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Europe’s circular-economy opportunity

Lennard Duursema's picture

Adopting circular-economy principles could not only benefit Europe environmentally and socially, but could also generate a net economic benefit of €1.8 trillion by 2030.

Europe’s economy has generated unprecedented wealth over the past century due to continuous improvements in resource productivity. This development is far from over yet, as there is still a large scope for further improvement, for instance in the direction of a circular economy. A study by The McKinsey Global Institute (2015) shows that a technical revolution for a circular economy would enable Europe to grow resource productivity by up to 3 percent annually, which would benefit the environment and boost competitiveness and socio-economic resilience.

The study concludes that rapid technology adoption is necessary but not sufficient for capturing the circular-economy opportunities. For that, it is crucial to know how to move forward from where we are now. The study explains that the current European economy is wasteful as it is based on a “take-make-dispose” system. In this system, the total annual costs of producing and using primary resources sum up to €7.2 trillion. With a circular-economy technical revolution, a net cost reduction of €1.8 trillion could be realized, of which €0.9 trillion can be achieved based on current developments and an additional €0.9 trillion with circular-economy improvements, resulting a 25% cost reduction from today’s levels (see diagram).

However, the study stresses that in Europe the process of integrating new circular technologies and business models into current economic systems requires policy steering, for two reasons. First, Europe faces the risk that new technologies may not be implemented effectively due to incompatible designs in urban planning, mobility systems, and food systems. Second, the study argues that there could be rebound effects, such as an increase in demand for goods when relative prices decrease, which may result in increases in prosperity, but could also increase the use of resources.

Therefore, in order to move forward, the study concludes that there is a momentum for a transition to a circular economy, given the economic, social and environmental potentials, and the maturing of circular economy technologies, but warns that the transition will not come automatically. A process towards a circular economy affects all sectors and policy domains, with accompanying costs. In order to support such an all encompassing agenda, four building blocks are suggested in the study:

1. Europe-wide quest for learning, research, and opportunity identification

2. Development of a value-preserving materials backbone — a core requirement for strengthening European industrial competitiveness

3. Initiatives at the European, national, and city levels to enable inherently profitable circular-business opportunities to materialize at scale

4. Development of a new governance system to steer the economy toward greater resource
productivity, employment, and competitiveness.

In conclusion, the extensive analysis conducted for this report remains indicative and requires further work, but it does suggest that a circular economy could produce significant societal, economic, and environmental outcomes, while acknowledging the transition cost.

Based upon the report by McKinsey &Company (2015): Growth within: A circular economy vision for a competitive Europe. The report is available at: http://www.mckinsey.com/Insights/Sustainability/Europes_circular-economy_opportunity?cid=other-eml-a...