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23rd Jul 2018

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Is the circular economy a restraint on business, or an opportunity?

  • Repair services could provide a significant potential for job creation. (Photo: John Sattar)

At first glance, the European Union's "circular economy" strategy, issued last year, seems like bad news for businesses.

In effect, it is telling us to spend and use less.

Read and decide

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  • “Steel is 100% recyclable; a ‘permanent’ material. This means that it is the key to the functioning of the circular economy,” says Axel Eggert, director general of the European Steel Association (Eurofer). (Photo: voestalpine)

Don't buy a new phone, buy a used one. Don't buy a plastic bag, reuse a cloth bag. Don't buy a car, share one with your neighbour.

A lot of businesses only hear one message: don't buy.

Buying has long been the centre of the Western world's economic model, what some have termed the "throw-away society". We buy something, use it until it breaks, throw it out and buy a new version. The European Commission has proposed an alternative economic model.

"Our planet and our economy cannot survive if we continue with the 'take, make, use and throw away' approach," said Frans Timmermans, the commission's first vice-president, as he unveiled the package at the end of 2015. "We need to retain precious resources and fully exploit all the economic value within them."

The Commission has been keen to stress that the new economic model is not a punishment or a restraint, but rather an opportunity to squeeze out the maximum value and efficiency in Europe's production and use process. But is it really?

Good news, bad news

For those manufacturers who some suspect engage in "planned obsolescence" – deliberately designing products to stop working earlier than they need to – this might be bad news.

Under the circular economy model a manufacturer is liable for dealing with their old products once they stop working, rather than having the taxpayer foot the bill for putting them in a landfill.

So too could a circular economy mean lower sales for retailers, whose customers may not be buying at such a frenetic pace.

The commission plans to put new requirements for repairability, durability and recyclability in new ecodesign requirements.

But for every cloud there is a silver lining. The commission has said implementation of their circular economy strategy could create 170,000 jobs, and bring net savings of €600 billion for businesses in the EU.

According to a report by McKinsey, the policy could deliver a net economy benefit of €1.8 trillion by 2030.

Where is all that economic benefit coming from? The commission says it can come from every stage of the process, from production to waste. The EU is making money and resources available to make this happen, and so unsurprisingly, business associations in Brussels are positioning themselves to make sure their members get a piece of the pie.

Primary materials

One might not think of traditional industrial products like steel, glass and aluminium as being environmentally friendly, but in fact these industries see the circular economy as a way to finally re-establish dominance over newer, harder-to-reuse materials like plastics.

Steel, for instance, can be melted and reused.

The sector is also able to make by-products from the steel production process. For instance, the process gas from iron ore melting has been used since the 19th century to produce energy used in other steps of the production process, or for other industrial plants.

Axel Eggert, director general of the European Steel Association (Eurofer), says the industry has been working to make sure the strategy sets definitions of "final recycling" and "by-products" in a way that will make it easier for steel to be recycled. He says this has significant profit potential for the industry.

"Steel is 100% recyclable; a 'permanent' material. This means that it is the key to the functioning of the circular economy," he notes.

Production

The commission insists producers will not suffer from the new requirements for durable design. New design requirements create a market opening for new production technologies and materials, they insist. In addition, making products easier to disassemble means that it will be easier for manufacturers to retrieve and reuse them, saving money.

One beneficiary could be the electronics and appliance industries. In the next year the commission will propose rules for easier and safer dismantling, reusing and recycling of electronic displays. There are also incentives planned for producers to make appliances that are more easily disassembled.

CECED, the European appliance manufacturers association, has been trying to show its members how to take advantage of the incentives, through position papers and outreach.

Tough medicine?

Of course the most obvious business opportunity to come from the circular economy strategy is in recycling.

The strategy has set a common EU recycling target of 65% of municipal waste by 2030, and 75% of packaging waste by 2030. Today, only around 40% of the waste produced by EU households is recycled.

This will mean that waste collection and recycling is going to have to be ramped up, and that will translate into business opportunities.

Though the circular economy may sound like tough medicine, industry groups in Brussels have been quick to make sure their members can reap the full advantage of new opportunities created by the strategy.

This story was originally published in EUobserver's 2016 Business in Europe Magazine.

Click here to read previous editions of our Business in Europe magazine.

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