Covid-19: spark or setback for the circular economy?
The Covid-19 pandemic and its economic fallout have caused governments, business and households to focus on short-term crisis management. Does that spell the end of Europe’s efforts to develop a circular economy? Circular economies aim to reduce environmental impact by minimising waste and increasing re-use of resources, while at the same time stimulating economic activity. There may be upfront costs involved in rolling out new business models and services, but savings for businesses and resilience to future crises could result in considerable gains over the longer term.
“At first, our clients’ view shifted to surviving – a more short-term view – which is completely logical,” says Joost van Dun, Director and Circular Economy Lead at ING. “But when recovering from this terrible pandemic, do we really just want to restore the old linear economy? We think the circular economy will play an important role in the recovery phase.”
It could also help in the fight against climate change, which even in the time of Covid-19 is arguably the most pressing challenge we face. But replacing the old linear models will take political will, investment and innovation.
Greening the recovery
In May 2020, the European Commission launched its plan to support the battered EU economy – and it seems to recognise the link between an economic recovery and a green one. It unveiled a €750 billion ‘green recovery’ package (1), which dovetails with the EU’s Green Deal and Circular Economy Action Plan (CEAP). The CEAP aims to boost EU GDP by an additional 0.5% by 2030 and create about 700,000 new jobs (2).
The circular economy, climate-change mitigation strategies and economic recovery are all bound up together.
After all, struggling industries could benefit from financing of new technology and business models that lengthen product lifespan and increase the scope for remanufacturing. The gains from these investments could produce significant upsides for business profitability and growth.
Resilience through recycling
So-called ‘cash for clunker’ programmes that phase out old cars, refrigerators and old air conditioners can stimulate employment in the manufacturing industry by encouraging consumer spending for more energy-efficient products. But within a circular model they also create value through recycling metals and batteries– especially in areas such as consumer electronics and, increasingly, electric vehicles.
There is a surprising amount of value in waste of all kinds. Recent research supported by ING in partnership with Bard College’s MBA programme suggests that the annual value of electronic waste alone is $62.5 billion globally. Better circularity could recapture that $62.5 billion.
“Circularity can take many forms including simple repair programmes, the re-use of old products, and more complexly, disassembling the product and recycling the critical metals found inside,” says van Dun. “Whatever innovative approach is used, circular business models allow manufacturers to get ahead of emerging policies, prevent reputational tarnish of changing consumer demands, and reduce stresses of supply limitations.”
The pandemic has shown us just how fragile the global economy’s supply chains are – which makes the benefits of circularity even more compelling. For example, the closure of factories in China has affected the global supply of consumer electronics, metals and lithium batteries. “Having a kind of closed loop locally certainly does provide resilience,” says van Dun.
Get over the hump
As Europe attempts to shift to a low-carbon economy, circular thinking must extend to all sectors. A recent report (3) by the Ellen MacArthur Foundation, suggests that taking a circular approach could reduce CO2 emissions by 5.6 billion tonnes – a 49% reduction in the projected 2050 total food system emissions.
Chris Daly, VP Sustainability at PepsiCo Europe believes the idea of being very aggressive within Europe on the sustainability agenda, and driving industry in that direction, could create a collaborative force within the food and agricultural sector.
“A lot of inactivity around sustainability comes from the fact that there are legacy solutions that no longer work,” he says. “And it's that change from the legacy to the future model that causes the challenges from a financial perspective. You've got to get over that hump, then typically a sustainable solution uses less resources, so almost inevitably it’s less expensive.”
PepsiCo, for instance, has a goal of 100% recycled packaging by 2025, which is dependent both on regulatory policy to support recycling infrastructure, and on advances in technology including chemical recycling of plastics – both of which Daly expects the EU’s Green Deal to support.
Circularity can help businesses with limitations in supply, shifting consumer demand and government policy. But the upfront costs of shifting to a circular economy often pose a barrier.
Van Dun notes that many of the costs of the linear model are disguised – particularly costs that are borne by society as a whole, such as pollution. “Circular business models tend to see more costs upfront. Sourcing resilient, re-usable materials; improving front-end design to increase upstream flexibility; building partnerships along supply chains for collection and processing – all these things come with costs.”
Squeezed businesses may be less willing to make these investments during a recession – especially when virgin plastic costs, for instance, have been brought down by plummeting oil prices. That would be short-sighted. Covid-19 has made the benefits of a circular economy even more obvious – it will take forward-thinking governments and businesses to work together, take the long view, and lead the way.
Enjoyed this article? Also explore our other post-Covid-19 reflections and useful insights for your business.
Interested to read more on circular business models and implications of Covid-19? Have a look at these suggestions:
- The world has woken up to the threat posed by plastics. How to deal with the plastics problem, here is a six-step guide.
- Out with the old throwaway society, in with the new circular economy. Policymakers, academics and businesses agree, a new model is needed to tackle some of the world's major environmental challenges.
- It’s not often that the world has an opportunity to collectively hit the reset button. Both the community and the economy have been hit hard by the coronavirus pandemic. As we start work to rebuild, we have an opportunity to make changes and build back an even better world.