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Facts on circular economy in the EU & worldwide: what, where, who & how

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Context - Humans consume more goods and services than what is sustainable in terms of non-renewable resources.

How can the concept of a circular economy help alleviate this problem?

This is a faithful synthesis and summary of several scientific consensus reports. For the full list of sources, refer to the references.
  • Source document:UNEP (2011) / OECD (2008) / EU / EASAC (2015) / COR (2016)
  • Summary & Details: GreenFacts
Latest update: 16 May 2017

1. Introduction

According to analyses of the International Resource Panel (IRP) of the United Nations Environmental Programme (UNEP), humans consume more goods and services than what is sustainable in terms of non renewable resources.

This supports the need for increasing the efficiency with which the economy uses these natural resources and prevents future shortages in raw materials, something that is not only an environmental issue but is vital to the long-term viability of humanity. More...

2. What does « circular economy » mean?

In general terms, for the EU Commission, "circular economy" refers to maintain and optimize the value of products and materials for as long as possible; waste and resource use are minimised, and resources are kept within the economy when a product has reached the end of its life, to be used again and again to create further value through more efficient production and use of goods and services, with the aim of increasing their resilience or sustainability of these resources.

This concept is inspired by natural ecosystems which function in loops known as "closed systems" in the sense that they contribute to their own resilience by optimizing the recycling of non-renewable resources such as mineral substances, which are reused in particular by plants, their primary producers.

For the Environment Group of UNEP2 sustainable consumption and production practices are “the use of services and related products, which respond to basic needs and bring a better quality of life while minimising the use of natural resources and toxic materials as well as the emissions of waste and pollutants over the life cycle of the service or product so as not to jeopardise the needs of future generations.”

The Report also observed3 that the rapid growth of international trade generally enhances energy use and resource flows and therefore impedes rather than promotes decoupling, and thus blurs the responsibilities for resources consumption and their impact on the environment. More...

2 http://drustage.unep.org/resourceefficiency/what-we-do/overview 
3 Preface, page IX

3. What are the physico-chemical constraints and limits to the production and use of products and services?

In a closed system like Earth where energy enters and leaves but material does not, structures may spontaneously appear and organize, the so-called "dissipative" structures, that will favor and even maximise the dissipation (disordering) of the energy that passes through the system or accumulates there. This is the 2nd law of thermodynamics, the law of increase of entropy. (More details in Level 2). The simplest example is that of the hurricane, a structure which, beyond a critical threshold, is organized locally and dissipates the heat accumulated by the ocean towards the atmosphere. Biological systems are simply more sophisticated forms of dissipative structures4.

The maintenance of such organized structures requires a continuous supply of energy and the recycling of its matter (water in the case of the hurricane, water and minerals in the case of plants, plants for animals, etc …). There is therefore an absolute need of conserving the natural non-renewable resources and to optimize this in a circular economy by reducing, reusing and recycling (the 3 "R") the products and services used. More...

4 See as a short introductive animation video on the subject: The principle of emergence https://www.youtube.com/watch?v=_WLYOYE8a5o 

4. How to create a circular economy and what are the benefits foreseen?

In practice, the central element of a circular economy is the “decoupling” of economic growth from an increase in resource use and reduction of environmental impacts. For the Club of Rome report, there is an urgent need for such decoupling between value creation and purely economic growth to ensure a transition to an integrated and circular economy. Decoupling human well-being from resource consumption is at the heart of the International Resource Panel’s (IRP) mandate of UNEP5 and of its Green Economy Initiative6.

In this context, UNEP-Environment's functional definition of a green economy, without reference to growth, is an economy that translates into "improved human well-being and social equity, environmental risks and ecological shortages. In its simplest expression, a green economy can be seen as low carbon, resource efficient and socially inclusive."7 .

To realize what the concrete implementations of such a process are, see in particular some of the short animated educational videos published by the European Commission:

This requires a fundamental evolution of our conceptions and our mentalities: instead of concentrating in a traditionally reductive approach on a single problem at a time, it is indeed essential to be able to integrate simultaneously all the different dimensions implied by such decoupling, and to adopt for this purpose a method of analysis which is truly systemic8. In the vision of the European Commission, the transition to a more circular economy requires such “complete systemic change and innovation, not only in technologies but also in the organization, society, financial methods and policies”9.

Among the benefits underlined in the EASAC report that could derive from a circular economy are:

  • A reduction in the environmental impacts of the extraction and use of non renewable resources and waste disposal;
  • Opportunities to move from a generation of revenue generated by selling products to revenue generated by offering services;
  • Improved security of supply and control of rising costs;
  • A significant contribution to the mitigation of climate change.

More...

5  http://www.gci.org.uk/Documents/Decoupling_Report_English.pdf
6 UNEP, 2011 Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication
 http://web.unep.org/greeneconomy/sites/unep.org.greeneconomy/files/field/image/green_economyreport_final_dec2011.pdf
7 http://staging.unep.org/greeneconomy/AboutGEI/WhatisGEI/tabid/29784/Default.aspx 
8 http://www.clubofrome.org/a-new-club-of-rome-study-on-th e-circular-economy-and-benefits-for-society/  
9 European Commission Towards a circular economy: A zero waste programme for Europe COM(2014) 398 final pg 2  http://cor.europa.eu/en/activities/stakeholders/Documents/COM(2014)%20398%20final.pdf

5. What are the main obstacles towards a circular economy?

For the Club of Rome report, market forces by themselves are not able to move towards a more decoupled structure of the economy by adjusting overall efficiency and resilience in the availability of resources. Furthermore, some of the regulations currently in place to promote such an economy such as: support systems for renewable energy, emissions trading, the eco-design directive, energy efficiency standards, targets for recycling of materials, etc…, are still ineffective.

Meanwhile, and as underlined by EASAC10, a key factor remains that prices do not reflect the true global value (including their hidden “external” costs) of goods and services. Therefore they do not play their essential role of informing on the scarcity of resources, the need of really coordinating the demand on possible supply and to provide full financial compensation for the value of goods and services that are produced and consumed.

A further important obstacle is the existence of environmentally harmful subsidies (EHS)11 like subsidies to the extraction of fossil fuels. For the UNEP working group report, the major challenges of decoupling should thus be to:

  1. Explain how the understanding of global resource flows may allow to better make the link with related challenges,;
  2. Convince policymakers (and the general public) that the absolute physical limits to non-renewable natural resources impose to act;
  3. Accelerate resource decoupling that has already started to happen;
  4. Develop appropriate market signals;
  5. Promote cities as privileged spaces to generate practical decoupling in the ways these produce and consume;
  6. Make agreed that decoupling is a necessary precondition for reducing the levels of global social inequalities

More...

10  http://www.easac.eu/fileadmin/PDF_s/reports_statements/EASAC_Circular_Economy_Web.pdf
11 http://ec.europa.eu/environment/enveco/taxation/pdf/Harmful%20Subsidies%20Report.pdf  

6. How can the consumer contribute to a more circular economy?

By their choices, millions, if not billions of consumers can support or hamper the successful transi¬tion to a circular economy for improved and new types of products and ser¬vices. However as also underlined by the EASAC report, a major obstacle remains consumer attitudes and behaviour, which are always more influenced and driven by fashions and the marketing of industrialists and traders than by the concerns of obsolescence or recycling ...

It is thus crucial to raise consumers’ awareness and to increase their proactive role12. The EU’s action plan on the Circular economy laid out five axes of action that will help consumers to choose products and services that are better for the environment and at the same time, provide monetary savings and an increased quality of life13. More...

12  http://ec.europa.eu/priorities/sites/beta-political/files/circular-economy-factsheet-consumption_en.pdf
13  https://ec.europa.eu/commission/sites/beta-political/files/circular-economy-factsheet-consumption_en.pdf

7. How can the goods production be better adapted to a circular economy?

Circularity must be conceived at the global level but adapted and implemented at the local level. At the enterprise level, the cost of 'environmental externalities', such as the intrinsic value of non-renewable resources given the reserves that can be exploited in the long-term (a.o. fossil fuels, but also rare earths or phosphates14 and even fresh water), and the environmental damage caused by their exploitation but also their transport or use, are not reflected in market prices of products and services.

The circular economy starts at the very beginning of a product’s lifecycle as the production phase has an impact on the environment and supply of resources but uses and generation of waste are local challenges15.

For the UNEP report, innovation in these areas is one of the keys and will need to take the form of a learning economy, where information is shared, rather than knowledge economy, where information is patented and protected.

The initiatives of the EU program should help to innovate globally for a circular economy are: better and more ecological product design and production processes, direct economic incentives for producers to make products that can easily be reused or recycled, and supporting innovative industrial processes. These include measures to reduce food waste, measures promoting the sustainability, repairability and recyclability of products and quality standards for secondary raw materials, a revision of the fertilizer regulation, a strategy on plastics addressing issues such as recyclability, biodegradability and the presence of hazardous substances, and a series of actions in the field of water reuse. More...

14 Read our Phosphate Digest
15 Factor 5: Transforming the Global Economy through 80% Improvements in Resource Productivity by Ernst von Weizsäcker et al (2009/2010). http://www.clubofrome.org/report/factor-five/ 

8. Can a more circular economy be economically profitable?

At the enterprise level the current market signals are still largely in favor of maintaining the linear economy approach. Nevertheless, some estimates of the benefits of a more circular economy in the future context of scarce resources indicate potential positive outcomes on trade balance, employment, greenhouse gas emission reductions, efficiency of enterprises and national resources, as well as better security of supply.

In terms of employment, an economy favoring the re-use, recycling, upgrading and refurbishing, is in the short-term demanding more labor force than mining and manufacturing activities but this as long as other factors such as an uncontrolled robotization trend, does not challenge social models16. More...

16 ARTIFICIAL INTELLIGENCE, AUTOMATION, AND THE ECONOMY EXECUTIVE OFFICE OF THE PRESIDENT  https://www.whitehouse.gov/sites/whitehouse.gov/files/images/EMBARGOED%20AI%20Economy%20Report.pdf

9. What about the impact of circular economy practices on prices and taxes?

The evolution of linear economies has been, inter alia, driven by a market that does not tell the ‘ecological truth’. If the true global cost of the circular economy model embedding these externalities into prices was compared with the apparent cost of the linear economy model, then a proper comparison of the costs for pursuing a circular economy over a linear economy could be made17.

On the basis of such accounting and more specific indicators, it becomes possible but also of crucial importance to rethink taxation and pricing but, as underlined by the EASAC report, this is not seen as an essential adjustment to an inherently flawed and unsustainable economic model but rather as a burden to society.

For example, adapting in the E.U. the Value Added Tax (VAT) system by integrating the cost of externalities would allow to differentiate the products and/or activities demonstrating a lesser impact, and to facilitate the development of a more sustainable win-win circular economy for the environment, consumers, governments and business activities altogether. More...

17 French Commissariat général du développement durable -Monétarisation des biens, services et impacts environnementaux : la variabilité des valeurs monétaires.  http://www.developpement-durable.gouv.fr/IMG/pdf/ED126.pdf

10. What are the indicators of progress toward a more circular economy?

Classical economic indicators based on traditional national accounts, such as the usual Gross Domestic Product (GDP) do not provide a means of measuring the efficiency with which resources are used. New indicators that are more consistent with sustainable development are under discussion. This is the case for those provided by Life Cycle Assessment based methods (LCAs), which provide a better basis for developing more specific tools including monetary indicators to integrate and differentiate the costs of environmental and social externalities of products and services that would otherwise be undifferentiated. More...

11. How and where circular economy principles are already applied?

The basic concepts of circular economy are already in use and the report of the Club of Rome made a detailed analysis of their use in various countries.

China since 2006, has run nationwide mandatory energy saving and pollution reduction programmes to address what Chinese researchers refer to as ‘low resource efficiency’ and ‘high pollution levels’. The measures China introduced since then will be of crucial significance for every other developing countries with similar policy intentions and a test case for a ‘global economy’ at world level.

In Japan, the Sound Material Cycle Society (SMC) concept was central to the approach where Material Flow and these instruments are probably the most advanced examples of measures aimed at increasing in practice resource productivity and minimizing negative environmental impacts.

In Germany, between 1994 and 2007 a seemingly impressive level of resource decoupling has occurred even if the figures did not allow to adequately measure the impact of this decoupling.

In the Netherlands18, the stream of products from the metal and electrical sectors that are repaired and reused represented about 16% of the number of new products and about 81% of products from these sectors are offered for recycling suggesting that, in these two sectors at least, a certain degree of circularity has already gained acceptance.

In the EU, circular economy principles have been gradually integrated in industrial best practices, green public procurement, use of cohesion policy funds, and in the construction and water sectors. In its 2017 report on the Circular Economy Action Plan19 , the EU Commission listed the key measures taken among which steps that should be taken to inform and encourage investors and innovators to follow a circular economy model.

Besides, the Word Business Council for Sustainable Development recently published a Practical guide to the circular economy20 developed, which included several concrete business cases and allowed to identify five key steps to make the transition towards a circular business.

Eventually, the International Resource Panel's (IRP) regularly publishes scientific assessments covering economic decoupling initiatives in relation with Cities, environmental impacts, water, metals, land and soils, food, … 21 More...

18 Opportunities for a circular economy in the Netherlands www.tno.nl 
19  http://ec.europa.eu/environment/circular-economy/implementation_report.pdf
20 Unlocking More Value with fewer resources – A practical guide to the circular economy
http://www.wbcsd.org/Projects/Education/Leadership-program/Resources/Unlocking-More-Value-with-fewer-resources-A-practical-guide-to-the-circular-economy 
The WBCSD is a global, CEO-led organization of over 200 leading businesses and partners working together developing multiple resources for companies to accelerate the transition to a sustainable world.
21 http://www.resourcepanel.org/reports 


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