Plotting the course for a circular economy transition

Aerial view of a water treatment plant. Banner image: Shutterstock/Studio concept
Plotting the course for a circular economy transition

This article is part of a series in which OECD experts and thought leaders — from around the world and all parts of society — address the COVID-19 crisis, discussing and developing solutions now and for the future. Aiming to foster the fruitful exchange of expertise and perspectives across fields to help us rise to this critical challenge, opinions expressed do not necessarily represent the views of the OECD.

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Whether we think in terms of planetary boundaries (or are prompted to look at the economy “as if the laws of physics actually applied”, to loosely quote Professor Tim Jackson[1]), the bottom line is that economic activity impacts systems within which it operates – on Earth Day, let us simply call these systems “the planet”. Markets may be perceived as abstract constructs, and as a result the very notion of economics can seem to exist in a self-contained, ethereal dimension…yet as Frederick Soddy noted, value creation ultimately amounts to using energy to transform physical objects. How the economy and the environment ended up being on two opposed sides of the spectrum in so many discussions therefore remains a mystery.

Having lifted billions out of poverty and made material comfort a legitimate aspiration for all, the extractive industrial engine (as considered by Soddy in the previous reference) is seeing obstacles on its horizon. The combination of resource scarcity and severe negative environmental impacts makes it unreasonable to think we can carry on sourcing, consuming and throwing away— better recycling or efficiency measures can only delay the inevitable, not prevent it. To move away from a model that creates value by consuming finite resources, incremental improvements or simple tweaks to the existing frameworks will not suffice, so deep structural reforms need to be undertaken since the current system is hardwired for, and by linearity.

Read the report "Making the green recovery work for jobs, income and growth" and see the latest OECD data for #ClimateAction, recommendations and policy advice on the Green Recovery

If the transition to a circular economy is going become the everyday operating norm, policy has a crucial role to play. Voluntary commitments, while necessary, can only drive transformation so far. A shared understanding and direction of travel needs to be set so that policies can be developed, aligned and made interoperable. Actors from across sectors can then also act with the same intent and lead in their respective areas to deliver the transition. This is particularly timely and relevant, as a growing number of countries are developing circular economy roadmaps and looking at this framework in the context of their green recovery efforts. Coincidentally, though the private sector’s innovation and funding are increasingly focusing on circular opportunities, it realises that the conditions to fully harness the innovation potential of this shift are not yet in place.

Are the right feedstocks (both in terms of nature and volume), processes (including design) and business models (such as “Products as a Service”) favoured in the current regulatory framework? Since the cost and incentives structure of the economy is geared towards throughput, places barriers on some value retention strategies (such as remanufactured goods being prevented from entering certain markets) or doesn’t price in negative impacts, incremental changes won’t get us beyond targeted mitigation strategies such as better waste management.

The three circular economy principles (eliminate waste and pollution; keep products and materials in use and at value; and regenerate natural systems) need to be translated into active focus areas for policy. For this reason, five Universal Circular Economy Policy Goals have been identified (and developed with input from UNEP, UNIDO, the OECD, the World Bank and the EU Commission) to facilitate and support the common direction of travel and shared understanding. They put a strong emphasis on upstream strategies, a rethink of the desired outcomes of economic policies, and the need to develop collaborative approaches fit for systemic change.

Read the report "Universal circular economy policy goals: Enabling the transition to scale", developed by the Ellen McArthur Foundation, and find out more about the five universal policy goals to enable a circular economy at scale

Read the report "Universal circular economy policy goals: Enabling the transition to scale", developed by the Ellen McArthur Foundation, and find out more about the five universal policy goals to enable a circular econmy at scale

Goal 1: Stimulate design for the circular economy

Enable all products—from fast-moving consumer goods to long-term assets—to be designed, accessed and used in ways that eliminate waste and pollution, and lead to the effective and economically attractive circulation of products and materials on the market. Stimulate the design and production of food and renewable materials in ways that contribute to increasing the return on invested energies, reducing climate impact and fostering regeneration of natural systems. This includes, but isn’t limited to, consideration given to durability, repairability, sourcing and land use among others.

Goal 2: Manage resources to preserve value

Promote the development of business models and resource management systems that keep products and materials in the economy at their highest possible value, enabled by the design principles and approaches laid out in Goal 1. This can take the form of tax and procurement policies that foster repair, sharing, resale and remanufacturing, or the development and harmonising of collection and sorting policies (such as separate collection and management of materials), leading to the value retention of high-quality materials and products.

Goal 3: Make the economics work

Create economic incentives and set regulatory requirements that enable circular economy solutions to become the norm rather than the exception, thereby unlocking benefits at scale. This can happen through alignment of taxation and fee incentives, such as Extended Producer Responsibility, with circular economy outcomes or reform and, where relevant, deployment of subsidies. In the specific context of the Covid-19 recovery packages, attaching conditions to state aid and government funds is also an avenue to explore.

Goal 4: Invest in innovation, infrastructure and skills

Invest public money, and stimulate private sector investment in developing the skills required to create circular economy opportunities and ensure an inclusive transition, supporting innovation and developing the infrastructure necessary to scale the transition. This is particularly important because the selection of materials based on “fitness for circularity” criteria, which is a result of goal 1, is likely to highlight the need for material innovation—not all current feedstocks will prove suitable (funding for research and early ventures will need to be made available). From a skills perspective, building capacity in education as well as through professional development schemes, including internationally, will be critical.

More on the Forum Network: "Investing in Nature for a Resilient Future" by Jennifer Morris, Chief Executive Officer, The Nature Conservancy

More on the Forum Network: "Investing in Nature for a Resilient Future" by Jennifer Morris, Chief Executive Officer, The Nature ConservancyMore on the Forum Network: "Investing in Nature for a Resilient Future" by Jennifer Morris, Chief Executive Officer, The Nature Conservancy

Goal 5: Collaborate for system change

Foster responsive public-private collaboration across value chains to remove barriers, developing new policies and aligning existing ones; work across government departments, nationally and internationally to build policy alignment and durable change; and measure progress towards embedding a circular economy approach across sectors. As well as creating public-private, cross-value chain working mechanisms, mainstreaming circular economy principles into national and international policies, and building cross-border policy alignment is a pre-requisite.

Pursuing the goals as an interconnected set is key to redefining value creation, with the potential to make a significant contribution to SDG 12: “responsible consumption and production”. This integrated approach avoids individual measures for a circular economy being stranded in a wider policy landscape that supports a linear, extractive model. As countries strive to reconcile dynamism with environmental performance in the tricky context of a general reboot, a clear approach is more necessary than ever. A circular economy helps tackle the root cause of many global challenges through innovation and creativity, and ushers in the promise of greater resilience—the five goals have been crafted with the sole intent of getting there faster, and together.

Watch more: The Ellen MacArthur Foundation's Circular Economy Show episode 23:  Five universal policy goals to enable a circular economy at scale

[1] Himself taking inspiration from Schumacher’s “As if people and planet mattered”.

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