26.03.2021
The move towards a net zero, green future has a significant role in promoting sustainability within businesses, which presents increased profit and competitive opportunities for our manufacturing industry. There are a number of ways in which this can be achieved; through decarbonising the industry itself, creating the green products, and services and business models that will underpin our future low-carbon economy - helping everybody achieve the net zero target. This blog will primarily focus on doing so through waste management, and the lessons to be learned from a circular economy.
What is a Circular Economy?
The Circular Economy is a model of production and consumption that aims to redefine the current “take-make-waste” linear model. As seen below, it involves sharing, reusing, repairing, remanufacturing and recycling products and materials - all with the goal of extending their life cycles and reducing overall waste. This begins at the design stage, where value is added to the products (e.g. by making them simple to dismantle, with reduced materials content or increasing traceability), allowing them to remain circling within the system for as long as possible. This is a preventative measure that underlines the whole agenda of reducing waste and managing the world’s finite resources.
Why is this a problem?
The economic case for a green economy is a simple one; our decision to produce and consume often fails to take into account the consequences of doing so. In this case, waste is often not accounted for during production – and its negative impact indicates an inefficient allocation of resources. As a result, waste is overproduced and becomes our problem to deal with – problems that include environment impacts like greenhouse gas emissions and damaging ecosystems. The increased use of PPE masks over the last year is an example of this. There are an estimated 194 billion disposable masks and gloves being used worldwide every month. These masks are non-recyclable and considered medical waste, so they either end up in landfills, are incinerated (releasing harmful gases), or are littered in highstreets, beaches and canals. Because masks can take up to 450 years to fully decompose, when masks are littered and they end up in oceans, this causes disruptions to the ecosystems, and contributes to the world’s overall plastic soup.
For manufacturing, waste can be a problem because it is costly. Specifically, the costs can come from waste generation (like the cost of lost resources), and waste disposition (like transport and disposal cost) – for reference UK landfill tax currently stands at £96.70 per tonne. Overall, companies can spend between 4-10% of an average annual turnover on waste, without a proper waste disposal strategy that begins with waste minimization. Finally, the current “take-make-waste” model gives grounds for the need of raw materials, and therefore contributes to the rapid depletion of finite resources. This is particularly problematic for the manufacturing industry, with rising concerns behind the volatility and security of supply chains.
What are the benefits of a Circular Economy?
Fixing the current linear system also presents potential benefits. One sure outcome from a transition into a circular economy is the cost savings, for both manufacturers and society. The Ellen-MacArthur report estimates an annual material cost saving opportunity of USD 340 to 380 billion, at an EU level for a ‘transition scenario’ alone. The additional economic benefits of a circular economy could include improvements in growth and productivity - the worldwide circular economy is projected to be worth $4.5 trillion in the next 15 years, and according to the EU’s Circular Economy Action Plan, a 30% increase in resource productivity could lead to a 0.8% increase in GDP and the creation of two million new jobs by 2030.
The manufacturing sector also stands to gain from reduced costs, as well as increased security in supply materials, and increased competitiveness. We know from Make UK research that cost savings and increased competitiveness are key drivers to investing in energy efficiencies and the wider sustainability agenda for UK manufacturers. A reduction in cost would stem from energy savings, recycling resources, and a reduction in waste disposal costs - from remanufacturing and refurbishment there is an estimate of $380 billion in material costs to be saved for EU manufacturers in a “transition scenario”. Moreover, the increasing risks due to price volatility and security of supply materials can be diminished by a circular system. Meaning, manufacturers that are better at managing waste may find themselves less exposed and more resilient to fluctuations in input prices. The Ellen MacArthur foundation describes a case study in which a conservative 25% of non-recycled materials are refurbished. This presents the opportunity for existing materials to be reused - reducing the need and demand for raw materials like iron ore, for example. The report estimates a saving of 110 to 170 million tonnes of raw material per year. Resultantly, saving at such volumes would have significant calming effects on the supply of such materials - and therefore the price volatility. Finally, there is merit behind maintaining value, where companies who maintain the productive value of their assets can add 20-30 times more value to their business than recycling.
The next steps?
The issue is that supply chains will remain global as raw materials are produced abroad, and the current UK policy systems still allow for cheaper products to be imported from ‘material (carbon)-intensive’ countries, undercutting the prices of British goods (which carry the initial CE investment costs). The economic solution to market failures can be simply put: there must be penalties on things that cause harm, and incentives for things that bring good. The need for this highlights the government’s role in taking the next steps towards a green economy – penalties that already exist include extended producer responsibility and landfill taxes – which means that producers internalize waste as a cost rather than an external consequence. On the other hand, policies like these may be considered more reactive than proactive, whereas incentives for things that bring good have the potential to act as preventative measures, by offering alternative paths. This includes policies like green tax credits, and subsidies into skill development. Make UK is calling for the introduction of a Green Skills Tax credit to incentivise manufacturers to invest in green skills and green collar jobs. Further research into product and carbon content standards, to help bridge the current gap in knowledge regarding materials would also be welcomed. Maximizing the potential of efficiently recycling materials requires both the knowledge about materials, as well as how to reuse them. And manufacturers have that know-how – what is missing are the right incentives at both a national and international level, to apply the principles of a circular economy into their own business models.
It is clear that the need for investment into a circular economy requires prioritizing long-term goals. Overcoming knowledge and cost barriers can open the doors for manufacturing, to achieve a more innovative and sustainable future - one that is developed to suit the future low-carbon, low-waste economy.