Barriers & Drivers towards a New Circular Economy

– Freek van Eijk, Managing Director Acceleratio, March 2015

Barriers & Drivers towards a New Circular Economy: Literature Review

The transition to a circular economy requires a systemic approach which makes use of a wide toolkit of policies and measures, across different points of value changes and affecting the full set of private and public stakeholders.

The circular economy is rapidly rising up political and business agendas. In contrast to today’s largely linear, ‘take-make-use-dispose’ economy, a circular economy aims to decouple economic growth from the use of natural resources and ecosystems by using those resources more effectively. By definition  it is a driver for innovation in the areas of material-, component- and product reuse, as well as new business models such as solutions and services. In a circular economy, the more effective use of materials enables to create more value, both by cost savings and by developing new markets or growing existing ones.

The circular economy also holds great economic potential for the Netherlands, TNO estimated the total market opportunities of a more circular economy to be nearly € 7.3 billion a year, roughly 1.4% of the GDP. Furthermore there is the potential of approximately 54,000 new jobs. The majority of these benefits, nearly € 3.3 billion per year could be achieved in the short-term.

The circular economy requires a system change.

Today we experience rapid change in our society. We are not in an era of change but in the change of an era. Our present set of regulation, aimed to protect consumers, companies and environment, has been drafted in the past and is by definition outdated. “We are looking with old spectacles to new initiatives”. We tend to be late and reactive in our adjustments of regulation which is frustrating new initiatives.

A deep transformation of production chains and consumption patterns and a shift in financial, fiscal and reporting instruments is envisaged to keep materials circulating in the economy for longer, re-designing industrial systems and encouraging cascading use of materials and waste. Some elements of circularity in the linear economy, such as recycling and composting need to be maintained.

But a circular economy goes far beyond the pursuit of waste prevention and waste reduction to inspire technological, organisational and social innovation across and within value chains.

From the combined studies included in this review a picture comes forward that a Circular Economy demands a system change with parallel actions along the value chain rather than a purely sector and/or product focused approach. It requires actions in not only the regulatory field but also requires institutional changes, cultural changes, technological innovation and knowledge development & exchange just as closer cooperation and transparency between all actors (governments, businesses, Barriers & Drivers towards a Circular Economy A-140315-R-Final 4 Barriers towards a Circular Economy, November 2014 inhabitants and the science & education community).

In other words there is a need for a mix of complementary instruments and approaches across different parts of the circular economy (e.g. regulatory measures complemented by economic incentives to ensure pricing of a related product or resource, funding for innovation etc.) and efforts to engage and link actors along the value chain (to ensure circular thinking and identification of opportunities for greater circularity across the entire chain).

The present regulatory system is pre-dominantly sectorial and has a one sided orientation on risks. This hampers new opportunities. In many circular economy business cases perceived environmental risks will have to be balanced against the new economic opportunities. That could also be interpreted as a call not for more regulation but for better regulation and even a call for deregulation: less detailed and specific regulation and more performance based regulation. A Circular Economy also needs room for experimentation within the boundary conditions set by the government. This asks for courage of our regulators

Moreover, the need for policy intervention (if any) and the type of intervention needed will vary according to the issue at hand. It is important that the value chain structure and the business case for circularity for the different actors is understood in detail when considering policy intervention.. There is “no ones size fits all” approach. In some areas, the transition to a circular economy might materialise without intervention (i.e. where products have high embedded material values, where the private sector moves towards more circular and/or service-based models independently as it seek opportunities), while in other areas support including public intervention is needed to encourage the transition.

There is a need for policies which can support existing efforts and opportunities (revising existing policies, removing barriers, supporting bottom-up initiatives); moving beyond the current focus on recycling to support other loops in the circular economy (re-use, repair, refurbish, remanufacture); developing skills and providing incentives for innovation and closer collaboration between different actors along the value chain.

Actions towards a circular economy to date have mainly been driven by value maximization along the value chain and the interest in continually reintroducing assets to markets. Once a material is seen as an investment and customers as users, it makes business-sense to maintain the customer relationship during multiple cycles. The extensive Circular Economy Scoping Study (EU Scoping Study to identify potential circular economy actions, priority sectors, material flows & value chains, 2014 for DG Environment) states that the policies which enable business models and value chains to be more circular, in every sector and along any value chain, are the ones which:

  • Encourage manufacturers to design products with asset recovery in mind and to take into account the true cost of materials;
  • Encourage the development of product lines that meet demand without wasting assets;
  • Incentivise businesses to source material from within regenerative loops, rather than from linear flows; Barriers & Drivers towards a Circular Economy A-140315-R-Final 5 Barriers towards a Circular Economy, November 2014
  • Enable businesses to develop a revenue model that generates value at all parts of the value chain; and
  • Get customers/ consumers to change their consumption and ownership patterns.

Based on this, a case for policy supporting the circular economy can be made where analysis indicates that there are gaps in what the private sector are incentivized to do. In doing so, policy may take on any of the following roles:

  • Ensuring the right incentives by for example fiscal reforms, removal of legislative barriers, better implementation, action on marketing or green public procurement.
  • Removing market structure barriers such as tackling market distortions and unhelpful power concentrations, changing existing legislation, creating extended producer responsibility type markets.
  • Reducing transition costs of the shift to a circular economy by providing necessary infrastructure, promoting technical and structural innovations and GPP practices.
  • Encouraging value chain collaboration, knowledge provision and brokering.
  • Supporting citizen or community-led initiatives–g. social investing, repair cafes, etc.

The transition to a circular economy requires a systemic approach which makes use of a wide toolkit of policies and measures, across different points of value changes and affecting the full set of private and public stakeholders. Given the multi-level governance approach needed, options can be structured across different actors (e.g. EU, Member State, regional and local authorities, private sector, civil society, citizens), levels and timeframes, keeping in mind that in some areas circular economy benefits will materialise as a result of own initiatives by the private sector, while in other areas support (including public intervention) will be needed to encourage transitions.

Obstacles hampering a transition towards a circular economy

A broad range of barriers still hampers the transition to a circular economy. Various (international) studies already outlined a variety of institutional, cultural, financial, regulatory and technological barriers. Just un-blocking existing regulatory barriers that entrepreneurs encounter in their quest to start new circular business will not be enough to make this transition happen.

This literature review has confirmed the gaps that act as barriers to the development of a circular economy, and therefore where further consideration of policy action may be beneficial in promoting the circular economy:

  • The lack of internalisation of externalities through policy or other measures and the lack of resource pricing (cost recovery and pricing for the resource itself), which lead to economic signals that do not encourage the efficient use of resources (e. as there are greater Barriers & Drivers towards a Circular Economy A-140315-R-Final 6 Barriers towards a Circular Economy, November 2014 incentives to use materials more effectively) or a transition to a circular economy (i.e as resources become more costly there are increased incentives to reuse/recycle materials);
  • The lack of skills and investment in circular product design and production which could also facilitate re-use, repair, remanufacturing & recycling;
  • The lack of enablers to improve cross-cycle and cross-sector performance due inter alia to non-alignment of power and incentives for transformation between actors within and across value chains;
  • The lack of consumer and business acceptance regarding consumer-as-user e.g. leasing rather than owning, and performance-based payment models;
  • The lack of know-how and economic incentives including for repair and reuse;
  • The lack of consumer information on origins and perishability of products is not helping to raise consumer awareness on Circular Economy aspects;
  • The lack of waste separation at source (especially for food waste and packaging);
  • The lack of sustainable procurement incentives by public authorities;
  • The lack of investment and innovation in recycling and recovery infrastructure and technologies, (related to this is the lock-in of existing technologies and infrastructure);
  • The lack of harmonisation of transport flows systems within and between municipalities, which leads to confusion among shippers and transporters.
    • Weaknesses in policy coherence (e.g. bioenergy and waste policies);
    • Challenges in obtaining suitable finance for new Circular Economy Business Models;
    • Widespread planned obsolescence within product chains.

This list is non-exhaustive but covers the main barriers to the development of a circular economy.

What can (local) governments do?

Regulatory changes at European level might easily take up 5 years before action materializes at national level. For international alignment, like for example at the UN Climate Conferences, a timespan of a decade is probably an optimistic estimate.

On the contrary, many circular economy initiatives could start within less than a year at local level. The combined energy from all the bottom-up initiatives might create a dynamics that can over shadow the dynamics of changes introduced by politicians (that often are discouraged to plan for initiatives outside their electoral life-span). Barriers & Drivers towards a Circular Economy A-140315-R-Final 7 Barriers towards a Circular Economy, November 2014

In Governments going circular; a global scan by De Groene Zaak (Dutch Sustainability Business Association), EY, Accenture, RoyalHaskoningDHV and IMSA from February 2015 the following conclusion are drawn with regard to the role of Governments.

  • The vast majority of the governments still lack a clear sense of urgency.
  • The circular approach is not only relevant for established economies.
  • Governments are particularly active in waste reduction and resource optimisations programmes.
  • The implementation of large-scale circular and / or sustainable procurement by local, regional and national authorities as launching customer, have yet to be applied by virtually all governments in the world.
  • Governments use a very different set of instruments to achieve goals.
  • Local governments put forward many initiatives.
  • There is no universal solution to boost the transition to a circular economy.

With many inspirational examples they conclude with a practical approach that you can use to implement circularity in your country, province, or city. Please be aware that the (rather general) actions described below do not form a step-by-step plan, but run parallel.

  • Understand the circular necessity
  • Lead by example
  • Map circular economy principles to your local context
  • Create a comprehensive vision or strategy
  • Engage stakeholders: Start the dialogue
  • Choose instruments & Start initiatives.
  • Monitor, adjust and scale

The Dutch NGO Circle Economy published a blog on March 9, 2015 with the same scope: How governments are key for a circular economy. They came up with the following additional recommendations

  • Create an interdepartmental program (collaborating Ministries)
  • Create experimental business areas with flexible regulation
  • Buy patents and make them available to entrepreneurs
  • Have a vision! You can only facilitate when it’s based on your own framework Barriers & Drivers towards a Circular Economy A-140315-R-Final 8 Barriers towards a Circular Economy, November 2014
  • A Circular Economy will have many winners but also losers. Find clever solutions for the ‘losers’ of the circular economy (for example stranded assets)

Companies can start today

A system change doesn’t mean companies cannot start a transition towards the circular economy. In most transitions first movers and early adapters have the largest business potential. In their recent book “Resource Revolution: How to Capture the Biggest Business Opportunity in a Century (2014) Stefan heck and Matt Rogers from McKinsey mention five principles that should be the first area a company should look at when thinking through its resource position.

  1. Finding opportunities to substitute away from scarce resources;
  2. Eliminating waste throughout the system, from production through end use;
  3. Increasing “circularity”- upgrading, reusing or recycling products;
  4. Optimizing efficiency, convenience, safety and reliability;
  5. Moving products, services and the process that develop or deliver them out of the physical world and into the virtual realm.

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* * * For full 138 page report – https://1drv.ms/b/s!AivPCmA_7fpkiIZtWoSQpn9YBy6lKQ

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Table of Contents

Abstract: General Observations .   –   3

Abstract: EU and National Policy Options in detail .   –   9

Abstract: Anticipating Future Barriers (Dutch Programme Better Regulation towards Green Growth) .   –   15

Preface .   –   21

1 Overview of Challenges and Barriers through different Lenses

1.1 Value-chain approach of policy-oriented drivers .   –   24

1.2 Clustering of Barriers / Drivers type .   –   31

1.3 High potential area and strategies for waste .   –   59

1.4 Options for shifting the tax base .   –   61

2 The EU Perspective: Barriers, Priority Materials, Products & Sectors, supporting & blocking Policies Options

2.1 Barriers to the circular economy .   –   63

2.2 Priority materials, products and sectors for the EU .   –   64

2.3 Policy options to support a circular economy in the EU .   –   65

2.4 Barriers to the circular economy and how they can be overcome .   –   68

2.5 Current EU policies that support the circular economy .   –  73

2.6 Current policies that (may) act as a barrier to a circular economy .   –   77

3 The EU Perspective: scoping & policy options for identified EU priority area’s

3.1 Scoping the extent to which additional action is needed for identified EU priority area’s . 82  –

3.2 Policy options to support a circular economy in the EU .   –   88

4 “Governments going Circular” .   –   107

5 Matching the literature findings with the Dutch Programme “Better Regulation towards Green Growth”

5.1 Background Programme R2G2 .   –   114

5.2 Identifying Future Barriers .   –   115 6 Bibliography .   –   119

Appendix I: Policy options to support a circular economy in the EU .   –   124

Appendix II: IMSA recommendations .   –   138

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About the author:

Freek van Eijk
Managing Director Acceleratio
Acceleratio B.V.
Postal address: van Ostadelaan 49, 1412 JH Naarden, The Netherlands
T: +31651080847
e-mail: info@acceleratio.eu
Look at http://www.acceleratio.eu

About the editor:

Eric Britton
13, rue Pasteur. Courbevoie 92400 France

Bio: Founding editor of World Streets (1988), Eric Britton is an American political scientist, teacher, occasional consultant, mediator and sustainability activist who has observed, learned, taught and worked on missions and advisory assignments on all continents. In the autumn of 2019, he committed his remaining life work to the challenges of aggressively countering climate change and specifically greenhouse gas emissions emanating from the mobility sector. He is not worried about running out of work. Further background and updates: @ericbritton | http://bit.ly/2Ti8LsX | #fekbritton | https://twitter.com/ericbritton | and | https://www.linkedin.com/in/ericbritton/ Contact: climate@newmobility.org) | +336 508 80787 (Also WhatApp) | Skype: newmobility.)

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