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Circular Economy – The infinity cycle

Wednesday, November 8, 2017

The Concept

Circular Economy, Cradle to Cradle, Closed Loops, Industrial Symbiosis, Blue Economy, Sustainable Development, Green Economy, Resource Efficiency, take your choice but the concepts are often very similar.

Let’s try to simplify. The easiest definition to understand the concept around circular economy (CE) for me is that expressed by the Ellen MacArthur Foundation (EMF), who have done a wonderful job in getting the argument onto the global agenda:

“Looking beyond the current "take, make and dispose” extractive industrial model, the circular economy is restorative and regenerative by design. Relying on system-wide innovation, it aims to redefine products and services to design waste out, while minimising negative impacts. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural and social capital.”

So we have three essential concepts to deal with: innovation in design, reducing impacts and wastage, renewable energy sources. Too often the thinking around CE focuses upon waste management but this is missing the point- manufacturing using renewable energy rather than fossil fuels is equally as central to the transition, whilst re-design is fundamental if we wish to reduce waste. Waste management comes into the story to recover materials post-use and return them to industries to re-use/recycle but is just one of the three pillars of Circular Economy thinking.

There are many graphics which express these concepts, the EMF has a great one seen here with that of the European Commission: 

Ellen McArthur Circular Economy

Figure 1. The Circular Economy cycle accoding to the Ellen MacArthur Foundation                                                                                                                                                                                                                                  Figure 2. Circular Economy as defined by the European Commission

Whilst useful especially in the context of waste and resource management, note that the EU graphic fails to take into account the renewable energy transition. This leads us to overlook the importance of renewables in the Circular Economy mix.

Historic Context

“One man’s trash is another man’s treasure”  is an old English proverb and CE business models date back to the earliest human economies.  Glass was a very valuable material as early as the late Bronze Age and was shipped for recycling during the Roman and Byzantine empires.

Similarly metals were expensive to produce and in Biblical times “swords were beat to plowshares” whilst the ‘rag and boneman’ of modern times still exists, collecting household metals.

What has changed is the scale of industrial production over the last century as population boomed and the volume of raw materials and energy we consume to manufacture goods led to industrial scale recovery and recycling to manage these.

Earthenware Pots

Figure 3. Glass in earthenware pots for shipment across the Mediterrenean

Figure 4. Two graphs demonstrating the correlation between population growth and extractive industries

Modern Times

Thinking around the environmental impacts of industrial production developed and became mainstream from the 1960s onwards, as awareness grew of the damage pollution caused to human and animal health. From Rachel Carson’s Silent Spring in 1962 to the birth of the environmental movement (WWF in 1961, Greenpeace in 1972) and the Club of Rome’s Limits to Growth report in 1972,  a worldwide movement of millions pushed Governments to regulate the quality of discharges to air, water and soil.  The early emphasis was on preventing damage to the human environment and safeguarding wildlife and marine habitats.  Later in 1988 and 1989 the creation of the Intergovernmental Panel on Climate Change and the signing of the Montreal Protocol on Ozone Layer protection, symbolised an era in which concern for environmental protection entered into policies which started to change the way in which we manufacture and in 1992 the world’s first Earth Summit was held in Rio de Janiero. Environmentalism had become institutionalised.

European thinkers have taken the lead on modern resource management policies; the Dutch politician Al Lansink conceived the Waste Hierarchy in 1979;  the German Michael Braungart published his book Cradle to Cradle in 2002; the European Commission’s first attempt to pass legislation to promote a circular economy was introduced in 2014 by Commissioner Janez Potocnik, and current revised legislation is being negotiated as we write, late in 2017.

Similarly, policies to promote the use of renewable energies in order to reduce greenhouse gas emissions causing climate change, were developed in Europe. These policies have led to a continual and rapid growth in renewables, and a staggering fall in costs of their implementation over the last five years.  The UK produced all its electricity in 2017 without burning coal, the first time in 200 years.  Yet renewable energies represent only a small percentage of total energy consumption (11.3% of global electricity) ; despite the rapid uptake of renewables since 2010,  as total energy consumption grows their impact remains very limited globally and GHG emissions will continue to rise for the next decade, at least. 

Figure 5. A series of graphs demonstrating the growth of renewables

Circular Economy in EU Law

Looking at the European context, the CE legislative package being negotiated foresees the changing of mandatory  targets for the EU-28 nations on waste recycling, use of landfill, prevention, and accounting. It is hoped that the new more ambitious targets will push economies into greater recycling and re-use of materials, and a change in how the cost accounting for recovering these will promote design of lower impact packaging materials.

The rationale behind these new laws are several: to reduce emissions of greenhouse gasses (estimated 440+ million tons reduction by 2030) through use of renewable energy, more recycling and reduction of waste sent to landfill, above all biodegradable waste; to reduce landfill pollution to soil, air and water;   creating jobs (around 180,000 across Europe) and improving the economy through using recycled materials for new product manufacture (+2% of GDP through using 20% less materials); to reduce the dependency of the EU upon imported raw materials; to reduce exports of recycled materials to economies where treatment options are often at lower environmental standards; to enhance industry responsibility for packaging put onto the market by applying full cost accounting for its collection and recycling, thereby aiming to reduce volumes and toxicity.

Let’s look at key legislative changes and what they are attempting to do:

  1. two new Directives on Waste and Packaging will substitute the existing Directives
  2. a new Directive on Landfill will substitute the Landfill Directive
  3. a new wide ranging Directive will substitute existing rules on recycling WEEE (electrical and electronic waste), vehicles, batteries and accumulators.

 

Targets:

A common EU target for recycling municipal waste of 65% by 2030; a common EU target for recycling packaging waste of 75% by 2030; material-specific targets for different packaging materials; a binding landfill reduction target of 10% by 2030.

Measurements:

Simplification and harmonisation of definitions and calculation methods to ensure comparable, high quality statistics across the EU; special rules for Member States facing the biggest implementation challenges; simplification of reporting obligations and alleviating obligations faced by SMEs; introduction of an Early Warning System for monitoring compliance with targets; steering Member States towards greater use of economic instruments (such as a landfill tax) to incentivise the application of waste hierarchy, to prioritise prevention, reuse and recycling, with disposal as the last resort.

Incentives:

Concrete measures to boost reuse activities, including a clearer definition and rules that expand the scope of reuse activities rewarded under the EU targets; general requirements for the operation of Extended Producer Responsibility (EPR) schemes – meaning a producer’s responsibility for a product is extended to the post-consumer stage of a product’s life cycle, aimed at improving their performance and transparency, including direct financial incentives for greener product design; clearer rules on by-products and end-of-waste criteria to stimulate the sharing of by-product resources among industries and markets for recycled materials; new measures to promote prevention, including for food waste and marine litter, and reuse; provisions to improve the traceability of hazardous waste.

All the above legislation is in the process of being negotiated at the end of 2017 with a series of issues unresolved- some countries want and others do not accept higher recycling targets; there is conflict over the obligation to collect bio-waste; producers of packaging are resisting the changes in the calculation of their contributions; even the way in which recycling is calculated is leading to conflict as it would mean, for example for Germany, its current recycling rate being reduced from a declared 65% to a real 44% where their ‘energy from waste’ is discounted from their figures. 

Negotiations are estimated to end late in 2017 or into the Spring of 2018.  Once completed, if completed (there may in fact be no agreement) another 2 years will pass before the rules enter into National legal codes.

Examples of Circular Economy in Practice

Whilst there are many examples of companies adopting “cradle to cradle certification (C2C) ” or circular economy practice, in reality they represent a tiny proportion of the economy. C2C lists some 500 companies who have obtained their certification. Ellen MacArthur Foundation lists several dozen, including well known household names like Renault, Danone-Evian, and HP Inks.

What distinguishes a CE company from another? Let’s take the easily understood example of HP Inks. Quoting from the website we see :

Business Model Innovation

HP’s Instant Ink service provides printing as a service to individuals and small businesses around the globe. The model uses connected printers to send customers replacement cartridges, along with pre-paid envelopes for returning used cartridges, before the customer runs out of ink. The model successfully demonstrates a component recovery and recycling programme in the consumer electronics sector, as it enables HP to put their cartridges through multiple uses. Subscribers to the service pay a monthly fee based upon the number of pages they print. The connected printer notifies HP when the cartridge is about to run dry and signals to deliver a new one without the subscriber having to interact. Empty cartridges are collected and returned to HP as part of a ‘closed-loop’ recycling programme.

Benefits & Opportunities

Cartridge design and durability is improved to facilitate the business model; packaging use is reduced, eliminating up to 57% of waste.  Customers ink costs reduced by up to 50%. Collecting printer use data helps inform system designs, including packaging and replenishment algorithms to minimise waste; and improve serviceability, durability, and customer satisfaction. Doubled return rate of cartridges (compared to transactional purchasing model)

The example of Renault recovering plastic from their own used vehicles, is another industrial scale case study that shows the way forward. However, the fact that the case studies are so few signifies that barriers exist to most industries undertaking such practices.

Barriers to Circular Economy

We live in a world where population grows rapidly, and above all urbanises. More than half the Planet’s people now live in cities, and this will grow to 70% by 2050. Resource consumption is rising dramatically both to feed the growing number of mouths but also as wealth increases in many less developed countries (think of China), material consumption rises too. 

So one would think (and this is a key premis of the CE philosophy) that rising consumption would lead to shortages of resources. Shortages of resources would lead to rising prices, and the vulnerability of industries having to source these. Therefore materials from recycling would have value as primary raw materials increase in price.

But the paradox of our times is that this is not happening- or rather, the volatility of raw material prices does not reflect the continuing pressure upon them from rising consumption.  Look at this graph from the Economist. In real terms commodities cost 20% of what they cost back in 1850. Yet population globally rose from one billion to seven billion in the same period.  Therefore ironically it still costs more to recycle gold, copper, and other precious metals from our electronic waste, than it does to mine them; plastics generally cost less to produce as virgin products from gas and oil refining than to recycle them- which is why 8 million tons a year end up in our oceans as they have no value; and unless we had taxes to pay for waste collection and recovery, as we do in most OECD countries, most of that waste would be dumped, as it is in 70% of the countries of the world today.

My colleague  reminded me that this reflects the Jevons Paradox, named after economist William Stanley Jevons. In 1885 Jevons observed that technological advances in the efficient use of coal actually resulted in its increased consumption, rather than the reverse. This paradox was a consequence of the relative cost of using coal coming down, making it more accessible to consumers, which in turn increased its demand and overall consumption.

Other barriers to circularity regard legislative norms- for example, it is illegal in most OECD countries to feed human food waste to animals, a normal practice when humans lived in the countryside. This is to prevent such diseases as “mad cow” caused by animal cannibalism. Yet this incentivises food waste loss and foodwaste is the largest single municipal waste stream we have.

For these and many other reasons, companies are reluctant to re-think their production and distribution practices where these may disrupt practices that have been profitable to date. It takes courage and innovative thinking to do so especially if the company is profitable, supply chains seem secure, and there is no external demand from legislators to change customary trading habits.

Figure 6. A graph demonstrating the global fall in the price of goods over the past 100 years

Ways Forward

The UK has produced the world’s first standard for organisations wanting to adopt CE into their systems, the BS8001. The ambition is not to give pre-determined standards for what is or what is not a CE company, but to give guidelines on how to strive to improve performance along the whole supply and client chain towards greater circularity. This involves above all, dialogue with suppliers and customers and a change in corporate mentality to break out of the “business as usual” mould.

Other standards and certification processes have existed for longer- ISO 14001 and EMAS were issued back in 1996 and were designed to help organisations implement strategies to reduce their environmental footprint.  EMAS went further, certifying sites for their environmental compliance and in some countries this has led to a reduction of authorisation and insurance costs for certified sites. However, the take up of EMAS has been limited whereas ISO14001, a voluntary programme, has been implemented by organisations across the globe.

Taxes and incentives, if introduced with clear ambitions in mind, could be game-changers. A landfill tax disincentivises dumping and generally leads to greater waste recovery; were a carbon price and tax to be implemented on (for example) waste incineration, it would disincentivise burning and probably increase waste recovery;  a carbon price could also make resource extraction more expensive than resource recycling, but this depends upon which industries are subject to the rules.  Applying laws that oblige materials to contain recycled content (for example, paper, plastics) should lead to an uptake of these materials and an increase in their value. 

The CE package under discussion contains many of these elements; the EU Finance Ministers (ECOFIN) declared in October 2017 the need for a carbon price to be applied to stimulate decarbonisation of the European economy;  major corporations, the IMF and the World Bank, all called for a carbon price in 2016; the Carbon Disclosure Programme list around 1500 major corporations globally that price in their carbon emissions in their business plans.

Something is moving ! But is it enough ?

The global community has taken on commitments in 2015 to reduce GHG emissions (the Paris Accords) to maintain global warming within 1.5°c by 2100.   We are already, in 2017, more or less half way to this and at current rates of emissions will fail dismally to achieve the 1.5°c limit.  So not enough is happening. Circular Economy practices can contribute signficantly to GHG emission reductions as the Dutch experts Matthieu Bardout and Jelmer Hoogzaad have outlined in their articles, you can read more in the links below. The Netherlands is one country with very ambitious CE goals enshrined in law.

5 Questions to understand why the Circular Economy contributes to Climate Change mitigation

5 Ways the Circular Economy can raise the ambition of climate policies and strategies

We do not need to wait for Governments to take action to achieve CE goals. We can act ourselves and taking responsibility is one of the primary outcomes of the climate change process - companies, cities, states, civil society, can act and are all acting at various points around the world to improve environmental performance.

Firstly, you can learn more. Read, understand, analyze your activities and business and see which aspects can be improved. Have you ever done a waste or energy audit ?  You may be surprised to find you are throwing away waste which has a value or using energy you could save and improve not only your performance but your bottom line.  You may also be surprised to find that significant organisations are often non-compliant with legislation, and an audit is one way of avoiding legal actions and penalties.

Secondly, you can help your colleagues, employees and suppliers understand the journey you are making.  Involve them in the discussion.  Evidence shows that employees who are given the opportunity of taking responsibility for improving the environmental performance of their work place take more pride in their work and stay more happily in the company. 

Suppliers can be stimulated to change the way in which they deliver (using electric or gas propelled vehicles for example); package (using returnable or recycled packaging and collecting it for for re-use); or using less toxic materials in the packaging (such as substituting polystyrene ball/loosefill which is virtually non–recyclable with compostable starch); using less toxic materials in their products to make recycling and recovery easier (phase out certain chemicals or plastics like PVC);  ask your suppliers to take energy and waste audits, making those a condition of supply; increase quality standards of your products to drive quality through the supply chain; certify and audit quality.

This piece is the first of many from our new recruit, and Advisor on the Circular Economy, David Newman.

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