Producers and consumers are both responsible for shifting to a circular economy business model and meet the climate policy goals.
European households spend more than €8 trillion a year on products and services. Although, the increasing sales of sustainable products – those manufactured taking in consideration social and environmental impacts – there is still a strong demand for products that are cheaper and can be easily disposed, favouring replacement, rather than recycling, reusing, or refurbishing.
To gain substantial environmental improvement, there is a need to develop radically new products. It is argued that radical environmentally sustainable product innovation has the potential to bring substantial product differentiation and competitiveness to the marketplace.
On a previous article on Rethinking Climate we explained that sustainable business models in the European Union create the opportunity to reduce emissions by 56% by 2050 and could help meet the climate policy goals.
Consumers, companies, and governments have a responsibility to promote new business models based on closing the loops, such as focusing on recycling and a sustainable product design. In the previous article on the role of digitalisation, some conditions are explained for the development of new business models looking at resource efficiency. In this article, we look at responsibility held by the consumer and the producer (industries) for proposing and choosing resilient circular business model.
Fig. 1 An example of closing loops in a circular economy model through methods, such as, recycling, refurbishing, and remanufacturing. (Geissdoerfer et al. 2020)
Encouraging The Producing Industries
Various measures can be taken to increase incentives for sustainable businesses and minimise risks allowing competitive advantages over linear business models. In order for companies to transform their business models, they not only need to be encouraged, but market barriers need to be identified and removed.
According to the Circular Economy Implementation Report, in 2016 a total of €147 billion in value was created by new business models in circular economy sectors. From an economic perspective, economies of scale can be used in larger markets meaning that as production increases and unit costs decrease, it leads to a higher supply. Consequently, it lowers the selling price, raising the demand for sustainable products. Hence, this would be incentives for companies to voluntarily develop new business models.
However, to compete with linear-producing manufacturers, additional measures are often needed. For example, a longer lifespan of sustainable products results in lower sales compared to short-lived linear products. Nonetheless, the competitive advantages of linear products could be reduced by binding quality standards and regulations.
Increasing the producers’ responsability: polluters-pay principle
One way to make companies responsable is to make them liable to be transparent on where the material comes from, how it is recycled or even provide services, such as a refund policies, to control how it is disposed. As a result, the number of planned obsolescence products, or those intentionally designed for short-term use that have to be repurchased repeatedly, are reduced. Product design should instead be designed for longevity, recycling, and avoiding waste.
Producer responsibility could additionally be increased by enforcing a minimum quota required of recycled materials during the production process. A high producer responsibility, therefore, also aims to protect the consumer and the environment, increasing the social responsibility of companies.
The Extended Producer Responsibility (EPR) is a policy approach, considered by governments, under which, “…producers are given a significant responsibility – financial and/or physical – for the treatment or disposal of post-consumer products.” However, two main issues are the way we evaluate EPR success and how we agree on the ‘baseline’ which the experience of the EPR policy can be compared.
Fig. 2. This graph shows the amount of waste in Europe coming from products and packaging managed under EPR schemes and therefore under producers’ responsability.
The Zero Waste Europe campaign estimates that only 45% of product waste is handled under producers’ responsabilites, which is equivalent to 31% of total municipality waste. Therefore, only 18% of waste is actually separated and recycled through a producer responsibility system. We see that Europe is in urgent need of better and expanded systems of producer responsibility.
Product As A Service
Services connected to the product offered could further improve customer loyalty and reduce the need for materials in the production of new products. New business models should no longer be based on the possession of a good. Repair services and the right of refund are examples of a service-oriented business model, which increases consumer trust by guaranteeing long-term use of a product. Another sustainable business model is the concept of a collaborative economy, in which consumers share, rent or trade products, already explained in this article published by Rethinking Climate. Policymakers should create incentives for traditional manufacturers to switch to sustainable business models.
Enabling Sustainable Consumption
In an optimal circular economy, as the name suggests, consumption takes place in cycles. The consumer’s responsibility to contribute to the circular economy requires an awareness of the consequences of unsustainable consumption. This includes the reuse of products and the correct recycling of household waste. Fines for incorrect waste recycling, for example, could encourage consumers to separate waste correctly and to prefer reusable and easily recyclable products in order to avoid disposal fees.
The Importance Of Correct And Accessible Information
One barrier to sustainable consumption choices is insufficient and unclear information. There is little willingness to buy sustainable products due to a significant lack of trust in the quality and price-performance ratio of recycled and durable products. In order to increase consumer faith in the usability of sustainable products, information should be available about the production, recycling possibilities and the potential for repair and reuse of a product. In this way, higher societal benefits can arise from sustainable consumption and new consumption options.
Introduced back in 1992, the EU Ecolabel informs consumers whether a product or service contributes to a reduction in pollution. However, companies are not obliged to use the EU Ecolabel, which can lead to greenwashing or absence of transparency and less informed consumers.
Further political measures are necessary to make transitioning to circular business models more attractive and to break down fixed consumption patterns and norms. One market-based instrument is a lower VAT rate for sustainable products and services, which has hardly been applied so far. This could, for example, favour repair services and thus lower prices for consumers. This would increase both demand and, consequently, the turnover of sustainable business models.
The Producer And Consumer In The Green Deal
It becomes clear that sustainable consumption decisions and circular business models are interdependent. Measures need to be adopted for producers and consumers to accelerate the transformation of the economy.
The European Green Deal aims to use a sustainability label to provide consumers with information about the environmental impact of their purchases, the lifespan of products, and services provided, such as repair options. One problem with the label is that, just like the Ecolabel, it is not mandatory and a voluntary label does not necessarily prevent green-washing. However, it can be considered an improvement, as the information provided reduces mistrust about the price-performance ratio.
The Green Deal also envisages preventing planned obsolescence by increasing producer responsibility, therefore increasing the demand for sustainable products. The planned “right to repair” and increased transparency of corporate activities will thus make it easier for consumers to make sustainable purchases. However, the Action Plan makes no statement as to whether the costs are covered by sectors or individually by the company and it remains unclear who will be responsible.
The Action Plan mentions that it wants to promote sustainable business models through the use of a variable sales tax, but does not concretize this. Furthermore, apart from the “product as a service”, no other circular business models are specified.
Proposals are made for training, guidance, and funding opportunities from “Horizon Europe” to assist new business models to enter the market. Clearly missing is imposing sanctions on traditional business models that have a negative impact on the environment. Unless they are held more accountable, it is questionable whether there is an incentive to move away from traditional business models. Thus, there is also no sufficient signal to society that sustainability in production and consumption is highly encouraged. An appeal is made to the responsibility of every citizen, but whether this, and further guarantees are sufficient to change lifelong consumer behaviour, is questionable.
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