The 2020 joint report by The European House Ambrosetti and Enel, with the scientific contribution of Enel Foundation, has just been published. The study, “Circular Europe: How to successfully manage the transition from a linear to a circular world”, focuses on the state-of-the-art of circular economy in European countries, while also providing a practical roadmap for the future. The 10 key findings of the report are:
1. Circular Economy has reached the center stage of European policy debate, but many European countries still lack a national strategic roadmap to implement Circular Economy as a competitive advantage.
The world is facing major challenges. The profound and fast-paced economic, climatic and technological changes are molding society and lifestyles, opening areas of uncertainty and stimulating new needs, with environmental protection and social equality at the center of the debate. Science and innovation are increasingly enabling a historic convergence of decarbonization and competitiveness. Within this context, Circular Economy is a system-oriented approach capable of developing a positive vision of the future of the European Union. It has the potential to become a “catalyst for the common good” around which developing a “grand vision” for the European future. The recent European Green Deal and the related New Circular Economy Action Plan issued in March 2020 by the European Commission set new and more challenging objectives for Europe with regard to the transition to Circular Economy models. However, the Circular Economy development across the EU countries is far from being homogeneous. Many European countries still lack a national strategic roadmap to turn Circular Economy into a transition driver at national level, considering Circular Economy as a game changer and not just an environmental issue.
2. To assess the state-of-the-art of Circular Economy in the European Union (EU-27+UK) a Circular Economy Scoreboard has been devised, covering all the macro dimensions of the phenomenon.
Circular Economy is still evolving in the European Union and in Italy, Romania and Spain. Its operational modes have only been internalized to a limited extent, especially if a system-wide comprehensive approach is adopted as a reference: defining and monitoring the operational aspect of Circular Economy is of paramount importance, as a premise to find the best ways to maximize the benefits for the industrial value chains involved, the environment and society as a whole. For this reason, to assess the state-of-the-art of Circular Economy in Europe, the dimensions relevant for the introduction of circular models have been analyzed, identifying quantitative metrics comparable for 27 European Union countries and United Kingdom, with a specific focus on three countries of interest (Italy, Romania and Spain). To assess the level of development of each European country, 23 Key Performance Indicators (KPIs) have been selected, among which a subset of 10 indicators has been identified using the principal components analysis method, along four pillars:
• Sustainable inputs, which captures the use of renewable energy and of recyclable, recycled and biodegradable materials to manufacture goods and provide services in consecutive lifecycles;
• End-of-life, which describes ways of recovering end-of-life value of asset, products and materials through reuse, remanufacturing and recycling;
• Extension of useful life, which reflects the capability of increasing the duration of the useful life, with respect to usual end-of-life of a product or its components;
• Increase of the intensity of use, which rates the increase of the load factor of a single item (for example with product as a service or sharing services models). It measures the increase of the benefit obtainable with each unit of input (material and energy) used.
3. Italy and Spain show an intermediate-high level of current development of Circular Economy, while Romania is lagging behind.
Analysing the current performance of the three countries of interest, it emerges that:
• Italy belongs to the cluster of best performers for End-of-life, while it belongs to the intermediate-high clusters for Sustainable inputs and for Extension of useful life, while much more effort is needed to improve the performance on the Increase of the intensity of use of products/services;
• Romania is in the cluster of worst performing countries in all the considered pillars;
• Spain belongs to the cluster of countries with a good level of development of Circular Economy, with three pillars (Sustainable inputs, End-of-life and Increase of the intensity of use) in the medium high cluster of positioning and the pillar Extension of useful life in the medium-low part of the European ranking.
4. Spain and Romania have shown a good level of improvement during the 2014-2018 period, while Italy has displayed a medium-low level of progress.
The progress over time of the level of development of Circular Economy of all European countries has also been evaluated. The synoptic view of the progress along the four pillars highlights that:
• Italy shows significant improvement regarding Sustainable inputs and End-of-life, while it is lagging behind in terms of progress over time in the Extension of useful life and Increase of the intensity of use;
• Romania has improved its performance over time in the Extension of useful life and End-of-life, while its improvement is relatively slow for Increase of the intensity of use and it is much below the EU average for Sustainable inputs;
• Spain has improved its performance over time in the Extension of useful life, it has shown a medium-low progress for the Sustainable inputs and Increase of the Intensity of use, while it has displayed a low level of improvement for the End-of-life pillar.
5. Almost all (95%) of the 300 European business leaders responding a dedicated survey consider the shift from linear to circular models a strategic choice for their company.
The analysis of the “level of circularity” of the EU countries and the United Kingdom has been complemented with a view on the sentiment of European business leaders about the need to intervene in favour of circular models in their business. An online survey has been administered to a sample of 550 EU27+UK business leaders, with a specific focus on the three countries of interest. The first significant result of the survey is that Circular Economy is a strategic priority for European business leaders, despite the economic and health downturn Europe is experiencing: 95% of the 300 European business leaders (90% restricting the sample to SMEs) consider the shift from linear to circular models a strategic choice for their company. Moreover, Circular Economy is considered a tool to gain competitive advantage for diversification, market expansion and cost reduction. However, most European business leaders consider their countries unprepared to face the Circular Economy challenge. In Italy and Spain, 62% and 69% of respondents respectively think their country is not ready for Circular Economy, compared to an EU average of 75%. Uncertainty about value creation (43.6% of responses) and lack of skills (35.9%) are the top two answers on the stumbling blocks to the development of Circular Economy in Europe. The required changes to the production chain are also perceived by about 31% of respondents as an obstacle. Also because of their nature, the access to new markets and/or new channels is the most urgent area of intervention for the transition to Circular Economy for 55%. In this context, to support their transition towards Circular Economy, companies – but also public administrations and other similar entities – would benefit of practical tools capable not only to measure Circular Economy, but also to provide them with a clear, quantitative understanding of the benefits of this approach and to offer a range of concrete, actionable solutions.
6. A first-of-its-kind assessment model has been devised to evaluate the economic, social and environmental benefits of Circular Economy in the EU-27+UK and in Italy, Spain and Romania.
The relevance gained by Circular Economy within the current policy debate at European and national levels is making increasingly important to understand the socio-economic and environmental effects associated to the adoption of a circular paradigm in the economy and society. The quantitative assessment of the socio-economic and environmental benefits of Circular Economy is essential to guide the European policymakers’ agenda. The assessment model focuses on the European Union plus UK as a whole and on three countries of interest: Italy, Romania and Spain. Timewise, the analysis goes from 2014 to 2018. Methodologically, the model adopts a macro level approach, combining a set of KPIs of the Circular Economy Scoreboard with a series of variables related to the macroeconomic structure of each single country. The model evaluates both the increase in the positive externalities (dealing with the economic and industrial dimensions and with the social dimension) and the reduction in the negative externalities (dealing with the environmental dimension). The assessment model is twofold. The economic, industrial and social dimensions are analysed using a statistical econometric model to evaluate the quantitative relation between the Circular Economy KPIs and a set of macroeconomic variables. The environmental dimension has been examined leveraging on specific case studies and “what-if” analyses.
7. Circular Economy is associated with relevant economic and industrial benefits, in terms of Gross Domestic product, employment, investments and labor productivity.
The model shows statistically significant and positive results for all the economic and industrial dimension. This means that Circular Economy appears to be positively correlated to all the considered variables related to the economic and industrial dimension. Specifically:
• Circular Economy is connected to approximately 300-350 billion Euros of GDP in the EU27+UK in 2018 (2%-3% of the current GDP), 27-29 billion Euros in Italy in 2018 (1%-2% of the current GDP), 10-12 billion Euros in Romania (5%-6% of the current GDP) and 33-35 billion Euros in Spain (2%-3% of current GDP) in 2018;
• Circular Economy is also related to the employment of 200,000 individuals in 2018 in Italy. In Romania, around 20,000 jobs in the same year can be associated to the circular paradigm, while in Spain the overall effect ranges slightly in excess of 350,000 employees. Overall, in the European Union, the shift from a linear to a circular paradigm is associated to almost 2.5 million jobs in 2018;
• As far as investment is concerned, Circular Economy is associated in 2018 to about 8-9 billion Euros in Italy, 1-2 billion Euros in Romania, 9-11 billion Euros in Spain, 90-110 billion Euros in the European Union (EU27+UK);
• Circular Economy is associated also to an increase in labour productivity: around 560-590 Euros per employee per year in Italy (0.8%-0.9% of current annual labor productivity) and 1,210-1,270 Euros per employee (5%-6% of annual labour productivity) in Romania, the most impacted country. The impact in Spain is equal to 640-670 Euros per employee. Finally, in the EU, the circular paradigm enables 570-940 Euros per employee, with an impact on the current annual value of 1%-2%.
8. The transition towards a circular development model is associated also to positive social impacts, in terms of Gross Domestic Product per capita.
The model shows that Circular Economy is associated to improvements in Gross Domestic Product per capita: in 2018, around 450 Euros per capita in Italy, 570 in Romania, 650 in the European Union. Spain is the country with the highest expected impact, where Gross Domestic Product per capita resulting from the shift to the circular paradigm exceeds 700 Euros per capita.
9. The transition towards Circular Economy leads to a wide range of environmental benefits.
The transition towards a circular development model can generate several environmental benefits, associated with the use of secondary materials instead of primary materials and the reduction of GHG emissions mainly connected to the reduction of use of virgin raw material and to use of renewable energy. An increase of 10 percentage points in the circular materials use of the 4 materials considered in the analysis (iron, aluminium, zinc and lead), could bring a reduction in the GHG emission related to their production of 15.6% for aluminium, 14.1% for iron, 16.7% for lead and 13.7% for zinc in the European Union. The use of renewables in energy production is also a key driver of the environmental benefits of Circular Economy. Assuming a 100% coal substitution with 1 percentage point increase in renewables, Italy would present a GHG reduction of 6.3 million tonnes of CO2e, equivalent to -1.8% of the current energy sector GHG emissions, the highest decrease in absolute terms among the 3 selected countries (-1.3 million tonnes of CO2e in Romania and -5.4 million tonnes of CO2e in Spain). In addition, circular solutions can positively affect the environment, by extending the useful life of products and services and/or increasing their intensity of use. The extension of the useful life of vehicle batteries, circular smart meters, re-use and reparability of white goods and the spread of sustainable mobility are concrete examples of this important aspect.
10. Ten policy matters have been identified in order to tackle the challenges related to circular transition and effectively reap its benefits.
To effectively reap the benefits of Circular Economy, it is necessary to further advance the shift from a linear to a circular development model. Ten policy matters, entailing specific policy actions, have been identified:
1. Defining National Strategies for EU Member States for an economic development consistent with the Circular model.
2. Redefining Circular Economy Governance in order to support strategic and cross sectorial transition.
3. Leveraging on legislation for enhancing circular transition.
4. Levelling the playing field with linear solutions.
5. Using finance as a leverage to promote Circular Economy Research & Development and practices.
6. Addressing the lack of a clear definition and of comprehensive and homogenous metrics.
7. Turning waste-oriented business models into circular ones.
8. Promoting cross-cutting and coordinated measures for all the sectors involved in the Circular Economy transition.
9. Leveraging on Circular Economy as a framework to reimagine cities and urban areas.
10. Promoting culture and awareness on the benefits associated to Circular Economy.