Although digital innovation will help industries transit to a circular economy business model, we cannot forget about technology’s impact on the environment and society.

The Corona (Covid-19) crisis has shown the important role played by digitalisation. These last months, more than a third of European employees have been working from home, relying on a functioning network and interlinking with colleagues. Digitalisation also plays a crucial role in combating the spread of Covid-19, such as the creation of contact-tracking apps to identify potential cases by analysing data sets. However, digitalisation is not only useful to simplify work or simply search for information online.

Digitalisation can play a key role in making Europe more sustainable with transforming business models and creating new revenue and value-creation opportunities, while reducing costs and cutting emissions.

The term digitalisation refers to new digital technologies that are currently reshaping the industry and that will necessary for a successful sustainable transformation of the current economic models.

Digital technologies are changing the face of industry and the way we do business. They create new business models, allow industry to be more productive, provide workers with new skills and support the decarbonisation of our economy.

European Commission (2020). A New Industrial Strategy for Europe. Brussels: Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions.

Digitalisation And Circular Business Models

The transition to a circular economy is not possible without meeting certain fundamental prerequisites. The development of new technologies, such as artificial intelligence and communication technologies, is becoming more important for increasing resource efficiency. By 2030, the Ellen MacArthur Foundation assumes that technological improvements and innovations will lead to higher scalability and thus to an increase in productivity up to 25% compared to the current development and the intensified promotion of innovative technologies leading to a reduction of 24% material use.

Digital technologies, in particular, are driving the process. Through such, there is a strong rise in the analysis of data volumes and automation leading to a production efficiency increase. New required skills are fundamentally changing the labour market. Qualified workers and scientists are needed to develop and operate complex and sustainable technologies to gain a competitive advantage over linear business models. The aim is not only to increase the economic value, but rather, to increase the benefit for the environment and society through circular business models.  

It is clear that digitalisation plays an important role for new business models. The main characteristic of a business model in a circular economy, compared to a linear system, is that products become sustainable by being leased, rented, or shared. It is more about the service associated with a product that generates a benefit rather than the ownership of the same. A fitting example is the newly emerging car-sharing companies that make it possible to borrow cars avoiding any required purchase. Since fewer cars have to be produced, costs and materials can be saved. However, without a functioning digital infrastructure, it is impossible for such service providers to enter the market. There must be a platform that can enable demand for service-orientated providers as a prerequisite. 

Recycling And Remanufacturing

Information on the quality and composition of products and secondary raw materials is needed for producers and consumers so that new business models can emerge. For example, when a company requires an analysis of any recycled or waste material that could be used again instead of disposed.

European Parliament (2015) Repair, re-use and recycle! YouTube Video.

Collecting and analysing data will make it easier to identify how the product life cycle can be extended when designing products and developing new sustainable business models. Digitalisation offers the possibility to generate information about the entire product life cycle. It provides the possibility to efficiently trace products and their components by making a significant contribution to closing the cycle’s loops. For example, efficient recycling and remanufacturing requires information about the material’s entire life cycle and the quality and composition of the materials used. Thus, effective recycling and reusing measures can occur when properly informed leading to higher product quality and a maximum benefit for the society.

If a company can provide accurate and clear information to its consumer it increases trust facilitating the customer’s ability to make sustainable choices. This prevents green washing that is the act of companies giving a false impression of their environmental impact or benefits.

Although digitalisation has been an integral part of modern times for quite a while, there have been surprisingly few studies on the extent of its positive influence on the environment. The rebound effect, for example, states that when new digital technologies reduce the need for raw materials, it results in lower resource prices leading to an economic growth. However, the consequence can be resource consumption rising again, perhaps even higher than when it first reduced. Furthermore, we should not forget that digital technologies require, frequently, enormous amounts of energy that must be first generated also at the expense of the environment. Hence, when looking at environmental and climate policy goals, such as the 2050 climate-neutral objectives, the positive effects of technological progress may not be as high as assumed.

The Green Deal

The European Commission sees the Green Deal as an opportunity for transformation not only to drive a green transition, but also a digital transition. A digital strategy is closely linked with the EU’s Circular Economy Action Plan.

In this digital strategy, the European Commission focuses primarily on ensuring cyber and data security. An important point is the future handling and creation of a regulatory framework for artificial intelligence. The aim is primarily to address legal issues in order to create confidence in the technology of the future. Horizon Europe funding programme is intended to facilitate the expansion of digital infrastructure, such as, the 5G network. However, the European Commission fails to specifically implement sustainability goals. The impact on the environment and society is barely mentioned, while the strategy focuses on increasing productivity and legal issues. 

Digital Europe: Pushing the frontier, capturing the benefits
Fig. 1 Reveals that Europe only uses 12% of their digital potential. The McKinsey Global Institute expects a GDP growth of 1% each year, if Europe were to double its efforts. (McKinsey&Company)

Sustainable Economy

Digitalization can act as an enabler for a sustainable economy in Europe. In addition to the economic reasons, it will be essential to ensure that digitalisation, above all, connects people with each other and places them in a better societal position.

For the future we should closely link digital and green transformations. To achieve this, it will also be important that a digital exchange takes place across countries and that the information is shared. Digitalisation has the potential to increase knowledge, make processes more efficient, and enable sustainable business models across Europe. In order for digitalisation to have a guaranteed positive impact in Europe, it will require a suitable government.

A European digital strategy is needed so that the digital infrastructure can be expanded.  Otherwise, technological change will be blocked and existing markets will not become more efficient and sustainable. It will also be necessary to further examine in which sectors the increase in efficiency through digitalisation actually has positive effects on the environment. Europe must therefore continue to focus on ensuring that technological innovations, in addition to increasing efficiency, have the goal to reduce the carbon footprint and the controlled expansion of digitalisation will be essential for this.

Europe must guarantee a simultaneous digital and green transformation. Further steps in the near future will be the creation of a European Data Space. In addition, more research must be done into sustainable digital technologies and thus reduce energy demand. Europe has the potential to become the leader in the field of digitalisation. The expansion of the digital infrastructure will make a decisive contribution to meeting the goals of climate neutrality.

Articles by Hannes jakob dreyer are published every friday on circular economy in europe. discover our articles.

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