In our stakeholder engagement for this project, a number of issues were raised by policymakers and experts. This section sets out some of the most important.
What’s in a name?
Key stakeholders in international organizations have stressed the considerable overlap between CE approaches and currently more widely used terminology such as the ‘green economy’ or ‘sustainable development’. Indeed, each organization that we spoke to could claim to have at least some experience of what are, in effect, CE projects. However, most such organizations are using different language to define these activities. With this in mind, focusing on delivering the desired development outcomes rather than on introducing a new set of terms could be the best option.
At the same time, many believe that ‘circular economy’ could prove an attractive and thus expedient umbrella term, as it ties together political priorities such as economic prosperity, job creation, industrial innovation and enhanced resilience. In both China and the EU, the CE policy agenda reflects a desire to limit imports of raw materials, as well as to develop high-quality jobs and encourage innovation. It remains to be seen whether the term is politically attractive in developing countries – but there are signs that momentum in support of its use is building, as the examples discussed in this briefing indicate.
Whatever nomenclature is settled upon – and at least to start with, this will vary by country and company – integrating CE interventions with existing development cooperation will be important to avoid confusion and frustration among already overloaded decision-makers. At the international level, this means demonstrating how the CE can contribute to meeting SDGs and national contributions under the Paris Climate Agreement. Just as importantly, CE strategies will need to be rooted in domestic industrial and social development strategies and driven by locally based organizations if they are to escape the label of being ‘too theoretical’.
Trade-offs?
Approaches and strategies labelled as part of the ‘circular economy’ should not be assumed prima facie to be optimal from a social or environmental perspective.
In some cases there are clear trade-offs between the benefits and drawbacks of CE approaches. ‘Waste-to-energy’ processes, for example, are sometimes included within definitions of the CE, but whether any of these are appropriate in a given context will depend on the materials present, the emissions implications, and what opportunities exist as an alternative to combustion. Similarly, repairing a car needs to be weighed against the efficiency improvement delivered by buying a new one. Novel materials can play an important role in displacing non-renewable materials in the CE, but any gains need to be balanced against the embodied emissions and environmental impacts of those new materials – such as water use in bioplastics.
Approaches and strategies labelled as part of the ‘circular economy’ should not be assumed to be optimal from a social or environmental perspective
In other cases, the challenge is that CE approaches only partially address well-known barriers to economic and industrial development. In agricultural value chains, CE principles offer a useful checklist of value-creation opportunities, e.g. around recycling and utilizing agricultural waste, optimizing the use of resources in the farm system, and creating closed loops to reduce water and fertilizer needs.61 However, a far broader set of governance and market interventions is needed to increase productivity or reduce post-farm food losses. Since these wider issues are well known in developing countries, the risk here is that the CE concept is dismissed as naive and that its potential benefits are missed.
There are also trade-offs to consider within industrial strategies. Some countries in East Africa, for example, are considering blocking imports of second-hand textiles, concerned that these could flood the market and undermine the development of domestic textile industries.62 On the other hand, many people are already employed in processing scrap textiles and reusing these in manufacturing.
Finally, there could be a trade-off around flexibility. Industrial symbiosis, the integration of different industrial processes so that waste from one becomes a valuable input for another, has been a key CE strategy for industrializing countries. In China, for example, CE industrial parks have been established to save energy and integrate the collection, treatment and reuse of waste, sewage and water.63 Yet in some cases an industrial system featuring many interconnections might actually be less able to react to changing circumstances, modify processes and repurpose resources. Rather than encouraging transformative approaches, this could reinforce the influence of incumbent firms.
Path dependency within highly integrated systems could also lead to the locking-in of inefficient technologies or processes. The recycling of cathode rays from televisions offered a high-value opportunity around the turn of this century, but investors lost out when flat screens became the dominant technology a few years later.64 Rather than focusing on specific sectors, processes, products or materials, it may be more useful to build up a broad capacity in reuse and remanufacturing.
Just how circular is ‘circular’?
At present, no agreed set of metrics or methodologies exists to measure progress towards a CE. Indicators such as volume of waste per unit of economic output or material consumption per capita may give a first-order indication of the resource and waste intensity of an economy. However, these indicators are relatively rough, and have to be used with caution when comparing countries. For example, consumption of a litre of water has a much greater impact if the water comes from a drought-prone region.
Tools to track resource flows and stocks in an economy – such as material flow analysis, input–output analysis and life-cycle assessment – are useful at the national or city level but depend on data availability, which is often poor in developing countries.65 A number of firms have started to record their resource use as part of what is termed ‘natural capital accounting’, but for many the available data are patchy. Similarly, attempts to track trade in secondary materials between countries is hampered by the lack of precision within standard trade classification systems.66
Even with better data, measuring progress towards a CE would be a challenge. For a few traditional sectors, such as cement or steel, reasonable comparisons can be made between companies. However, setting benchmarks based, for example, on indicators such as tonne of resources consumed per unit of output value makes little sense for many firms. Within individual product categories, how to capture the full ‘circular’ benefits of product design is a question currently being examined within the EU Circular Economy Action Plan.
A further complication for measurement is the potential for ‘rebound effects’, where reduced resource use leads to a price decrease, in turn encouraging an increase in consumption of that commodity or in consumption of goods and services elsewhere in the economy.67 This may be partly addressed by the use of technology to track and measure the impact of individual products and services. Another approach may be to focus on outcomes rather than processes: i.e. assessing whether a person’s needs have been addressed rather than measuring product circularity per se.68
Poor data, however, should not be an excuse for inaction. It may be possible to move forward on specific ‘circular’ activities with confidence in the outcomes, based on a combination of past experience, some basic historical data and new technologies that enable real-time monitoring so that changes can be easily implemented. Chatham House is currently exploring this idea with partners and stakeholders.
Box 2: Does a circular economy mean a closed world?
In developed countries, the circular economy (CE) has been driven in part by the desire to reduce natural resource imports. This gives the impression that the agenda is at heart protectionist, or at least based on an ambition to achieve ‘growth within’ rather than through international exchange. However, in practice, this assessment underplays the critical role of international trade and cooperation in the CE.
The impact of the CE on trade is more nuanced than is often suggested. It is easy enough to see that as an economy increasingly relies on reuse, remanufacturing and recycling, lower volumes of raw materials will be needed compared with a business-as-usual scenario.69 The impact on the value of trade, however, is less straightforward. There could be a significant increase in the value of secondary materials traded, since the thrust of the CE is to use materials in as high a value state as possible. At the same time, as heavier materials may not be exported globally for recycling, we could see the emergence of regional remanufacturing and reprocessing hubs if the added value from economies of scale exceeds the cost of transport.
One example of the uncertainty raised by the CE is the global trade in used lithium-ion batteries. This trade could expand considerably within the next decade, as first-generation batteries used in electric vehicles head for a ‘second life’ in electrical storage systems in homes or on the grid. However, at the moment it is very hard to tell whether this scenario will in fact materialize: prices of new batteries may continue to fall rapidly; or a new type of battery might emerge by 2030; it is not even certain that the market for electric vehicles will scale up as expected.
Developments in China’s import policies provide another powerful example. Every day, around 1,500 shipping containers leave the US headed to China, loaded with recyclable metals, plastics and other materials.70 In 2013, China announced a new, so-called ‘green fence’ approach. This was partly in response to the falling quality of materials being imported and to concerns about contamination of food, but the move was also intended to support the country’s domestic recycling industry. Rather than introducing new regulations, China tightened inspection regimes for existing policies. Recyclers in the US had to invest hundreds of millions of dollars in new technology and processes – increasing municipalities’ recycling costs – in order to be able to export sufficiently high-quality materials to meet Chinese standards. A single policy change thus led to the upgrading of the global recycling supply chain.
China is currently seeking a new ban on imports of scrap plastics and unsorted waste paper. Set to take effect in early 2018, the ban will apply to four classes and 24 kinds of solid waste. Submissions have been made to contest it, but if the ban is upheld, companies in Europe and the US may again be forced to quickly improve the quality of their recyclates or risk being shut out of the largest market for recycled materials.71 The new regime will also present Europe and the US with an opportunity to improve domestic waste- and resource-management systems.
Exports of products from developing countries could also be affected by emerging CE standards. Change on this front is likely to come in two forms. First, the EU is reviewing all of its eco-design directives that ensure the environmental performance of products, in case a change in approach is needed. Traditional life-cycle assessments, for instance, do not reflect the ‘next use’ value of a material or remanufactured product. Second, we are likely to see the emergence of awareness campaigns and labelling around the CE, either as a single badge (in the style of organic products) or along the lines of A-to-E energy performance ratings.
All this suggests that while there will be new dynamics in international trade and the location of production, the CE will often involve – and indeed depend on – international cooperation. Unlocking the value of this trade will depend on lowering non-tariff barriers, in particular addressing the lack of clarity on the rules that apply to different waste and secondary materials; these rules currently vary between countries. Just as importantly, open dialogues are needed about the potential impacts of regulatory changes, so that countries have time to adapt. Mechanisms that allow countries to share their experiences would be helpful in this respect.
61 Food and Agricultural Organization of the United Nations (2017), ‘Acroecology Knowledge Hub’, http://www.fao.org/agroecology/knowledge/10-elements/en/ (accessed 15 Oct. 2017).
62 TradeMark East Africa (2017), ‘EAC States Oppose Ejection from AGOA over used-clothes ban’, 17 July 2017, https://www.trademarkea.com/news/eac-states-oppose-ejection-from-agoa-over-used-clothes-ban/ (accessed 12 Sep. 2017).
63 D’Escury, A. C. (2014), ‘Can China kickstart its circular economy and kick its smog?’, Guardian, 15 January 2014, https://www.theguardian.com/sustainable-business/china-recycling-waste-circular-economy (accessed 3 Mar. 2017).
64 Kojima, M. and Michida, E. (2013), International Trade in Recyclable and Hazardous Waste in Asia, Institute of Developing Economies, Cheltenham: Edward Elgar Publishing Limited.
65 OECD (2008), Measuring Material Flows and Resource Productivity Volume I. The OECD Guide, https://www.oecd.org/environment/indicators-modelling-outlooks/MFA-Guide.pdf (accessed 12 Sep. 2017).
66 Workshop participant, Kolkata Workshop, Jadavpur University, 25 July 2017.
67 Zink, T. and Geyer, R. (2017), ‘Circular Economy Rebound’, Journal of Industrial Ecology, 21(3): pp 593–602, doi: 10.1111/jiec.12545 (accessed 1 Nov. 2017).
68 See, for example, the UNDP’s Climate Action Impact Tool, which aims to help stakeholders track the progress of actions towards climate and sustainable development outcomes. UNDP (2017), Climate Action Impact Tool, https://climateimpact.undp.org/#!/toolbar/about-the-tool (accessed 26 Oct. 2017); Lemille, A. (2017), ‘Optimizing Circular Value: While implementing Circular Economic strategies, value is of critical essence’, https://www.linkedin.com/pulse/optimizing-circular-value-1-alexandre-lemille/ (accessed 11 Nov. 2017).
69 European Academies’ Science Advisory Council (2015), Circular economy: a commentary from the perspective of the natural and social sciences, https://www.leopoldina.org/uploads/tx_leopublication/2015_11_Easac_Circular_Economy.pdf (accessed 12 Sep. 2017).
70 Flower, W. (2016), ‘What Operation Green Fence has Meant for Recycling’, Waste360, http://www.waste360.com/business/what-operation-green-fence-has-meant-recycling (accessed 12 Sep. 2017).
71 Cole (2017), ‘China Ban on Plastic and Paper Imports Raises Urgent UK Quality Questions’.