Do Economists Hold the Key to a Successful Plastics Treaty?
(Subsidies to the oil giants? Or subsidise the livelihoods of the urban poor?)
On November 13, 2023, international delegates met in Nairobi, Kenya for the INC3 (International Negotiating Committee) negotiations, alongside Kenyan President William Ruto. The objective of the negotiation was to establish an international pact to combat plastic pollution. As this treaty seeks to activate funds from both the public and private sectors, the crucial question arises: how should these funds be managed to create a world where plastic never becomes waste or pollution?
To truly drive transformative change, these negotiations must prioritise measures that address the economics of plastic collection. The material’s value must cover the costs of collection, a fundamental equation determining whether it enters the circular economy or not. If the material’s value fails to offset the expenses related to collection and segregation, it won’t find its way into the circular economy. It’s a straightforward reality! Consult any of the 20 million waste collectors, and they’ll attest to the same truth.
Subsidies Transitions: From Fossil Fuels to Boosting Recycling
In emerging nations, nearly 2 billion people lack sufficient waste management resulting in 40% of waste being mismanaged. The pivotal factor deterring the incineration or dumping of materials lies in their intrinsic value. In fact, 58% of globally circulated plastic within the circular economy is handled by the informal sector, underscoring the material’s economic significance. Opting for recycled plastics over virgin plastics is estimated to generate employment opportunities at least tenfold, particularly benefiting individuals facing multiple barriers to formal employment.
However, subsidies directed towards the virgin plastics industry diminish the demand for recycled plastic. This reduced demand, in turn, devalues the recycling community, ultimately jeopardising the economic viability of recycling initiatives.
Alarming statistics from a recent study by the International Monetary Fund (IMF) expose the global fossil fuel subsidies reaching an astounding $7 trillion in 2022, substantially contributing to the plastic pollution crisis. Recognizing the pressing need for action, the United Nations Environment Assembly (UNEA) has set in motion a resolution for an international treaty that focuses on the entire life cycle of plastics.
Understanding Subsidies:
To effectively address plastic production subsidies, we turn to the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), which provides a clear definition after nearly a decade of negotiations. According to this, a subsidy involves a financial contribution by a government that confers a benefit. This definition includes direct payments, foregone revenue, and the provision of goods and services. It clarifies that a subsidy confers a benefit when the recipient is better off than they would be in the market.
Disciplining Subsidies Globally:
Navigating the complexities of the SCM Agreement involves considering scope, specificity, disciplines, and enforcement. The agreement applies to specific subsidies, outlining both prohibited and actionable subsidies. Prohibited subsidies, contingent upon export performance or domestic over imported goods, are outright banned. Actionable subsidies can be challenged through formal dispute resolution if specific and cause adverse economic effects. Transparency is crucial, with WTO members obligated to notify the organization of their subsidy measures.
Drawing Lessons from Sectoral Agreements:
WTO Agreement on Agriculture and on Fisheries Subsidies provides a roadmap for disciplining subsidies in the future plastics treaty. Prohibiting harmful subsidies, relevant frameworks, and synergies between Multilateral Environmental Agreements (MEAs) and trade disciplines offer valuable lessons.
Proposed Elements for the Plastics Treaty:
As negotiations for the Plastics Treaty gained momentum, proposed elements included:
Definition Framework: Adopting the WTO’s established definition of subsidies ensures consistency and clarity.
Direct vs. Indirect Subsidies: Distinguishing between these subsidies is essential for a nuanced approach. Direct subsidies involve financial measures directly impacting production, such as tax concessions, while indirect subsidies reduce production costs through measures like fossil fuel subsidies, influencing raw material prices.
Implementation and Enforcement: Binding targets for subsidy elimination, integration into compliance mechanisms, and regular progress reviews are vital.
Special and Differential Treatment: Recognizing diverse circumstances, special and differential treatment provisions should focus on differentiated phase-out periods, transition aid, and targeted technical assistance.
In conclusion, the negotiation of the Plastics Treaty presents a critical opportunity to address plastic production subsidies comprehensively. By leveraging the well-established definitions of the SCM Agreement, adopting effective prohibitions, prioritising transparency, and implementing binding targets, the treaty aims to strike a balance between environmental responsibility and industrial development. These negotiations are a pivotal moment to shape a sustainable and effective global approach to combat plastic pollution.
Source:
https://www.ciel.org/wp-content/uploads/2023/10/Tackling-Subsidies-for-Plastic-Production_FINAL.pdf