Radical policies to (finally) enable the circular economy

George Cole, UK Policy Lead for Resource Futures, considers the barriers and what needs to change to facilitate a circular economy.

I’m the first to admit it. I probably spent too much time alone when working from home in the pandemic. Like most people, I was fascinated by the Tiger King, Kanye’s run at presidency, and all the crazy news from the outside world.

Working from home I also ate a lot of toast. While waiting for it to pop up, I found myself thinking about the true essence of a circular economy, why our own economy is still so far from circular and wondering if more radical steps are needed to achieve it within my lifetime. Here’s how that conversation went…

What is the circular economy? It’s where products and materials keep circulating in a high value state of use, through supply chains, for as long as possible.

Sure, but everyone recycles now, don’t they? The circular economy goes far beyond recycling. It’s about reducing resource use, sharing, and maintaining products in use, reusing, refurbishing, and remanufacturing. Recycling simply isn’t enough.

Isn’t that what the Prime Minister said? The circular economy also involves biological and chemical cycles. It’s a systemic approach that doesn’t just focus on waste. It encourages eco-design of products and systems thinking so that products work perfectly with the economic systems to maintain them and manage at end-of-life. The Ellen MacArthur Foundation estimates that circular economy strategies could help reduce global emissions by 40% by 2050. In the UK, the Green Alliance estimates a more ambitious plan for the circular economy could create 450,000 jobs in repair, reuse and recycling by 2035.

Sounds great, sign me up. Lots of people think so too but getting there is slow going.

What’s the hold up? Existing businesses and supply chains are highly optimised to produce, distribute and use products in our take-make-dispose ‘linear’ economy. It may be costly to transition to circular economy business models, and for market leaders that risks losing their competitive advantage.

That’s not true. What about KeepCup, refill shops, and all the apps to rent out your car, clothes, and tools? There are some really great examples of circular economy businesses that have broken through and are able to compete with traditional businesses on price and quality.

Can’t we just do more of that then? Whilst some businesses are leading the way, the economy is vast and many sectors struggle with circularity. Governments are providing support for innovation and scale-up of circular businesses, but we most often hear about new entrants with ambitions to be the next big market disruptor. There is more inertia when established businesses look to adopt circular economy principles and it’s hard for new circular start-ups to compete with the established market leaders in the linear economy.

It doesn’t sound like a very good business model then. It adds an extra dimension for a business to adopt circularity and compete with traditional businesses on price. The problem is that many of the environmental costs of production are hidden in the current economic system. The impacts of carbon emissions, marine plastic, and air pollution are not reflected in the price paid for goods and services. Economists call these negative environmental externalities.

Now you’ve lost me. It means that you (the individual) don’t pay these costs when you buy something, we (society) all pay the costs later with our health and the health of our ecosystems.

That doesn’t sound good. So, you’re saying it’s not a level playing field for circular businesses to thrive? It’s not even the same game. It’s like a baseball team trying to compete in a professional cricket match, using a baseball bat, and playing by the rules of both games at once.

You stretched that analogy pretty thin. What more can be done? Circularity shouldn’t be a bolt-on feature or limited to a small part of the economy. To realise its full potential, you would need to dispose of the linear economy and adopt the new sustainable circular model.

How is that going to happen? Well, you could change the rules of the game to better support circularity. Get everyone playing baseball and stop the cricketers hitting the circular businesses for six.

Please stop talking about baseball. I can’t see how the rules of the economy are going to change. It’s unlikely without government help. We have inherited one set of economic rules, but it’s possible they need to be updated if we want to safeguard our environment for future generations.

What can governments do? One idea is to reduce taxes on labour and increase taxes on pollution and resource use. The Ex’tax Project argues that “High taxes on labour encourage businesses to minimise their number of employees. Resources, however, tend to be untaxed; they are used unrestrained. This system causes unemployment, overconsumption and pollution”.

The proposed changes to the tax system are designed to incentivise businesses to reduce pollution and linear resource use by adopting circular economy practices. Reducing taxes on labour will enable labour-intensive circular economy solutions, such as R&D, eco-design, partnerships, repair and reuse. Essentially, it means that making sustainable choices will also save businesses money. There are some important issues to solve, but the idea could in theory create the widespread change needed to kick-start the circular economy.

Changing the rules of the economy is a bit radical though. Who is behind this Ex’tax Project? It’s founder Femke Groothuis works with a motley crew of famous radicals and subversives that includes Deloitte, EY, KPMG and PwC, along with Cambridge Econometrics and Trucost. The Green Alliance thinktank has also researched a greener tax system for the UK.

They sound mainstream to me. What are governments doing now? The Dutch government  recently expressed support for a tax shift in line with the Ex’tax proposal. Others are addressing downstream waste management. For example, many governments including the UK are introducing Extended Producer Responsibility reform and Deposit Return Schemes.

I’ve heard of those. Yes, Deposit Return incentivises people to recycle their drinks containers rather than put them in the bin or drop them as litter. Extended Producer Responsibility puts the cost of waste management onto businesses like brands and retailers, and the reforms will reduce these costs to business if they make their products more sustainable, for example by making them easier to recycle.

So it IS all about recycling. No, and that’s the point. We’re yet to see how these policies will play out but they can only go so far and if we are to take things like Net Zero targets seriously, we need much more widespread change.

[Toaster pops]

But you’re saying that if we don’t change, we’re… Toast! Exactly! Well, not toast, necessarily. Green tax reform is just one idea and obviously has wide reaching implications that must be considered very carefully. But if we are to realise the full potential of the circular economy, we do need to lay the path for the system change at scale. If we can accelerate that shift in the next 10 years, businesses will see the opportunity and drive it forward, because circular business models, and protecting the environment, will become an economic necessity.

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