Negative Environmental Externalities

How to bridge the funding gap of negative environmental externalities?

The quantification of negative environmental externalities is quite difficult – and the real costs are often higher. For facing the triple planetary crisis of climate change, nature loss and pollution, all funding sources must be mobilized. Plastic credits and biodiversity credits offer new ways for the private sector to play its part.

The measure of negative environmental externalities

All human-related activities rely on the environment. From the food we eat to the air we breathe, our dependency to Nature is undeniable. On an economic level, more than half the world’s GDP is based on its ecosystem services[1], as companies and organizations are exploiting natural resources for producing goods and services. Reciprocally, each activity impacts Nature: it is qualified as negative externalities – and that is the main reason why we are now in the middle of a triple planetary crisis[2] with increasing pressures on climate, nature and pollution.

The quantification of those negative externalities is rather difficult. What are the estimated impacts of a specific business on climate change, natural ecosystems, and human health? The scientific community is trying to establish common environmental footprints methods, such as the well-known Greenhouse Gas Protocol for carbon, the Global Biodiversity Score for Nature, and the Plastics Protocol for mismanaged plastic waste.

Regulations are also strengthening with the double materiality assessment required by the European Corporate Sustainability Reporting Directive (CSRD) and the emergence of new disclosure frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) and the Science Based Targets for Nature (SBTN).

Once estimated, those negative externalities must be given an economic cost, incurred to the relevant stakeholders. This can be done with a “polluter-pays approach” (such as Extended Producer Reponsibility frameworks or environmental credits), or by passing on the cost to the consumer or to the states.

Hidden costs & inequalities

The example of plastic waste

The real cost of plastic can be broken down into several parts. One is the market price, which is based on the materials and processes required to produce a plastic product. However, this neither includes nor reflects other costs generated over the course of a product’s life cycle, such as natural resource depletion, GHG emissions, health costs, waste management costs and environmental impacts due to plastic leakage.

Taking those other parameters into account, the World Wildlife Fund (WWF) estimates that the total cost to society of a single tonne of plastic can be as much as ten times its market price[3]. London-based think tank Carbon Tracker even estimates the externality cost of plastics to be approximately $1 000 per tonne ($350 billion per year), combining CO2, health, collection, and pollution costs.[4]

In most developed countries, Extended Producer Responsibility frameworks provide funding for long-term waste management infrastructures at scale. But the situation is far more complicated in low- and middle-income countries that do not have the means nor the funds for doing so.

This results in pure garbage dropped throughout the cities and the environment – and that is why 86% of plastic leakage is occurring in developing countries.[5]

Those social impacts are also worrying, with more than 20 million informal waste pickers around the world exposed to undignified labour conditions and significant health risks – resulting in 1 million deaths per year.[3]

The urgency of mobilizing environmental funds

The cost of inaction might be significantly higher than those of actions because of plastic pollution impacts.[6] An estimated US$1.5 trillion in public expenditure and US$15.4 trillion in private sector investments are needed between 2025 to 2040 to reduce annual mismanaged plastic volumes by 90% relative to 2019 levels.[7] Developing countries need urgent support and the incoming UN Plastics Treaty is our best chance to provide help. All available funding sources must be mobilized for fighting against plastic pollution.

It is worth noting that mobilizing environmental funding can take time. It took ten years from the formal introduction of the concept of a Climate Loss and Damage Fund at COP 19 in Warsaw, Poland to the decision to operationalize the fund at COP 28 in Dubai.

However, recent mobilization on Biodiversity has proven the opposite. The Global Biodiversity Framework Fund (GBFF), launched in 2023 right after the Kunming-Montreal Protocol, has already approved its first grants for an initial amount of $40 million on four projects.[8]

A similar fund could be soon established for fighting against plastic pollution with a specific focus on inequities mitigation, particularly for the informal waste sector and for dealing with low-value plastic waste which are not commercially recyclable.

Innovative environmental credits

A reliable way to fund action

Plastic credits and biodiversity credits have emerged in recent years. Though inspired by the voluntary carbon market and learning from its best practices and pitfalls, their methodological design and purposes are quite different. Plastic credit brings funding for plastic waste collection and recycling projects in places where it is urgently needed, with a particular focus on the empowerment of the informal waste picker community. Biodiversity credit finances the restoration of degraded lands or the preservation of biodiversityintensive areas, considering indigenous people and local communities that could be impacted by the projects.

Biodiversity credits is still a nascent market. Scientific research is ongoing for defining a common measurement metric, led by international organizations such as the International Advisory Panel on Biodiversity Credits (dedicated taskforce between France and the United Kingdom) or the Organization for Biodiversity Certificate. There are only few certification standards, resulting in limited amount of biodiversity credits available – and therefore limited transactions.

On the other hand, the number of certified plastic credit projects has increased exponentially in the past few months. The measurement unit is simple: one credit equals one tonne of plastic waste collected or recycled. The Plastic Waste Reduction Standard from Verra is seen as a reliable and trustworthy plastic credit standard, and some transactions have already been made on the registry.

The World Bank has recently issued a Plastic Waste Reduction-Linked Bond[9] for funding projects in Ghana and Indonesia that aim to reduce and recycle plastic waste in vulnerable communities, cutting plastic leaking into nature and oceans. The project will generate plastic credits that will then be sold to corporates and organizations for reimbursing the bond progressively.

This ground-breaking outcome bond mobilizes private capital to support the financing of projects with positive climate and development impacts. In addition to reducing plastic pollution, the projects create improvements in local pollution and air quality, reduce associated health impacts, and create jobs in often overlooked and marginalized communities. The innovative use of plastic credits in this transaction introduces an entirely new way of financing plastic collection and recycling operations.

Removall is developing plastic credit projects in emerging countries and is commercializing high-quality plastic credits all around the world. We also contribute to various working groups on the nascent biodiversity credit market. Removall already takes action through biodiversity-enhanced carbon projects, such as Verra’s Climate, Community and Biodiversity standard and other Nature-Based Solutions projects.

[1] PwC – Managing nature risks: From understanding to action (April 2023)

[2] UNFCCC – What is thee Triple Planetary Crisis? (April 2022)

[3] WWF – Who pays for plastic pollution? (November 2023)

[4] CarbonTracker – The Future’s Not in Plastics (September 2020)

[5] OECD – Cost and financing for a future free from plastic leakage (2022)

[6] Cambridge Prisms – Reducing plastic production: Economic loss or environmental gain? (2024)

[7] SYSTEMIQ – Towards Ending Plastic Pollution by 2040 (2023)

[8] Global biodiversity fund approves first grants ? Carbon Pulse (carbonpulse.com)

[9] World Bank’s New Outcome Bond Helps Communities Remove and Recycle Plastic Waste