The Circular Economy

L I S T O F A B B R E V I AT I O N SAIH2020artificial intelligenceHorizon 2020AI HLEG High-Level Expert Groupon Artificial IntelligenceICT information andcommunications technologyBATbest available techniqueIEDIndustrial Emissions DirectiveBIMbuilding information modelingIoTInternet of thingsBREF Best Available Techniquesreference documentIPCEI Important Projects of CommonEuropean InterestB2Bbusiness-to-businessIPRintellectual property rightB2Cbusiness-to-consumerITinformation technologyCCMS Circular Content ManagementSystemI4R Information for RecyclersPlatformCEcircular economyJRCJoint Research CentreCEFConnecting Europe FacilityLCAlifecycle assessment/analysisCFCohesion FundLuke Natural Resources InstituteFinlandCOSME Competitiveness of Entreprisesand Small and Medium-sizedEntreprisesDEPDigital Europe ProgrammeDISC Digital Innovation and Scale-upInitiativeMFF Multiannual FinancialFrameworkOECD Organisation for EconomicCo-operation and DevelopmentPEFproduct environmental footprintDSMDigital Single MarketPPpublic procurementEAPEnvironment Action ProgrammePUEpower usage effectivenessECHAEuropean Chemicals AgencyQRQuick ResponseEEAEuropean Environment AgencyREACH Registration, Evaluation,Authorisation and Restrictionof ChemicalsEEE electrical and electronicequipmentRFIDradio-frequency identificationRTDreal-time dataextended producer responsibilityR&Iresearch and innovation uropean Resource EfficiencyEKnowledge CentreSDGSustainable Development GoalSME small and medium-sized enterpriseEIBEuropean Investment BankEMEExcess Materials AgencyEPREREKESIF European Structural andInvestment FundsETSVATemissions trading systemvalue-added taxWEEE waste electrical and electronicequipment; e-wasteGDPR General Data ProtectionRegulationWFDWaste Framework DirectiveGHGgreenhouse gasWTOWorld Trade OrganizationGPPgreen public procurement5G fth-generation networkfitechnologyEUROPEAN POLICY CENTRE9

IntroductionEnsuring long-term sustainable prosperity isthe challenge of our lifetime. The stakes arehigh. The European Union (EU) is currentlyfaced with a series of challenges that riskundermining people’s long-term prosperity.Ongoing climate and environmentalcrises are threatening the planet, people’swell-being and prospects for businesses.Moreover, global competition is gettingtougher and European players are constantlybeing put under the test. The EU must alignits goals and means, take a close look atits governance framework and economicinstruments, and build on its strengthswhen addressing these challenges.The global science community is united inits dire caution: our planet is on the vergeof climate catastrophe. The world is noton track to limit global warming – on thecontrary, if things go unchanged, the globaltemperature is expected to increase 2 C by2060, which would lead to unprecedentedeconomic, societal and environmental costs.Our activities impact the wider environmentaround us directly. For example, theextraction and processing of raw materialsaccount for half of the world’s carbonemissions and 90% of biodiversity loss.1While environmental challenges are globalproblems, Europe has a major role to play.As a result of the continent’s productionand consumption patterns, Europeansconsume more resources and contributemore to global environmental degradationthan most world regions. Furthermore, asdemonstrated all too clearly in the EuropeanEnvironment Agency’s report on the state ofEuropean environment, the EU is currentlyfailing to meet its own sustainability goals.210Things do not look rosy on the economicfront either.3 Global competition over bothhuman and natural resources is growingfiercer. The EU has lost its position as theworld’s largest economic bloc to the US andChina. It has never fully recovered from theeconomic crisis of 2008. Investments areonly slowly increasing, as is its productivitygrowth. Economic growth has been sluggishor stagnant since 2014, with real GDP onlygrowing at a yearly rate of around 2%.4Coupled with rising inequalities across theEU, social cohesion is also under increasingpressure.Further concerns surround the Union’slag in the digital race compared to Chinaand the US and in capturing the benefits ofdigitalisation. In other words, there is a riskthat Europe becomes a follower rather thana leader in shaping future digital solutionsand global standards. This could havesignificant negative implications on the EU’scompetitiveness, security and prosperity.ALIGNING GOALS AND MEANSAs the EU seeks to address the climate andenvironmental challenges as well as itseconomic and societal woes and catch upin the digital race, traditional silo thinkingsimply will not do. Global commitmentslinked to the Paris Agreement and the UN’sSustainable Development Goals (SDGs)provide the basis, vision and direction formeasures to be taken. The Paris Agreementsets the ambition of achieving a climateneutral world by mid-century. The SDGsdefine objectives for achieving longterm sustainable economic, social andTHE CIRCULAR ECONOMY: GOING DIGITAL

environmental prosperity. Understanding what is at stake,recognising the critical action points and joining efforts acrossborders while building on the European strengths could helpthe EU address these multiple challenges simultaneously.As this publication will demonstrate, it is time to align agendasthat have so far been overlooked. In fact, Europe is in the middleof two transitions that can provide the means to address thesemultiple challenges – as long as they are managed togetherwell. Firstly, efforts are being taken across the EU to achieve amore circular economy (CE): maintaining the value of productsand materials for as long as possible, minimising resource useand waste and thus enhancing sustainable competitiveness.Secondly, the EU, its member states and businesses are engagedin the digitalisation of our economy and society, which buildsupon increased connectivity and the gathering, sharing andanalysis of data; and maximising its value to produce betterproducts and services.While policymakers are yet to actively link digitalisation withwider sustainability efforts when developing policies andfinancing projects, there is a growing awareness that morecould be done to align the circular and digital agendas.5 It is inthe EU’s interest to use data and digitally-enabled solutions tochange people’s and businesses’ mindset as well as the processes,products and services needed for the creation of a moresustainable CE. Some believe that digitalisation could ultimatelyhelp reduce resource use and even lead to dematerialisation, allfor the benefit of the planet, industry and people.6The basis for action is strong. The member states have, inprinciple, agreed to make the EU climate-neutral by 2050.7 TheEuropean Commission’s proposals for a European Green Dealand making a “Europe Fit for the Digital Age” – its long-termvision for a prosperous, modern, competitive and climateneutral economy by 2050, and its reflection paper on achievinga sustainable Europe by 2030 – provide important startingpoints for dialogue and action.8 The Green Deal recognisesthat a CE and strong involvement from industry is central tomaking the EU’s economy sustainable. The Commission alsoacknowledges that digital technologies are a “critical enablerfor attaining [ ] sustainability goals”.9Europeans consumemore resources andcontribute more toglobal environmentaldegradation thanmost world regions.Furthermore, the EUis currently failingto meet its ownsustainability goals.It is high time toalign the agendas,goals and means toenhance sustainablecompetitiveness thatalso benefits theeconomy, society andenvironment andsupports the EU’sgoal of becomingclimate-neutralby 2050.As the EU institutions are expected to advance the climate, CE,digital and overall industrial agendas over the coming years,this is an occasion to bring a more systemic and comprehensiveapproach to these efforts. It is high time to align the agendas,goals and means to enhance sustainable competitiveness thatbenefits the economy, society and environment and supportsthe EU’s goal of becoming climate-neutral by 2050.EUROPEAN POLICY CENTRE11

Combining circular and digital agendas –resulting in what could be called a digital CE– should arguably contribute to mitigatingclimate change, address environmentalchallenges like resource depletion andpollution, increase competitivenessand innovation, contribute to industrialmodernisation and security, and supportsocial cohesion. As such, it should ultimatelydeliver on the European Green Deal (seeFigure 1).The EU has a great toolbox at its disposal,and as this book will demonstrate, there isa strong rationale for coordinated actionat the EU level. The Union can use itsconvening power – its fora and platforms –to bring together the relevant stakeholders.It can apply its governance and economicinstruments to guide and incentivise change.EU-level coordination could help create alevel playing field for businesses and makethe EU a global leader and standard-setterin developing a digitally-enabled CE. Thewindow of opportunity is wide open, and thetime to act is now.Fig. 1The climate crisis, depletion of naturalresources, competition over resources andpollution are affecting Europe and theworld more generally, posing a threat toour economy and society. The challengesare manifold and systemic. They are closelylinked to how our economies and societies arestructured, economic activities and currentlifestyles, and unsustainable production andconsumption patterns – which are not easy tochange. It is estimated that at this momentthe world is only 8.6% circular.10However, there is a growing recognitionamidst politicians, citizens and the industrythat changes are dire. A shift from a lineartake-make-dispose model to a CE, smarter useof resources, and achieving more sustainableproduction and consumption patterns couldbring multiple benefits and help address themultiple challenges listed above.Maintaining the value of products andmaterials for as long as possible; minimisingresource use and waste; and increasing repair,Interactions between a circular economy, digitalisation and the European Green DealCirculareconomyDigitalcirculareconomy Digitalisation12WHY FOCUS ON A CIRCULAR ECONOMY?GREEN DEAL:sustainableand competitiveEuropeTHE CIRCULAR ECONOMY: GOING DIGITAL

recovery/reuse of materials and products as well as recyclingrates would reduce pressures on Europe’s (and global) resourcesand decrease greenhouse gas (GHG) emissions. For example, itis estimated that around half of the carbon dioxide emitted bythe EU’s heavy industry by 2050 can be prevented by makingthe industry more circular.11 Looking at the global level, 40% ofcarbon dioxide emissions from key materials (i.e. cement, steel,plastics, aluminium) almost 50% from the food sector, 40% fromconstruction and 70% from the mobility sector could be reducedif these sectors are made more circular by 2050.12Smarter use of resources would allow Europeans to managematerials better and create more value from their use. Indeed,greater circularity is rightly being seen as the means to futureproof resource-intensive industrial sectors while simultaneouslyenhancing competitiveness and industrial modernisation. It hasbeen estimated that the transition would create new markets,jobs, products and services, boost EU’s GDP by 7% and generatea net economic benefit of 1.8 trillion by 2030.13Addressing the sustainability crisis and accelerating the transitiontowards a sustainable, climate-neutral and circular economy willrequire actions across the economy and society. There is a need fora more comprehensive and systemic approach and actions acrossvalue chains. That being said, an overview of the challenges inthe different sectors can also help demonstrate the magnitude andcomplexity of the problems that must be addressed.The transition toa CE would createnew markets, jobs,products and services,boost EU’s GDP by 7%and generate a neteconomic benefit of 1.8 trillion by 2030.The global construction industry uses41 billion tonnes of (scarce) minerals, oresand other resources per year. This amountsto almost half of the global total of extracted raw materialand is expected to only increase, especially due to demand ingrowing economies.14 Extracting, transporting and processingconstruction materials (e.g. concrete) consumes much energy,15and in effect, the construction industry accounts for a quarterof global GHG emissions.16 Conventionally, used materials areusually landfilled, incinerated or downcycled (e.g. used in roadpavements). In Europe, 450 to 500 million tonnes of constructionand demolition waste is generated per year.17 While the EU hasrecovery targets for the aforementioned waste, recent analysisshows that its implementation has been inadequate.18EUROPEAN POLICY CENTRE13

The textile industry has a significantenvironmental impact due to inter alia wateruse and energy consumption.19 73% of allclothes that have reached their end-of-life stage is landfilled orincinerated, while less than 1% is used to produce new apparel.In the EU, 5.8 million tonnes of textiles are annually discardedby consumers, and only 26% is recycled. The business-as-usualscenario depicts a further increase in textile production, therebytripling the global consumption of fossil fuels and adding22 million tonnes of microfibres to marine waters by 2050.20Digitalisation is nota silver bullet thatcan immediatelysolve all of thechallenges. However,digitalisation canbe an enabler andaccelerator forpositive change –as long as it ismanaged well.Around 5 to 13 million tonnes of plasticsend up in the oceans per year. Tiny particlesknown as ‘microplastics’ can persist forcenturies, enter the food chain and cause harm to marine lifeand potentially human health.21 The EU is a major producer ofplastics, accounting for a fifth of the global plastics production.It recycles roughly 30% of its plastic waste today, while only6% is integrated into new products. Around a third ofEuropeans’ plastic waste is exported and treated in other partsof the world; often leading to negative environmental impactsdue to lower recycling standards and weaker enforcement ofenvironmental law in recipient countries.23 The EU’s plasticlitter causes significant pollution inter alia in the Mediterraneanand North Seas and parts of the Arctic.24 The EU releases80 to 220 thousand tonnes of microplastics into theenvironment annually.25Food systems depend on natural resources(e.g. water, soil, minerals) and energy, andare a notable source of GHG emissions(i.e. agriculture generates 10% of all EU emissions)26 andpollution (e.g. due to fertilisers, pesticides). Retailers find itoften impractical and costly to distribute surplus (unsold)food, which means valuable nutrients are wasted. In the EU,around 88 million tonnes of food are wasted in the EU everyyear, which is equivalent to 173kg per person and 20% of allproduced food.2714THE CIRCULAR ECONOMY: GOING DIGITAL

In the mobility sector, the heavy relianceon motor vehicles leads to significantconsumption of materials, GHG emissionsand waste. Europe accounts for a fifth of the global productionof motor vehicles. Used vehicles account for around 7 to 8million tonnes of yearly waste in the EU.28 Shipments of thiswaste outside of the EU can lead to pollution if it is not treatedproperly in the recipient countries. The current trend for electricvehicles could lead to reduced GHG emissions, but could alsoincrease the consumption of (critical) materials and raisesconcerns over the treatment of used lithium-ion batteries.29Moreover, it has been estimated that vehicles in Europe areparked 92% of the time and, even when in use, only 1.5 of theavailable five seats are occupied, leading to structural wastein the mobility system.30 It is widely recognised that moresustainable mobility revolves around public transport andmultimodal approaches (e.g. combining walking, cycling, railand vehicles).When it comes to electronics, around44.7 million metric tonnes of e-waste wasgenerated (6.1kg per person) in 2016, withan expected global annual growth rate of 3 to 4%. Multipledevice ownership, the growth of cloud computing servicesand short replacement cycles are paving the way towards agrowing e-waste generation,31 as well as GHG emissions dueto electricity consumption. Electronics contain critical materialsand precious metals as well as iron and aluminium, whichtogether with plastic components could, to a large extent,be recovered. Overall, it is estimated that the secondary rawmaterials contained in e-waste may be worth 55 billion.32Given that electrical and electronic equipment (EEE) containssubstances of concern (e.g. mercury, lead, flame retardants),landfilling, incineration or littering may result in adverse effectson the environment and human health.EUROPEAN POLICY CENTREAs the EU and theCommission arestarting to exploreways to alignthe agendas, thisbook aims to shedlight on some ofthe possibilities,challenges andprospects for the wayforward.15

WHAT IS HINDERING US FROMACHIEVING A SUSTAINABLE CIRCULARECONOMY?– s imply increasing recycling does notensure the quality of recycled materials ordemand for secondary raw materials;Addressing the global and Europeansustainability challenges is arguably oneof the most complex and trying tests ofour time. When considering a transition toa more sustainable CE in the EU, severalfundamental barriers should be addressed:– focusing on durability can lead to lowerrecyclability, and vice versa;The existing economic model doesnot value natural capital, internalise theexternalities related to the likes of pollution,or reward actions that lead to social andenvironmental benefits. The model enforceslinear and unsustainable take-make-disposepatterns for production and consumption,with society often bearing the brunt ofrelated costs.qSustainability goals and criteriaare made of a complex mix of issues,and the synergies between circularityand sustainability are not alwaysstraightforward. When designing policiesand adopting measures, finding acomprehensive approach that benefits theplanet can be difficult because of competingpriorities and/or insufficient evidencefor needed measures. This can lead tounwanted results. While greater circularitycan help achieve a more sustainable,competitive and climate-neutral economy,the measures taken do not necessarily helpreduce emissions or change production andconsumption patterns. This can sometimeslead to trade-offs. For example:q– r estricting certain materials (e.g.plastics) can lead to the introduction ofthose that are more energy-intensivein the production phase and duringtransportation (e.g. glass, metal);33– transitioning to service-based businessmodels may lead to higher energyconsumption during the product’s usephase (e.g. electronics, vehicles);16– product features like greater durability orrecyclability do not automatically lead tolower energy use or emissions during theuse phase.34The current regulatory and economicincentives are not inciting companiesenough to design more sustainable, circularproducts. Such products use materials withlower environmental and climate footprintsand address the sustainability crisis duringtheir lifetime.qInformation does not travel withproducts and materials down the value/supply chains or is of insufficient quality,thus hampering circular practices likemaintenance, reuse, repair and recyclin

feedback and support throughout the project. Special thanks also go to experts from the European Commission, especially DG Environment, DG Connect and DG Grow, for their interest in the project and valuable expertise. Finally, special thanks also go to current and former members of the EPC team who have supported the implementation of