October, 2015:

http://www.edie.net/library/Its-time-for-new-circular-economy-policies-Peter-Lacy/6662

The circular economy is about much more than recycling and landfill. As Accenture’s Peter Lacy argues, businesses and consumers need governments to reward innovation through effective incentives.

Waste is at the heart of the way the world does business. We take, we make and we discard waste.

As countries run up against scarce resources and pollution, many governments have acted swiftly to reduce waste. But policymakers’ view of waste is often out of date and this risks missing the massive economic opportunity that waste now presents. The emergence of the circular economy calls for a total redefinition of waste and promises $4.5trn in unlocked growth.

The traditional approach to managing waste has come down to recycling and managing landfill. Other curbs have improved the efficient use of natural resources. But what about the wasted capacity in the cars that stand idle for 90% of the day? Or the wasted lifecycles as products are discarded after their first use? And what about the wasted embedded value that could be eliminated by repurposing materials? Or the wasted resources that could be reduced through renewable energy and materials?

Driving forces

This four-dimensional appreciation of waste forms the foundation of the circular economy that not only mitigates environmental damage but significantly reduces business costs and generates new revenue streams. Governments will be crucial to its success.

Let’s be clear that policy won’t be the only force driving the circular economy. Price already is transforming investments. For 40 years until the turn of the millennium, commodity prices decreased as growth surged. But this pattern then reversed dramatically as the rise of urban populations and middle class consumption led to intense shortages of many resources while putting others such as water and fertile soil under great stress. In recent years, prices have skyrocketed and crashed dramatically.

Businesses now feel the pain of unpredictable resource supplies and price volatility. Prices for metals like copper, iron, tin and nickel, have nearly doubled between 2000 and 2015. Despite the recent falls, the real price of oil in August 2015 was 55% higher than in August 2000. Businesses have no choice but to respond to such cost increases.

That’s why former EU Environment Commissioner Janez Potočnik is right to insist that the key to good policymaking on the circular economy is the understanding that “waste is a resource and not a problem.”

To this end, many welcome the European Commission’s treatment of its new circular economy proposals as primarily an economic package – with fantastic environmental side effects. After all, for every percentage point reduction in EU resource use could be worth around €23bn to business and could result in 100,000 to 200,000 new jobs, according to Potočnik.

Supply and demand

In order to address waste across all its four dimensions, the priority for governments is to redesign regulations to encourage new consumer and business behaviours. That includes levelling the playing field between today’s linear models of take-make-waste and circular models. The financial attraction of growing through greater consumption of resources needs to be reduced. Companies must be encouraged to incorporate the cost of environmental impact into product pricing.

There is also a need to shift regulatory efforts from managing waste and landfill to pursuing a zero waste economy in the first place. That can include measures to stimulate demand for more resource efficient products through greater transparency on resource composition (through minimum packaging standards, for example).

But as much effort is required on the supply side. An improvement in the availability of information on waste and materials, reinforced by international standards, would help. Countries could follow the example of the WRAP initiative that helps all stakeholders use resources more efficiently. Extended Product Responsibility (EPR) policies can be used to make producers responsible for what happens to products after they have been consumed. Studies still show that collective responsibly for disposal is not as effective as making each manufacturer responsible for its own branded goods.

Taxation must be adjusted to back up new regulations. At a broad level, the imbalance between labour and resource taxation needs to be addressed. While commodities look set to be scarcer and more expensive, labour is likely to be cheaper and more plentiful. So a shift in the burden of taxation from labour to resource consumption could have the dual-benefit of creating jobs and encouraging efficiency. The International Labour Organization thinks that if a global tax on CO2 emissions were imposed (and the revenues used to cut taxes on labor) around 14 million jobs could be created.

Behaviour change

Taxation and policy should be consciously designed to support the emerging business models that will underpin the circular economy. For example, sharing platforms that make use of underutilized property, vehicles and other assets. 60% of truck capacity in the EU runs empty. Regulation could encourage commercial opportunities to turn that waste into revenue. Product-as-a-service models likewise encourage providers of products to maintain them for longer. The recovery of waste is a nascent market today and requires incentives that help companies transform the behaviours of supply chains to ensure the quality of repurposed waste is sufficient for re-use.

Government can also transform supply chains through more stringent demands in public procurement which represents a large proportion of consumption in many countries.

As the ‘take, make, waste’ economy runs up against scarce raw materials, market prices will encourage businesses and consumers to change their behaviours. Technology will also unleash new circular models. By seeing waste as an opportunity for competitiveness and growth, Governments will be better placed to implement wide reaching policies that will give their economies an even greater circular advantage.

Peter Lacy is managing director of Accenture Sustainability Services and co-author of Waste to Wealth: the Circular Economy Advantage.