Circular economy - an opportunity for Scotland

In an economic climate characterized by volatility on commodity markets, there is an increasing recognition among the industrialised economies that a new economic system that decouples economic growth from the consumption of finite resources and builds resilience is required.

Moreover, a transition to a circular economy, where stocks of finite technical materials are managed and maximized effectively, and where flows of renewable resources and energy are created, is a better way forward in the long term compared to conventional efficiency strategies based on ‘doing less bad’. 

The need and opportunity are perhaps at their greatest for Europe’s economy, which relies upon large stocks of imported resources and is surprisingly wasteful in the way it utilises materials, products and other assets.

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Our recent Growth Within report, carried out with the McKinsey Center for Business and Environment and supported by SUN, found that in 2012 only 40 per cent of discarded materials were recycled or reused, while the European economy captured just 5 per cent of the original value of the raw materials it used, mostly through recycling or waste to energy processes.

It’s evident that the European Commission has taken notice. At a stakeholder conference of over 800 people in June, First Vice President Frans Timmermans, Vice President Jyrki Katainen and Commissioner Karmenu Vella were all present and engaged in discussions. Vice President Jyrki Katainen closed proceedings on that day by stating that he is “convinced that the circular economy can enable a triple win: economic, environmental and social”.

Growth Within was written in the context of the European Commission’s much discussed circular economy package, which is expected before the end of this year. The research presents a vision for a potential European development path where circular economy principles are adopted. It reveals that a transition to a circular economy combined with the impending technology revolution could create a net benefit of €1.8tr by 2030, twice the calculated benefits of the current development path. This would be accompanied by better societal outcomes, including an increase of €3,000 in income for EU households.

This would further translate into an 11 per cent GDP increase by 2030 versus today, compared with 4 per cent in the current development path. The circular economy would also have significant impacts on the environment for Europe: carbon dioxide emissions would halve by 2030 relative to today’s levels. Primary material consumption measured by car and construction materials, real estate land, synthetic fertiliser, pesticides, agricultural water use, fuels and non-renewable electricity could drop 32 per cent by 2030 and 53 per cent by 2050 compared with today.

At the core of Growth Within is a paradigm shift where maximising the use of assets becomes the point of focus. An ever-growing number of businesses are already taking advantage of the opportunities, but the enabling role that national and regional policymakers can play will also be critical to a successful transition.

That’s why, parallel to Growth Within, we also researched and wrote Delivering the circular economy: a toolkit for policymakers, featuring analysis by McKinsey & Co. and NERA Consulting.  The report, which received support and input from the Danish Business Association and the Danish Ministry of the Environment, was designed to provide an actionable set of policy options that could be implemented globally. Rather than focus on regulation, Toolkit for Policymakers outlines policies that send positive signals to producers and remove systemic barriers to unlock larger economic opportunities.

Toolkit for Policymakers revealed that even countries with relatively advanced legislation could exploit vast untapped economic opportunities. Denmark was used as a case study, chosen deliberately because of its history for implementing innovative policies to stimulate resource efficient business activity, notably the incremental raising of landfill taxes since 1987 and the targeting of full independence from fossil fuels by 2050.

Even in the advanced Danish scenario, the economic modelling carried out in the study found that pursuing a set of specific policies across five focus sectors could deliver a 0.8-1.4 per cent increase in GDP by 2035 compared to the ‘business as usual’ example. Further benefits predicted included an additional 7,000-13,000 job equivalents, an extra 3-7 per cent carbon footprint reduction and a 3-6 per cent increase in net exports.

In Scotland, capturing the emerging benefits of a circular economy has been aided by a natural alignment between the government’s policy objectives and the framework. Stimulating resilient economic growth is a core objective of the Scottish Government and they were one of the Foundation’s first partners in our Circular Economy 100 (CE100) innovation platform.  

There have been a number of promising recent developments in Scotland. In the last year, the Scottish Institute for Remanufacturing and the Scottish Materials Brokerage Service were established. Zero Waste Scotland launched a circular economy business models programme, an initiative that provides financial investment and structural support to SMEs that are spearheading the transition to a regenerative economy. The government has also stated that it will publish a roadmap for the circular economy in Scotland by the end of 2015.

As the circular economy continues to gain traction, early adopters like Scotland can be at the forefront of a wave of positive economic development. There are almost unlimited opportunities for businesses, governments and innovators in a framework where creative cooperation and cross-disciplinarity are encouraged and thrive.

Taking advantage of these opportunities and creating a system that rebuilds stocks of economic and natural capital will require a re-thinking and re-designing of the future. Recent developments suggest that the process is well underway.