FIRST LECTURE Economics and Sustainability PDF

Key Skills for Corporate Transitions : Circular Economy, Sustainability, Trade and Income Inequality Dr Ioannis Bournakis, Associate Professor in Economics October 2, 2024 Outline ▶ Circular Economy ▶ Principles ▶ Bene...

Key Skills for Corporate Transitions : Circular Economy, Sustainability, Trade and Income Inequality Dr Ioannis Bournakis, Associate Professor in Economics October 2, 2024 Outline ▶ Circular Economy ▶ Principles ▶ Benefits ▶ Impact ▶ International trade and Circular Economy ▶ Trends and challenges ▶ Policies ▶ Inequality ▶ Global Trends ▶ Causes ▶ Inequality and Sustainable Development Goals(SDG) Circular Economy-Definition ▶ Environmentalists and economists increasingly argue about the interdependence between the environment and the economic system. ▶ The transition to a circular economy system borrows the concept from thermodynamics in physics, according to which in a close system the total energy is constant. ▶ This implies a zero balance between the resources consumed and the amount of waste released. ▶ This implies that the economic system is able to perform integrated closed-loops that guarantees a continuously recycling process, avoiding the use of virgin resources, replaced by secondary raw materials (Rethinking sustainable development: Urban management, engineering, and design.) Circular Economy-Definition ▶ A circular economy (CE) is an economic model of sustainability that relies on the continuous use of resources, minimizing waste, and regenerating natural systems. ▶ CE differs from the traditional linear economic model (LE) of a ”take-make-dispose” pattern of production and consumption. ▶ The main difference is in the use of resources. ▶ The LE model relies on the one-time use of raw materials, while CE promotes the re-use of the resources stressing the need of a more reasonable consumption of them. The six Rs: ▶ Rethink, Refuse, Reduce, Reuse, Repair, Recycle. Principles of CE ▶ Design Out Waste and Pollution ▶ Products must be durable, repairable, and recyclable. ▶ Minimizing packaging and harmful byproducts. ▶ Reuse of products and materials ▶ Recycle at end-of-life product ▶ Maintain and repair ▶ Promote natural eco-systems ▶ Using renewable energy sources ▶ Promote innovation and resilience ▶ Developing new technologies and business models. ▶ More resilient supply changes.  Benefits of CE Environment ▶ Promotes conservation of resources and biodiversity. ▶ More importantly, CE contributes to lower CO2 omissions and to a greener environment. ▶ The latter is also achieved by reducing waste and resources consumption. Economics ▶ Creates new market niches. This means job opportunities in various sectors. ▶ Stimulates innovation in the recycling, manufacturing and design sectors. ▶ Generate welfare gains to the degree firms reduces costs that pass through to consumers as lower prices to final products. This is always an issue of empirical scrutiny. ▶ Promotes a more sustainable economic model that disentangle growth from resources consumption. Benefits of CE-Continued Busines ▶ Reduces the cost of raw material for businesses. ▶ Enhances brand reputation and customer loyalty. ▶ Strengthens relationships with customers and stakeholders. ▶ Provides competitive advantage for early adopters. Social ▶ Encourages community engagement and collaboration. ▶ Stimulates innovation in the recycling, manufacturing and design sectors. ▶ Generate welfare gains to the degree firms reduces costs that pass through to consumers as lower prices to final products. This is always an issue of empirical scrutiny. The Impact of CE in Figures ▶ The circular economy offers a 4.5USD trillion economic opportunity by reducing waste, stimulating innovation, and creating employment (Waste to wealth: The circular economy advantage) ▶ The disposable income of European households can increase by approximately ¿3,000 by 2030 “Growth within: A circular economy vision for a competitive Europe”. ▶ In Australia, transitioning to a circular economy in food, transport and built environment sectors could lead to 210 billion dollars in present value GDP by 2047-48. ▶ The ILO report (World employment social outlook 2018: greening with jobs) suggests that the transition to a circular economy could lead to a net gain of approximately 6 million jobs globally by 2030. Sector-Specific Impacts ▶ In agriculture, a CE to food systems in Europe could lead to an 80% reduction in artificial fertilizer use (macarthur2019cities. ▶ According to “Automotive revolution & perspective towards 2030”, the transition to a CE in the automotive sector could reduce material costs by 20-30%, while driving significant innovation in vehicle design, focusing on modularity, disassembly, and the use of recycled materials. ▶ Circularity in manufacturing could lead to 30-50% savings in material costs. ▶ The “Shaping the future of construction a breakthrough in mindset and technology” predicts that circular practices in the construction sector, such as recycling building materials and designing modular, adaptable structures, could reduce costs by 10-15%. CE and International Trade ▶ The increasing importance of CE raises the impression that countries try to achieve ‘within growth’ rather than through international exchange. ▶ Although this is partly true, there is scope for cooperation among countries within the principles of CE. ▶ As economies rely more on the re-use of resources, then there should be less trade on raw materials. ▶ Reduced trade in raw materials is replaced with higher trade in secondary raw materials.. ▶ There is also an increase in waste management services, and increase in demand of products that fulfill CE standards. Figure: UN COMTRADE Data Figure: Eurostat Data Figure: UN COMTRADE Data International Trade in CE: Some Evidence ▶ Between 1988 and 2018, global exports on second-hand textiles increased 12% in weight and 26% in value. ▶ OECD countries are major exporters of second-hand textiles representing 77% of total export value in 2018. ▶ Between 2000 and 2018,the value of second hand car exports increased by 79%. ▶ The majority is intra-EU exports, roughly 1265 thousand units in 2018. ▶ According to Eurostat data, the average per unit value of a second-hand vehicle exported outside the EU was 4165 Euros and within EU 11038 Euros. ▶ The share of the re-manufacturing industry to aggregate production remains low. It does not exceed 2% in the US and 1.9% in the EU. Food for Thought ▶ Why do you think this is the case? ▶ Regulatory barriers across jurisdictions. Trade-offs from International Trade in CE ▶ Trade in second-hand goods can create lock-in of importing economies into old and inefficient technologies. ▶ Adverse environmental effects from importing second-hand vehicles with high emissions. ▶ A potential loophole for illegal trade in hazardous or contaminated waste. ▶ Second-hand goods can also raise potential issues with the right-to-repair and their relationship with protecting Intellectual Property Rights in certain trade agreements. Trade Restrictions and CE ▶ The promotion of CE raises concerns of new trade barriers. ▶ In 2013, WTO records disputes by EU and Japan from tariffs in Russia that imposed a recycle fee attempting to support domestic automobile manufacturing. ▶ China also announced in 2013 the so-called ‘Green fence’ that raised concern about the quality of raw materials imported. ▶ Brazil and India have restricted the movement of non-new products IRP (“Re-defining Value–The Manufacturing Revolution. Remanufacturing, Refurbishment, Repair and Direct Reuse in the Circular Economy. Nabil Nasr, Jennifer Russell, Stefan Bringezu, Stefanie Hellweg, Brian Hilton, Cory Kreiss, and Nadia von Gries”). ▶ Many importing governments raise concerns that trade Global Inequalities- Some Stylized Facts ▶ Within-country income inequality has generally increased since the 1980s in many countries. ▶ Across countries inequality has decreased significantly since 1980, largely due to economic growth in emerging economies like China and India. ▶ Based on Capital in the twenty-first century, the income share of the top 1% and 0.1% has increased significantly, especially in the US. ▶ In the US, the top 1% income share rose from about 10% in 1980 to over 20% in recent years. Some Stylized Facts-Continued ▶ Low-and middle-income groups have suffered a loss of income share, with the bottom 50% typically experiencing larger losses. ▶ The gap between the average incomes of the top 10% and bottom 50% within countries has almost doubled from 8.5 to 15 over the past two decades. ▶ Inequality has risen more sharply in the US compared to most European countries. ▶ France and Germany have seen more modest increases in inequality. Figure: World Inequality Database Figure: World Inequality Database Figure: Federal Reserve Bank of St Louis Global Inequalities- Recent Trends ▶ The 2008 financial crisis temporarily reduced top income shares, but they have since rebounded in many countries. ▶ The COVID-19 pandemic caused the steepest rise in global inequality since World War II between 2019-2020. ▶ The pandemic has caused the largest rise in between-country inequality in three decades. ▶ Rising inflation, especially in low- and middle-income countries, has further exacerbated inequalities since 2021. Causes on Income Inequality ▶ According to Capital in the twenty-first century, the fundamental driver is r>g (return on capital exceeding economic growth rate). ▶ Technological progress and the resulting rise in skill premiums have contributed significantly to widening the income gap in both advanced economies and developing countries. ▶ Globalization to a lesser extent also played a role in reinforcing increasing inequalities. ▶ Decline of labor market institutions is another driver of inequality. Globalization and the Evolution of Income Inequality ▶ Global inequality: A new approach for the age of globalization in his book ‘Global Inequality: A New Approach for the Age of Globalization’ identifies the winners and losers of globalization. ▶ Winners have been the middle classes in emerging economies (especially Asia) and the global super-rich. ▶ Losers have been the middle classes in developed countries. ▶ Global inequality: A new approach for the age of globalization concludes that between-country inequality decreases, within-country inequality may become more dominant. ▶ We need ‘pre-distribution’ to make market incomes more equal, through more equal distribution of capital ownership and education. Bibliography I Yigitcanlar, Tan. Rethinking sustainable development: Urban management, engineering, and design. IGI Global, 2010. Lacy, Peter and Jakob Rutqvist. Waste to wealth: The circular economy advantage. Vol. 91. Springer, 2015. Schulze, Günther. “Growth within: A circular economy vision for a competitive Europe”. In: Ellen MacArthur Foundation and the McKinsey Center for Business and Environment (2016), pp. 1–22. travail, Bureau international du. World employment social outlook 2018: greening with jobs. International labour office., 2018. Delhi, Springer India-New. “Automotive revolution & perspective towards 2030”. In: Auto Tech Review 4.5 (2016), pp. 20–25. Bibliography II Agenda, Industry. “Shaping the future of construction a breakthrough in mindset and technology”. In: World Economic Forum. 2016, pp. 11–16. IRP, UN. “Re-defining Value–The Manufacturing Revolution. Remanufacturing, Refurbishment, Repair and Direct Reuse in the Circular Economy. Nabil Nasr, Jennifer Russell, Stefan Bringezu, Stefanie Hellweg, Brian Hilton, Cory Kreiss, and Nadia von Gries”. In: A Report of the International Resource Panel (2018). Piketty, Thomas. Capital in the twenty-first century. 2014. Milanovic, Branko. Global inequality: A new approach for the age of globalization. Harvard University Press, 2016.