Cutting to the core: Using trade tools for sustainable natural resources management

22 November 2012

Establishing a long-term approach to resource sustainability that is widely acceptable to a diverse group of actors will be a monumental task. One of the most difficult challenges is that resource sustainability debates tend to be compartmentalised according to sectors, often take place in a range of different forums, and involve a diverse group of actors.

Moreover, while countries have been increasingly likely to resort to using trade policy tools - such as export restrictions or standards and labels - to seek to manage sensitive natural resources supplies in recent years, comprehensive discussions have been broadly absent in trade policymaking circles. This is a missed opportunity for policymakers, as trade can cut to the core of current concerns regarding resources sustainability and environmental risks.

Key resources: water, minerals, food, energy

Demand for food and other natural resources is being driven by continued global population growth, massive consumption rates in the developed world, and a rapidly growing middle class in emerging economies. While natural resource prices slowly declined over the course of the last century, the last ten years have seen a reversal of this trend, with price spikes and volatility becoming the new normal [Ref 1]. With up to three billion more middle-class consumers projected to be added to emerging economy populations over the next two decades -compared to an estimated 1.8 billion today - demand for a range of goods from meat to cars is expected to surge.

With natural resource supplies becoming increasingly difficult to source and the extraction process becoming more challenging and expensive, recent increases in global demand are placing pressure on the system. Adding to this complex picture is a noticeable change in supply chains, with an increasing share of resource-rich countries moving into the producing sector and the web of global value chains becoming ever more spread out and multifaceted. This will clearly impact future resource competition. In many cases, countries are also becoming more concerned over the negative environmental impacts, or externalities, associated with the actual resource extraction or exploitation, and taking stronger measures to address them. In addition, resources and resource prices are becoming more strongly interlinked (see figure 1).

Consumption-based emissions and environmental impacts

Global production and consumption processes are associated with significant environmental externalities, ranging from carbon emissions to air and water pollution, to loss of natural habitats and biodiversity. However, these pressures are not equally experienced across countries, due to different profiles of productive sectors, wide variances in environmental regulatory frameworks, and differing levels of development. In addition, in a deeply integrated and globalised economy, environmental effects are often felt far from the point of consumption.

One way of making resource use and externalities more visible is through tools used to calculate embodied carbon, embedded or virtual water, and/or the ecological footprint associated with traded goods. While current available tools tend to be rather crude, they highlight problems that are not being captured by market prices, and thus are not influencing production and consumption choices. Some of these tools can be used for public awareness raising or policy-making purposes. Others are most suited for use within companies, which can identify and address environmental "hotspots" or capture opportunities for improving resource efficiency across value chains.

These various foot-printing tools can all be applied at different levels, but are often applied at the aggregate level, and can be tailored to trade flows between countries. Sustainability standards and labels, for their part, focus more closely on specific products and often rely on consumer behaviour to affect change.

Changing sustainability standards in a changing world

Sustainability standards and labels have grown tremendously in scope and coverage over the last two decades, becoming somewhat of an unwieldy jungle to navigate. Both public and private standards exist, and cover multiple concerns from environmental, to social, to fair trade. Meanwhile some standards focus very specifically on one issue, such as energy efficiency. The standards also differ based on how they are developed, from simple processes to complex and inclusive multi-stakeholder ones, such as the Round Table on Sustainable Palm Oil (RSPO).

Standards also vary from private sector-driven, company-specific sourcing requirements - such as the Nestle Responsible Sourcing Guidelines - to standards with a much broader target audience. Some of the broadest requirements are related to certified timber in the EU, where their chains of custody must be legal and documented from cradle to grave in order for them to be imported to the EU. This programme is part of a holistic package aimed at strengthening forest law and governance in the country of origin.

Depending on the level of adoption in a given country, standard labels on final products found on supermarket shelves are now familiar to many consumers. Here, choices in support of sustainability lie directly with the consumer. Government procurement of sustainable goods and services is another significant driver and market creator.

While every discussion around sustainability standards seems to echo the same call for greater streamlining and coordination, in practical terms the process appears to be heading in the opposite direction. A few years down the road, detailed and targeted sustainability specifications may be no different from any other technical or quality specification in the eyes of the procurer. In this context, traceability through the chain of custody will be challenging but most relevant in terms of robustness and credibility of any scheme. Failure to comply is an ever-increasing risk - everywhere in the world, someone will be present with a mobile phone in their hand and access to social networks in real time.

While both standards and labels provide opportunities for positive product differentiation and access to rapidly growing markets, the fact that they may create market barriers is a well-known and well-articulated concern.

Pin-pointing the role of trade in sustainable consumption and production

Standards, labels, and tools to understand the embodied resources in traded goods provide a partial solution to achieving sustainability and resource efficiency. What they fail to do is connect deeply into the wider debate on sustainable consumption and production. Over the past decades, production has to a large degree dematerialised in developed countries, and environmental externalities have decreased. However, with OECD countries accounting for 78 percent of global consumption in 2010 and the US alone accounting for 32 percent, consumption clearly has not, which suggests that some environmental externalities have been "outsourced" [Ref 2]. If the world is to embark on a trajectory of sustainable natural resource management and minimise environmental risk, both the quality and quantity of consumption - and its distribution - will eventually have to be discussed in forums beyond those dedicated to environmental issues.

While the concept of sustainable consumption and production remains politically controversial and challenging to implement, it could gain new relevance if viewed through the lens of trade and trade policy. The carbon, water, and ecological footprints of our consumption is beginning to be better understood. However, until the trade angle is effectively accounted for, the analysis can only be partial. While there is growing public awareness and the private sector is increasingly responding to consider both consumption patterns and resource efficiency, there is no real debate in this area that would draw in and involve the trade community.

Elements for discussion

Future trade patterns and countries' strategic positioning will be increasingly responding to scarcity and price volatility. Policies in support of sustainable management, production, consumption, and trade of natural resources could provide much-needed stability and predictability. In addition, consumption-based environmental externalities would merit more discussion from a trade angle. Indeed, how could trade policy be crafted to support a radical shift toward resource efficiency, including the technological innovation and scale-up necessary to support this shift? How could the power of sustainability standards and labelling be harnessed to ensure that the products - and their production processes - become mainstream rather than remain niche? How can they be set up so as to be inclusive, not exclusive?

While these disparate trade and environment elements are often discussed in different forums, the "new generation" of free trade agreements (FTAs) - which often include environment chapters and consultative processes - could help bring them together. They could provide a new model for innovative thinking, debate and piloting tools for addressing sustainable natural resources management and trade in tandem.  Discussion could be held already at the negotiations phase on the quality and locus of growth that the FTAs are set to underpin and the associated environmental dimensions. In addition, public-private collaborative efforts across markets and value-chains, could serve to help facilitate higher resource productivity and sustainable consumption and production patterns.

Malena Sell
Environment & Natural Resources Senior Programme Officer, ICTSD

[Ref 1] McKinsey Global Institute (2011). Resource Revolution: Meeting the world's energy, materials, food, and water needs.

[Ref 2] Schaper, Marianne (Bridges Trade BioRes Review, Volume 6, Issue 3; July 2012). The consumption, production and trade nexus: A structural approach for Rio+20.

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