#CircularEconomy_5: Waste compensation as a circular business model in the e-waste sector

Let’s take the example of digitalisation: recent studies show that this megatrend has accelerated rapidly worldwide, not least as a result of the COVID-19 pandemic – and not only in the Global North, but in sub-Saharan Africa as well (GAMA 2020). This growth in global digital inclusion is very good news, but it is also causing a surge in the production of highly toxic e-waste.

Across the African continent, just 0.9 percent (!) of e-waste is recycled correctly (Global E-Waste Monitor 2020). In fact, some recycling practices, such as lead recycling and cable burning for recovery of copper content, are so toxic that they expose workers, local residents and children to major health risks – not to mention the impacts on groundwater, soils and the marine nvironment.

Improper recycling – sadly the only “profitable” approach at present

So why is correct recycling of e-waste not making any headway? The answer is as simple as it is depressing: in a world where toxic and low-value components can simply be ignored, more income can be generated by “cherry-picking” of the valuable waste fractions. Economists call this “externalisation of environmental costs”.

The reason? Not all the waste fractions from an old computer, fridge or monitor are valuable. We are always reading that e-waste recycling is a financial gold mine and that waste is a resource – but that’s not entirely true. If we consider all the various components individually – highly toxic mercury from old TVs, or lead from batteries, for example – the commercial reality soon looks very different: for recycling companies which comply with best practice, dealing with these waste fractions comes at a cost.

In practice, implementation of regulation  has stalled

So is it a matter for the regulatory authorities in the countries of the Global South? Yes, but not entirely. One by one, countries are gradually developing legislation requiring electronics manufacturers to contribute to the disposal of the devices they produce. Ghana, Nigeria and Ethiopia are examples: they have brought forward legislation on extended producer responsibility (EPR) in recent years.

As practical experience shows, however, implementation of these laws is still a long way off. What’s more, environmental regulation is a purely national affair, whereas e-waste is a global problem. So which additional measures, such as circular business models, can support progress towards the goal? It’s a question we have often asked ourselves in the past.

Private-sector business models: an interim step towards effective government regulation

Until effective regulatory mechanisms are in place in every country of the world, business models established by private-sector organisations can, in some circumstances, make a stop-gap contribution towards a circular economy.

Let’s continue with the example of e-waste. There is a business model, developed for this sector, which aims to encourage manufacturers to pay compensation for the downstream social and environmental impacts of their products: this is known as waste compensation. In essence, it requires the original manufacturers and users of new appliances to pay an additional financial contribution, which is collected by a service company. The payment is used to fund proper collection and recycling wherever the social and environmental impacts of e-waste are currently most severe.

Compensation is typically based on the notion of “buy one new device, fund the collection and proper recycling of one scrap device”. However, models which use the volume of pollutants as a basis for calculating the payment are also conceivable. The amount of the payment must, at minimum, offset the competitive disadvantage described above, in order to ensure that the obsolete devices are actually collected. These practical details are currently being studied by an Oeko-Institut research team as part of the E-Waste Compensation as an International Financing Mechanism in Nigeria (ECoN) project.

A genuine contribution

To ensure that this financial compensation is more just than “greenwashing” – an environmental fig leaf, in other words – it is essential that the payments collected from the manufacturers and IT-users are genuinely used to cover the funding gap in the Global South. But that’s not all: they must also be used to facilitate the collection of additional e-waste volumes, which must then be recycled correctly.

What this means in practice is that the financial contributions collected should not be credited against already accumulated volumes of waste but must be used to increase the amount of e-waste being collected and recycled correctly, the baseline being the status quo. Only then will the mechanism have any real impact. Furthermore, in line with the concept of the waste hierarchy, it is important to consider the potential for reuse of devices and components: the production of plexiglass protection windows from old computer monitors is one example. And, last but not least, avoiding harmful substances during initial product development has a key role to play – for the fewer harmful substances used in manufacturing a device, the lower the costs of its correct disposal at the end of the value chain.

Finessing the waste compensation concept: a pilot project in Nigeria

The Oeko-Institut’s research team is currently working with partner organisations on further developing the waste compensation concept for e-waste, with practical trials under way in Nigeria. These trials are expected to expand the service of waste compensation, which has been available for about 5 years and proven to work for mobile phones, tables and laptops, to Li-ion batteries and flat panel displays. The pilot project is entitled E-Waste Compensation as an International Financing Mechanism in Nigeria (ECoN) and is funded by the PREVENT Waste Alliance. Local recycling and recovery company Verde Impacto Nigeria, the Netherlands-based company Closing the Loop, recycling firm Hinckleys Recycling Nigeria Limited and the NGO SRADev Nigeria are the other main project partners.

The project aims to refine Closing the Loop’s existing business model for waste compensation in such a way that more value added is retained in Nigeria itself, while ensuring that the toxic substances from the collected devices are properly recycled. Overall, the intention is to show that a circular business model can be a step towards solving the e-waste problem. The structures established can then be progressively integrated into a government-regulated system of extended producer responsibility. The project will run until mid-2022 – so we will have more information then.

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.

Tobias Schleicher is a Senior Researcher in the Oeko-Institut’s Sustainable Products and Material Flows Division in Freiburg. His main areas of research are international cooperation and development policy concepts; and resource and waste management.