This is a crucial time for the future of the EU’s policies on the circular economy. Last month, the European Commission withdrew a circular economy package that promised to create 2 million jobs, around €600 billion in net savings and 1% growth in GDP. The package encompassed a set of bills on landfilling, recycling and incineration for vehicles and batteries, electronics and packaging. At the time, Frans Timmermans, the commission’s first vice-president, said the purpose was to develop a much more aspirational package. It’s not clear whether there will in fact be a more ambitious package, but it seems a good time to think about the size of the opportunity for the circular economy and what it would take to implement the system.
The current linear “take-make-dispose” economy relies heavily on cheap and readily available resources. However, commodity prices are expected to continue to rise over the long term, volatility is increasing dramatically and supply is becoming more and more uncertain. On top of that, with 3 billion additional consumers expected to enter the middle classes by 2030, demand will almost certainly rise.
The concept of the circular economy helps decouple resource constraint from growth. Many leaders in business, technology, design and policy already embrace this new approach. A shift to the circular economy could save $1 trillion in materials each year by 2025 and prevent 100 million tonnes of waste globally. This is a rare opportunity where economics and profitability meet sustainability.
There are already examples of the circular economy in motion, which we can learn from and use as a model for future efforts:
- Plastics: Annual material demand for PET and polyester totals about 54 million tonnes, of which roughly 86% (around 46 million tonnes) leaks out of the system. Meanwhile, around $2.7 trillion worth of packaging materials is lost in the consumer goods value chain every year. Moving towards greater circularity could generate value on a large scale.
A huge step forward in the recycling of plastics was taken in 1988, when the resin identification coding system was introduced. The system clearly identifies polymer types, allowing for the effective separation of polymers and thus the recycling of pure polymer streams. It has been instrumental in the setting up of PET collection and recycling units. The coding system serves as a good indicator of how private-sector alliances and trade associations can shape the circular economy.
- Paper and paperboard: Total annual production of paper and paperboard will amount to around 480 million tonnes by 2020. Some 27% – roughly 130 million tonnes – of this total leaks out of the system, presenting opportunities for improvement (83% of this leakage is a result of poor collection rates in countries). Addressing the leakages could save around $10 billion.
To better boost the recycling rate and quality of recycled paper, Ecofolio, a French state-accredited non-profit organization, uses a system that rewards good behaviour and penalizes those organizations not making enough effort to recycle. Now, 67% of France’s paper-related industries work together with Ecofolio to design paper products that are more environmentally friendly.
- Asset tracking: Each year, around $390 billion worth of consumer electronics and household appliances reach end of life. In 2012, consumer electronics were responsible for almost 50 million tonnes of e-waste. By providing information on assets and components throughout the entire lifecycle, up to the point currently defined as “end of life”, asset tracking could extend the lifespan of these products, and could encourage reuse, remanufacturing and recycling. This could save $52 billion annually in the household appliances sector alone.
The airline industry provides valuable lessons for asset tracking. Rolls Royce introduced their “power-by-the-hour” concept as early as 1962, charging airlines a fixed fee per flight hour of their turbines to cover engine and accessory replacements. This meant they were paying only for the use of the engines, not for downtime. In 2002, the company introduced “Rolls-Royce CorporateCare”, which includes in-flight monitoring of engine health using onboard sensors. In addition, it schedules preventative maintenance and engine replacements at times least disruptive to airplane operators. The generated dataset can improve management of spare parts and the reuse/refurbishment of components.
While the concept of the circular economy is already gaining global interest, to successfully transition to a circular economy, we will need everyone – the private and public sectors, as well as all parts of the value chain across all industries – to be involved, to push for regulatory change, investments in new business models and innovations, as well as advances in information technology. Project Mainstream, which focuses on the three opportunities above, is an example of the impact that can be achieved by this type of collaboration. Furthermore, in order to drive transformation on a large scale, it is critical to first demonstrate that the circular economy can work in both theory and practice.
Cross-industry collaboration allows players from different industries that use the same material to address the stalemate together, and cross-supply chain collaboration makes it easier to identify the areas where we can save money and resources. Once the proof of concept is established, the circular economy can legitimately become the new model of growth. Companies will then be able to replicate these successful examples and begin the transition to a new paradigm.
Author: Johnson Yeh is Head of the Circular Economy Initiative at the World Economic Forum.
Image: Recycle bins are pictured at a park in Singapore. REUTERS/Tim Chong