A state of flow: building a circular economy in Laos

26th May 2022

Jelmer Hoogzaad, Daniel McGahey and Chris Smithies describe how a metabolic analysis approach is helping Laos to build a more circular economy

The south-east Asian country of Laos, like many lower-middle-income Paris Agreement signatories, faces the challenge of maintaining economic growth to improve standards of living while reducing the footprint of its natural resource-dependent linear economy. The country lies at the crossroads of China, Vietnam and Thailand, and demand from these markets drives its linear economy in many ways – particularly regarding the extraction and export of raw materials such as metal ores, wood and electricity for hydropower.

In 2021, Laos decided to bypass linear carbon-intensive economic growth, and became only the third country to complete a comprehensive metabolic analysis process to help raise its greenhouse gas (GHG) mitigation ambition, take stock of material stocks and flows, and move towards a circular economy. This process was supported by the UN Development Programme, with donor finance from the EU and the governments of Germany and Spain through the Nationally Determined Contributions (NDCs) support programme. It resulted in a report published in November 2021, Circular economy opportunities in Lao PDR – A metabolic approach to defining a resource-efficient and low-carbon future.

In addition to adopting a metabolic analysis, the government of Laos requested a detailed policy analysis, the development of a community of practice that engaged the private sector with policymakers, and the creation of a long-term low-carbon development strategy. Laos now has an opportunity in its next NDC update to outline a clear strategy for deploying circular economy GHG interventions that could ensure net-zero carbon emissions by 2040.

The metabolic approach

Metabolic analysis as part of a circular economy assessment involves analysing an economy’s resource flows in order to identify opportunities for circular economy interventions and GHG mitigation. It shifts the focus from environmental issues and short-term priorities to an economic system’s overall performance and ability to provide needs such as housing, nutrition and mobility in a low-carbon, resource-efficient way. Metabolic analysis identifies circular economy opportunities with high mitigation potential and shows the impact of current resource flows and their effects on natural assets at the point of extraction and disposal.

Laos’s metabolic analysis identified 332 national material flows (Figure 1, overleaf) and determined whether each one was inherently circular or linear. For example, a consumption-based circularity gap for Laos identified the share of domestic consumption that come from renewable or secondary resources, and which of these have materials that are recovered at end-of-life. The country’s consumption economy is estimated to be 27% circular thanks to inherent levels of sustainability within its rural agricultural systems, management of food waste throughout food value chains, and use of renewable firewood. Production is far less circular, at 16% – largely due to the mining economy.

Raising the NDC ambition

The assessment identified 17 possible circular economy intervention areas. These included six enabling interventions that support the 11 sector-specific interventions offering most of the GHG mitigation and sequestration potential. Sector-specific interventions include increasing wood-based construction to reduce the construction sector’s carbon footprint, improving livestock efficiency, prioritising active, shared, public and electric transport, and reducing food loss.

The resulting benefits would include the creation of more than 1.6m green jobs by 2040 – mostly in wood-based construction, climate-smart agriculture and preventing food loss. Combined, the GHG mitigation potential of the interventions is estimated to be 66m tonnes of carbon dioxide equivalent (tCO2e) per year by 2050, enabling Laos to build on current NDC interventions and ensure net carbon neutrality by 2040.

This approach also makes economic sense. An assessment of the business potential of the 11 core interventions found that six are commercially viable on their own, 89% of the circular GHG mitigation and sequestration potential has a positive net present value, and 85% would provide a payback in less than six years. These six areas comprise:

  • Reducing losses and waste in food value chains
  • Expanding climate-smart agriculture combined with organic certification
  • Producing bio-gas and organic fertiliser at smallholder and industrial scale
  • Prioritising and producing industrial wood-based construction materials
  • Implementing industrial symbiosis and remanufacturing
  • Accelerating the electrification of the transport sector with service models.

The remaining interventions may require financial incentives. With a carbon price of US$25 per tonne, 98% of the circular mitigation and sequestration potential has a positive return, or negative marginal abatement costs (Figure 2). Circular economy interventions could create US$16bn in GDP by 2050.

Lessons for action

Transitioning to a circular economy will involve a fundamental change in the current economic model. It will require us to shift to a system in which materials are used such that they can be cycled indefinitely and on the smallest scale possible, durable products are designed to last longer and used more intensively, and development and wellbeing are decoupled from the use of natural resources. Laos has a unique opportunity to lead low-carbon development in Southeast Asia. In doing so, it can create additional benefits for surrounding countries: for example, GHG emission reductions from Lao’s circular economy transition for foreign trade partners are estimated to be approximately 2.2mtCO2e/year.

Important lessons can be drawn from Laos’s example – for instance, bringing local and international private sector stakeholders and policymakers together within a community of practice to collaborate enabled it to overcome potential barriers. Additionally, the country will need to co-operate closely with trade partners to ensure circularity is embedded across whole value chains. For example, its construction sector is too small to use all the wood-based materials it could produce; tapping into foreign demand for these materials could ensure permanent storage of sequestered carbon within the built environment. And while the economic case is clear for most of the interventions identified, Laos may need to introduce incentives such as a carbon tax to ensure that some options become commercially viable, and that the negative externalities of linear value chains are accounted for in policy.

This article is based on the outcomes of a national project led by Shifting Paradigms from the Netherlands, in collaboration with Earth Systems (Laos), Rebel Group (the Netherlands), Circle Economy (the Netherlands) and DFDL (Laos). The project was commissioned by the UN Development Programme and realised thanks to the support of the EU and the governments of Germany and Spain under the UN Development Programme NDC support programme. You can download the full report, Circular GHG mitigation opportunities in Lao PDR: a metabolic approach, at www.shiftingparadigms.nl/projects/circular-lao

Jelmer Hoogzaad is director and founder of Shifting Paradigms.

Daniel McGahey is an environmental consultant at Earth Systems and works on environmental management and assessment projects across Africa and Southeast Asia.

Chris Smithies is a director at Earth Systems and leads the company’s south-east Asia projects.

Image credit | Shutterstock | Getty

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