Challenges and opportunities of the Circular Economy

According to the 2018 National Waste Policy paper, Australia generate 67 Million tonnes of waste per annum, which equates to 2.7 tonnes per person. In 2016 - 2017 Australia exported around 4.23 mega tonnes of recycled materials to over 100 countries, one of the main importers was China with 1.25 million tones.

in January 2018 China decided to ban the import of foreign waste including Australia. This decision has a direct impact on recycling and waste management practices in Australia, which exports three main categories of recycling material: metal, paper and cardboards, and plastics.

In this context the idea of a circular economy is gaining momentum in Australia as a response to the issue of recycling and waste management. Essentially, the objective of a circular economy is to maximise value at each point in a product’s life. A circular economy seeks to close industrial loops and to turn outputs from one manufacturer into inputs for another and, in doing so, reduce the consumption of virgin materials and the generation of waste.

In June 2018, the Senate Environment and Communications References Committee published its report on the waste and recycling industry in Australia. The first recommendation made by the Committee was that the Australian Government establish a circular economy.

The report stated:

"The committee recommends that the Australian Government prioritise the establishment of a circular economy in which materials are used, collected, recovered, and re-used, including within Australia. This transition must include a suite of regulatory and policy changes aimed at influencing behaviour, as well as investments in infrastructure and technology."

The NSW Government has also signalled its support for the creation of a circular economy, as have the Governments of South Australia and Victoria.

The aim of this research is to explore the circular economy (CE) concept along with the main challenges and opportunities in the Australian context. I will also include some examples of CE in the world and suggest potential developments in Australia.

So, what is circular economy?

In Australia, our use of resources generally exists in what can be called a linear economy, where we take resources to make into products that we then use, and dispose of.

The circular economy is an alternative to the traditional linear model, where the goal is to ‘keep resources in use for as long as possible, extract the maximum value from them whilst in use, then recover and regenerate products and materials at the end of each service life. In other words, a circular economy seeks to eliminate waste and to keep resources in a continually flowing loop

According to the Ellen Macarthur Foundation which is a global thought leader establishing the circular economy on the agenda of decision makers across business, government, and academia,

“The circular economy (CE) is an economy in which economic activities derive value under the conditions that an existing resource stock within the system is continuously recirculated to maintain its maximum value and utility over time, and fluctuations in that stock are in balance with the environment; enabling the viable and sustainable use of resources. All activities during product life cycle stages are designed to circulate the resources, and support the preservation and regeneration of the biosphere so that hazardous outputs are eliminated and regional resources are not degraded.”

How does it work?

Some of the essential elements necessary for a circular economy are to:

  • design and manufacture products that are made from recycled materials (rather than virgin resources), that can be repaired and/or recycled back into the system;

  • establish repair centres as part of this design and manufacture process, so that items can be repaired;

  • establish collection systems so that items unable to be repaired are collected,rather than disposed of in landfill;

  • ( can we enhance or foster the use of some charity organisations such as the "Salvation army, smith family, etc, as recycling centres?)

  • ensure that there is adequate and appropriate recycling facility infrastructure in place, taking into account location and sorting capacity; and

  • encourage manufacturers to purchase recycled materials, thereby closing the production loop.

One example of the circular economy in action is certain forms of metal recycling. Metal is mined, refined, made into a product, used, disposed of via recycling and then a new product is made out of it, the metal keeps going around. Contrastingly, with many items in the linear economy, such as a plastic container, for example oil is mined, refined and then made into a plastic item and, while some of the product is recycled, much is disposed of in landfill where the resource is never used again.

The Ellen MacArthur Foundation, which has as its mission to accelerate the transition to a circular economy, argues that the circular model relies on system-wide innovation and builds economic, natural and social capital. Further, the circular economy model is driven by renewable resources, rather than finite ones. In practice, this means that a circular economy depends on renewable energy, such as wind, solar and bio energy, rather than coal and other finite fossil fuels.

There are two primary business models under the circular economy: those that foster reuse and extend the life of a product through repair, remanufacture, upgrades and retrofits; and those that turn old goods at the end of their service life into as-new resources by recycling the materials they contain. The circular economy cycle can be further broken down into two distinct processes, one for biological materials and the other for technical materials, with a continuous flow of materials through the cycle.

The Business case for the CE

In 2015, the World Resources Forum Asia Pacific held in Sydney estimated the value of a circular economy to Australia could be around AU$26 billion per year by 2025. More work is underway now to quantify the Australian opportunity, but if the European ($AUD 2.9 trillion) and China ($AUD15 trillion) opportunities are any indication, it will not be insignificant.

In a submission to the senate inquiry into the waste and recycling industry, The Waste Management Association of Australia stated that "for every 10,000 tonnes of waste recycled, 9,2 jobs are created" South Australian data also revealed that some 25,000 jobs would be created over five years if waste was recycled and reused, rather than dumped or exported.

Therefore the economic argument for the circular economy is just as strong as the environmental one. Efficiency is integral to business thinking, with manufacturers wondering how things can be made better, and at a lower cost. So sourcing materials from someone else's waste, can be a cheaper option than buying new materials.

Waste Streams

The pairing of existing material waste streams with companies who can utilise them is key, and this can happen inside or outside of a company’s own supply chain. There are already indications of this taking off, with huge players like mining companies starting to capitalise on the financial opportunities by mining streams of waste, such as in the form of recycled battery components, rather than mining deeper holes in the earth.

The Sharing Economy

The growing trend of the sharing economy could continue to create a new form of consumer economy in which experiences and access to items are more desirable than ownership. In the U.S. alone there’s a $26 billion sharing economy. This is in line with the circular way of thinking where products are leased from a manufacturer, rather than owned indefinitely by the customer. It also keeps things in the power of the ‘inner circle’, maximising use and minimising waste, and ensuring that products cycle for as long as possible.

A Growing Market

For retailers and distributors it means a closer relationship with the customer, and more opportunities at different points in the product life-cycle in terms of repair, reuse, and refurbishment. And there is most definitely a growing market for sustainable design. Reports have shown that the majority of consumers believe brands should help solve social problems and improve quality of life, and that millennials prioritise environmental impacts in their buying decisions. Growing environmental awareness coupled with unprecedented access to information and social media means that consumers can have a powerful impact.

Initiatives like the Closed Loop Fund, a $100 million effort financed by companies including Walmart, PepsiCo, Coca-Cola, Goldman Sachs and Unilever are already helping by improving recycling infrastructure and material reuse. The Ellen MacArthur Foundation’s Circular Economy 100 membership group is a program assisting organisations at different points in their sustainable development to develop and realise their circular economy ambitions. It helps members learn, build capacity, network, and collaborate, and includes companies such as Apple, DHL, Michelin, and Ikea.

Going In Circles

'The Circulars’ is an annual circular economy awards program, established by the World Economic Forum and the Forum of Young Global Leaders. The awards recognise notable contributions to the circular economy in the private sector, public sector and society.

This years joint winners in the Circular Economy Multinational category were Philips and Veolia. Philips, a Netherlands based diversified health and well-being company, contributes to a circular economy in two ways, by transitioning from selling products to providing solutions as services, and by designing and manufacturing high quality products for multiple life cycles. They’re also using their influence to direct standards, infrastructure and policy towards a circular economy.

Veolia, a global leader in optimised resource management, has developed circular models including remanufacturing from waste, lengthening of equipment life cycles, renewable supplies and wastewater recycling. Veolia manages the energy services of over 2,000 industrial facilities and recovers over 38 million tons of waste per year.

The Circular Economy Entrepreneur award went to LanzaTech, a clean-tech company based in the US. It’s goal is to change the way we think about carbon, by utilising waste carbon as a resource rather than viewing it as a liability. Their circular technology advancements have allowed them to work with companies across sectors and around the world recovering revenue from waste streams.

These companies are starting to demonstrate that by shifting our perspectives and redesigning our relationship with goods and services there is a way to sit more harmoniously within a bigger cycle.

What are the main challenges of the circular economy?

Transitioning to a circular economy would present a number of challenges. Firstly, some researchers have expressed concern that the discussion around any transition has focused primarily on economic factors, without considering the institutional and social dimensions necessary for societal transitions to a circular economy. They argue that questions relating to labour conditions, wealth distribution and governance systems remain to be addressed. On the other hand, an environmental charity in the United Kingdom has argued that a circular economy is actually good for people when the right policy is in place, as it can cut unemployment and save people money.

Secondly, some researchers have questioned whether or not the circular economy, with its aim of closing material and product loops, would even decrease primary production at all. In fact, they argue, circular economy activities can actually increase overall production, thereby partially or fully offsetting the benefits that a circular economy seeks to provide. They term this effect the ‘circular economy rebound’, and explain that this occurs ‘when circular economy activities, which have lower per-unit- production impacts, also cause increased levels of production, reducing their benefit’.

In terms of the coordination between industries that would be required for a transition to a circular economy, there is an added complication in that they are often regulated in very different ways. For example, the waste management sector is regulated in a different way to the water and energy sectors and contains a mixture of public and privately-owned entities, which further complicates the ability to have a coordinated transition to a circular economy.

Thirdly, another concern relates to the potential difficulty in getting companies at different points on the supply chain to collaborate on a transition. For example, while the final product may be produced by a company that has implemented a transition to a circular economy, parts manufacturers along the supply chain may not have done so. Further, while products may be manufactured in one location, they may contain components from different jurisdictions. Researchers have noted that a primary obstacle is ‘getting firms linked by supply chains to cooperate in turning outputs into inputs’.

Although the term ‘transition’ implies that companies will ultimately move at their own pace, if the aim is to reduce waste and use of virgin resources then the argument made by advocates of the circular economy is that the more companies that transition sooner, the better.

Additionally, another challenge that the circular economy poses relates to human behaviour, specifically, the connection we may have to our possessions, and our preferences for whether they are new or used. Bruce Hood, professor of developmental psychology, has argued that our psychological bias to value exclusivity (a perceived ‘luxury’ item) and authenticity (whether an item is ‘real’ or reproduced/fake) actually undermines the principles of recycling and reuse. Hood argues that this ‘essentialism’ poses ‘a formidable obstacle to accepting, as we must, that all materials can and should be reused or recycled. To realise a circular economy, in which resources are kept in use for as long as possible, the perceived status and value of reused materials must be changed’.

Potential solutions

Several ideas have been put forward to manage the transition to a circular economy and to address challenges such as those discussed above. For example, some researchers have argued that better circular economy metrics need to be developed, and suggest that the OECD draw up reporting guidelines for countries to follow. Others have advocated for the development of a typology for design for product integrity, which includes guiding principles, design strategies and methods, to ensure the integrity of a product, the ultimate goal of which is ‘to minimise and ideally eliminate environmental costs by preserving or restoring the product’s added economic value over time’. Others still have suggested that when more recycled material has been used in an object, the more this should be advertised, and rewarded with relevant tax breaks and other market levers. This could mean that manufactured goods be required to indicate the extent of their recycled content, for both the product and its packaging.

To make the transition easier for manufacturers and consumers, one researcher has advocated for the creation of commercial markets and collection points, so that discarded garments, bottles, furniture, computer equipment and building components can be collected and either repurposed or recycled. Stahel explains the process in that goods that can be reused may be cleaned and re-marketed; recyclables are dismantled and the parts are classified according to their residual value. Worn parts are sold for remanufacturing, broken ones for recycling’.

In relation to the possibilities of collaboration and cooperation along the supply chain, two researchers provide the example of China and its industrial parks, where waste from one manufacturer can be used as an input for another manufacturer. China has an advantage in that more than 50 per cent of its manufacturing activities are conducted in industrial parks and export processing zones, meaning that targeting these parks for supply-chain waste management has been very effective and is beginning to reduce the intensity of the country’s resource use. However, some industries are arguably more suited to circular economies than others, for example, the recirculation of scrap metal is apparently straightforward, whereas other recycling practices are not.

Additionally, in terms of the potential psychological changes needed, Hood argues that humans need to shift from valuing objects on the basis of their exclusivity, to a valuation that prioritises historical reuse. This could be achieved, he asserts, through policy measures that encourage non-consumption, through innovation, and through stringent product labelling. Hood maintains that this would assist a societal transition away from the appeal of the ‘brand new’ to the ‘brand renewed’.

What are the opportunities of CE?

References and Sources

  • Caley Otter, Victorian Parliamentary Library & Information Service Department of Parliamentary Services

  • Circular Economy Practitioner Guide. https://www.ceguide.org/

  • Ellen Macarthur Foundation https://www.ellenmacarthurfoundation.org/circular-economy/concept

  • NSW Circular economy Policy statement, Too Good to waste

  • Circular Economy Lab https://circulareconomylab.com

  • Designing for a Circular Economy, Lessons from the great recovery 20012 - 2016 https://www.thersa.org/

  • http://circulareconomyaustralia.com/

  • The Route to Circular Economy

  • http://www.wrap.org.uk/

  • https://www.plasticbank.com/who-we-are/

  • The Circular economy and three companies doing it right. https://www.kbs.edu.au/news-and-events/blog/the-circular-economy-and-three-companies-doing-it-right/

  • www.researchgate.net/publication/283121970_The_Circular_Economy_Barriers_and_Opportunities_for_SMEs

  • The Emergence of Circular Economy. A new framing around prolonging resource productivity. Fenna Blomsma and Geraldine Brennan, Centre for Environmental Policy, Imperial College London, London, United Kingdom

  • National Waste Policy 2018

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