Straightening the circular economy

08/11/16

The environment programme director at the European Academies Science Advisory Council, Mike Norton, provides his thoughts on the circular economy

EASAC – the European Academies Science Advisory Council – is formed by the national science academies of the EU member states to enable them to collaborate in providing independent science advice to European policy makers. It thus provides a means for the collective voice of European science to be heard.

In a recent statement, EASAC explored the circular economy which, it noted, has become a ‘controversial issue’ since the new commission cancelled the previous 2014 proposals and undertook to issue a new Circular Economy Package by the end of 2015. EASAC’s working group of scientists and economists thus convened to provide inputs from the natural and social sciences to debate the principles and objectives of the European Commission’s policy.

Portal spoke to EASAC’s environment programme director, Mike Norton, about some of the main points raised in this commentary, thereby outlining some of the remaining challenges.

The EASAC statement argues that underlying the barriers to shifting from a linear to a circular economy is the failure of current pricing systems to fully integrate all costs and that until this failure is remedied, rules and regulatory instruments may be unavoidable, but need to be carefully designed. How do you feel this could be addressed?

As we pointed out in our report, it is difficult to fix a problem without first understanding its underlying causes. And the point about the linear economy is that it has developed over more than 200 years under reasonably consistent economic rules, and people get rather set in their ways over such a time period.

The commission has pointed to several reasons why economies remain ‘locked in’ to a linear model, but it basically boils down to decisions being made on cost and benefit evaluations under the existing system which take neither a long-term perspective nor adequately reflects social and environmental costs. As we point out in our statement, the true costs of company operations are neither captured nor made transparent because negative environmental and social impacts of operations are largely ignored. Longer term cumulative effects on resource depletion, pollution, and climate change on society and the firm itself are also ignored. And the market priorities for short-term profits and dividends to shareholders make it difficult to take the long-term perspective required for investments into resource efficiency and other aspects of circularity.

The point we made about accurate pricing was from an economic theoretical perspective since if the prices were correct then they should drive resource and energy efficiencies, and greater circularity would be one response to that. However, in practice, while there has been much research on valuing these externalities, economists have yet to reach any consensus on how to assign values which can be treated on an equal basis with current market prices. We therefore recognise that in the foreseeable future rules and regulations have an important role to play in steering the economy towards greater circularity. However, from a political point of view, this places advocates of a circular economy in an inherently weak position because everything they propose is seen as an additional cost or restraint on the status quo rather than as an overdue step towards correcting a fundamental design flaw.

It is easier to identify the problem from a theoretical angle than to offer a simple solution. The ideal responses from our point of view would be to focus on addressing the market failures. The most obvious of these in the energy field would be an effective carbon price. We also need to support work on pricing externalities which can be incorporated into the market.

Assessing the impacts of policies over the full lifecycle is also critical. One of the benefits of a circular economy is reduced demand for virgin resources; thus reducing environmental damage associated with mining and processing in supplier countries. Quantifying this and assigning values to damages outside the EU raises several issues which we did not have time to address in our statement, but we have returned to this in a follow-up report on critical materials, which is currently under review.

Incidentally, another EASAC report on biofuels (2013) shows the consequences of failing to conduct effective lifecycle analysis before regulation. The EU biofuels targets have led to effects which are contrary to those intended, since not only is the basic concept of carbon neutrality over simplistic, but a substantial proportion of EU biofuels is now derived from palm oil, much of which has involved land conversion with associated carbon emissions outside the EU.

How important is it for circular economy policies to be fully embraced in international trade negotiations and the United Nations policy process involving the Sustainable Development Goals in order to avoid potential impacts on competitiveness? What needs to be done to ensure this happens?

We think it is very important, and generally an issue which is ignored – both in the debate on the circular economy itself and also (we suspect) in the trade negotiations. Of course, the latter lacks transparency, making it difficult to confirm to what extent such issues have been placed on the agenda. Although limited press coverage and leaks of contents suggest that dealing with market externalities is not one of their higher priorities.

If Europe introduces some regulations – for instance special advantages for recycled content or for remanufactured goods – would these be interpreted as a trade restriction under existing World Trade Organization rules, and how would we avoid that happening in any new trade agreements? The circular economy is not a high priority for some trading partners, and so, to us, it appears important to get this on the agenda rather than finding out later that internal decisions within Europe are vetoed by these agreements. Regarding the Sustainable Development Goals, these already include some aspects which are fully consistent with the circular economy and thus may offer a more sympathetic environment in which to develop the circular economy theme.

We also refer to the evidence on the economic advantages of greater efficiency (the Porter hypothesis) as being one potentially positive selling point for the circular economy. And, again, this would be dependent upon competitive advantages derived in Europe from the European regulatory environment being applied in export markets and not subject to challenge under WTO or trade agreements.

Numerous and multi-faceted reasons have been posited for economies remaining locked-in to the linear model. How can the necessary paradigm shifts be achieved?

As previously mentioned, there are many trends which are counter to circularity. While circularity includes the better recycling of products at the end of their life, it also has a strong implication of extending their life so that a given resource produces more value to society so as to compensate for the initial environmental cost of producing it. However, many parts of our society have been developing in the opposite direction and involve rather powerful stakeholders in globalised production, trade, media, and advertising; all based on increasing consumption of new products. Fashion trends rapidly changing several times a year are similarly focused on increasing turnaround, and the rapid advances of technology have shortened innovation cycles so that many electronic goods are discarded when physically they could function for much longer. Equally, consumer convenience trends such as miniaturisation make disassembly extremely difficult.

Again, it is easier to point to the problems than identify solutions. One fundamental weakness is that the parts of the economy that can support repair and reuse are poorly developed, often making it more expensive to recondition or refurbish than to purchase new. Moreover, the market for return for reconditioning (rather than disposal) is still poorly developed, partly due to a lack of product take-back schemes and industrial infrastructure to reuse by-products. The technologies now exist for addressing some of these issues through value networks based on intelligent reverse logistics, but barriers remain in the lack of streamlined collection and reprocessing of materials infrastructure.

There is also a fundamental ‘chicken and egg’ situation, whereby if products are not designed with an idea of reconditioning, repair, or reusing at the outset, it is uncommonly difficult to apply later. Despite an Ecodesign Directive, and the efforts of some companies, repairability and end-of-life recycling considerations have to compete with primary design targets related to price, function, and physical appearance to compete for customers.

There are also insufficient numbers of consumers environmentally aware enough to make reuse or recycling an essential step driven by consumer demand. Improving this situation requires companies to see these characteristics as positive contributions to their competitiveness rather than a public duty or burden. Consumers also need to not just be more sensitive to these issues but also see that they have an economic benefit. A high profile forum bringing together consumer groups with manufacturers to develop a joint commitment to a more circular economy could be a very positive step.

© Engineers Journal

© Engineers Journal

Conventional consumer habits can certainly hinder new products and the development of services particularly, according to EASAC, in a context where prices do not reflect the real costs of resource use to society, and where policy fails to provide strong and consistent signals for a transition to a circular economy. Do you feel that the renewed Circular Economy Package adequately takes this into account?

The commission has a difficult challenge given its priority of developing a more competitive European industry. Even without the threat of new trade negotiations, global competitiveness means that any measures should preferably enhance and certainly not weaken industry’s competitiveness. Effective measures should thus be focused on improving the economic drivers within the circular economy. Making it easier to recycle and reuse and repair consumer goods through more holistic design is clearly essential, requiring smarter ways to plan and design products at pre-manufacture stages. There is a need to encourage a stable and profitable recycling market and the recovery of materials. Efforts should continue to reflect the real costs of resource use to society and implement lifecycle costing in decision making for the public and private sectors (e.g. through green procurement policies).

Some of the key elements are consumer awareness and support, reducing (rather than increasing) regulation on properly conducted recycling pathways, while closing off some of the more bogus shortcuts and leakages in existing recycling regulations. Some of these are included in the commission’s document, but could involve assigning a higher priority and urgency over their being addressed. For instance, the major loopholes in electronic waste export should be closed, and secondary materials relieved from their classification as ‘waste’ as soon as possible.

Returning to the issue of cost, what challenges do you feel are involved in developing correct pricing?

Clearly, the move to a different form of accounting – starting with the replacement of GDP by a more sustainability-friendly headline economic indicator – would be a good start. In this context, the commission already has a ‘Beyond GDP’ initiative. The commission can also play a role in pressing the accelerator on getting the economic community to reach a consensus on valuing and incorporating externalities. At the moment, there is still a huge gulf between environmental economists and neoclassical economists, which is not helping at all.

Providing the human resources needed for a circular economy may require substantial shifts in education and training at all levels. Could this transformation be achieved soon enough for it to have the most impact?

The human resources angle is important because quite a lot of employment is predicated on the rapid turnaround of consumer goods. Reversing the strategies of some manufacturing sectors in built-in obsolescence or fast fashion intended to safeguard future demand implies fewer jobs in those sectors. A circular economy should compensate for this in terms of developing new activities related to the circular economy and ‘green’ growth, so we need to help the education system to provide the skills necessary to support those activities.

Finally, what are your thoughts with the reworked circular economy policy in a general sense? Do you feel that it addresses many of the issues that were overlooked previously? And do you feel that the revised waste proposal will be effective?

Overall, we felt that the reworked policy was largely consistent with our view, taken from a more scientific perspective. We saw a lot of the headline issues properly recognised in the document and some of the supporting documentation by the commission has clearly enumerated the potential benefits of circularity. In addition, other actions have a positive linkage with the circular economy package (e.g. Eco Management and Audit System certification that extends ISO14000 (environment) to social impacts of enterprises arising from pollution).

The areas where we felt the commission did not go far enough were the ones on international relations, and also it lacked any plans to address the fundamental systemic failure of prices. Even if the latter were limited to a research agenda it would still be worth supporting, we believe.

We also see a more active role for the commission in monitoring the performance of markets in the recycling business, taking a more dynamic approach to dialogue with major companies on the whole issue of eco-design and design for recovery and recyclability, and more effective communication of the performance and potential for circularity to the general public.

We address some of these issues in two further reports which are currently undergoing external review – one on indicators for a circular economy, and another on critical materials in a circular economy.

Mike Norton

Environment Programme Director

European Academies Science Advisory Council (EASAC)

www.easac.eu/

This article first appeared in issue 12 of Horizon 2020 Projects: Portal, available here.

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