Circular Economy – A birds-eye View of Policy

There was a time when environmental policy-makers seemed to be divided into two types – those who believed in the circular economy and those that were unconvinced.

One side viewed our way of consuming and producing as at the heart of the problem – whether emissions from steel, cement and manufacture, or rampant deafforestation from increasing extraction including of rare earth elements. The fear was that the dominant business model meant we were hurtling along towards all those planetary boundaries and in some cases crossing into the void beyond. Others saw a shift as either not possible, unnecessary or downright harmful, to our way of life. Decarbonising power is what’s needed, they would say. Increasing recycling may help a little, they may concede.

Now things are different: it is apparent to most that those trillions needed to decarbonise the global economy – which no-one is jumping to offer - would be even more costly and less manageable if consumption patterns continue as they are with resource use tripling since 1970 and projected to continue[1]. The impacts on water, waste, nature linked to resource use are too large to stomach. ?The EU’s Circular Economy Action Plan, Indian PM Modi’s LIFE features sustainable lifestyles including circular economy. ?Campaigners talk about ecodesign, the right to repair, upcycling. Start-ups are excited by activities like rentals and remanufacture, upcycling and recycling. ?

But where are things policy-wise? Have we got the enablers in place that will drive change or a least allow it to happen? This isn’t a simple task – we should face up to that fact.

This article focuses in on the multi-dimensional problem we are seeking to solve: the emerging principles at play including polluter pays & producer responsibility, and the tools and combination of tools most effective at embedding this principle, plus any policies needed to complement producer responsibility.

I have made reference to the EU, the UK and Taiwan to explore this problem. Why these countries? The EU has put in place its Circular Economy Action Plan[3], some countries especially France have a number of producer responsibility schemes. Taiwan has after initial successes with its waste management policy reviewed the position and ?started to refine policies. It has now introduced circular economy as a transformational strategies[4].? The UK is in the middle of implementing its Resources & Waste Strategy which amongst other things includes enhancing its producer responsibility schemes[5] but also includes a plastic packaging tax and the National Inter-disciplinary Circular Economy Programme.

?The principles

?“Polluter pays” and “producer responsibility” are the hallmarks of the circular economy transition. These principles fit well with theories of market failure, essentially the problem of environmental externalities and the challenge of free-riders who, rather than take responsibility, let others pick up the tab.?

Adopting producer responsibility is a shift from the situation where local authorities took responsibility for waste and, in some countries, failed to do so properly hamstrung by inadequate funding. Considering that waste generation globally is projected to almost double by 2050[6], its clear that we need to get firmly on the right track to avoid being entirely overwhelmed.

?The second principle relates to the waste hierarchy – that the better way to address the situation of resource usage and waste is to use products and materials in a way that minimizes the harm associated with it ie carbon emissions, pollution and harm to nature. At the top of the hierarchy is preventing the generation of waste. This hierarchy as well as the difference in the biotic and abiotic side of things is neatly encapsulated in Ellen MacArthur’s butterfly diagram.

The third principle is around consumer rights – the right to repair. So if you own something it should be something that can be repaired. It shouldn’t be designed to need replacing after a short time.

These are the 3 principles which increasingly ?have broad recognition and acceptance.

The Emerging Policy Framework

The keystone of the new policy frameworks has become “an extended producer responsibility scheme”.? What is this all about??

The initiator of this approach is often seen to be Thomas Lindquist, a Swedish policy-maker. The primary goal was to transfer the costs of managing waste from municipalities to producers[7].? Things have evolved: encouraging better design, reuse, remanufacture and recycling etc is now at the top of the set of goals aligned with the idea of real producer responsibility for the multi-dimensional problem at hand.

Also, at least in its early days, EPR wasn’t seen a single standard policy but more like a principle that required a set of policies. The OECD 2001 Guidance Manual for Governments on Extended Producer Responsibility, defined ?EPR as “an environmental policy approach in which a producer’s responsibility for a product is extended to the post-consumer stage of a product’s life cycle”. The 2001 Guidance provided governments with a broad overview of the key issues, general considerations, and the potential benefits and costs associated with EPR.

The 4 policy instruments set out were:

·????? Producer take-back requirements

·????? Economic and market-based instruments

·????? Regulations and performance standards

·????? Accompanying information-based instruments

So starting from the beginning, it is helpful to think of EPR in this way: a set of policies that transfer this responsibility. And looking at where we are now, that responsibility is to apply circular economy thinking, the waste hierarchy, the 3Rs, or 10Rs but not simply the costs of waste management.

That takes us to the question of what “good EPR” looks like which of course is dependent on the goal. As I explained above, its not simply about transferring municipal costs to producers but shifting towards a circular economy. Embedding producer responsibility and the other 2 principles – prevention and right to repair – that I mention above are also important. ?

?The first thing to note here is that the various producer responsibility schemes in the EU at least have not had amazing results – the figures show increased recycling, but at the same time waste generation has gone up[8].

Most EPR schemes work by:

·????? giving producers/retailers/distributers/importers a duty to take back or to achieve a recycling target. This is often fulfilled through Producer Responsibility Organisations, that take charge of the collections or at least managing materials and which are funded by producer fees based on volumes placed on the market.

·????? the full cost of end of life management is sometimes put on the producer but very often the responsibility is partial with municipalities paying part of the cost.?

·????? Including or being supplemented by deposit return schemes to aid collection of clean materials.

·????? Supplemented by duties on local authorities to provide collection systems

·????? In some cases, some funds being allocated to awareness raising or even research into recycling technologies. But the straightforward ones as in India don’t do the latter.

·????? Supplemented by demand-side measures for example as in the UK, a plastics packaging tax to encourage packaging producers to use secondary materialsl.

·????? They may also be supported by “a stick” in the form of a landfill tax that discourages landfill.

·????? Eco-modulation is also in development so that lower producer fees are paid where the product is taken away and reused or the product is easy to recycle.

The Determinants of a Good or Bad Scheme

The following are the issues that in my view are the determinants of a good and bad scheme:

a)???? Separation between the PRO and the producers: evidence suggests that producer dominated PROs and consequently EPR schemes can support a continuation of the existing business model, possibly increasing incineration. The more impactful Taiwanese model with a single public sector PRO van be contrasted with the US model. In the latter, the costs of the process have simply been shifted from taxpayer to consumer[9] – though the producer may also suffer a hit as the price rise may reduce consumption. That depends on elasticities of demand, which may be quite low reducing the impact on producers.

b)??? Ensuring targets include reuse and are not all about recycling, and waiving fees for those that establish good reuse systems.

c)???? Developing the recycling and reuse facilities in tandem:? this may mean green finance to support their development so they are in place once the scheme is up and running. Without this, industry is likely to push back on recycling targets which they may not be able to make, which in turn means targets are low and unambitious, failing to drive change.

d)??? Demand-side measures: consumer demand or demand by businesses can be increased through good labelling and communications, combined with measures like a plastics tax. These do need to be backed by testing and verification systems as its hard for the ordinary trading standards officer to tell what is recycled and what isn’t. Information can also enable consumers to make choices re repairability.

e)??? Integration of SMEs and the informal sector. It is possible that consolidated systems and the scale that ensues makes working with small businesses more complex. That may especially in poorer countries put low paid informal sector workers out of business

f)????? Ensuring sufficient R & D into innovation research and supporting new businesses. These may include reuse and recycling services. Recycling of certain materials is well-established for example rigid plastics, but that’s not the case with many other materials.

g)???? Having a sufficiently broad scope: a narrow scope means pressure on government to develop too many schemes and possible distortion of the market with a shift away from one product to another equally harmful or even worse.

In terms of shifting design and systems, even Lindquist bemoans the limited impact on this front[10]. This is where policy makers need to consider introducing eco-design standards if eco-modulation is too complex. The evidence ?of EPR to date suggests the market will not change on its own.

?Another area of concern are waste-related regulations. Waste law began with a concern about hazardous substances being disposed of in a harmful way. At least in Europe this means a set of controls on handling and movements of this waste with permits being required, and risks of high penalties if the law isn’t properly followed. This raises the costs of circulating material. Another example of an overly cautious approach is in relation to the use industry by-products. A very narrow definition stops certain industry by-products being used as inputs in a symbiotic way.

Considering that success in shifting to a circular economy is keeping the costs of second-hand products and materials down means that the waste regulations can be a hindrance. Of course we wouldn’t want to take huge risks with hazardous materials but with on-hazardous materials the costs can and should be reduced.

Conclusions:

So in conclusion the policy framework required for achieving a shift is complex with a set of policies needed – this is what was originally anticipated with “EPR”. Care needs to be taken to ensure the policy is supporting current day circular economy goals and not just the transfer of costs from tax-payer to consumer. ?The risk is that’s all that happens and that by giving control of schemes to the producers, the current system becomes even more entrenched.

Other important considerations are around:

·????? Payment of the full costs or externalities and what this means, as the externalities range from the impacts of production to that of waste.

·????? Avoiding control of the system by polluters ?– giving the incumbents control is unlikely to be the way of achieving systems change

·????? Developing a set of policies in tandem to ensure that there isn’t a drag on the system because of for example existing regulations or insufficient reprocessing facilities ready to act.? Innovation funds to support first movers and regulatory barriers reviews are also vital.

?Policy frameworks need to be continually monitored and reviewed to ensure real progress against all the relevant goals. Keeping a close eye on progress against them is critical.

[1] https://www.resourcepanel.org/reports/global-resources-outlook ? Chapter 4

[2] No Planet B, 1st edition, Introduction

[3] https://ec.europa.eu/commission/presscorner/detail/en/ip_20_420

[4] https://circular-taiwan.org/en/city/taiwan/

[5] Alternative packages of policies are not covered here, but Global Resources Outlook? (2019) at Chapter 4 does this with regard to two different future scenarios

[6] https://www.statista.com/topics/4983/waste-generation-worldwide/#topicOverview

[7] https://www.wastedive.com/news/epr-good-bad-ugly/519582/

[8] https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Waste_statistics

[9] https://www.wastedive.com/news/epr-good-bad-ugly/519582/

[10] https://www.wastedive.com/news/epr-good-bad-ugly/519582/