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National, State Policy Drivers Drive Circular Economy

This content was originally published by The Environmental Forum.

By Mathy Stanislaus, Senior Advisor to the World Economic Forum and Senior Fellow at World Resources Institute

First, a quick primer of why a circular economy approach matters: the extraction of raw materials grew from 22 billion tons per year in 1970 to 70 billion tons per year in 2010. If this trend continues, raw materials could be required to increase by as much as three times by 2050.

At the same time, over half of the yearly material inputs into industrial economies become waste within a year, with a $4.5 trillion annual loss of value by 2030. Moreover, recent studies have concluded that a circular economy approach could reduce the gap of achieving the Paris Agreement by 50 percent.

While the economic and environmental promise of a circular economic approach has been getting some traction in the United States, what are realistic near term policies to accelerate such a transition? The U.S. Business Council for Sustainable Development is working with Ohio, Tennessee, Michigan, and Minnesota to advance secondary materials transactions.

However, the definition and interpretation of whether an interstate transfer of secondary materials is considered a transfer of feedstock for manufacturing or for waste management has become a barrier to secondary materials utilization. For example, Ohio’s regulations differ from adjacent states. One immediate activity is to harmonize the definitions among adjacent states to foster secondary materials markets, with the necessary transparency requirements.

A regulation adopted by EPA in 2014, the Definition of Solid Waste Rule, is intended to incentivize the utilization of secondary materials in manufacturing while protecting against mismanagement in the recycling system. The rule removes certain materials from being designated as a hazardous waste to foster reuse back into the manufacturing production process from which it was generated (e.g., closed-loop recycling) and remanufacturing of chemical solvents. Separately, the rule also clarified that the recycling of metals is for the purpose of producing valuable products.

The rule is projected to save as much as $59 million per year. The remanufacturing of solvents alone is projected to reduce greenhouse gas emissions by as much as 344,000 metric tons of CO2 equivalent per year. Having states adopt this rule, and expanding the number of materials covered under this rule, would accelerate the reuse of secondary materials in manufacturing, save money, and further reduce greenhouse gas emissions.

More than 20 states now have “extended producer responsibility” laws for e-waste in an effort to shift some of the end-of-life burden of electronics to the manufacturers. However, the EPR systems have not resulted in the recovery of high quality metals and minerals as feedstock for remanufacturing into electronics products. Currently, while a ton of mobile phones contains about 200 to 300 grams of gold, only 10–15 percent is recycled.

Investment in technology and automation in recycling infrastructure to recover high quality metals and minerals is not occurring with the absence of economies of scale cited as a factor. Moreover, EPR’s cost allocation system has not acted as an incentive for manufacturers to change design. China’s version of EPR has a target of 20 percent recycled content in products including electronics by 2025. Accomplishing this target will require higher quality systems for recovery of metals and minerals from electronics. Could such a target create market drivers to promote investment and innovation for higher quality recovery in the United States?

Tax incentives can drive action. In December 2015, Congress passed into law a permanent charitable giving tax incentive for donating food and extended it to pass-through entities. The tax credit has been cited by food manufacturers as a critical factor to overcome concerns regarding the cost of food donation and liability risks. It has resulted in a substantial increase in food diverted from waste.

Sweden has introduced tax breaks and other fiscal incentives to promote maintenance and repair of durable consumer goods, and as such encourage extending the lifespan of products. A targeted tax incentive tied to a level of product’s recycled content could drive design and investment.

One last and potential far-reaching opportunity is carbon pricing. As state-based carbon systems develop, such as California’s pending carbon market system, credit for use of secondary materials (e.g., products using recycled steel avoid approximately 75 percent of CO2 emissions as compared with using steel produced from virgin ore) would assist in financing secondary materials recovery systems and as incentive for product design.

Establishing a public-private process to prioritize policy actions and to establish an implementation strategy would tangibly advance the promise of a circular economy.

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Mathy Stanislaus is a senior fellow at World Resources Institute and senior advisor to the World Economic Forum focusing on advanced circular economy policies and strategies globally. He headed EPA’s solid waste office during the Obama administration.

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