circular economy route map economic analysis...workshop including all project team members. all...

London Waste and Recycling Board

Circular economy Route Map economic analysis

Final report

June 2017

Amec Foster Wheeler Environment

& Infrastructure UK Limited

1 © Amec Foster Wheeler Environment & Infrastructure UK Limited

June 2017 Doc Ref.39328

Contents

1. Introduction 2

1.1 Background and purpose 2

1.2 Structure of this report 2

1.3 Key terminology 2

2. Economic impacts of the Route Map actions 3

2.1 Overview 3

2.2 Methodology 3 Overview 3 Grouping of actions to define end-points 3 Assessment of the economic impacts of each end-point 4

2.3 Results 5

3. Wider economic impacts 6

3.1 Background 6

3.2 Assessment of wider economic impacts of the Route Map actions 6 Knock-on savings 6 GDP impacts 6

4. Conclusions 8

Table 2.2 Estimated net savings (£m) achieved by implementing all London Circular Economy Route Map actions, by

focus area 5 Table 3.1 GDP impact estimated and potential savings identified in the Ellen MacArthur Foundation’s “Delivering the

Circular Economy – A Toolkit for Policymakers” Denmark case study 7

Figure 4.1 Comparison of estimated annual benefits from the Route Map actions (bars) and total estimated annual

benefits of implementing the circular economy in London (horizontal line) 9



1. Introduction

1.1 Background and purpose

The London Waste and Recycling Board (LWARB) is developing a programme to support the capital’s

transition from a linear to a more circular economy. In this context, LWARB has been supported by Amec

Foster Wheeler in the development of two key pieces of work:

The ‘Towards a circular economy – context and opportunities’ report contains an initial

economic assessment of the potential for circular economy in five focus areas1. This

assessment indicated that addressing circular economy opportunities within the five focus

areas in London implies a potential net GDP benefit of up to £7billion annually from 2036. This

is referred to as “the £7bn estimate” hereafter.

The Route Map of short, medium and long term actions that can be undertaken in London

towards achieving a circular economy in each of the five focus areas is now available in draft

form and contains in total 86 actions.

The purpose of this report is to estimate how much of the £7 billion potential net benefit to London by 2036

could be achieved if the actions in the Route Map were carried out. Hence, this project provides further

clarity and detail on in the context of the previous work to support London’s transition to a more circular

economy.

1.2 Structure of this report

This report is structured as follows:

Section 2 addresses the economic impacts of the implementation of the Route Map actions at

a detailed level.

Section 3 discusses the wider economic impacts and overall change in GDP resulting from the

direct impacts identified in the previous section.

Section 4 summarises the results and puts them into perspective with “the £7bn estimate”, the

potential annual net benefit to London from 2036 if all circular economy opportunities within the

five focus areas are addressed, as estimated in ‘Towards a circular economy – context and

opportunities’.

1.3 Key terminology

The box below provides a reference to the key terminology used in this report.

1 built environment, electricals, textiles, food and plastics

Use of key terminology in this report

End-points: Groups of actions that work together to achieve common goals and thus exhibit a common

impact that can be assessed jointly for all the actions of the group.

Impacts: The results of actions or groups of actions.

Benefits: Positive impacts. In the context of this project this typically refers to economic benefits, so

positive impacts in economic terms such as for instance monetary savings.



2. Economic impacts of the Route Map actions

2.1 Overview

This section sets out the approach and results of the assessment of economic impacts of each of the actions

of the London Circular Economy Route Map. This analysis seeks to identify economic impacts that can be

attributed to specific actions, or to combinations of small groups of actions within the same focus area2.The

methodology is addressed in Section 2.2, before Section 2.3 presents and discusses the results.

2.2 Methodology

Overview

This section outlines the general approach of the analysis and highlights key assumptions and caveats.

The basic idea is to assess each of the Route Map actions separately to determine the monetary value of

their outcomes/impacts. However, there is limited data to support the separate analysis of the economic

impact of each action. Hence, in order to achieve the most robust estimate of the contribution of all actions

an approach based on grouping actions and assessing their joint impact was developed.

The following sub-sections briefly set out the two main steps of the methodology:

Grouping of actions to define end-points

Assessment of the economic impacts of each end-point

A third step, estimation of range of wider economic impacts from the combination of all actions is addressed

in Section 3.

Grouping of actions to define end-points

This task defines a set of end-points to be monetised, based on the Route Map actions. These end-points

are determined by grouping actions that together are working towards certain common goals. The result is a

set of end-points consisting of groups of actions with common impacts, which are meaningful and feasible to

monetise in the next step. The box below provides an example for illustration.

Once grouped, the actions are represented with a common impact which can allow a clearer and simpler

approach to assessment of economic effects. In the example this is through use of the concept of ‘design for

circular economy’, followed by a judgement over the rate of uptake in the next task. As a result of the

grouping, the 86 actions led to 41 endpoints.

2 Wider economic impacts resulting from knock-on effects and interrelations among the different focus areas and with the rest of the economy are discussed in Section 3.

Grouping example:

Action 1: Introduce circular economy thinking in relevant university courses in London and look to

develop modules for relevant courses where appropriate.

Action 2: Offer a design challenge to innovate circular economy building solutions.

End-point: The two actions above are grouped into one end-point work towards the common goal of increasing the uptake of design for circular economy.



Assessment of the economic impacts of each end-point

In this task, a monetary value is estimated where possible based on desk research for each end-point

defined in the previous task. The value is derived by firstly quantifying the impact of the end-point according

to the action or group of actions which result in it, and secondly valuing the impact in economic terms (in this

study equivalent to monetary terms).

In practice, the quantification of each impact reflects a target level of impact multiplied by an expected rate of

uptake. The target represents a theoretical level of opportunity and the uptake rate reflects the share of that

opportunity that could actually be achieved through actions taken by stakeholders in London.

To assess the target level of impact for the 41 end-points, the majority (46%) were valued based on specific

opportunities3 identified in the ‘Towards a circular economy – context and opportunities’ report. For 24% of

end-points, specific evidence from other sources was available and suitable for valuing the economic impact.

The remaining end-points could be described as falling in a category where there was a very wide range of

the potential value of the opportunity or in a category of no applicable evidence. These end-points (28%)

were valued assuming they contributed to the overall opportunity in the respective focus area4 as identified in

the ‘Towards a circular economy – context and opportunities’ report.

The approach to developing the corresponding uptake rates poses particular challenges due to a lack of

data. The approach taken to overcome this is described in further detail below.

Approach to development of uptake rates

The uptake rate is a factor between 0 and 1 which represents the degree to which the target level of impact

is achieved. In the absence of sufficient evidence, such as from evaluations in similar projects, uptake rates

are estimated using expert judgement. The following approach was used using the method of an internal

workshop including all project team members.

All estimates of uptake rates are based on the assumption that 100% uptake corresponds to full

implementation of the actions. Three uptake rates are estimated for each end-point (lower, central and

higher estimate). The upper estimate assumes that the actions relating to the respective end-point initiate a

process of significant change following immediately from the actions (“switch on”). The lower boundary

estimates assume more conservatively that only more direct and immediate impacts are achieved from the

actions. The central estimate is a midway value which reflects judgement on factors such as the level of

knowledge of the circular economy in a particular sector as well as the feasibility of the most likely path for

implementation.

The following provides an indicative list of considerations used in support of the estimation of uptake rates:

Regarding the implications of the quantification and valuation of the impacts on uptake:

Is there already an uptake rate implied in the evidence used for quantification and valuation

of the impacts?

Are the actions addressing all relevant opportunities included in the quantification and

valuation of the impacts?

Regarding the implications of the specification of the actions:

What level of influence do parties responsible for the actions have on the relevant

stakeholders (public sector, businesses or consumers)?

Are the actions addressing all relevant barriers to unlock the full opportunity included in the

quantification and valuation of the impacts?

3 A specific opportunity would be for instance “Peer-to-peer renting, better urban planning, office sharing, repurposing buildings and multi-purposing buildings increases the value of new buildings in London. The utilisation of 20% of buildings can be doubled by 2036, saving over £600m annually” (‘Towards a circular economy – context and opportunities’ report, page 22). 4 An overall opportunity for a focus area would be for instance “The latest estimates for the potential from circular economy opportunities in the built environment add £3 – 5bn annually to GDP by 2036 […]” (‘Towards a circular economy – context and opportunities’ report, page 22).



Is there any evidence of experience regarding the effectiveness of the same type of actions?

2.3 Results

The following economic benefits, resulting from the Route Map actions, predominantly consisting of savings,

have been quantified.

As a central estimate, quantified economic benefits amount to about £2.8bn. A more conservative estimate,

based on focusing on mostly direct and immediate impacts from the actions indicates benefits of some

£1.2bn (lower boundary estimate). Assuming the actions initiate a process of significant change, they could

lead to benefits up to over £7bn (upper boundary estimate). Table 2.1 presents the results by focus area.

Please note that in the context of the significant assumptions and uncertainty involved as discussed in

previous sections, this is an estimate of the expected magnitude of the savings, and inappropriate for (e.g.)

cost-benefit analysis without further substantiation.

Table 2.1 Estimated net savings (£m) achieved by implementing all London Circular Economy Route Map actions, by focus area

Focus area Lower estimate (£m) Central estimate (£m) Upper estimate (£m)

Built Environment 370 1,150 4,430

Food 470 780 1,140

Textiles 230 580 1,150

Electricals 90 210 850

Plastics 20 40 190

Total 1,180 2,760 7,760

Source: Amec Foster Wheeler 2017



3. Wider economic impacts

3.1 Background

The work undertaken in ‘Towards a circular economy – context and opportunities’ shows a GDP impact of

implementing a circular economy significantly larger than the sum of the individual savings in each sector

with further knock-on benefits in other sectors, new opportunities for circularity, and benefits for the economy

more generally. The difference between bottom-up action-based estimates and top-down estimates is a

common feature of economic analysis of these type of issues. The two types of estimate are understood to

complement each other by providing a focus for individual actions but also a realistic result for the economy

in GDP terms. One clear example of the links between them is that actions tend to support each other, and

so, if some are not done, as well as the individual loss, there will be lower degree of complementary benefits.

It also follows that modelling the actions individually only provides part of the picture. Similarly, the GDP

impact of the Route Map will also be larger than the sum of the savings following from the individual actions.

The reasons result from interactions between actions, the scope and extent of the influence of actions (e.g.

relationships with London’s hinterland) and their possible variety of contributions to GDP impacts.

A thorough estimation of the GDP impact would typically require a macro-economic model, which goes

beyond the scope of this project. However, below we present evidence supporting a more general approach

to knock-on effects, the impact on GDP expected to result from the Route Map actions, and as far as

possible the estimated order of magnitude of impacts.

3.2 Assessment of wider economic impacts of the Route Map actions

Knock-on savings

According to the Ellen MacArthur Foundation’s “Growth Within”5, resource savings from circular economy

activities (specifically the “ReSOLVE” levers) can result in further non-resource savings to the economy by a

factor of, on average, 2.0 excluding, or 4.5 including, externalities. A multiplier of 4.5 means that for £1 of

resource saving, £4.5 of non-resource and externality savings are incurred. Depending on the evidence

available for quantification and valuation of impacts, such non-resource and externality savings are only

included in parts of the quantitative estimates of Section 2, meaning that overall, significant additional

savings are to be expected.

GDP impacts

GDP impacts can be significantly higher than the savings they are based on. Modelling by the Ellen

MacArthur Foundation and others6 has shown that, despite the initially contracting impact of the many

consumption reducing effects of the circular economy, in the long run GDP increases. An indicator of the

magnitude is available from the Denmark case study in the Ellen MacArthur Foundation’s “Delivering the

Circular Economy – A Toolkit for Policymakers”7. GDP impacts in the Denmark case study are 1.9 times the

direct savings that they are based on (average between “Conservative” and “Ambitious” scenarios), ranging

between 1.3 and 2.5 times depending on the specific opportunity and sector and the level of ambition.

5 Ellen MacArthur Foundation, Stiftungsfonds für Umweltökonomie und Nachhaltigkeit, McKinsey Center for Business and Environment: Growth Within: A Circular Economy Vision for a Competitive Europe (2015). 6 E.g. TNO: Opportunities for a circular economy in the Netherlands (2013) and Club of Rome: The Circular Economy and Benefits for Society (2015). 7 Ellen MacArthur Foundation, McKinsey Center for Business and Environment, Danish Business Authority, Danish Protection Agency, NERA Economic Consulting: Delivering the Circular Economy – A Toolkit for Policymakers (2015).



Table 3.1 GDP impact estimated and potential savings identified in the Ellen MacArthur Foundation’s “Delivering the Circular Economy – A Toolkit for Policymakers” Denmark case study

“Conservative” estimate “Ambitious” estimate

GDP impact +€3.6bn +€6.2bn

Savings €2.0bn €3.1bn

€ GDP impact per € savings 1.7 2.0

Source: Amec Foster Wheeler 2017 based on Ellen MacArthur Foundation, McKinsey Center for Business and Environment, Danish Business Authority, Danish Protection Agency, NERA Economic Consulting: Delivering the Circular Economy – A Toolkit for Policymakers (2015).

Taking these results as an indicator for the expected GDP impact resulting from savings from circular

economy opportunities, the GDP impact resulting from the Route Map actions could be of the magnitude of

twice as high as the savings estimated in Section 2. However, note that this is merely an indication of

magnitude and has major uncertainties. Comparing the results from the Denmark case study to the London

Route map implies a range of assumptions, including similarity between the actions in the Route Map and

the opportunities addressed in the Denmark case study, as well as between the economies of London and

Denmark.



4. Conclusions

The Route Map actions for which economic benefits were quantified here, were assessed as contributing an

additional £1.2bn to £7.8bn to sectors within the London economy, with a central estimate of £2.8bn. They

are represented by the green bars in Figure 4.1.

The total economic impacts on GDP, which includes these effects as well as additional inter-sectoral effects,

is highly uncertain as outlined in section 3, but could be of the magnitude of twice as high as the savings

from exploiting circular economy opportunities. Based on this evidence8, a rough indication of how much

higher GDP impacts could be compared to the quantified benefits is shown as blue bars in figure below.

Overall, the central and lower estimates of the economic benefits resulting from the Route Map actions, even

taking into account likely additional effects, are likely to lead to a level of benefits lower than the £7bn

estimate identified as the overall opportunity in the ‘Towards a circular economy – context and opportunities’

report. The difference is expected and explained mainly by circular economy opportunities that arise from

actions other than those in the Route Map (including opportunities influenced largely by external factors9) but

are included in the £7bn estimate, and from impacts of the Route Map actions that have not been possible to

quantify but are believed to be positive. These are represented as striped bars in Figure 4.1.

The upper bound estimate, which assumes that each action initiates a process of significant change in the

area it tackles, indicates benefits could exceed £7bn, with additional impacts adding even further benefits.

This is consistent with a scenario of a wider transformation to the circular economy in areas outside of

London, fully supporting all circular economy activities initiated or undertaken within London, which could

lead to higher benefits that the £7bn overall opportunity conservatively estimated in the ‘Towards a circular

economy – context and opportunities’ report. While the upper bound estimate for economic impacts of the

route map actions is based on somewhat optimistic assumptions (notably on uptake rates), it illustrates the

potential effect of links between Route Map actions and opportunities identified in the ‘Towards a circular

economy – context and opportunities’ report. However it is uncertain whether Route Map actions, like other

policy incentives, can be as effective as this given that the overall outcome depends importantly on

circumstances and the actions of other parties.

8 This is based on multiplying all the quantified benefits that represent savings (and not other benefits already including any knock-on effects) with 1.9, the average GDP benefit per savings in the Ellen MacArthur Foundation’s Denmark case study (see Section 3). 9 The £7bn figure is among other sources informed by estimates for Europe made by the Ellen MacArthur Foundation that reflect a vision in which the circular economy is established everywhere and in its entirety. Implementation of the circular economy in London is strongly connected to the surrounding world and the degree to which other areas implement the circular economy affects the outcome for London. Furthermore, the £7bn figure reflects benefits arising anywhere as a result of implementing the Circular Economy in London. As certain economic activities which are transformed to the circular economy do not take place in London itself (e.g. agriculture, certain manufacturing), this can only be through London’s influence in, amongst others, decision-making, procurement and innovation, but clearly depends on other factors specific to the areas where these activities take place.



Figure 4.1 Comparison of estimated annual benefits from the Route Map actions (bars) and total estimated annual benefits of implementing the circular economy in London (horizontal line)

0

2

4

6

8

10

12

14

Lower Central Higher

£bn

Estimated impact of route map actions

Not quantified, not influencable(external) or not yet addressed byRoute Map actions

Indicative range of wider effects(GDP impact of implementingRoute Map actions)

Quantified economic impact fromimplementing the Route Mapactions

Potential net benefit to London annually from 2036 if all main circular economy opportunities within the five focus areas are addressed (conservative estimate)

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