The Recovery is Circle-shaped: Accelerating the shift towards a low-carbon circular economy

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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. It aims 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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The COVID-19 crisis continues to have disastrous human and economic consequences, revealing our system’s exposure to a variety of risks. The call for a more resilient, circular and low-carbon economic model has garnered support from a growing number of businesses and governments over the past few years, and appears today more relevant than ever. Identifying opportunities, keeping a clear sense of direction, and fostering a strong public-private collaboration will help usher in the next wave of prosperity.

While there is no question that addressing public health consequences is the priority, the nature of the equally crucial economic recovery effort requires serious consideration. The landscape assessment yields brutal conclusions, showing a collapse of economic activity reaching almost 30% in certain OECD countries during the tightest lockdown period. Given the urgency, should stimulus packages focus on finding the way back to growth by kicking business as usual into overdrive, or could they accelerate the shift that has already started towards a low-carbon circular economy?

One way to tackle this polarising question is to reject the idea that rapidly getting back to economic dynamism is incompatible with a wider system transition. Given the sums at play—about USD 10 trillion globally—and the unprecedented rise in prominence of public authorities in peace times, this isn’t a simple equation to resolve.

Read the OECD's Cities Policy Responses to COVID-19

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Yet, there are signs of agreement on the horizon. while the European Bank for Reconstruction and Development has declared it will devote its entire activities to addressing the economic impact of the pandemic, the Investor Agenda group, which collectively manages trillions of dollars in assets, said that “Governments should avoid the prioritisation of risky, short-term emissions-intensive projects”.

As the Ellen MacArthur Foundation’s 2019 Completing the picture report highlighted, the GHG impact of our material world is considerable and needs to be tackled if we’re to make significant progress. Far from being a simple resource management agenda, the circular economy offers practical and attractive avenues to decarbonise our system, with strategies ranging from design for materials recirculation to business models aimed at maximising asset utilisation rates. These have the potential to generate significant material costs savings—very relevant in the context of immediate cash flow challenges—whilst staying the course on climate objectives. The crucial nature of this latter factor is only further illustrated by the ever-growing number of asset managers and financial firms putting an emphasis on disclosing climate risk exposure.

The context therefore seems conducive to policymakers setting a common direction of travel, making the economics work, unlocking circular investment opportunities and fostering collaboration—all essential enabling conditions for a recovery founded on circular economy principles. As part of this effort, directing investment to specific circular opportunities across five key sectors identified by our research (built environment, mobility, plastic packaging, fashion, and food) can help jump-start the transition in these industries while ensuring their improved future resilience. Together, these policy actions and investments can help achieve both the short- and long-term goals of the public and private sectors, by contributing to the creation of a vibrant and resilient economy and by reducing the risk of future shocks.

As recent analysis by the European Central Bank, World Bank and OECD shows, “greener” economies with less carbon-intensive activities are better placed to ensure faster recoveries.[1] In particular, countries with higher environmental protection measures in place are expected to experience higher GDP and sectoral growth compared to countries that do not prioritise these measures. Therefore, to ensure a long-term recovery, it is critical that government ambitions and actions not only focus on safeguarding national economies during crises, but also pave a way towards a wider economic reform that is more resilient against future global risks.

More on the Forum Network: Resilient People and Places: Why cities should embrace the circular economy to shape our post-COVID-19 future by Oriana Romano, Head of Unit, Water Governance and Circular Economy, OECD

Within the wider context of accommodating monetary policies and a variety of employment support schemes, finding targeted, long-term responses to challenges that include supply chain vulnerability will be fundamental. As our research highlights, the most attractive investment opportunities seem to revolve around value retention and circulation mechanisms—strategies that keep products and components in use, supported by the right infrastructure. In the mobility sector (one of the hardest hit) for example, the remanufacturing of vehicle parts can increase skilled labour requirements by up to 120%. For the remanufacturing industry as a whole, conservative estimates show that with reduced input costs and increased labour spend, there can still be up to a 50% increase in gross profit, offering a competitive advantage. Remanufacturing activities also bring substantial environmental benefits, by lowering GHG emissions compared to the production of new parts, as shown in numerous publications by the International Resource Panel.

As the circular economy becomes a global topic and its positive climate implications are better understood, it gradually establishes itself as a “better growth” agenda, beyond the initial and limited “better recycling” interpretation of the framework. This will naturally lead to important questions regarding its trade implications, a debate the WTO has recently opened—a timely move as national policies and roadmaps are multiplying, pointing to the need for alignment. As the global economy starts to look beyond the storm and considers its future options, moving towards a model that builds economic, social and environmental capital rather than one that depletes finite resources seems like a sound option.

References

[1] ECB calculations, World Bank, OECD. European Central Bank, When markets fail – the need for collective action in tackling climate change - Isabel Schnabel, member of the ECB Executive Board (28th September 2020)

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Jocelyn Blériot

Institutions, Governments, and Cities Executive Lead, Ellen MacArthur Foundation

Jocelyn Blériot leads the Foundation's institutional engagement. He notably represents the Foundation at the European Commission and manages the relationship with governments and supra-national bodies such as the United Nations, the G7 Resource Alliance, the OECD or the World Economic Forum.