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Accelerating Transition towards a Circular Economy and Policy Implications for Korea Economic development, Environmental policy

Author Jin-Young Moon, Youngseok Park, Seung Kwon Na, Sunghee Lee, and Eunmi Kim Series 21-08 Language Korean Date 2021.12.30

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   The international community has been striving to achieve sustainable growth while efficiently using limited natural resources. In particular, major economies, including the EU, have recently pledged to achieve carbon neutrality or net zero emissions one after another, and the ‘transition to a circular economy’ is being emphasized as one of the important policy measures to achieve this long-term goal. As the use of disposable items such as masks has increased due to the spread of COVID-19, concerns about how to deal with the increased waste are also growing. In this context, this study aims to analyze global efforts to promote the circular economy, main issues in waste management, cases of response in international cooperation, and review an empirical analysis of the effectiveness of certification system on the circular economy. Based on these results, it aims to provide policy implications for Korea.
   Chapter 2 examines the concept and importance of the circular economy, also analyzing the efforts of major countries and multilateral organizations to promote the transition to the circular economy. In this study, the circular economy is summarized as an economic system based on basic principles including minimum resource and energy input, maximum reduction of waste emission, and long-term use of products as much as possible. As the circular economy is expected to have a positive impact on the environment, economy and society as a whole, stronger efforts are being made by the international community to pursue it. The EU mandates producers to factor in circular economy principles from the product design stage and encourages consumers to purchase products with high resource efficiency. Japan has made efforts to lead global discussions on issues of its own interest, such as the 3R(Reduce, Reuse, Recycle) initiative. In the case of the UK, the private sector is taking a prominent role, and Korea has been announcing circular economy-related laws, policies, and implementation plans since 2020. At the multilateral level, the G7 and G20 suggest the policy direction of resource management policies for member countries and recommend that their progress be monitored. Multilateral organizations, such as the ISO Technical Committee (ISO/ TC323), are discussing the issue of international standardization related to circular economy, but response measures must be prepared against the possibility of some countries leading the working groups using this as a regulatory tool.
   Chapter 3 examines the current status of waste generation and treatment in selected countries and Korea, policy trends, and issues from the perspective of the circular economy. This is because waste management is one of the important steps that can decisively distinguish the linear economy from the circular economy. The recycling rate of municipal waste generated in the EU 28 countries improved from 25.2% in 2000 to 46.8% in 2018. In the United States, the waste recycling rate (excluding composting) slightly increased from 21.8% in 2000 to 23.6% in 2018. The amount of waste in Japan has decreased over the last 10 years, but the recycling rate steadily remains at 20%. China records continuously increasing amounts of waste and the country mainly depends on incineration to dispose of this waste. Korea’s waste increased from 400,000 tons/day in 2014 to 490,000 tons/ day in 2019, and its recycling rate was reported as 86.5% in 2019. The key issues of waste management in consideration of implementing a circular economy are as below. First, preventive measures to design and produce products to reduce the generation of waste, as well as promote the recycling of waste and conduct environmentally sound waste disposal, are becoming increasingly important. Second, with China’s 2017 ban on waste imports and the revision of the Basel Convention on Hazardous Waste, regulations on cross- border movement of plastic waste are being strengthened. Finally, in order to come up with an appropriate waste reduction and recycling policy and policy monitoring system, the reliability and availability of domestic and international statistics on waste generation, treatment and cross-border movement should be improved. 
   Chapter 4 analyzes international cooperation cases to establish a circular economy and related issues, focusing on support and cooperation for developing countries, the link between circular economy policies and international trade, and cases of private-led circular economy cooperation. First, in the case of support for developing countries, the waste sector occupies a large proportion in ODA, but the EU and UN are promoting support projects for developing countries through more diverse channels and methods. In particular, the EU is promoting various international cooperation projects such as Switch to Green and partnerships with Africa as part of the New Circular Economy Action Plan. Second, this study reviewed the Extended Producer Responsibility (EPR) system, green government procurement, labeling and standards as examples of major issues in terms of the relevance of circular economy policies to international trade. Basically, the key issue that penetrates each field is whether the introduction and implementation of each system imposes mutually discriminatory conditions on domestic and foreign companies. Lastly, cases of private sector-led international cooperation are generally promoted for the purpose of encouraging companies to voluntarily transition to a circular economy, developing circular economy labeling through business associations, or conveying corporate opinions on government policies. However, in reality, most cases of international cooperation at the private level are also promoted in the form of cooperative projects with international organizations, national governments, and non-rofit organizations. 
   Chapter 5 defines the circular economy as a policy agenda to boost reuse and recycling in consumption and production of goods in the economy. To promote the circular economy, the government may adopt the circular economy labeling system, which is an information-based environmental policy. The circular economy labeling system provides consumers with information on whether a product meets the circular economy standard. The labeling system aims to advertise and verify the information. In other words, the labeling system is considered a policy tool to solve any market failure caused by asymmetric information between consumers and producers about the quality of the product. We set up a simple mechanism design model to show how the labeling system can resolve the asymmetric information problem. In addition, we summarize the previous literature that mostly used hedonic price models to empirically examine the efficacy of the labeling system.
   In Chapter 6, policy implications are derived for the Korean government and the private sector to prepare for the spread of the circular economy. 
   First, it is necessary to go beyond existing waste management-focused policies and fully consider the entire life cycle of a product. In particular, more efforts must be made at the production and consumption stages with the goal of reducing the use of resources and minimizing the generation of waste itself. In the production stage, from the design process, it must be made more difficult to generate waste and more considerations made toward putting the used materials or parts into production later. At the consumption stage, there is a need to encourage consumers to purchase recyclable products, use them for a long time, and dispose of waste in a sustainable way. This requires providing consumers with sufficient information about the product and guaranteeing the ‘right to repair’ so that the products can be used as long as possible. Effort must be made to also promote the use of platforms such as mobile applications related to the sharing economy where consumers can share or rent products they do not need. Above all, it should be kept in mind that the transition to a circular economy is a mid- to long-term goal. Educational opportunities should be continuously provided from an early age so that people can realize the necessity of a circular economy and learn how to practice this in their daily life.
   Second, it is necessary to take a leading role in discussions of the circular economy related to international trade, focusing on the international standard for circular economy. Since various circular economy policies can affect international trade, it is necessary to fully consider these factors in the design and operation of circular economy-related policies. In particular, standards are closely related to various environmental policies, such as the labeling system and the green government procurement system. In addition, each country is focusing on the development of domestic circular economy standards, and it is highly likely that these standards will act as technical trade barriers in the future. Therefore, through multilateral channels such as IOS/TC323, it is necessary to identify trends in international standards-related discussions and actively develop international standards proposals. In addition, it is necessary to adjust the domestic standard system in line with these international standards and actively utilize the framework of bilateral or regional cooperation such as FTAs.
   Third, Korea needs to incorporate concrete international cooperation measures in its response to the circular economy, instead of focusing on domestic measures. Cooperation with the European Union, which is leading global responses, could serve as a good benchmark for Korea to establish bilateral and multilateral cooperation. Multilateral agreements and initiatives proposed by the European Union could be developed into global standards, such as the Global Agreement on Plastic Pollution and the Global Alliance on Circular Economy and Resource Efficiency. Korea also could develop further cooperation with developing countries based on the examples of the European Union and consider expanding cooperation with ASEAN member states and South Asian countries. Cooperation with Asian countries could enhance the competitiveness of companies and capabilities to tackle the circular economy for both Korea and Asian countries as well.
   Fourth, the government should prepare various measures to support the private sector to take the leading role in transition to a circular economy and strengthen its competitiveness in the global market. It is necessary to expand R&D infrastructure and financial support for basic research, demonstration, and commercialization of materials using resource-efficient or recycled materials. In addition, the government can also catalyze development of technologies to improve the production process or reduce the use of resources that can have a negative impact on the environment. For small and medium-sized enterprises (SMEs) with limited resources to implement transition to a circular economy, financial, technical and capacity-building support are needed. In the case of current green public procurement, criteria for mandatory purchase could be expanded to include products certified for using circular resources and to promote reuse of purchased products and product sharing system. In addition, since circular economy policies and regulations can make a significant cross-border impact on international trade and business activities, it is necessary to proactively monitor policy changes and trends in major trade partners and provide timely assistance for the private sector.
   Finally, design, implementation and monitoring of circular economy-related policies should be based on reliable, accurate and comprehensive data and statistics. Considering the different data standards and statistical system among OECD members, selected major economies and Korea, the harmonization of standards and criteria of data collection, such as waste treatment methods and recycling rate calculation, could be the first step to come up with effective measures to improve circular resource management. Therefore, domestic and international efforts are required to discuss internationally agreed statistical standards that can measure overall resource efficiency as well as waste generation and treatment. For this to happen, Korea needs a more sophisticated statistical system to capture and measure resource use and efficiency and material flows in each industry sector and the economy as a whole. Furthermore, it is necessary to develop indicators that can objectively evaluate various aspects of the circular economy and precisely monitor the performance of relevant policies.

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