snapshot - towards a circular economy

CRITICAL THINKING AT THE CRITICAL TIME™ FTI Consulting Inc. • 1

Today the European Commission relaunched the Circular Economy Package, which is aimed at improving resource efficiency performances across manufacturing industries and along the whole value chain. The new package will move beyond recycling targets, notably by requiring products to be better designed for repair and reuse.

While the circular economy is a novel policy concept, business already recognizes its economic potential. Therefore the circular economy is here to stay, yet the pace of Europe’s transition is unknown and will depend on the level of ambition ultimately expressed by EU decision-makers.

Europe’s new sustainability project The Circular Economy Package exemplifies the approach of the Juncker Commission involving 16 Commissioners, led and driven by a smaller team of Commission Vice-Presidents and key Commissioners.

The re-submitted package is broader in scope than its predecessor, which was dropped because Vice-President Timmermans did not consider it ambitious enough and believed it was unlikely to be approved by the Council. The previous package focused on increasing recycling levels and tightening rules on incineration and landfill

but did not cover the full remit of a circular economy, namely encouraging the use of materials that create less waste and are easier to recycle.

The Circular Economy Package comes in a similar format as the other flagship initiatives of the Juncker Commission such as the Energy Union and the Digital Single Market, namely a strategic vision and an action plan for the next 2-3 years including a focus on making better use of the existing framework. While critics may see an action plan with a lot of dates and no solid proposals, there is a broad commitment within the European Commission to deliver on its new chief sustainability project, generating both economic and environmental gains.

Towards a Circular Economy

Arne Koeppel is Head of Research and Roeland is Senior Director at FTI Consulting in Brussels

2 December 2015



Along the value chain Despite its commitment to the waste hierarchy, EU waste legislation is said to reward Member States and policies that concentrate on recycling – rather than prevention and reuse at the top of the waste hierarchy – and use of less energy and fewer materials than recycling.

The Circular Economy Package seeks to promote resource efficiency throughout the value chain, proposing targeted actions at each stage including product design, manufacturing, usage and end-of-life treatment.

Design

To date, Ecodesign efforts have largely concentrated on reducing energy consumption during the use stage of electrical and electronic products. However, the Commission is now committed to improve material efficiency by developing product-specific criteria on repairability, durability and recyclability under a review of the Ecodesign Directive. Product design requirements for electronic displays have already been adopted in order to increase recyclability.

Production

To address industry concerns, the Commission made it clear very early in the process that it will not pursue a one-size-fits all approach and that it is looking for the most suitable solutions foreach sector. Defining best practices through the development of best available technique reference documents (BREFs) that Member States may have to take into account when issuing permitting requirements is one action under consideration.

In order to help SMEs develop more efficient processes the Commission plans to found a Resource Efficiency Excellence Centre. The Commission also wants to promote innovative industrial processes, such as industrial symbiosis, by clarifying the definition of ‘by-product’.

Consumption

As with Energy Union, the consumer is seen as a critical actor in implementation of the policy changes. In order to enable consumers to make sustainable choices the Commission wants to review the Eco-label and fight false green claims. The Commission also wants to tackle planned obsolescence of products and improve the implementation of the mandatory two year guarantee for all physical goods, including a possible longer period of reversal of the burden of the proof.

Re-use of products will be promoted by a possible obligation on manufactures to provide greater access to spare parts and repair information; a reduced VAT rate on labour is also being considered.

The sharing economy moves increasingly into the spotlight and could play an important role in the Circular Economy. The Commission hopes that new business models will not only lead to longer product lives but also the resurgence of the service economy and economic growth. The EU’s R&D funding programme Horizon2020 will finance projects that develop new business and consumption models.

Finally, the Commission wants to use the potential of Green Public Procurement and prioritisation of circular economy friendly criteria such as durability and recyclability.

Waste The new Circular Economy Package lowers the ambition for recycling targets and landfilling, while providing 7 Member States1 with five more years to attain their recycling targets. This would expedite political agreement among Member States, putting the main focus on how these targets could be best implemented. However, the European Parliament maintains the view that recycling targets should be more stringent and guide rather than reflect market developments and technological recycling capabilities.

The EC argues that stronger focus on implementation, with an early warning and reporting system if Member States are failing to reach the target, will make this proposal more practical and outcome oriented than its predecessor.

EC (old) EC (new) EP Re-use and recycling of municipal waste

70% by 2030 60% by 2025 65% by 2030

70% by 2030

Re-use and recycling of packaging waste

80% by 2030 75% by 2030

� Paper � Plastics � Wood � Ferrous metal,

aluminium, glass

90%by 2025 60% by 2030 80% by 2030 90% by 2030

75% by 2025 55% by 2025 75% by 2030 85% by 2030

Landfill ban No recyclables by 2025 & max 5% by 2030

Max 10% by 2030

Full landfill ban by 2030

Reduction food waste generation

30% by 2025 No target

Resource efficiency 30% by 2030

Incineration or “waste to energy” will be hotly debated. The EC wants to ensure that incineration only takes place when recycling is not possible and will adopt a ‘waste to energy’ initiative in the framework of Energy Union.

Extended Producer Responsibility

While the targets are less ambitious than in the previous proposal, the renewed package strengthens requirements for extended producer responsibility (EPR). In general EPR means that the manufacturer of a product is responsible for its entire life-cycle, especially for the take-back, recycling and final disposal. The EC aims to have clearer rules and quantifiable targets in order to make EPR schemes work at national and regional level.

Organisations that are set up to implement EPR need to have a clearly defined scope in terms of geography and materials, have the necessary operational and financial schemes and have an adequate control mechanism in place. Member States will need to ensure that the financial contributions paid by producers to comply with their EPR obligations wholly cover the costs of waste management of their products; Member States will also need to have a monitoring and enforcement system in place.

Secondary Raw Materials Market The ambition is to provide European businesses with cheaper and more abundant raw materials than global competitors. To scale up the secondary raw materials market, the focus will be on the development of EU quality standards for secondary raw materials through facilitating the traceability and risk management of chemicals in the recycling process. This will be achieved by greater

1 Estonia, Greece, Croatia, Latvia, Romania and Slovakia



industry material flow, information sharing and possibly a review of REACH, which could restrict the number of substances of very high concern. The Commission will also step up efforts to remove obstacles to cross-border trade.

Materials The EC has specifically detailed targeted actions for the following materials:

Plastics

Plastic has come under particular scrutiny, partly because it is the principle contributor to marine litter. Therefore the EC wants to improve collection and certification schemes for collectors and sorters in order to divert plastics away from incineration and landfill. The EC will develop a strategy on plastics to address the issues throughout the value chain taking account of the whole life-cycle and addressing hazardous substances alongside marine litter.

Food waste

Food waste is a new issue on the EC’s agenda and the EU is committed to reducing food waste per capita by 50% by 2030. Initially, the EC wants to introduce mechanisms to measure food waste, develop material to raise awareness of the issue and create a stakeholder platform to help Member States to meet the related Sustainable Development Goals. Finally the Commission will look into ways to promote better use of date markings on food.

Critical raw materials

Critical raw materials are of high economic importance and vulnerable to supply disruption. Several years ago the security of supply of these materials was a serious concern for EU industry and improving the recycling of electronic waste, which often contains these materials, is a priority. The EC aims to overcome barriers to recovery and recycling e.g. through product design and possibly recycling standards and improved information exchange. The EC will prepare a report on this issue.

Construction and demolition

Despite existing mandatory targets the EC sees a lot of potential to improve the management of one of the biggest sources of waste. Actions include developing indicators to assess environmental performance throughout building lifecycles.

Biomass and bio-based products

The EC proposes a cascading use of renewable raw materials with several reuse and recycling cycles. To this end the EC will identify and share best practices for national schemes such as extended producer responsibility for wood packaging. The EC will also fund innovative projects such as development of new bio-based materials and re-use of bio waste.

Financing The success of the package will depend on the development and uptake of new technologies and innovations. To that end the Horizon2020 work programme 2016-2017 includes a major initiative on the circular economy for funding innovative demonstration projects. Around €5,5bn will be devoted to circular economy related investments from structural funds and The

European Fund for Strategic Investments (EFSI) can be used to fund such investments.

The way forward The relaunched circular economy package is a test for the Commission’s ability to deliver on objectives and new working methods.

Critics will continue to argue that lower recycling targets and absence of a full landfill ban do not match the promise of a “more ambitious” package.

The European Parliament will not only push for more stringent waste targets but could possibly leverage its demand for consideration of additional initiatives including the development of binding resource efficiency indicators or a product passport to hold companies accountable for their resource efficiency performance.

While the focus is on “push” measures which drive the collection of secondary raw materials, the European Parliament may call for more “pull” measures to create demand for secondary raw materials, for example calling for the consideration of minimum recycled content requirements.

Europe’s transition to a more circular economy faces a number of barriers and challenges. The Dutch Presidency has already expressed its desire to position Europe as a forerunner in the circular economy race, but it remains questionable whether a quick political agreement with the European Parliament can be struck. Several Member States will still find it hard to meet even the lowered and more flexible targets. Ultimately it will depend on the countries whether the waste targets will be implemented successfully.

The EC made clear that the Circular Economy is as much about the economy as it is about the environment. It can only succeed if industry is on board and invests in technologies and business models that contribute to the Circular Economy. The voice of industry therefore remains critical in the debate in order to achieve a balanced and practical outcome. Indeed until now business showed very much interest and is seeing the Circular Economy as an opportunity rather than a threat.

However, the sharing economy demonstrates that the Circular Economy will be disruptive and there will be winners and losers. It will be the companies that understand the political changes and adapt quickly who will be among the winners.



Arne Koeppel +32 2 289 0939 [email protected]

Roeland Van der Stappen +32 2 289 0495 [email protected]

About FTI Consulting

FTI Consulting Inc. is a global business advisory firm dedicated to helping organisations protect and enhance enterprise value in an increasingly complex legal, regulatory and economic environment. FTI Consulting professionals, who are located in all major business centres throughout the world, work closely with clients to anticipate, illuminate and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, reputation management and restructuring.

CRITICAL THINKING AT THE CRITICAL TIME™

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2016 • Circular economy aspects in product

requirements under the Ecodesign directive • Implementing regulation on televisions and

displays (end 2015 early 2016) • REFIT of Ecolabel • Proposal for revised fertilisers regulation

2017 • Legislation setting minimum requirements for

reused water for irrigation and groundwater recharge

• Guidance on circular economy into BREFs for several industrial sectors • Pan-European network of technology infrastructures for SMEs to

integrate advanced manufacturing • Action on false green claims & guidance on unfair commercial practices • Exploring use of Product Environmental Footprint • Integrate circular economy requirements in Green Public Procurement • Stepping up enforcement of Waste Shipment regulation • Initiative on waste to energy • Identification of good practices in waste collection • Development of quality standards for secondary raw materials • Action on water reuse, including guidance and inclusion in BREFs • Measures to facilitate intra EU waste shipments • Common indicators to measure food waste • Stakeholder platform to achieve SDGs on food waste • Clarify legislation in order to facilitate food donation • Improve information exchange between manufacturers and recyclers of

electronic products • Recycling standards for electronic waste • Voluntary recycling protocol for construction waste • Various actions to support financing of circular economy projects

2017 • Examine improvement of Eco-Management and Audit Scheme

(EMAS) • Analysis and policy options on relation between chemicals, products

and waste legislation • Strategy on plastics in the circular economy • Explore options for date marking on food • Report on critical raw materials and circular economy • Best practices for recovery of critical raw materials from mining

waste and landfills • Pre-demolition assessment guidelines for construction sector • Core indicators for lifecycle assessment of buildings • Development of a monitoring framework

Circular Economy Timeline

Legislative actions

2016

Non-legislative actions

2015 • Ecodesign work plan 2015-2017 • Improved cooperation for better implementation and combatting illicit

waste shipments

2015 • Revised legislative proposal on waste • Ecodesign work plan 2015-2017 • Better enforcement of existing guarantees on

tangible products and reflection on improvements in the context of proposal for online sales

2018 • Options for more coherent framework for EU product policy • Guidance and best practices in mining waste management plans • Analysis of repair information requirements in Ecodesign • Planned obsolescence assessment of possible testing programme

snapshot - towards a circular economy

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