#CircularEconomy_3: Only with the right prescription can the circular economy be a remedy

Not all Circular Business Models are designed to relieve the environment to the extent that would be necessary.

Clara Löw and Siddharth Prakash have already presented two contentious hypotheses on the #CircularEconomy, and now numbers 3, 4 and 5 follow. In them, the two researchers raise and discuss questions behind the scenes in their group at the Öko-Institut. Over the course of the year, the blog series will provide insights into the - partly controversial - debates on the circular economy.

Hypothesis 3

No silver bullet: Not all Circular Business Models are designed to relieve the environment to the extent that would be necessary.

In line with the study of the European Environment Bureau (EEB), we strongly believe that Circular Business Models should lead to a (material & energy) decoupling that is absolute, global, permanent, sufficiently fast and with high magnitude. In order to reduce overall material use, it is important to revive the fundamental principles of the waste hierarchies in our memories. Circular Business Models favouring, in the first place, prevention, followed by minimization, reuse and repair, need to have clearer priorities in the policy-making, not only on paper, but also in practice.

In the discourse on Circular Economy, the focus of political interventions and business models still seem to be favouring downstream measures, such as recycling, material and energy recovery and end-of-pipe waste management solutions. While not underestimating the potential of such measures, we know that technological, logistical and economic limitations will always lead to irreversible losses of primary raw materials.

Our research has shown that according to the current state of recycling technology in Germany, most of the metals, such as gold, indium, tantalum and rare earths contained in the microelectronic components of the ICT devices are inevitably lost during recycling. So, Circular Business Models targeting downstream measures are important, but they will not solve the problem of over-consumption of materials and energy.

Another aspect which is often overlooked in the debate on the potential of Circular Business Models is the possible rebound effect of the savings. Until now, there is no political response to prevent the reallocation of savings towards same or other modes of consumption that may partly or fully compensate the savings or in worst cases may even backfire causing higher overall consumption. While it is not trivial to avoid a certain level of rebound effect, knowing the extent of a possible rebound effect is extremely important.

Why is that so? Simply because, anticipating rebound effects could help in considering their potential impact on the effectiveness of policy options. Thus, policy options can be designed with higher ambition levels (compensating the negative impact of rebounds) and flanked with complementary policy measures for avoiding undesirable rebound outcomes.

For instance, measures for promoting sharing mobility services should not be at the cost of environmental-friendly public transportation systems. Or extending product use time should not mean that low quality and defect-prone second-hand products are shipped to developing countries without appropriate recycling infrastructure and technologies.

In order to avoid the misuse of the Circular Business Models narrative by vested interests, it is necessary to define clearly the main focus of CBMs, that is absolute and permanent reduction of materials globally. Furthermore, a sound methodology for measuring the (long-term) impact of Circular Business Models is required. Without a common understanding on CBMs and without a comprehensive methodological impact measurement framework, we fear the prevalence of either pseudo-CBMs or Circular Business Models with limited or short-lived environmental benefits and international burden shifting.

Hypothesis 4

Sufficiency is the only way: Less consumption, less production or vice-versa!

As an absolute decoupling of material and energy consumption from economic growth is unlikely to happen, the least impactful production and consumption is the one that does not occur. In our studies, we have repetitively shown that product use time would have to be extended to several decades to ensure low environmental impact – notebooks 33 to 89 years instead of 5 years and washing machines to about 40 years instead of 10 years. For smartphones, the lifespan would need to be extended to 25 to 232 years instead of 3 years, as shown by the European Environment Bureau (EEB).

While such product use times look unthinkable, they draw our attention to the current disastrous and unsustainable lifestyles. For many years now, any discussion on sufficiency measures has been nipped in the bud. They are deemed to be politically not communicable in our growth and wealth-oriented society. Policymakers, knowingly or unknowingly, have been shying away from initiating an open and transparent public dialogue on reducing material production and consumption.

Keeping products in the loop for as long as possible, not buying new products unnecessarily and downscaling our lifestyles substantially must be the credo of a future-oriented policy. Instead, the average per capita living area is on the rise in Germany, greenhouse gas emissions of the transportation have not gone down, food is still wasted in large quantities, fast fashion and cheap textiles are imprinted in our households and lifespan of appliances is on a downward spiral.

As the time for avoiding irreversible damages to the earth system is running out, policymakers seem to be caught in a tangle. Finding a compromise between long-term environmental protection and short-sighted socio-economic goals has led to a political lock-in effect.

How to break this vicious circle? Formulating measurable absolute raw material reduction targets for businesses and sectors of high relevance, implementing economic and fiscal incentives as well as disincentives of high magnitude for stimulating absolute material reduction nationally and in the EU, ambitious (and not soft-laid) minimum durability and quality standards for products are need of the hour.

Hypothesis 5

Large companies that would have transformation potential use circular and sustainable campaigns only as a PR action.

Large companies play a key role in the implementation of circular economy. However, their contribution is so far limited to circular and sustainable value creation as an add-on. Some of the big companies may not have any interest or incentive to switch to high sustainability standards and circular economy. They have partly jumped on the bandwagon because it is en vogue and certain customer segments can be served.

One example is textile companies using certain labels for “sustainable” cotton in the promotion of their products. In a comparison of such labels, however, we identified very big differences in the ambition of requirements: If more than 3/4 of the garments sold carry a cotton label, which does not sufficiently meet high environmental and social standards, can one not say that such a label is a PR campaign? Cotton products bearing this unambitious label can still be sold for a small price. In this way, linear consumption is further promoted and supported.

We know, the majority of circular and sustainable business models is not economically viable: They profit from access to (free) material, for example donations of used textiles for upcycling, access to volunteers - thus, less personnel costs - or from their consumer segment being able and willing to pay higher prices for durable, high quality goods. Often, large companies cross-finance a repair service, a take back system, extended warranties or any other circular campaign through their revenue created on the linear market. For a transition period, this is most probably the best thing to do, but how is that supposed to work in the long term?

Exclusively circular operating businesses in some economic niches provide a service to the society by acknowledging barriers for further primary resource extraction and contributing to hold materials in the loop. But they are unable to achieve market penetration, cannot expand or generate additional value as long as this additional service to the society is not paid back.

The question arises how to incentivize the transition of higher shares of the economy towards circularity? First, we have to acknowledge that scientific, policy and business-related understandings shape and frame the circular economy very differently (Kirchherr et al. 2017 Resources, Conservation and Recycling, p. 221–232). There is not yet an agreement on ambitious goals of circular economy and on the role of policy in introducing incentivizing instruments for the radical transformation needed to reach these goals.

Everyone seems to be talking about the Circular Economy and Circular Business Models. There seems to be a general consensus that they have a very important role to play when it comes to reducing global environmental pressures and achieving environmental goals. In the #CircularEconomy blog series, Oeko-Institut scientists raise a few questions about the current state and potential of Circular Business Models and present their proposals on how the circular economy can really contribute to climate protection.

Read all posts to the #CircularEconomy blog here.

Clara Löw and Siddharth Prakash are experts in the Sustainable Products & Material Flows Division in Freiburg. Their research focuses on sustainable materials, products and consumption.

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