Why Europe needs a market-driven circular economy?
The conjunction of current economic and environmental challenges give rise to a unique situation that political leaders have never faced before. Both of them have very concrete impacts:
- Youth unemployment which is well-above 20% by mid-2015 across the EU-28 and even more important in the Euro area where it is peaking above 22%, while it was down to around 15% at the beginning of 2008.
- Unpreceded environmental pressures leading to climate change, already causing undeniable changes on the environment, and which, if no serious global action is taken, will lead to irreversible impacts both on nature and populations.
These two challenges have to be tackled simultaneously because of their acute consequences on people and ecosystems well-being. The circular economy is one of the economic models, if not the only one, which can make a difference both for the economy and the environment. It is hence crucial to get it right.
European recyclers have a lot to share when it comes to making the circular economy become a reality. Their core business is to turn wastes into new resources. By doing so, recyclers are the link which re-introduce recycled materials into the production chains again and again.
The benefits they bring to the economy and the environment are well-known. Recycling offers local job opportunities, which cannot be outsourced, as recycling usually takes place close to the source of collection of recyclables. It has the double advantage of providing a sustainable source of domestic raw materials for Europe’s manufacturing industries – be it to metal, plastics or paper manufacturers – and to improve Europe’s raw materials trade balance. Both aspects are crucial to achieve a genuine EU industrial renaissance by 2020. Recycling also comes with massive environmental benefits not only by saving natural resources but also by drastically reducing energy consumption and pollution. To quote only two examples, recycling of aluminium saves up to 92% of CO2 emissions and 95% of energy while recycling of steel saves up to 58% of CO2 emissions. These figures must find a strong echo in climate change policies, be it in Europe, currently revising its emissions trading system for the period after 2020, or at world level, a few weeks ahead the UN Climate Conference, in Paris (COP21).
However, it must be kept in mind that recycling is first and foremost a business activity driven by an ecosystem of thousands of Small and Medium-size Enterprises (SMEs) as well as of larger companies. All of them are local and global actors. They produce locally commodities which are traded globally. This is the reason why an ambitious new circular economy package needs to be market-driven in order to deliver its very objectives.
For doing so, the new package will need, through a mix of push and pull measures, to:
i) Keep a strong hand on the basics of the waste legislation while setting market incentives to pull the demand for recycled materials and correct market failures;
ii) Alleviate administrative burdens, a major hurdle for recycling companies, especially SMEs, while ensuring undistorted competition in the waste and recycling markets.
i) Regarding the former, the ‘paradigm shift’ that sees waste as a resource must be better reflected into the waste legislation by measures which push treatment up the waste hierarchy. Banning the landfill of recyclables should be a landmark measure of the new package but not the only one. EuRIC also calls for phasing out, at EU level, the incineration of unsorted wastes to ensure that only non-recyclable residues are incinerated, which in turn, would contribute to the objectives of the Energy Union. Ambitious recycling targets for the horizon 2030, supported by strictly-defined and collector neutral definitions, in particular for household wastes, are also key for investments by companies and public authorities. The temptation to set country-specific targets, unless limited to implementation timeframes, should be resisted to avoid further increasing waste market distortions in the EU.
Confidence in recycled materials and certainty are another crucial element where end-of-waste criteria for certain streams, such as plastics, compost, construction aggregates but also paper, have a key role to play. Not only they alleviate administrative barriers to handling of safe and clean secondary raw materials but they also bring confidence into the quality of recycled materials and stimulate recycling markets by easing the reintroduction of materials in the production chain.
This brings us to the key question of how to foster markets for secondary raw materials and drive the demand for recycled materials. First, by thinking circular at the design stage and laying down eco-design requirements to support products’ re-use and recyclability. Second, by incentivizing the demand for recycled materials use, via pull mechanisms, including green public procurement criteria, consumer information about the environmental footprint and recyclability of products as well as lower tax rates, especially VAT, for recycled materials and green products. Third, by correcting regulatory distortions embedded in EU legislation which place a higher cost burden on downstream users of secondary raw materials. For example, the recent cumulative cost impact assessment for the steel industry, commissioned by the European Commission, has clearly demonstrated that, despite huge benefits in terms of energy and CO2 savings and growth potential, the cost of EU regulation is much higher for EAF steelmakers using recycled steel scrap (17,4€/t) than for BOF steelmakers using mainly primary raw materials (10,7€/t).
ii) Regarding the latter, much less has been said so far. However, removing regulatory burdens and ensuring undistorted competition will play a decisive role in realising a circular economy which makes economic sense. Nobody challenges the fact that wastes treatment must come with a high level of protection, which goes hand in hand with confidence-building in secondary raw materials. The objective is rather to make legislation smarter in order to boost recycling.
A first priority should be to improve the interplay between EU’s waste and chemical laws, which were mainly based on a linear economy model. This is a complex issue which deserves a holistic approach – from products’ design to their re-use and recycling – in order to address practical challenges arising from material flows in a circular economy.
Another concrete example relates to EU procedures for waste shipments. Their day-to-day use by recycling companies proves to be overly complex and makes it increasingly difficult to organise transboundary shipments within Europe, while in parallel illegal shipments could be better tackled. Those obstacles foster the implementation of sub-optimal treatment types and hamper the emergence of well-functioning markets for secondary raw materials. To remediate this situation and create a competitive internal market, EuRIC calls in particular both for faster intra-EU transboundary shipments and for replacing paper-based procedures by electronic ones. In addition to contributing to the Digital Single Market Strategy, moving to electronic control systems would align administrative procedures with the pace of business.
Recyclers also call for undistorted competition. Competition will be a decisive success or failure factor of a circular economy. By ensuring a level playing field across the EU and an efficient allocation of resources and roles between all stakeholders, EU basic principles of competition, internal market and public procurement are, at least, as important in the perspective of realising the circular economy as they were for the completion of the single market or more recently for opening-up sectors, such as transport or energy, which were traditionally public monopolies. Hence, EuRIC calls upon the European Commission to make undistorted competition an integral part of the future circular economy. This means ensuring that when an entity, public or private, engage in waste and recycling-related activities the same rules apply for all without special rights. This also means supporting the establishment at EU level of binding minimum requirements for Extended Producer Responsibility (EPR) Schemes. EU-wide baseline operating conditions are key to ensure that EPR Schemes continue supporting higher collection and recycling targets, think circular at the design stage while fostering, in parallel, transparency, equal access to recyclables and fair competition to avoid the creation of new monopolies, whose market power can be particularly detrimental to SMEs.
Last but not least, undistorted competition is also relevant when it comes to the trade of secondary raw materials. A circular economy cannot stop at EU borders especially since recycling is part of a global industry. Access to the world’s markets is even more crucial to avoid price distortions between Europe and the rest of the world. It ensures that the EU’s recycling industry, by fully benefiting from market opportunities offered within and outside the EU by environmentally-sound customers, remains competitive and market-driven.
In the context of the public consultation launched by the European Commission, EuRIC has put forward concrete proposals to move towards a circular economy. All of them benefited from the expertise of its Members Federations from 18 EU & EFTA countries, representing 5 500 private companies, which provide 300 000 local jobs, recycle 150 million tonnes of a variety of waste streams per year and generate an aggregated annual turnover of about 95 billion Euros, in Europe. Put together, those proposals provide a clear path towards a market-driven circular economy which delivers much needed jobs and investments while minimising environmental impacts.