When it comes to the circular economy, Christoph Wolff has a clear proposition: “Circularity offers an opportunity for Europe to show global leadership.” Christoph Wolff headed the power sector decarbonization, low-carbon industry, low-carbon transport, and energy efficiency programs at the European Climate Foundation (ECF). Here, he describes why Europe urgently needs to change the status quo and what alternatives exist to achieve an economically and environmentally sustainable business model.
Currently, more than 20% of global CO2 emissions stem from energy-intensive basic industry: the production of cement, steel, aluminum, and chemical products.
Why Europe needs to change the status quo
Traditionally, the raw materials are extracted from the earth and, through processes that consume high levels of energy, processed into intermediate and end products.
Christoph Wolff is a Member of the Executive Committee at the World Economic Forum (WEF) and Head of its Mobility Industries and System Initiative. Previously, he served as Managing Director with the European Climate Foundation (ECF), heading the foundation’s power sector decarbonization, low-carbon industry, low-carbon transport, and energy efficiency programs. In July 2018, he was a session leader at the Denkraum event of the BMW Foundation Herbert Quandt.
At the end of their life cycle, the end products are mostly recycled, causing further CO2 emissions, or dumped into landfills.
As for plastics, we know that the recycling rate is rather low and that plastic in the form of microparticles remains in the oceans and becomes part of the food chain. Pessimists warn that, by 2050, our oceans will contain more plastic than fish.
Current roadmaps to achieve the Paris climate goals assume “business as usual” when it comes to industrial processes, based on the argument that more than 50% of emissions are process emissions that cannot be avoided even by using more efficient energy technologies or decarbonized energy sources.
However, if industrial production continues along the lines of today’s processes, the carbon budget in the atmosphere will be used up by 2050 solely by industrial processes.
Therefore, the status quo urgently needs to be changed.
Governments need to act
Both the European Union and its Member States have available a variety of different policy instruments, such as public research funding. Legislators refrain from taking bigger steps, however, since industry is quick to bring up the argument of the loss of jobs and global competitiveness.
The BMW Foundation Denkraum event, held in Munich on July 5, 2018, revolved around ideas on how we can shape the way towards a circular economy. The current economic model works mainly along the lines of make, use and dispose. In contrast, the idea of a circular economy implies a systemic shift towards regenerative and restorative production processes.
Industry will only act if there will be low-carbon markets. Tenders that mandate low-carbon steel or cement and the use of circular production methods could create markets that would enable profitable investments.
Introducing product standards – similar to CO2 standards for fleet emissions – would create a level playing field for domestic and foreign companies and address the argument of the loss of competitiveness.
Making a name for itself as a country of “smart regulation,” California has forced its companies to innovate. There is no empirical evidence that the consumers foot the bill through price increases.
“Smart regulation” is Europe’s opportunity, too. “Smart regulation” forces companies to innovate and thus provides the European industry with an opportunity to gain a competitive edge by acting early – just like the Chinese government is using air pollution to promote the country’s transition to electromobility.
Not all means are popular, but “border taxes” for high-carbon products would not be seen as a priori incompatible with the World Trade Organization (WTO) and could be mutually agreed with other world regions who also want to prevent climate collapse.
What alliances could help bring about this change?
An innovative industry that demands the creation of low-carbon markets and investment protection against high-carbon producers as a quid pro quo from the EU, its Member States, and especially cities and that is supported by unions, civil-society climate activists, and consumers’ associations. This way, the transition to a circular economy can succeed.
A number of companies – big ones with huge research budgets as well as start-ups – are working on alternatives. There are steel producers, for example, that use hydrogen instead of coking coal to reduce iron ores. The chemical industry is able to move from oil-based to bio-based chemicals.
The largest lever, however, is transitioning from a linear to a circular economy.
Steel and aluminum are the best examples. If steel wasn’t again and again contaminated by copper as it moves through the processing cycles, it would be possible to produce steel without CO2 process emissions.
Innovative alternative production processes and circular value chains have one thing in common: they generate additional costs without increasing immediate customer benefit and thus make the end product more expensive.
"As long as the EU and industry fail to act, there will only be limited progress in transforming the industrial value chain."
As long as the oil price and the external costs of carbon emissions – in terms of the price of carbon certificates – remain low, it is not attractive to invest in a circular economy or innovative processes.
As long as there are no special incentives, the innovative processes that already exist in industry will be shelved.
As long as the EU and industry fail to act, there will only be limited progress in transforming the industrial value chain.