Six Steps to a Circular Economy

CLAIMS | RAW MATERIALS POLICY | CIRCULAR ECONOMY

Six Steps to a Circular Economy Claims of the BDI Circular Economy Initiative for the 20th Legislative Period

14 October 2021 Raw materials are setting the foundation of industrial value creation. Recently, this became evident when global supply chains were disrupted as a result of the COVID-19 pandemic. A subsequent shortage in the supply of raw materials led to significant price increases and global competition for resources is expected to increase. At the same time, the challenge is to shape our economic system that climate goals of the Paris Agreement and the 17 sustainable Development goals (SDGs) of the United Nations Agenda 2030 can be achieved.

The raw materials supply of the German industry is based on three pillars. These include domestic raw materials (1), imported raw materials (2) and raw materials from the circular economy (3). Raw materials from the circular economy can be understood as recycling raw materials and industrial by-products. For a climate-friendly circular economy, sustainably biobased raw materials and alternative raw materials such as CO2 must also contribute to closing material and energy cycles in the future.

The members of the BDI Circular Economy Initiative are pursuing the common goal of developing the circular economy into the mainstay of industrial value creation. To achieve this, our economy must pursue the longest possible use, reuse and recycling of high-quality raw materials and products as a priority. It is also undisputed that stable access to sustainably extracted primary raw materials must be guaranteed for the supply of raw materials to industry. Only in this way, an overall secure supply of raw materials in Germany and Europe is guaranteed, along with the necessary technologies for the global protection of natural resources and the climate. The members of the BDI Circular Economy Initiative understand themselves as drivers towards a circular economy and stand for competition, technology openness and innovation. Taking these principles into account, the transition to a circular economy requires a holistic and ambitious policy with new instruments to create a secure legal framework for closing material and product cycles.

Claas Oehlmann | BDI Initiative Circular Economy | T: +49 30 20281606 | c.oehlmann@ice.bdi.de | www.bdi.eu

Six Steps to a Circular Economy

Table of Contents 1 The European "Green Deal" as a Joint Design Task .................................................................... 3 2. Product Design as an Anchor of the Circular Economy.............................................................. 4 3. Stable Commodity Markets for Circular Economies .................................................................... 5 4. Utilizing the Climate Protection Potential of the Circular Economy .......................................... 6 5. Using Public Procurement as a Lever ........................................................................................... 6 6. Intelligent Use of Data and Consistent Requirements for Circular Economies ........................ 7 Imprint ................................................................................................................................................... 9

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1 The European "Green Deal" as a Joint Design Task In 2019, the European Commission announced the European Green Deal, a policy agenda that is expected to bring about profound economic and societal change. Thus, the overarching goal has been set for the European Union (EU) to achieve zero net greenhouse gas emissions by 2050 and for Europe to become the first climate-neutral continent. At the same time, the EU is to be a dynamic and globally competitive economic area, in which growth is decoupled from resource use.

The transition to a circular economy takes on a central role in this. In March 2020, the Commission presented the second European action plan for the circular economy ("New Circular Economy Action Plan (nCEAP)"), in which over 40 legislative proposals, measures and initiatives are announced for the next three years. The Commission's goal is nothing less than a comprehensive transformation of European industry into a climate-neutral and resource-conserving circular economy. Extensive new regulations on the design of products, the sequence of production processes and the structuring of valueadded cycles are to be expected. This applies, for example, to the announced legal framework for a sustainable product policy, the creation of a "right to repair" for products and the revision of central legal acts such as the EU Battery Regulation, the EU Packaging Directive, the EU End-of-Life Vehicles Directive and the EU Waste Shipment Regulation. It becomes clear that the coming years will be crucial to mobilise the legal framework and the necessary investments for the circular economy in the EU. The activities at EU level with regard to the creation of a so-called taxonomy for the classification of "green" investments, including the categorisation of certain economic activities as "sustainable" in the sense of the taxonomy, are just one of many signs therefore.

The German industry is committed to the climate protection goals of the Paris Agreement and to promote a raw material-conserving circular economy in the framework of the "Green Deal". This will entail considerable changes in our economic structure. Massive effects on production processes, products and business models of companies and thus on the entire industrial value creation are to be expected.

The manufacturing industry plays a much greater role in Germany than in many other EU member states. This basis for prosperity and employment must be preserved in order to be able to master the challenges of the future.

Claim: Germany has a key responsibility for ensuring that the Green Deal unfolds the opportunity to move towards a sustainable economic model, while tackling the Deal’s challenges. It is therefore of great necessity that the German government accompanies in a prioritised way the implementation of the Green Deal. At the European level the German government should call for a regulatory framework that supports companies on their way to a climate-neutral circular economy. This requires a fundamental reorientation of raw materials policy with additional instruments for closing material and product cycles, planning and investment security for companies, a coherent, innovation-friendly and secure legal framework, and initiatives to ensure competitiveness. In addition, industry must face a setting which enables the calculation of competitive energy and raw material prices. This urgently requires a funding policy that supports the transformation towards the circular economy and also takes into account the interests of small and medium-sized enterprises (SMEs).

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2. Product Design as an Anchor of the Circular Economy The design of products must meet many market requirements. These include product safety, functionality (e.g. stability and flexibility), hygiene regulations and marketability, etc. (so-called "design for performance"). At the same time, product design, jointly with the available technologies, determines whether products and materials can be used for as long as possible, can be reused ore have to be discarded. Thus, product design is a decisive element to keep materials and products at the end of their service life in as many cycles as possible with little or no loss of quality.

In its 2020 NCEAP, the EU Commission has therefore declared sustainable product design to be a focus of its future policy within the framework of a "Sustainable Product Initiative (SPI)". On the one hand, the scope of the Ecodesign Directive will be extended beyond energy-related products and, on the other hand, sectoral strategies and specifications for a sustainable product policy will be developed.

The SPI focuses on the goal of increasing the circularity of products (durability, reusability, reparability, recyclability, etc.).

The Ecodesign Directive has worked well in the past as a requirement framework for increasing the energy efficiency of energy-related products. Here "tailor-made" requirements have been implemented for the product groups affected to date. Therefore, the new legislative initiative should make use of the regulatory system of the Ecodesign Directive in order to improve it in line with the requirements of a circular economy. To this end, the scope and regulatory system of the Directive, which have so far focused on energy consumption, must be adapted accordingly. New requirements for "Design for Circularity" within the framework of the Ecodesign Directive should also, as has been the case to date, be developed with the consultation of the industry sectors and companies concerned, and justified by considering the ecological impacts throughout the entire product life cycle.

At the same time, the EU Commission has already begun to make product design the focus of regulation in sectoral legal acts. Examples of this are the EU Battery Regulation draft or the work on the amendment of the EU Packaging Directive. In the case of these and other projects of central importance to the economy, it will be important, as with the extension of the Ecodesign Directive, to establish product design requirements together with the economic players involved. These are to be defined in the light of the state of the art and its progress, thus innovations in materials, manufacturing, processing and recycling technologies and in the repair and collection infrastructure harmonise with the product design requirements.

Overall, it is of high importance that the EU initiative on sustainable product policy and the parallelly running European chemicals strategy for sustainability do not create new contradictions or duplicate regulations in requirements for the design of products and their safety and the substances used.

Claim: The German government should advocate the product-specific consideration of "design for circularity" criteria such as durability, reusability, reparability, recyclability, etc. within the framework of the EU's sustainable product and materials policy. Possible conflicts of objectives arising in this context, e.g. with the "design for performance" of products, must be resolved in the sense of a holistic "design for sustainability" in a circular economy. Only through uniform rules in the EU internal market and uniform enforcement and market surveillance, such criteria may become effective for a large number of products. In addition, it must be ensured that imports from third countries can only enter the EU internal market if the requirements are met, to avoid competitive disadvantages for European companies. For those product groups that do not fall within the scope of the Ecodesign Directive in the future, specific regulations must be used or created with regard to their sustainable product design. Besides others,

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these include the regulations for packaging within the meaning of the EU Packaging Directive, for accumulators and batteries within the meaning of the EU Battery Regulation or for products for which environmental product declarations are available in accordance with EN 15804.

3. Stable Commodity Markets for Circular Economies The circular economy should make a decisive contribution when it comes to meeting the demand for raw materials in Germany and Europe. Circular economy means taking a holistic view of the life cycles of raw materials and products. Along the five-step waste hierarchy (prevention, preparation for reuse, recycling, other recovery and disposal), the aim is to keep raw materials in cycles and to recycle waste to the highest possible quality. Steel and many other non-ferrous metals, as well as glass, wood and paper, are already industrially processed at the end of their useful life and are an integral part of the supply of raw materials to industry. This is mostly successful because these materials still have a positive monetary value even as waste since they occur in sufficient quantities or concentrations and/or can be recovered and reprocessed without any significant reduction in quality. Today, challenges exist above all in the recycling of some plastics and technology metals.

In view of the challenges outlined at the beginning of the paper, the use of raw materials in the future must be aligned in such a way that emission reduction or resource efficiency potentials are consistently exploited and import risks for supply-critical raw materials are minimised (resilience of supply chains).

In this context, it will be important to use an intelligent mix of instruments to increase the use of raw materials from the circular economy, renewable raw materials and durable products and materials.

These include the creation and application of quality standards, the promotion of the bioeconomy, the support of measures for raw material recovery and of technology development and simplified shipment procedures for waste on the European internal market ("fast track"). The implementation already started politically and the further discussion on specifications for the use of recycled raw materials (e.g. mandatory recycled content for PET bottles and batteries) must be continued in the future in close dialogue with industry. In the interests of practicable and enforceable regulations on the European internal market, depending on the area of application, product-specific proof or proof by means of certified mass balances can be useful. The BDI-Initiative Circular Economy is available as a discussion platform.

Furthermore, the effective combating of illegal waste shipments to third countries and the prevention of waste treatment under inadequate or non-existent environmental and recycling standards in accordance with the requirements of European law must continue to be an objective of German and European policy.

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Claim: We encourage the German government to work closely with the industry to develop national and European instruments that improve the market opportunities for raw materials from the circular economy.

The same applies to the use of sustainable bio-based raw materials to close carbon cycles and thus replace fossil raw materials. In the use of raw materials, the goals of security of supply and climate protection must be linked above all. Where demand cannot be met by products produced with raw materials from the circular economy, it should be ensured that raw materials come from sources that at least comply with internationally recognised environmental and climate protection standards.

4. Utilizing the Climate Protection Potential of the Circular Economy The establishment of a circular economy offers the opportunity to make an important contribution to climate protection. In complete contradiction to this opportunity are the current European regulations on the disposal of municipal waste in landfills. In many EU Member States, municipal waste still ends up in landfills without pre-treatment, where organic waste generates, among other, significant methane emissions, and at the same time valuable raw materials are lost in the process. This stands in stark contradiction to the goals of the circular economy and the waste hierarchy.

On the other hand, extending the useful life of products and materials, increasing the rate of recycled raw materials and by-products and their multiple use in cycles (multi-recycling) can demonstrably make a very significant contribution to reducing greenhouse gas emissions. The same applies to raw materials from biomass or the use of other alternative raw materials such as CO2, which replace fossil raw materials. However, since such raw materials are used at different stages of processing and production processes, there is as yet no common understanding of how emission reductions through circular economy can be counted towards climate protection targets.

Claim: In the future, the German government should closely link strategies and measures to establish and increase circular economic activities with the goal of climate protection. This requires the development of defined mechanisms for the holistic accounting of CO 2 savings through circular economy. The climate protection potential of the industrial bioeconomy must also be taken into account. An international dialogue will also be necessary to achieve a common understanding beyond Germany and the EU. In addition, the German government should call at European level for a swift, EU-wide ban on the landfilling of untreated municipal waste.

5. Using Public Procurement as a Lever Green public procurement (GPP) can contribute significantly to a stable demand for circular economy products and services. In Germany alone, it is estimated that up to 440 billion euros are made available annually for public procurement. In the last legislative period, the Federal Government already established an obligation for contracting authorities to give preference to environmentally friendly products and materials by amending § 45 of the German Law on Closed Cycle Management and Waste, although this does not establish any legal claims by third parties. According to this, preference is to be given to products that have been manufactured in raw material-saving, energy-saving, water-saving, low-pollution and low-waste production processes or by preparing them for reuse or by recycling waste,

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in particular using recycled materials, or from renewable raw materials. In addition, § 45 covers products that are characterised by durability, ease of repair, reusability and recyclability.

As part of its "Green Deal", the European Commission plans to propose binding minimum criteria and targets for green public procurement in sector-specific legislation.

Claim: The German Government should ensure that the provisions in the Closed Cycle Management and Waste Act adopted in the last legislative period generate a real impact, unlike in the past. To this end, the awarding bodies should be further supported, e.g. by means of target-oriented general administrative regulations and competence centres.

At the European level, the German government should advocate manageable and unambiguous regulations on GPP in the context of the Green Deal that comply with public procurement law and encourage the tendering of climate-friendly circular economy products and services. To this end, it will also be necessary to ensure that the products and services to be procured are also identifiable as such for the procuring entities.

6. Intelligent Use of Data and Consistent Requirements for Circular Economies The material composition of products and waste plays an important role in the success of the circular economy. Since in particular durable goods only reach the end of their life and the subsequent recycling stage after years or decades, there may be little or no information available on their material composition. Thus, in the future, intelligent digital systems for information on substances in products should be established that actually offer added value for the industrial management of efficient value-added cycles. Knowledge of the presence of "substances of very high concern" in products in accordance with chemicals legislation (REACH) and the appropriate, risk-based handling of these in production and recycling processes are also central to market approval and acceptance by consumers. However, the goal of a "zero pollution ambition" formulated by the EU Commission as part of the "Green Deal" must also be questioned in this context, since many substances perceived as "pollution" are natural components of the environment. Therefore, there is a need for a realistic, practice-oriented assessment of the real risks of substances used in product and material cycles, based on the principle of proportionality.

Claim: The German Government should work to ensure that the interfaces between product, substance and waste law are coordinated in such a way that companies gain legal certainty in closing material cycles and that there are no contradictory regulations. In addition, new ordinances, guidelines and regulations for the end of waste status and for by-products should also be considered.

Scientific risk assessment must be retained as a core element of chemicals management. At EU level, there must be a focus on coherence between the ambitions to further develop the Circular Economy and the Sustainable Chemicals Strategy.

Digital information systems, such as the announced digital product passport of the EU Commission, which are to provide the necessary data for closed product and material cycles, are to be developed together with the circles involved. This is particularly important against the background of preventing future initiatives

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that are not target-oriented and cost-intensive, such as the implementation of the so-called SCIP database (pursuant to Article 9(1)(i) of the Waste Framework Directive).

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Imprint Federation of German Industries (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Editor Dr. Claas Oehlmann Executive Director BDI-Initiative Circular Economy T: +49 30 20281606 c.oehlmann@ice.bdi.eu

BDI document number: D 1461

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