of products

and services, including opportunities for flexibly adapting the label for displaying life cycle cost issues in

different circumstances;

o Set up local joint ventures for scoping resource efficiency potentials, developing locally adapted variants

of resource efficient products and services and producing these locally to strengthen value creation in

developing countries.

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2.4 Close material cycles and promote sound end-of-life treatment This chapter will map some facts and trends on the

growing trade in used and recyclable goods, with a focus on those trade flows from developed to developing countries (‘North-South flows’), as opposed to those from or between developing countries. It

introduces concepts to close material cycles and promote sound end-of-life treatment based on examples taken from real life to address the related consequences for resource productivity. While recycling surely offers opportunities for resource productivity, it should always build on efforts to reduce waste flows through addressing the consumption phase as displayed in the previous section.


Europe is highly active on the global markets for used goods and materials, being both the world’s largest exporter and importer of scrap metal, with Asia being the main net import of scrap metal (see Figure 12). This

global trade in used and recyclables goods may affect the value of raw-material and energy savings from secondary raw materials produced from recycling in Germany, currently estimated at 3.7 billion euros per year (BMU 2006), a risk also stressed by industry declarations (BDSV n.d., Econsense 2007).

Growing trade in used and recyclable goods

Overall, the trade in recyclable waste especially with developing countries is increasing, adding to the amount of

material in need of treatment there. Figure 13 shows the growth of Asian countries as recipients of recyclable goods. These now receive more waste than the EU15 countries from countries like Belgium, Germany, the Netherlands and the UK, the reverse situation then in 1996 for most countries. France is a notable exception, but even here exports to Asia are growing faster than those to other EU countries.

Figure 13: Recyclable waste export destinations for major EU nations (Source: Kojima et al. 2005).

Figure 12: World scrap metal imports / exports in 2003, million metric tons (Source: CSCP based on Lacoste and Chalmin 2007)

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This trade of recyclable goods and waste materials may occur due to differences in labour costs, lack of space

and differences in the level and enforcement of environmental standards. Although these flows often are characterised as environmental dumping, waste residues can very well be traded due to a comparative advantage of the importing country in processing waste materials into useful secondary commodities. Increasing ‘demand’ from the Asian market even caused increases in world market price of waste paper, cardboard, plastic and scrap metal.

China is standing out as a main importer of recyclable waste, compared to other countries. High-level economic growth continues at pace and China requires huge volumes of resources to support this economic activity. Since 2000, the

exports from Europe to China have increased significantly, with Germany, Belgium and the Netherlands being major exporters in all product categories. These three countries account for approximately 80 percent of waste plastics exports from Europe (Yoshida 2005).

China’s low personnel costs are making it possible to recycle the low-grade recyclable wastes that cannot be processed in the industrial nations of the world. Resource demand and cheap labour have acted as triggers for a huge wave of recyclable waste imports from overseas.

Status of reusing, recycling and waste treatment in developing countries

The impacts of increasing trade in recyclable goods depend on the recycling rates and standards both in the origin and destination country (see Table 2). While cost differentials might provide an opportunity to increase recycling rates (as in the upper right field of Table 2), the recycling rates and standards in developing countries are often lower than in developed ones. Lacoste and Chalmin (2007) estimate that more than half of waste in typical developing countries is being deposited illegally, and only 5% - 15% subject to (informal) recycling activities. Low collection rates of household waste in these countries (typically lower that 70%, ibid.) also contribute to this.

Recyclable goods might be further used in a developing country than in the country of origin that exported them. Still, after this, they need collection and treatment in the ‘ordinary’ waste system of these countries. Most cities in developing countries do not collect all waste generated, which is subsequently thrown to the streets or water bodies, or burned (ADB, IGES 2007, p. 10). Recycling procedures often rely on the informal recovery of materials from waste. In Brazil, informal collectors recover 90% of materials recycled by industrial actors (Medina, 2004).

But even where informal collectors undertake primary collection, i.e. scavenging, the secondary collection and treatment of materials remain fragmentary, as it requires higher capital inputs and more complex technologies.

Figure 14: Chinese iron and steel scrap imports (Source: Chinese customs statistics compiled by Yoshida 2005)

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In origin country, goods would be

(Adequately) Recycled Not recycled

Adequately recycled / recycled

after further use

Ambivalent, potential cost savings, but need to safeguard adequate standards of recycling.

Opportunity, e.g. due to lower labour cost, but need to safeguard adequate standards of recycling.

In destination

country (developing), goods would

be

Not recycled / recycled on low

standards

Risk, especially of environmental dumping, including loss of embodied resources and improper disposal practices.

Ambivalent, risk of environmental dumping and improper disposal practices.

Table 2: Status of recycling in origins and destination country, and impacts on resource productivity (Source: CSCP)

As one example, the recycling and separation of electronic waste has become the main source of income for a growing number of people. E-waste is a generic term encompassing various forms of electronic and electrical equipment (EEE). It is well known that there are toxic substances in e-waste such as lead, cadmium, mercury,

polychlorinated biphenyls (PCBs) and polyvinyl chloride (PVC). However, e-waste can also be valuable since it also contains precious and strategic metals and other high-tech materials. Discarded equipment can also often be repaired, and its components can be refurbished and reused.


Various initiatives exist to deal with growing amounts of recyclable waste in developing

countries. These can be characterised (see Figure 6) whether their lead actors are from the origin or destination country, and whether their lead actors are private or from governments (but civil society could also play a part). Of special importance are global trade policies and initiatives, e.g. the Basel Convention, and bi-lateral trade and cooperation agreements.

Below, two initiatives and their main goals will be described:

o Initiatives to address the international flows of recyclable goods;

o Initiatives to increase recycling rates and standards in destination countries, especially in developing and transition economies;

2.4.2.1 Initiatives to address the international flows of recyclable goods

As a first measure, governments in destination countries can opt to affect the imports of recyclable goods. Some countries, like the Philippines, require prior notification and consent for imports of used electrical equipment, while others, like Thailand, permit imports of such products on the basis of the year of manufacture. Import tariffs for

recyclable goods are another instrument that could be applied, but these are generally rather low in Asia (most imports are free or have an import tariff up to 10 percent, see Kojima 2005, p. 14). There are also countries that

Figure 15: Initiatives to close material cycles and promote sound end-of-life treatment

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have essentially banned imports of used household appliances and used trucks with a view to protecting domestic manufacturers, such as Indonesia (Kojima 2005).

Governments in developed countries have also taken initiatives to address exports of recyclable waste. In the EU, there has been a policy shift focusing on treating waste as a resource and using waste prevention and recovery as a way of saving resources and minimising impacts on the environment. Current EU policies include

requirements for waste prevention, re-use, recycling and recovery, and restrictions on waste to landfill. Still, an inherent conflict might exist between higher recycling requirements in developed countries and the attractiveness of exporting recyclable goods to developing countries.

The EU End-of-Life vehicle directive and international trade in used cars

The End-of-Life Vehicle directive from the European Union prescribes a mandatory commitment from actors- manufacturers, importers, and disposal agents that a minimum of 85% of the weight of a car is utilized or reused and that a minimum of 80% of the materials are utilised or reused. However, an assessment on the current state of implementation states that “export of second-hand cars before they reach their end of life is an important (and possibly growing) feature of the European car market” and a major reason why not all cars may be recycled as prescribed by the directive. Additionally, the report finds that “the legitimate second-hand trade masks some illegal activities, such as the export of wrecked or stolen cars“ (EP 2007). Export of usable cars and car wrecks emerges as a main ‘leakage point’ of raw materials, with 31,000 tons of copper in exported used cars 1999, with a rising tendency (Lucas, Röhr and Scharp 2007, p.19), as well as steel being ‘lost’ for recycling in Germany through the export of used cars (Ritthoff 2007, p. 14). The association of the German steel recycling industry, BDSV (n.d.), even claims a reduced volume of adequately wrecked cars in Germany due to growing exports induced by European legislation.

Business might also reduce the amount of recyclable waste by designing for longevity and recyclability and by establishing closed-loop system through extensive, sometimes global, take-back policies and internal procedures for recycling and treatment of used goods. The box below describe the integrated recycling system of Fuji Xerox and the recycling and take-back policies of Hewlett-Packard (HP) as examples for company policies that can help to reduce the amount of recyclable goods being exported to developing countries.

The integrated recycling system of an Asian ICT company

Fuji Xerox has created an integrated recycling system based on an international resource recycling network that comprises of nine countries or regions in its Asia-Pacific territory3. Under the system, used office equipments and supplies and printers will be collected, broken down at Fuji Xerox factory and classified into 64 different categories, including iron, aluminum, lens, glass and copper, for recycling (UNEP 2005).

Recycling and take-back policies of ICT global player

HP has incorporated "design for environment" methods into its product development processes and worked with suppliers to reduce environmental impacts associated with its products. HP is the only technology company to have its own computer hardware recycling facilities in the United States. The EPA has awarded its 2003 Environmental Achievement Award for U.S. EPA Region 9 to HP’s product recycling solutions facility in Roseville, California. With its partners, HP operates one of the world's largest hardware recycling facilities. HP's environmentally sound management of end-of- life hardware turns unwanted products into valuable commodities that can be reused to produce new products, reducing the burden on the Earth's resources. Energy consumption per product unit shipped is reduced, and the percent of product mass recovered and recycled at end-of-life (GEMI 2004)

3 Australia, New Zealand (awaiting final approval from these two countries), Korea, Indonesia, Malaysia, the Philippines, Singapore, Hong Kong and Thailand.

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2.4.2.2 Initiatives to increase recycling rates and standards in destination countries

To capitalise on the competitive advantage in treating recyclable goods and waste, the existing export flows should be accompanied by measures that increase recycling rates and standards in destination countries.

In addition to regulation that stimulates the better use or recovery of the resources in waste, destination countries could try to raise recycling rates through local policies.

In the case of Russia, over 30 % of all waste is reused or recycled, but only 3 to 4 % of municipal waste. As a consequence, the annual losses of useful resources in municipal wastes in the Russian Federation are estimated

at around 9 million tonnes of waste paper, 1.5 million tones of scrap ferrous and non‑ferrous metals, 2 million

tonnes of polymers. It is estimated that the current collection and recycling of useful materials in waste generates an economic activity of 2–2.5 billion roubles (about USD 70–80 million), but this is only 7–8 % of its potential maximum level (EEA, 2007). A possible measure to access this potential is described in the box below.

Case study: Local networks and centres for promoting sound end-of-life treatment

Moscow's Ecocentre is an advanced treatment facility recycling waste electric and electronic equipment (WEEE) owned by Moscow's municipal government, and a subdivision of the multipurpose waste management company, Promotkhody. In 2003, it added WEEE recycling to its other activities, which include the processing of photographic materials and recovery of precious metals including silver and gold. About 80 % of the waste input is recycled to secondary raw materials such as ferrous, non-ferrous and precious metals, stainless steel, plastics and paper. The Ecocentre collects the waste in special containers from the Moscow city area within a 100 km radius. The company, with about 50 staff, is operated completely on a market basis, without any subsidies from the state or city. Customer fees paid by waste producers form the basic income of the company. For some categories of waste, Ecocentre pays money for waste received (EEA, 2007).

Even under existing policy frameworks in developing countries, profitable businesses can often be set up for recycling used goods. The box below describes two approaches: Usui Metal Corporation from Japan established its own recycling facilities in Vietnam as a response to cope with growing complexity in recycling. DESCO is a native South-African company that has developed an technological and organisational solution to recycling e-Waste.

Case study: A Japanese/Vietnamese recycling company

Usui Metals Corporation, which collects copper and plastics such as PVC from coated wire scrap in Japan saw its profits from the recovery of low-copper content recyclable wastes deteriorate as wiring specifications became increasingly sophisticated and the materials more complex, and the client companies that used the recyclable materials began shifting production overseas. In 1994, it began outsourcing the work to a Vietnamese company. It provided the necessary equipment and dispatched technicians and contrived to transfer the technologies by providing one-year trainings for Vietnamese workers in Japan. Its exports of coated copper wire from Japan have reached around 3,000 tons annually (Kojima 2005).

Case study: A South-African recycling company

Desco Electronic Recyclers is a wholly South African-based company that has been prccessing about 400 tons of PC boards and 2000 tons of varied electronic waste per year, including telecommunications equipment, PCs, medical and radio equipment sine 1992. The heart of Desco business is the recovery of precious and semi-precious metals from electronic printed circuit boards, motherboards, computer connectors and electrical/electronic components. It also recovers non-ferrous metals such as aluminum, copper, zinc and steel, as well as certain recyclable plastics from the electronic equipment. Telkom SA and other corporations hire Desco for the disposal and recycling of all their electronic scrap. Through its work, Desco recycles material containing hazardous substances that would normally enter the landfill, in a manner that prevents larger environmental problems. It does not incinerate the material, and uses instead an electromechanical process developed by DESCO in which everything is grounded and separated. Precious and nonferrous metals are recovered, thereby saving raw materials.

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Technological and organisational capacity building for recycling can also happen internationally through

interaction of private and public partners. Development agencies present one established channel for collaborative capacity building, and their project portfolio contains a range of projects designed to create local institutions that safeguard high rates and standards of recyling. The project below showcases a partnership approach involving a public partner (GTZ), a foreign one (FKuR Kunststoff GmbH) and three domestic Chilean businesses to assure that local capabilities are created.

Case study: Bi-national public private partnership programmes for resource productivity A group of companies and research groups worked together with the GTZ in a public-private-partnership to establish a sustainable plastic recycling system in Chile. The common practice is to collect domestic, commercial and industrial waste and dispose it in landfills. The consumption of plastic per capita in Chile doubled between 1993 and 2002. Recycling of plastic is still at is infancy in Chile, partly because of the low quality plastic, partly due to lack of appropriate treatment plants. In the project, the German company FKuR Kunststoff GmbH, joined three Chilean recyclers. Recycling of plastics reduces the demand for non-renewable materials, in particular crude oil, on which Chile is import dependent if producing new plastics4.

2.4.2.3 Global trade policies and initiatives

International trade in recyclable wastes is an area already

regulated by various international agreements, e.g. by the Basel convention or WTO rules that affect which goods can be traded under which conditions.

A recent initiative that claims to combine free movement of recyclable goods with local capacity building efforts is the 3R Initiative agreed upon at the G8 Sea Island Summit in June 2004 as a new G8 initiative, and originally developed by Japan (Bahn-Walkowiak, Bleischwitz, Herrndorf et al., p. 20). It aims to promote the “3Rs” (reduce, reuse and

recycle) globally so as to build a sound-material-cycle society through the effective use of resources and materials. While the 3Rs presents a quite comprehensive approach to facilitate trade in recyclable goods and build capabilities for dealing with these, its focus on free trade and bilateral agreements has been criticised by NGOs for conflicting with other international agreements like the Basel convention (e.g. by the Basel Action Network).

2.4.3 Implications for German stakeholders

The different actors within the German government might:

4 http://www.gtz.de/de/dokumente/en-factsheet-promoting-plastic-recycling-chile.pdf

Key 3R Principles (a) an electronic waste manifest system that was

developed in the Republic of Korea, which provides real-time information on the monitoring of waste generation up to the final disposal stage,

(b) market mechanisms for recyclables, (c) public awareness raising, (d) legislation on the 3Rs and recycling,

(e) promotion of Extended Producer Responsibility (EPR),

(f) promoting public-private partnerships, (g) enhancing recycle rates in partnership with waste

pickers associations and NGOs,

(h) information sharing systems, (i) product design standards, (j) establishing clear targets for waste reduction and

recycling,

(k) a step-by-step approach for banning the disposal of untreated wastes into landfills,

(l) schemes for the registration of recycling units possessing capacity for environmentally sound management.

http://www.env.go.jp/recycle/3r/en/s_officials/01.pdf

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o Review how trade policies and agreements affect trade in recyclable wastes and integration of principles

that allow to access competitive advantages in recycling while keeping high standards of recycling globally;

o Assess national recycling and waste policies for loopholes through the export of used goods for recycling, but also for an extended use phase without sound provisions for collection and recycling or final treatment;

o Developing pilot projects and mainstreaming them to build local capacity in developing countries on policies, technologies and business models for a sound treatment of recyclable waste, especially through development cooperation programmes;

Depending on their exposure to the trends presented above, German businesses might:

o Assess their company’s product portfolios from a life cycle perspective, covering both products now available as ‘new’ and those already on the markets depending on the expected lifetime of the products. This assessment should cover financial and reputation risks from unregulated export and disposal of goods manufactured by the company through other actors.

o Devise design policies to extend products life span and increase the feasibility of proper recycling of products in a developing country context with currently available and applied technology;

o Devise recycling and take back policies with a geographic coverage that takes into account the spread of used products through international trade;

o Come up with business models that creatively exploit cost differentials and advantages regarding recycling in different countries, while preserving equally high standards of recycling across all of these;

As displayed through the examples provided, implementing these strategies will often rely on collaborative efforts by governments and business, especially by involving development cooperation actors.

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3 Conclusions and recommendations

This chapters draws recommendations for existing processes

and initiatives on the German, European and international level (see Figure 16), building on the generic conclusions developed in chapter 2. It identifies how these initiatives could be amended and strengthened by considering the international dimension to further promote best practice examples as collected in the boxes in chapter 2. The recommendations should help to identify priorities, set up international partnerships, build synergies

between national and international strategies and evaluate the effectiveness of existing programmes in the light of international value chains.

The recommendations are mainly addressed at political actors, but take into account how activities to promote resource

productivity globally can be addressed by different stakeholder groups. Some recommendations are also applicable for other initiatives than the ones mentioned, especially if initiatives on a certain topic exist on more than one level.

3.1 German processes and initiatives to raise resource productivity • Expand resource productivity award schemes by international criteria / dedicated prizes to give recognition to

companies contributing to international resource efficiency in extraction / manufacturing or in the use phase / end-of-life. For example, the scope of the ‘Materialeffizienzpreis’ by DEMEA could be expanded in this way.

• Resource productivity consultancy programmes, like the VerMat programme by DEMEA, could be expanded

to cover international aspects. Joint projects could be set up with chambers of foreign trade or development cooperation or development finance organisations to support businesses that want to collaboratively raise resource efficiency with their foreign partners in their value chains.

• Networks for resource productivity could support and strengthen international cooperation, especially in

sectors that are marked by global value chains. As the NeMat programme by DEMEA already covers ‘product-chain related networks’, these could be expanded to account for international value chains. As in the area of consulting programmes, external partners could be involved to make these networks more effective.

• German development cooperation bodies might extend their existing programmes for promoting resource productivity in developing countries. Existing programmes, among them the ‘Profitable Environmental

Management’ tools and the ‘Efficient Entrepreneur Calendar’, could be utilised in this regard. As displayed in the case studies, public-private partnerships can play a considerable role in it.

Level Initiatives

Demea – German Material Efficiency Agency

German

Dialog Process Consumption

SCP Action Plan European

Environmental Technology Action Plan

Marrakech Process on Sustainable Consumption and Production

International Panel on the Sustainable Resource Management

G8-3R initiative

Inter-national

UN Global Compact

Figure 16: Processes and initiatives addressed by the recommendation

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• Provide research and project funding for resource productivity in international value chains, especially for involving SME, in the different funding streams for environment-related research (FONA, UFOPLAN…)

• Work with public and private media in Germany to raise awareness for resource productivity in global value chains, e.g. specifically on market opportunities in resource productivity technologies for a business audience. In partnership with the international German media (e.g. Deutsche Welle), programmes could be

directed at foreign stakeholders communicating potentials and necessary steps to raise resource productivity, especially in value chains involving Germany.

• Conduct international businesses workshops and conferences on resource productivity to promote international collaboration between businesses and strengthen the participation of German businesses in environmental technology export markets, especially in emerging economies.

• Set up financing mechanisms for international business collaboration on resource productivity, e.g. through the German development finance agencies, in the form of an international resource productivity fund or and equivalent to the Clean Development Mechanisms to promote resource productivity.

• Develop mechanisms to promote entrepreneurship for resource productivity, both within Germany and abroad, to foster creativity, innovation and new networks, e.g. international collaborative start-ups to co-develop and market resource productive products and services in developing countries;

• Collaborate with German retail businesses to strengthen resource productivity as a supply chain management topic and raise awareness among customers on the resource productivity of global value chains. Retailers with significant international operations might also be involved in initiatives that try to increase the sales of resource productive products and services in foreign countries, especially in emerging economies.

• Improve the linkage of the national dialogue process on sustainable consumption (‘Dialogprozess Konsum’) to international agenda (e.g. discuss on Marrakech Task Force themes and deliver input), and broaden the scope of topics covered to address resource productivity in global value chains.

3.2 European processes and initiatives to raise resource productivity The EU SCP Action Plan has been released for consultation in autumn 2007 (EC 2007) and will be published in a final version in 2008. It serves as a co-ordination mechanism to a large range of policy instruments to make current consumption and production patterns more resource efficient. The background document has been extensively discussed publicly, e.g. during a multi-stakeholder conference in Slovenia in September 2007 (CSCP, EEA, RoS 2007). Based on the challenges and approaches presented in this paper, the following key recommendations on the SCP Action Plan and related EU initiatives can be inferred:

• The ‘lead market initiatives’ proposed could take into account the growth of environmental technology markets in emerging economies and the collaborative agreements that can facilitate the development and marketing of products on these markets.

• As the background documents discusses ‘Dynamic Performance Requirements’, these could consider the performance of German products on export markets (under different framework conditions) as well as how to enforce requirements for products manufactured abroad and imported to the Europe without erecting barriers for market access.

• For ‘environmental product declarations, sustainability labels and data collection’, the background document already proposes to incorporate the international dimension to tackle „the international impacts of

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unsustainable production” (EC 2007, p. 10). The Data Centre discussed in this context could be designed to

serve as an information and promotion instrument for European environmental technologies on international markets.

• The ‘resource productivity targets’ could consider the international resource flows induced by European consumption patterns due to the growing international resource extraction and manufacturing related to products and services consumed in Europe.

• Applying criteria that consider resource consumption in international value chains would support further strengthening of ‘Green Procurement’ as a governmental policy. Activities could also be taken to foster Green Procurement abroad to strengthen the worldwide demand for resource productive products and services.

• Streamline international issues within Environmental Technology Action Plan (ETAP). ETAP already features a goal pm international aspects (Goal 9: “Supporting Eco-technologies in Developing Countries, and Promoting Foreign Investment”), and the initiatives could build on already existing dialogue events on international resource productivity like the European Forum on Eco-Innovation in January 2008.

• The 7th Framework Programme (FP7) already has funding arrangements for international cooperation, e.g. for partners coming from one of the International Cooperation Partner Countries (ICPC). Still, it could further strengthen resource efficiency as a topic and link it to international research funding already offered.

3.3 International processes and initiatives to raise resource productivity

Within the Marrakech Process, efforts might be made to

• strengthen international collaboration on resource productivity in the existing Marrakech Task Forces, e.g. on Sustainable Lifestyles (e.g. on business contribution to sustainable consumption patterns abroad), Sustainable Procurement (e.g. global, value chain wide impact of government procurement policies) and Cooperation with Africa (e.g. resource efficiency value chain promotion in national action plans).

• set up a dedicated Task Force on resource productivity to promote international collaboration, e.g. jointly lead by Japan and Germany to promote international synergies.

• for the 10-Year Framework of Programmes, assess the feasibility of global targets on resource productivity and mechanisms for developing an international action programme on resource productivity in global value chains.

The “International Panel on the Sustainable Resource Management” could be strengthened by

• complementing the assessment of research flows by collecting and analysing best practice on resource productivity improvements, especially in developing countries, to provide inspiration and guidance to local policy makers and developed focused training material.

• further promoting capacity building and implementation aspects, e.g. by developing and conducting resource efficiency training programmes for local and regional governmental decision makers.

The work of the “G8-3R initiative” might be expanded as follows:

• promote standards and evaluation systems to address the concerns about proper end-of-life treatment of recyclable goods and wastes traded internationally.

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• conduct capacity building on end-of-life treatment in developing countries, incorporating training components that support an effective evaluation of the resource productivity of end-of-life treatment in global value chains.

• strengthen the “Reduce” component both in developed and developing countries, e.g. by capacity building amongst local decision makers and businesses.

The UN Global Compact could take up the results of this paper by

• conducting a workshop session to raise awareness on opportunities in sustainable consumption in emerging markets, to raise awareness both among German and international business target audience.

• promoting resource productivity from a value-chain perspectives to strengthen and concretise the existing environmental principles.

Mainstreaming the results of this paper could include targeting the following initiatives:

• The Global Reporting Initiative (GRI), for improving the coverage of resource productivity in the core indicators and strengthening the international aspects through promoting a better understanding of, especially international, reporting boundaries.

• The World Business Council on Sustainable Development (WBCSD), e.g. by promoting cooperation on

resource productivity between businesses from developed and developing countries and by setting up programmes to target small- and medium sized businesses.

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Abbreviations

3R Reduce, Reuse, Recycle

BSH Bosch and Siemens Home Appliances Group

DMI Direct Material Input

EPA Environmental Protection Agency

EU European Union

EUR Euro

FP7 7th Framework Programme

GDP Gross Domestic Product

GeSI Global e-Sustainability Initiative

E-TASC Electronics-Tool for Accountable Supply Chains

GRI Global Reporting Initiative

HP Hewlett-Packard

ICT Information and Communications Technology

ICPC International Cooperation Partner Countries

IZT Institute for Futures Studies and Technology Assessment

CSCP UNEP/Wuppertal Institute Collaborating Centre on Sustainable Consumption and Production

DEMEA Deutsche Materialeffizienzagentur

EEE Electronic and Electrical Equipment

ETAP Environmental Technology Action Plan

FONA Forschung für Nachhaltigkeit / Research for Sustainability

GTZ Gesellschaft für Technische Zusammenarbeit

LEED Leadership in Energy and Environmental Design

LCM Life Cycle Management

MDGs Millennium Development Goals

MERCOSUR Southern Common Market

MFP MAS Fabric Park

NCPC National Cleaner Production Centre

NGOs Non-Governmental Organisation

PCBs polychlorinated biphenyls

PVC polyvinyl chloride

SCP Sustainable Consumption and Production

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SETAC Society of Environmental Toxicology and Chemistry

SIIC Shanghai Industrial Investment Corporation

SME Small and Medium Sized Enterprise

TMR Total Material Requirements

UFOPLAN Umweltforschungsplan / Environmental Research Plan

UNEP United Nations Environment Programme

UNIDO United Nations Industrial Development Organisation

UK United Kingdom

USGBC US Green Building Council

WBCSD World Business Council for Sustainable Development

WEEE waste electric and electronic equipment

WI Wuppertal Institute

WTO World Trade Organisation