1 Introduction
What
is a circular economy?
1. A circular economy maximises the sustainable use
and value of resources, eliminating waste and benefiting both
the economy and the environment. It offers an alternative to the
predominant current approach where resources are used for one
purpose and then discarded. The Government describes a circular
economy as:
moving away from our current linear economy (make-use-dispose)
towards one where our products, and the materials they contain,
are valued differently; creating a more robust economy in the
process.[1]
2. The idea is not new, and is associated with a
range of concepts such as 'cradle to cradle' design and 'industrial
ecology', which draw inspiration from biological cycles and emphasise
the importance of optimising the use of resources in a system
over time. A circular economy includes a range of processes, or
'cycles', in which resources are repeatedly used and their value
maintained wherever possible. The European Commission talks about:
re-using, repairing, refurbishing and recycling
existing materials and products. What used to be regarded as 'waste'
can be turned into a resource. All resources need to be managed
more efficiently throughout their life cycle.[2]
In recent years the Ellen MacArthur Foundation have
raised the profile of these ideas in the UK through a series of
reports with global consulting firm McKinsey. These set out a
conceptual framework for the circular economy and highlight the
economic and environmental benefits to businesses of taking this
approach.[3]
Our inquiry
3. Our interest in the circular economy lies in its
potential to reduce waste, use resources more efficiently, and
promote sustainable development which fully values the environment.
We took evidence from
a wide range of organisations and experts, including retail businesses,
manufacturers, designers and those involved in the waste management
and recycling industries, as well as the European Environment
Commissioner, Janez Potoènik, and Parliamentary Under-Secretary
of State in Defra, Dan Rogerson MP. We are grateful to them all,
and to our specialist adviser Martin Brocklehurst.[4]
The benefits of a circular economy
4. One reason a more circular economy is needed is
because current rates of resource consumption
are not sustainable. The European Environment Commissioner, Janez
Potoènik, highlighted to us that increasing levels of consumption
in developing countries will put ever more increasing pressure
on resources:
In one generation, we will have on the planet
an additional 2 billion people, which is more than the overall
population at the beginning of the 20th century, when it was 1.5
billion. That is more than 200,000 per day. … McKinsey estimates
that, by 2030, 3 billion people who are currently living in poverty
will join the middle-class level of consumption. If you take into
account that, all in all, that would mean that we would need something
like three times more resources than we use today in 2050—70%
more of food, feed and fibre in 2050—we would likely be
around 40% short of drinking water in 2030. If we take into account
that already today we are using approximately 60% of our ecosystems
in pretty much unsustainable ways that makes a pretty simple conclusion:
how we produce, consume and live will have to be changed.[5]
The Ellen MacArthur Foundation similarly concludes
that:
Whilst we cannot say for certain that we will
'run out' of resources—mankind has shown incredible persistence
and ingenuity in finding access to new sources—it is clear
that we have exhausted the easy to access reserves. This is having
a significant impact on prices, and the century of commodity price
declines enjoyed between 1900 and 2000 were effectively erased
in the first decade of this millennium. There are few signs that
this trend will be reversed.[6]
5. The Green Alliance predict a "great resource
price shock", as the combination of rising demand and constrained
supply leads to rising prices:
The last decade has seen a dramatic shift from
20th century expectations that relatively ready access to cheap
raw materials was the norm, and that the occasional resource crunch
would be overcome by new technology and new sources of supply.
This has been expressed in restrictions on raw materials like
rare earth metals and very substantially greater price volatility
across a whole host of commodities. Over the past decade world
food prices have doubled, metals prices have trebled and energy
prices have quadrupled.[7]
Dustin Benton from the Green Alliance told us that
the cost of extracting resources is rising as the easiest to reach
sources run out:
Copper is an area that we have looked at in some
detail, because it is not very readily substitutable. There is
copper in all of the wires in this room, in our smartphones, everywhere.
We could not run a modern society without it. ... When we started
measuring back 150 years ago there was about 7% copper in every
ton of ore that we got. Today it is about 0.6%. … There is
plenty of copper in the earth's crust, don't worry, but getting
to it, extracting it, is increasingly a challenge.[8]
Sir Ian Cheshire of Kingfisher told us that he expected
that rising global demand for products would continue to lead
to increasing prices. He said that businesses needed to adapt
to this new reality:
I am personally convinced that resource prices
are going one way because of the next 30 years, and that if you
have a planning assumption in your business model that that is
not the case I think you are going to be unpleasantly surprised.
There is opportunity always to substitute certain material prices
and mitigate this, but I think the broader picture is a one-way
bet at the moment.[9]
6. Whilst the threat of increasing prices provides
a driver for businesses to become more resource efficient, there
are also strong environmental arguments for taking a more circular
approach. Many of the wider environmental impacts from the use
of materials are not captured by market prices. Dustin Benton
of the Green Alliance explained that a circular economy has significant
environmental benefits. He noted that the price of resources does
not include the full environmental costs associated with extracting,
processing and transporting them. If the costs of carbon emissions
were included, for example, then the benefits of a circular approach
would be clear:
If we were to price carbon adequately to get
real change to tackle climate change … the price of aluminium
would jump by 70% because of the amount of energy that goes into
its production. Recycled aluminium would only jump by about 7%.[10]
7. Jamie Butterworth of the Ellen MacArthur Foundation
explained that it is possible to transform the environmental impact
of products by changing the materials they are made from. He gave
the example of a Californian company that is making packaging
material using used ground coffee to produce mycelium as an alternative
to polystyrene. He told us that this material "is price competitive
with polystyrene" and "completely restorative".[11]
8. There are several ways of measuring the 'circularity'
of the economy. One headline figure is the household recycling
rate, which reached 43% in England in 2012-13, up from 12% in
2000-01. However, waste collected by local authorities forms only
a 13% of total waste produced in the UK. The main components are
construction and demolition waste (49%) and commercial and industrial
waste (24%).[12] Household
recycling is discussed in more detail below. WRAP (the Waste and
Resources Action Programme) estimated that in 2010 the UK economy
was 22% 'circular'; an increase from 8% in 2000. In total in 2010,
540 million tonnes of resources entered the economy, and, "after
losses to the environment through industrial processes, energy
consumption and wear-and-tear",[13]
259 million tonnes were left to be managed as waste, of which
117 million tonnes were recycled. It estimated that
by 2030, the UK economy's circularity could increase to 27%, whilst
also benefiting from a reduction in materials consumption of 30
million tonnes a year. [14]
9. Waste policy and regulation in England is informed
by the 'waste hierarchy', as required by the EU Waste Framework
Directive, and transposed into law by the Waste (England and Wales)
Regulations 2011. The hierarchy, which is consistent with the
circular economy approach, gives top priority to waste prevention,
followed by preparing for re-use, then recycling, other types
of recovery (including energy recovery) and last of all disposal
or landfill.[15]
10. A more circular economy also has economic benefits.
The Environmental Services Association suggest that a more circular
economy could increase UK GDP by £3 billion a year.[16]
A study for the Government in 2011 indicated that there were £23
billion of financial benefits from low/no cost improvements available
to businesses in the UK.[17]
The Green Alliance told us that the circular economy makes good
business sense:
Where companies control the full cycle of a material
or product, they choose circular models to offset the need to
hedge for the price volatility of new materials. This also avoids
the (normally uninsured) risk that lack of availability of resources
will constrain production.[18]
11. In their evidence, the Chartered Institution
of Wastes Management (CIWM) drew on analysis from the EU that
estimated that full implementation of the 8 existing EU main waste-related
directives could save €72 billion a year (€9 billion
in UK). The value of the 'waste industry' in Europe could increase
by €42 billion (€5 billion in UK), with 400,000 new
jobs (50,000 in UK). EEF, the manufacturer's association,
highlighted research by the Next Manufacturing Revolution, which
suggests that in just three UK manufacturing sub-sectors re-manufacturing
has the potential to create £5.6bn to £8bn a year and
support over 310,000 jobs. Commissioner Potoènik told us:
Environmental protection and health protection
and economic development are two sides of the same coin. Flipping
that coin makes no sense. We simply have to recognise the integration
of environmental concerns into not only industrial policy, but
transport policy, energy policy, fisheries policy, agricultural
policy, trade policy, research policy and so on. It is an absolute
necessity.[19]
Business engagement
12. Professor Tim Jackson told us "unless you
have a business model that is different from the one predicated
on the material throughput of consumer products, you cannot create
an economy that will deliver the circular economy in toto".[20]
Clearly, one solution to rising populations and resource scarcity
is for people to consume less, but there are also opportunities
for new business models which use resources more efficiently,
such as those which provide access to products, such as cars,
rather than ownership. Sir Ian Cheshire highlighted that "the
emergence of things like the 'sharing economy' and different forms
of more sustainable consumption become easier for customers".[21]
13. Some businesses are taking the lead in responding
to the challenges of rising natural resource prices by adopting
circular economy approaches. Ramon Arratia of Interface carpets
told us that setting ambitious goals had made his organisation
"look for radical options and think big, and things emerged.
We went to the inventors of nylon who told us it was impossible
to recycle nylon. Now we have 100% recycled nylon, not only across
our company but also across all of our competitors."[22]
14. Some new business models offer the potential
to use resources more efficiently by rewarding better design and
encouraging the repair, re-use and recycling of products. For
example, Rolls Royce has switched to a service-based model, offering
'power by the hour' which covers "full in-use monitoring,
servicing, repair, remanufacture and replacement" of its
engines. WRAP told us that a 'take-back' model for TVs and clothing,
where products are returned for recycling or re-use, could increase
UK GDP by over £1.75 billion by 2020. It is working on a
'REBus' project "to demonstrate profitable, resource-efficient
and resilient alternative business models" in the electrical
products, textiles, furniture and construction products sectors.[23]
15. Dan Rogerson, Defra Minister with responsibility
for waste, highlighted the REBus project's work looking at hiring
out baby equipment: "As your needs change with buggies, …
and what you need the buggy to do, depending on how many children
you have and so on, you buy that service rather than just a product".[24]
By supporting research into these areas, the Government can help
support businesses in their decision-making, potentially reducing
risks associated with taking new approaches.
16. The circular economy concept can help businesses
to think through how they use materials and understand the full
life-cycle of their products. It is both a challenge and an opportunity
for businesses. Marks and Spencer told us that in their experience:
The circular economy is most dependent on dematerialisation
and re-use. Therefore, the traditional waste hierarchy (and policies)
of reduce (dematerialise), re-use, and recycle is still relevant
to the circular economy. For example, re-using clothing to reduce
consumption is significantly more beneficial in financial and
environmental terms than the lesser option of recycling.[25]
WRAP believed that "true circularity is not
just about recycling more material, but about using less material
in the first place".[26]
It is therefore about better design. The Great Recovery project,
funded by the Technology Strategy Board and run by the Royal Society
for the encouragement of Arts, Manufactures and Commerce (RSA),
has led research into the role of design in the transition to
a circular economy. They calculated that "over 80% of the
environmental impact of a product is determined at its design
stage, making it a crucial leverage point in shifting towards
more circular systems" and identified four 'design models'
for circularity:
a) Design
for longevity;
b) Design
for leasing /service;
c) Design
for re-use in manufacture; and
d) Design
for material recovery. [27]
Design for the circular economy requires specialist
expertise. It is not just about making things, but understanding
materials and building links between organisations. Sophie Thomas
of the RSA highlighted a need for "more system designers,
system thinkers."[28]
17. Research by Green Alliance with the Circular
Economy Task Force has highlighted business conditions that are
more conducive to the circular economy: where the value of materials
is high, where they can be collected reliably with little contamination,
and where the product or component is easy to re-use or transform
through recycling. Where there are multiple owners who control
the materials, or where products change rapidly, it can be harder
to introduce circular business models.[29]
By their nature, alternative business models are 'disruptive',
and challenge existing market players. Splosh Ltd, which sells
laundry detergents, told us that businesses that attempt to innovate
may face intense competition from rivals:
Many major companies have invested significant
sums in brands and business models that support linear products,
which may not be turned easily into circular products. Circular
products would represent a threat to the status quo which would
lead to discounting and marketing pressure from established brands.[30]
18. Ramon Arratia of Interface carpets told us that
it is challenging for manufacturers to become services expert
because it requires different skills.[31]
He told us that other policy interventions can support greater
circularity, and that there are different ways that companies
can gain from circularity without needing to control the entire
process:
You do not necessarily need to own the product
in order for the product to come back. If you impose a ban on
the landfill of carpet across Europe—as it is in Germany
and in other countries—effectively the carpet will go back
to the best technology. If we have the best technology to recycle,
it will come back to us. There are other ways. Ownership of the
actual product across the whole life is not absolutely critical.[32]
Marks and Spencer told us that "finding practical,
workable solutions to growing a circular economy depends on high-quality,
multi-stakeholder collaboration".[33]
Many businesses to do not have specialist skills or experience
to know how to apply circular economy thinking. The Resource Association
told us that this was particularly important for small and medium
sized enterprises (SMEs):
For the SMEs that are the backbone of industry
and commerce, time and resources for innovation are often hard
to find and they are more reliant on support and encouragement
from Government. To this end, maintaining support for businesses
through funding mechanisms such as the Technology Strategy Board
and the Waste and Resources Action Programme remain important.[34]
19. The Government highlighted the work the Technology
Strategy Board is doing to support circular economy innovation.
This includes work with Knowledge Transfer Networks on design
challenges to promote re-use, resource efficiency and supply chain
innovations.[35] The
Technology Strategy Board has supported around 60 projects, investing
over £13 million, including developing recycled aluminium
alloys for Jaguar Land Rover car bodies and redesigning a Morphy
Richards steam iron for longer life and lower energy use.[36]
Professor Rob Holdway of Giraffe Innovation told us about work
he was involved in to recover critical metals from printed circuit
boards using novel engineering technologies. He told us that these
electronic equipment materials are valuable—"by 2020
there will probably be about £1.3 billion worth of value
in those materials".[37]
CIWM emphasised that Government is playing a significant role
in supporting UK businesses, including supporting access to international
markets through UK Trade and Investment (UKTI):
Government is successfully supporting innovation
and development in some areas including the valuable work by KTN
and TSB, to find and develop and introduce technologies and new
approaches at all points in the resources cycle, regardless of
'sector'. UKTI also support access to overseas markets where UK
knowledge and experience are highly valued.[38]
20. The Government has, however, stopped directly
funding its National Industrial Symbiosis Programme. Liz Goodwin
of WRAP told us the reason for ending funding was that "quite
a lot of this was just one-offs and it was very difficult to replicate
it."[39] International
Synergies Ltd told us the that programme is "a business opportunity
engagement process which then allows other ideas/tools to be introduced
to businesses but in a peer-to-peer way which is far more effective
than consultant- or government-to-business",[40]
and this work had "recently been recognised by DCLG as being
excellent value for money".[41]
21. The Government highlighted a number of initiatives
it has promoted to encourage greater collaboration. This includes
setting up the business-led Circular Economy Task Force, and working
through WRAP to establish voluntary initiatives in different sectors,
such as the Sustainable Clothing Action Plan (SCAP) and Sustainable
Electricals Action Plan (SEAP). It also supports the Product Sustainability
Forum, which brings together retailers and suppliers, NGOs, academics
and Government representatives, with a focus on grocery products.[42]
It is also funding research on business models (paragraph 14).
WRAP told us, however, that the Scottish Government's Resource
Efficient Scotland programme provides wider support to businesses,
third sector and public sector organisations to reduce overheads
through improved energy, material resource and water efficiency.[43]
22. The Government told us, however, that its focus
is on "moving towards a more circular economy, rather than
achieving or delivering it",[44]
and that the "Government is clear that businesses need to
drive change".[45]
It added that
Government's role should be focused on the areas
where Government is uniquely placed to act, i.e. working with
businesses to ensure the right frameworks are in place to allow
them to act, remove any unnecessary barriers and ensure that market
failures are addressed.[46]
Marks and Spencer told us that responsibility for
the circular economy lies 80% with businesses, but that crucially
there remained a role for "some degree of support and incentivisation
from Government as well".[47]
Sir Ian Cheshire of Kingfisher believed that Government has a
significant role in facilitating change:
I think Government acting as a promoter of the
circular economy and a promoter of these types of behaviour, and
having an explicit role to champion this through BIS and others
talking about new models for businesses, is going to be incredibly
important.[48]
During our inquiry, we examined a number of areas
where Government might focus more attention in order to enable
companies to move towards a more circular approach, which we discuss
in Part 2.
1 The Government Prevention is better than cure: the role of waste management in moving to a more resource efficient economy
(December 2013) p9 Back
2
European Commission website 'Moving towards a circular economy,
accessed 17 July 2014 Back
3
EllenMacArthur Foundation, Reports Back
4
Martin Brocklehurst declared the following interests on 30 April
2014: Independent environmental consultant with KempleyGreen Consultants,
advising a number of clients on waste and resource management,
catchment management, citizen science and ecosystem services.
Until 2011, employed by the Environment Agency. Back
5
Q198 Back
6
Ellen MacArthur Foundation (GCE0024) para 2 Back
7
Green Alliance (GCE006) para 5 Back
8
Q19 Back
9
Q18 Back
10
Q10 Back
11
Q4 Back
12
National Audit Office Environmental Protection (July 2014), p30 Back
13
Chartered Institution Of Wastes Management (GCE0043) para 7 Back
14
WRAP (GCE0025) para 11 Back
15
The Government (GCE0045) para 25 Back
16
Environmental Services Association, Going for Growth: A practical route to a Circular Economy (June 2013) Back
17
The Government (GCE0045) para 8 Back
18
Green Alliance (GCE006)
para13 Back
19
Q202 Back
20
Q145 Back
21
Q6 Back
22
Q99 Back
23
WRAP (GCE0025) para 23 Back
24
Q238 Back
25
Marks and Spencer (GCE0049) para 7 Back
26
WRAP (GCE0025) para 11 Back
27
RSA (GCE0048) Back
28
Q69 Back
29
Green Alliance (GCE006) para 15 Back
30
Splosh (GCE004) para 7 Back
31
Q103 Back
32
Q104 Back
33
Marks and Spencer (GCE0049) para 9 Back
34
Resource Association (GCE0023) para 9 Back
35
Government (GCE0045) para 27 Back
36
Technology Strategy Board (GCE0030) para 23 Back
37
Q68 Back
38
Chartered Institution Of Wastes Management (GCE0043) para 25 Back
39
Q24 Back
40
International Synergies Limited (GCE0019) Back
41
International Synergies Limited (GCE0055) Back
42
Government (GCE0045) paras 21-27 Back
43
WRAP (GCE0025) para 65 Back
44
Government (GCE0045) para 11 Back
45
Ibid, para 19 Back
46
Government (GCE0045) para 9 Back
47
Q116 Back
48
Q16 Back
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