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Can we make the resource economy fit for the long-term?

Experts at this year’s RWM will discuss how to scale up the resource economy and the global levers that are needed.

David Newman

David Newman, president, International Solid Waste Association, and managing director, Bio-based and Biodegradable Industries Association

Cradle-to-cradle, zero waste, circular economy, resource efficiency – call it what you will, the objectives are the same: to maximise recovery and reuse of materials as resources rather than consign them to waste disposal. The theories have all been born out of the past two decades of rapid economic, population, consumption and urbanisation growths accompanied by a growing public environmental awareness.

But are these models right for the next decade? And what do they imply for the recycling and waste industry? Taking a long view, it is clear that the pressure on resources will increase, although there will be surprises along the way due to waste prevention policies, changes in consumption patterns and industrial production processes: less paper, maybe less steel, less energy per unit, more bio-based products, lightweighting, sharing (the internet of things) and an ageing population (old people consume less). The consumption increases are going to be in Asia, Africa and Latin America, not in the developed economies. All this is known.

What we do not know is whether we can find an economic model to make resource recovery a long-term and viable industry. Currently we are struggling as commodity prices continue to fall (down on average 18% in one year), making recovered resources less competitive. I fear this is going to continue for some time, and we shall see major waste companies exiting the recycling business altogether.

Extended producer responsibility systems are an answer to subsidise sales of secondary raw materials during negative markets. These are, of course, consumer taxes with another name; higher landfill taxes are another, to make recycling competitive; the carbon tax is the mother of all answers because it prices in the environmental cost of extraction and primary raw material transformation.

But will the UN Framework Convention on Climate Change, COP21, in Paris this December deliver? I doubt it.

Where there are no such taxes (Brazil is an example) recycling hovers at the 1% level. Theories are beautiful, markets are our daily reality and in Brazil no-one is talking about the circular economy.

The UK has struggled to rise above 44% recycling levels for the past two years despite a landfill tax among the highest in the world. To achieve greater recovery targets we will need more taxes to subsidise industries so that they recover and can sell secondary resources, at least at the same market price as primary resources. As markets recover, we will be able to reduce taxes, a tough ‘sell’ these days.

Joachim Quoden

Joachim Quoden, managing director, Extended Producer Responsibility Alliance (EXPRA)

The EU’s 7th Environment Action Programme has set out that we need to change economic models from linear to circular, where everything can be used again, used for different purposes or can be recycled.

This sounds simple enough, but in practical terms it is much more complex. It needs a lot of interaction between all parties, and means that everyone needs to liaise in a climate of trust, positive attitude and the right legislation. The circular economy (CE) is a matter of partnership.

But a CE cannot be fully achieved overnight, if ever. It will be an evolving revolution, rather than a revolutionary evolution. But it is also a great opportunity for the EU to make our economies more compatible and less dependent on other countries, so its institutions need to design appropriate legislation.

A good example of what can be done is in packaging. Packaging users and producers are one of the longest proponents of environmental thinking. They have shifted from heavier packaging to lighter materials, and most packaging is recyclable and contains recycled material. The sector has invested in the shift to plastic packaging becoming fully recyclable and made of plant-based materials.

Some companies are actively involved in packaging waste management because of voluntary or mandatory extended producer responsibility (EPR). This means a producer’s responsibility for a product is extended to the post-consumer stage of a product’s life cycle, and by which a member state shares public service responsibilities with private firms.

Companies are made financially and/or operationally responsible for their products, even after use by customers, so that used products can be recycled or recovered. This motivates such firms to take end-of-life treatment into account when designing their products/ packaging. This leads, in optimum cases, to circular use of the packaging.

But the 28 member states use 28 ways to implement the Packaging Directive and 28 ways to calculate their recycling results. With many EPR systems transparency is not high on the priority list: it has become a commodity seen by some as a business and cash opportunity instead of a way to strive for the best environmental and economic performance.

The European Commission will surely present higher recycling goals for packaging by the year end. EXPRA believes Europe should get involved in the implementation process of EPR and be brave enough to identify best practices and put them into legislation.

Dominic Hogg

Dominic Hogg, chairman, Eunomia

A key premise underpinning the argument of those who see the transition to a circular economy (CE) as inevitable is that, following the increases of the past decade, commodity prices will stay high, or continue to rise, and they will be more volatile than they have been in the past.

What has been surprising about this premise is how infrequently this argument seems to have been challenged in public.

The assumption that commodity prices will largely go in one direction smacks of hubris. And if anyone made the claim with the intent that people took it seriously, the consequences of clinging to such a belief would most likely exert the opposite effect: supply would expand and demand would fall, leading to lower prices.

The hubris is already manifesting itself in recent market developments. Even though you cannot attend a conference about resources and waste without being pitched the idea that 100 years of real term price falls have been wiped out in the past decade, the reality is that the situation has largely reversed in the past four years. An update of the ‘hockey stick’ graph shape showing a fall and then sharp upward spike (which, incidentally, is not easy to reproduce) might now look more like a saw blade.

We would simply be reproducing the hubris of those who said commodity prices would stay high for the foreseeable future to state that they will remain low for any significant period of time. The reality is – as the empirical evidence suggests – that no one is in possession of the crystal ball that is required to make an assertion in either direction.

So what does this mean? We cannot rely on commodity markets as they are currently structured to foster a transition to a CE. Instead we need additional policies to foster its development. And if the prize is large enough, we need to consider policies that will have a transformative impact.

We now need to develop a ‘coalition of the willing’ for the concept of a natural resource tax, to be implemented at EU level – at least initially but with a view to more global application. The design of the tax should be based on the presumption that border tax adjustments (exempting exports and taxing imports, to address competitiveness concerns) will be applied.

This is a measure that will not happen tomorrow, and the political realities around tax harmonisation in the EU suggest that even a 10-year horizon might be optimistic. But if we really want to drive forward the CE, and recognising the signals that commodity prices can generate, our ambition in terms of the transformation will need to be matched by our ambition in terms of policy design.

Helga Vanthournout

Helga Vanthournout engagement manager, environmental strategy, McKinsey

McKinsey, together with the Ellen MacArthur Foundation and Stiftungsfonds für Umweltökonomie und Nachhaltigkeit recently published Growth Within: A circular economy vision for a competitive Europe.

The report reveals that, by adopting circular economy (CE) principles, Europe can take advantage of the impending technology revolution to create a significant benefit in three of its most resource-intensive basic needs: food, mobility and the built environment. These together account for 60% of household costs.

Economic benefits: A CE could result in overall benefits of e1.8tr (£1.3tr) by 2030, or twice the benefits seen on the current development path (e0.9tr)

Societal gains: By adopting CE principles, Europe can take advantage of the technology revolution and increase average disposable income for EU households by e3,000, or 11% higher than the current development path, and create further benefits such as reduction of road congestion and associated costs.

Environmental outcomes: Across the three basic needs studied, carbon dioxide emissions would roughly halve by 2030. In the meantime, primary material consumption measured by car and construction materials, real estate, synthetic fertiliser, pesticides, agricultural water use, fuels and non-renewable electricity could drop 32% by 2030 compared with today.

This work, as well as several previous country- level assessments, lays out concrete pathways for Europe to move away from its current linear growth model, which is highly dependent on finite resources, exposing it to resource volatility, limited gains in productivity, and huge loss of value through waste. Moreover, subsequent conversations indicate that there is a keen interest in other parts of the world to assess in more detail the potential of such a shift.

For Europe, accelerating the transition to a CE would involve four efforts: Europewide learning, research and opportunity identification initiatives; resource, geography and value chain-focused pilots; circular system change groups to identify improvement opportunities between materials suppliers, manufacturers, users, recycling companies, and policy-makers; and further academic research.

Europe’s transition to a CE might take one or two decades, and will lead to many changes at all levels of the economy. This should not discourage corporate decision- makers and policy-makers in Europe or other regions.

Creating the EU inner market was a similarly involved process but started yielding benefits early on and, as our analysis shows, the benefits of a CE transition are worth the effort.  

 

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