What are the main barriers to the Circular Economy?

BITCI News - Sep 09, 2019

Business in the Community Ireland

Our first article on the circular economy defined the term and discussed the context in Ireland. It’s a timely topic. A recently published Ibec study shows that while overall only 51% of their member businesses surveyed understand the term “Circular Economy”, a much higher percentage (71%) of companies employing more than 100 employees and 78% of companies employing more than 250 employees understand the term[1]. That agrees with what we’ve found across BITCI member companies. There is increasing awareness of the Circular Economy and the business case that can be tapped for positive environmental, social and economic impact.

Currently the world is only 9% circular. That might seem discouraging but another way to look at it is as a space for Circular Economy systems and practices to grow. The business case in the second article of the series discussed that space. Philips was our practical example of a large company growing its business by developing new models based on the Circular Economy. By incentivising lean and competitive practices, the Free Market supports the Circular Economy business case, particularly the development of new business models and cost efficiencies in material sourcing.

While there is a clear business case within the Free Market already, there are also limitations that continue to incentivise a linear economy. These limitations include restricting access to second-hand materials, and hiding the “true” cost of virgin raw materials. This is just the tip of the iceberg in terms of the barriers that must be overcome in order to grow the Circular Economy. As we said in the first article, a fully Circular Economy could solve up to 60% of Climate Change. In order to close this “circularity gap” though, we have to deal with what are classified as tariff and non-tariff barriers.

Barriers Detailed:

Both tariff and non-tariff barriers are compounded by today’s “global” nature of business. Because most products currently rely on a global supply chain, trade wars and their associated price instability impact both primary and secondary (waste) material markets. That impact can be massive in that it restricts supply chain mobility and distorts raw material prices.  The impact ripples across the entire global materials market, which includes waste materials that would be processed into the secondary raw materials that feed the Circular Economy.

One example of a tariff barrier is described in the short term impact on scrap prices resulting from a trade war. The nature of trade between the United States and China has changed over the last year as both countries have raised tariff rates on goods, and China in particular has banned the import of specific products and materials. These “protectionist” actions have had a ripple effect on the global secondary materials market. For example, when the US imposed additional tariffs on Chinese goods in 2018, China responded by banning certain scrap imports. Q1 2019 “data from the Census Bureau and the International Trade Commission showed that the value of all scrap exports from the US to China fell in that first quarter of 2019 from $1.235 billion to $539 million.”[2] In other words, US scrap exports to China dropped in half. Because the US relies so heavily on China for processing scrap, the resulting effect was an unexpected and abrupt constriction in the secondary metals market. This had an impact on global steel prices which increased approximately 20% between December 2018 and March 2019[3].

This example demonstrates how steel prices can increase when the availability of scrap metals (feedstock for making steel) is suddenly cut off. Banning scrap imports can also reduce quality, particularly in the case of plastics as waste processors try to meet demand at an affordable price when their supply of waste plastic is reduced.  While quality issues may result from trade wars and other tariff barriers, quality issues with plastic more commonly result from non-tariff barriers like recovery and processing issues.

You’ve probably seen the news about contaminated batches of recycling, that’s just one example of the challenges faced by recycling companies who recover and process plastics. Consumers are confused by messages on how to recycle and sometimes don’t have convenient access to recycling facilities which can then translate into low capture and high contamination rates[4].  Also, the sheer variety of plastic waste makes it difficult to process with traditional mechanical methods. “Mechanical recycling works well for certain grades of PET and HDPE, but are limited in their ability to sort and process films and labels, chip bags, pouches…and other “mixed plastics”[5].

Problems processing waste into new secondary raw materials can lead to higher prices and lower quality. This then increases supply chain risk for companies who are looking for a steady and stable supply of high quality raw materials. This risk, what the EU’s Action Plan for the Circular Economy calls an “uptake of secondary resource” risk, leads to companies avoiding the use of secondary raw materials in their products which in turn brings us back to today’s 9% circular world.

The Action Plan also highlights another key barrier, namely “design for reuse, repair and recycling” [6]. There are many examples of products, particularly consumer electronics, that are designed either to have a short (2-3 year) lifespan or to discourage repair (making it difficult to replace parts that commonly fail). Often these products quickly become obsolete, or when they break can be cheaper to replace than to repair.  Designing products to have a longer life and to be repairable is one of the fundamental principles of the Circular Economy.

Consumer behaviour is another key barrier. For example, a 2018 study found that while most consumers were willing to buy second hand goods, only 10% of Irish consumers had actually purchased anything second hand within the previous year[7]. Preferences for second hand goods varied by category, with consumers most likely to purchase second hand clothing, and least likely to purchase second hand appliances and electronics. In order for the Circular Economy to thrive, there must be strong consumer demand.

Overcoming Barriers:

This article is an overview of a few of the key barriers we must overcome. The EU’s Action Plan for the Circular Economy analyses these barriers in greater depth and proposes changes meant to encourage innovation and investment[8].  One example proposal from the Action Plan was the recently adopted single-use plastics ban directive to be implemented across the EU by 2021. The directive will also establish a 90% collection target for plastic bottles by 2029 and a 25% recycled content target for plastic bottles by 2025 that increases to 30% by 2030[9]. EcoPreneur recently completed their own analysis of the Action Plan and other research, and made recommendations for Ireland that include developing a Circular Economy roadmap and reducing VAT rates on repairs and resold goods[10]. These recommendations for Ireland and the EU represent key actions that could be taken to address the barriers identified above.

So now that we’ve discussed what the Circular Economy is, why companies are interested in it and some of the barriers they face, we’ll close the series on a high note by featuring our members involved in the Circular Economy. Many have taken significant actions toward reducing plastic in their offices, finding reuse markets for waste, increasing their use of secondary raw materials, improving the design of their products for reuse and repair, and in some cases, even structuring their entire business model around the Circular Economy. Hopefully their stories will inspire even more action!

Stay tuned for our last piece coming up in October showcasing examples of Circular Economy in action from our member companies.


Sources:

Image above by Julia Bushueva first featured in Good News from Finland

[1] https://www.ibec.ie/connect-and-learn/media/2019/08/14/new-ibec-survey-shows-just-half-of-businesses-understand-the-circular-economy

[2] https://recyclinginternational.com/business/us-scrap-exports-blighted-by-chinese-restrictions/26236/

[3] https://tradingeconomics.com/commodity/steel

[4] https://www.closedlooppartners.com/wp-content/uploads/2019/04/CLP_Circular_Supply_Chains_for_Plastics.pdf

[5] https://www.closedlooppartners.com/wp-content/uploads/2019/04/CLP_Circular_Supply_Chains_for_Plastics.pdf

[6] https://ec.europa.eu/growth/content/regulatory-barriers-circular-economy-lessons-ten-case-studies-1_en

[7] https://ec.europa.eu/info/sites/info/files/ec_circular_economy_final_report_0.pdf

[8] https://eur-lex.europa.eu/resource.html?uri=cellar:8a8ef5e8-99a0-11e5-b3b7-01aa75ed71a1.0012.02/DOC_2&format=PDF

[9] https://www.thejournal.ie/eu-wide-ban-on-single-use-plastics-by-2021-4564394-Mar2019/

[10] https://ecopreneur.eu/wp-content/uploads/2019/09/Ecopreneur-Circular-Economy-Update-report-2019.pdf

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