Waste and environmental lawyer, Fiona Ross of Pinsent Masons, look at the European Commission’s Circular Economy Roadmap and the key issues that could arise in the context of the UK switching to a more circular economy model…
The European Commission is currently consulting on proposals for a Circular Economy package, following publication of a Circular Economy Roadmap in April 2015. The concept of a circular economy centres around the retention of value of materials and energy used in products within the economy for as long as reasonably possible, with expected benefits including a high level of environmental protection, monetary savings to consumers and potentially major benefits to the wider economy.
The concept has gained significant ground in the last two years, with the European Commission already having published a Circular Economy package in July 2014, which was subsequently withdrawn at the end of 2014 with the promise of a more ambitious and wide ranging package to be published in 2015.
The European Commission’s Roadmap indicates a desire to broaden the scope of the package beyond waste management measures, to include measures applicable at all stages of a product’s lifecycle, ranging from extraction of raw materials, product design, production, distribution and consumption of products and raw materials, through repair, reuse and remanufacturing, through to waste management and recycling.
The Holistic Approach
Essentially, the Roadmap proposes a considerably more holistic and lifecycle based style of approach to consumption than has previously been taken, by breaking down existing barriers and developing new markets and solutions. It indicates that barriers include weak price signals for recovered and more sustainable products, split incentives throughout the supply chain, a lack of coherence between policy instruments and a lack of harmonised standards.
Here we take a look at some of the key issues arising in the context of switching to a circular economy:
Markets for secondary raw materials. In order to support a viable circular EU economy there needs to be strong markets for secondary raw materials produced through recycling and reprocessing. The global commodity markets impact heavily on prices for raw materials, and where prices for virgin materials are low these tend to be specified rather than secondary materials, making the latter uncompetitive. This can put entire supply chains at risk of collapse, with volatile prices leading to losses for those who have collected and reprocessed materials for which there is now no viable end market. The presence of a robust market for such materials is fundamental, as without such an end market there is no economic driver for the collection and reprocessing of post-consumer products and waste material.
Lack of recycling and reprocessing facilities within the EU. The EU is currently highly dependent on the export market for recyclate, exporting around a quarter of that which it produces. This means that there is not a strong market for such material in the EU, with a corresponding lack of recycling and reprocessing facilities to produce secondary raw materials and of manufacturing facilities using such materials. In order to achieve a circular economy, the EU would have to process and use much more secondary recovered materials within the internal market.
Incentives for the use of secondary raw materials? In light of the lack of recycling and reprocessing facilities or strong markets for secondary raw materials a question arises over whether there is an argument for incentivising the use of secondary raw materials in certain products. Measures could include requirements for a certain amount of recycled or reprocessed material in products and/or tax breaks for second hand and recovered products. This could send positive signals for investment in more (and more innovative) recycling and reprocessing facilities in the EU, thereby helping create the conditions where the value of such materials can be retained within the EU economy.
Harmonised standards. The EU is in a strong position to harmonise standards for secondary raw materials and recovered products across the EU, bolstering consumer confidence and creating cross-border markets for such materials and products. At present the lack of such standards can act as a barrier to investment, potentially limiting markets for such materials and products to within a single Member State, or involving onerous processes to demonstrate that recovered products have left the waste chain and can be used free of waste controls.
Developing circular business models. Examples of circular business models include those focused on producer responsibility, from the product design stage to the reuse, recycling or reprocessing of products at the end of their lives. In this context it is of significant benefit to many manufacturers to have control of their products at the end of their lifecycle, so that they can be refurbished and re-sold into second hand markets, or economically reprocessed into secondary raw materials for use in new products. Producers of electrical and electronic goods have already woken up to the benefits of such an approach, particularly in light of the increasing scarcity of certain natural resources. This supports business models adopting a rental or services based approach to the distribution of products, with payments made throughout the lifecycle of a product rather than on a one off basis at the outset.
Financing circular business models. The likely shift in the way in which products are distributed and used presents challenges in terms of valuation and financing of businesses. Issues such as optimising product design for recycling become more important, and if robust end markets are developed assets can no longer be expected to depreciate to a value of nil over their lifetimes, given the inherent value in the raw materials and energy used to make them. Some banks are already considering how this will change the way in which they will value and fund businesses going forward.
One of the key outcomes from the circular economy consultation and subsequent discussions that will affect CIWM members is likely to be revised European waste recycling and reuse targets. There are also proposals to make targets more country-specific, as has been done with emissions reduction targets.
However, most within the industry have been positive about the opportunities presented by the shift to a circular economy, with a recent report by Imperial College London estimating that the adoption of a circular economy could contribute £29bn (1.8% of current GDP) to the UK economy by 2025, and could also create around 175,000 jobs. The majority of this contribution would come from recycling and reprocessing wastes, such as mixed metals, plastic and wood waste, within the UK.
Businesses with an interest in waste and resource management, energy from waste and manufacturing should take their opportunity to shape the new framework by responding to the consultation before it closes on 20 August 2015.
Fiona Ross is a specialist waste and environmental lawyer with Pinsent Masons LLP. To contact Fiona email her at Fiona.firstname.lastname@example.org or call her on 0207 490 6462.