Conflicting goals and contentious debates are unavoidable on the path to a circular future

Establishing a circular economy is imperative for the transition to sustainability. However, there are some challenges along the way. Siddharth Prakash and Clara Löw offer an analysis and point to some solutions.

08/08/2023

Whether it’s refilling deposit bottles or reusing raw materials from end-of-life car batteries, a circular economy approach to consumption and production conserves resources, protects the environment and biodiversity, mitigates climate change and reduces our dependence on resource imports. And yet the circular economy is still far from being a reality. Quite the contrary: Germany consumes far too many resources – 30% more than the global average – and thus exacerbates environmental, social and human rights problems, particularly in the Global South. What’s more, 40% of Germany’s greenhouse gases is attributable to the extraction and processing of raw materials.

So how can this resource consumption be reduced? Clearly, the market has failed here. Environmental costs are still being externalised. There is a shortage of infrastructure and investment to support a circular economy, as well as a lack of transparency in supply chains and an absence of standards for circular products. Current strategies which rely on voluntary commitments and incentives have done nothing to change this situation. This is certainly due in part to the conflicts of interest associated with the circular economy: it is often assumed that value added will decrease, jobs will be lost, costs will increase and our prosperity will decline. These concerns are unjustified; more about that in a moment.

One vision – 10 principles – 63 measures

For a circular economy to become established at last, a clear policy framework is required, with mandatory targets and consistent action by decision-makers. In the Model Germany Circular Economy project on behalf of WWF, we describe what this might look like. The National Circular Economy Strategy, which is now being developed, could serve as a key entry point here. According to our vision, five action strategies are required: we must reduce resource flows; substitute materials; slow down resource flows; intensify product use; and close resource loops. The 10 guiding principles that we define include binding resource targets, an absolute reduction in resource consumption, and the formation of social alliances. For example, we recommend decreasing resource consumption per capita to seven tonnes per year and cutting absolute raw material consumption to around 500 million tonnes by 2045. The circularity rate, by contrast, should be raised to 25% by 2030.

How can these targets be achieved? At the framework-setting level, we propose a range of instruments which include sustainable finance, environmental taxes, extended producer responsibility, and the removal of environmentally harmful subsidies. We also define sector-specific instruments for implementing 63 measures across nine sectors. It makes sense, for example, to promote the second use of vehicle batteries, introduce a primary materials tax in construction and civil engineering, establish minimum service life requirements for electrical and electronic devices and minimum eco-design requirements for the durability of textiles and furniture, and levy a packaging resource tax.

The instruments that we propose are ambitious but they will have little effect in this form unless a mandatory whole-of-government target is set; the various instruments should contribute to its fulfilment. The existing resource conservation strategies do not provide an appropriate framework here. They rely on voluntary commitments and incentive programmes, are not aligned with ministries’ core portfolios and are not geared towards structural change. Instead, there is a plethora of diverse strategies whose narrow focus limits their effectiveness.

The lack of a framework can be remedied with the adoption of a Resource Conservation Act. Here, we propose a governance model as a basis for defining specific targets for the various government departments, which would then develop their own strategies and instruments. This would address the current profusion of regulations, enabling more ambitious instruments such as environmental taxes and the removal of environmentally harmful subsidies to finally come into play.

Societal acceptance is key

For a circular economy to be successful, it must be accepted by society. At the same time, we need a clear shift in our social narrative. We must recognise that while technological innovations can make an important contribution, structural innovations and behavioural change – in other words, a shift away from excessive resource consumption – play an even greater role. In order to achieve a social consensus on this issue, the needs of all demographic groups must be considered. It is also important to signal a willingness to find solutions to the conflicts of interest that will inevitably arise. This includes adopting far-sighted social and labour market policies to flank the circular economy instruments, mitigating the risk that the burden will fall disproportionately on low-income groups – although this is not something that we predict in our analysis.

A key element in building societal acceptance is to continuously communicate the vision and guiding principles and identify specific fields of action. Alongside regulatory law and market-based instruments, this should include educating consumers, training the workforce, investing in research and development, and creating incentives for industry. Sufficiency has a role to play as well: should our prosperity and wellbeing really be bound up with material consumption and a high gross domestic product to this extent? Surely high quality of life and resilience to environmental disasters or supply risks are far more important? Not to mention global resource justice? What about a reform of labour market law that opens the way for a four-day week, foregrounding reduced consumption and freeing up time for community activities and social engagement? Consumers have limited scope to initiate social change here. The power to make structural change happen lies mainly in the hands of industry and policy-makers – and they must take radical action, with a focus on areas where the environmental impacts are particularly severe. Only then can we decouple resource consumption from economic growth.

The effects are positive, but conflicting goals remain

In the project for WWF, conducted with FU Berlin and Fraunhofer ISI, we also looked at the real-world effects of a circular economy. We investigated nine sectors, including vehicles and batteries, electrical appliances and textiles, and analysed various impact categories, such as greenhouse gas emissions, resource use and labour demand. The study revealed that there is potential for Germany to reduce its resource consumption by 27% and cut its greenhouse gas emissions by around 26% by 2045. Land use would be reduced by 30%.

Based on a cost-benefit analysis, we conclude that the circular economy is profitable and “doing nothing” is more expensive. The measures described would enable final energy demand in industry to be reduced by 104 TWh by 2045, cutting the costs of rolling out renewable energies, expanding the power grids and importing secondary energy carriers. In addition, circular economy measures would avoid global environmental costs of up to € 157 billion.

The economy’s resilience to supply risks can also be significantly strengthened by the circular economy. According to our analysis, there would be an easing of demand for a total of 29 out of 36 relevant raw materials. The most pronounced easing of the supply situation is possible for nine raw materials, including neodymium, cobalt and copper, whose demand assumed for 2045 can be covered to more than +50 % by the circular economy measures.

A particularly sensitive issue is the decline in gross value added and labour demand. Although this is projected, it will occur in sectors with particularly severe environmental impacts, such as consumer goods and primary resource production, as well as meat production, car manufacturing and construction. However, positive effects will be seen in other sectors. Examples are the service sectors, recycling, repair services, the cultivation of fruit and vegetables, and the production of secondary raw materials. We thus expect the circular economy to have both positive and negative effects on gross value added and labour demand – but with an improvement overall. It is important to note that monetary savings generated by the circular economy must flow into sectors with positive labour market effects but low environmental intensities, such as those mentioned above. It is a matter for policy-makers, first and foremost, to steer investment and spending in the right direction.

So should we finally be making consistent efforts to establish a circular economy? In view of the multiple benefits, this is surely beyond question by now.

Siddharth Prakash is a Senior Researcher in the Sustainable Products and Material Flows Division and Head of the Circular Economy and Global Value Chains Subdivision at the Oeko-Institut. He managed the Model Germany Circular Economy (MDCE) study conducted on behalf of WWF. Clara Löw researches sustainable materials and products and the circular economy in the Sustainable Products and Material Flows Division in Freiburg.