Renewable Matter # 3 / April

The Novel Players of the Recovering Economy Seek a New Balance between Regulations and the Market

by Antonio Cianciullo, Roberto Coizet

The energy sector is in the spotlight. Earnings are increasingly generated by services rather than by electricity. Business strategies are moving from oligopoly to a flexible-grid-based supply chain fed by millions of micro-producers of renewable energy. The power hierarchy is shifting from hardware, i.e. from being based on a few major production plants, into a soft power supported by innovation and marketing. 

Although the topic is unlikely to crop up in day-to-day conversation, the ongoing energy transition is commonplace. From an economic and ecological point of view, another, equally important transition is underway. However, unlike that which concerns energy, it hardly draws as much attention from media. The second major transition is about the recovery of matter. The last issue of Renewable Matter discussed the numbers at stake: every year, 50 to 60 billion tons of rock, stones, sand and gravel are mined and a further 45 billion tons of fossil fuels are extracted, whilst another 27 billion tons of biomass are moved about to produce energy.

These huge quantities have mammoth environmental impacts. In addition, the increasingly irregular fluctuations of the quantities extracted (raw material commodity prices have been declining for decades and have started to rise irregularly only recently) show that these impacts are no longer manageable through the old parameters of the linear economy that are based on endless expansion of both mining grounds and landfills. The market has registered the anomaly and perceived that something is wrong, but has not yet developed the instruments that can solve the problem. A new point of view is needed, one based on the etymology of the word resources (from resurgere, to rise again). That is why it is necessary to move towards a greater circularity of matter and energy. Such an approach implies a new map of economic, environmental and spiritual benefits. This means that new players need to emerge. Innovative businesses and economically viable enterprises that are able to meet these novel requirements.

Renewable Matter intends kick-starting a debate and track the players of this new economy in order to identify their needs and understand how best the new collective interests may defy the oligopolistic interests forged during the 20th century. A few questions are begging for answers. For instance, which market rules and opportunities support the development of the circular economy? Should public or private initiatives prevail? What kind of balance may be achieved between a free market and a “managed” market (i.e. one that is devoted to favour agents that are valued as being “virtuous”)?

Let us try to briefly identify some possible answers. For example, the circular economy pursues simultaneously both public interests (i.e. it is a smart strategy to increase collective welfare while minimising impacts on ecosystems) and private interests (i.e. adopted mostly by companies, although there are plenty of non-profit organizations venturing in this field). This means that there must be an economic benefit, an advantage for both individuals and communities, in circulating and recirculating flows of matter through production cycles. In the case waste flows, economic advantage kicks in at a precise moment: when the monetary value of collected materials is higher than the costs of recovery. At that very moment, the costs incurred during the collection, selection and recovery phases suddenly become business opportunities. 

We are currently witnessing a historic change: for many types of waste (commercial and industrial waste in particular) the economic benefit threshold has been crossed, collecting them is a profitable business and money can be made by selling them; for other fractions (especially urban waste) the target has not been achieved yet but we are getting closer. In this panorama, discussing operating models becomes paramount. What solutions can bring about the best environmental and economic results?

In the last 20 years, national waste management systems have been created, the so-called compliance schemes: organizations that deal with companies’ recovery and recycling duties according to the “manufacturer’s responsibility” principle. As per EU regulations (but this principle is already spreading at global level) manufacturers are responsible for the waste they generate but for their convenience they can recruit the help of an accredited organization – a compliance scheme – that will collect the required quantities providing fully traceable information at a cost. This is a formula already applied to several types of waste: packaging, electric and electronic waste, tyres, mineral and vegetable oils and batteries. This means that several dozens of millions of tons of recyclable material are managed and reintroduced into production cycles. 

Compliance schemes play a very special role because they establish a new balance between regulations and the market, between associations of companies and local governments, between free competition and managed market, between common goods and private interests. This balance is constantly evolving and compliance schemes play a crucial role in this innovation process: they are organizations that gradually lead society towards new solutions that can slowly become integrated into the market and economically viable. 

This is why our magazine wishes to start a direct discussion with the main international compliance schemes in order to create, based on the idea offered in this article, a useful proposal for the general public and companies. We must refine this model: what are the most effective tools in different socioeconomic environments? Some models look stronger and bound to last, others more suitable for transition periods. All systems react, more or less promptly, to public interest and environmental sustainability requirements and since they are essentially made up of companies, they must be economically viable for each player in the chain. The most effective models can be exported to countries lacking them, thus further extending the scope of the circular economy.