UPDATE ON THE CIRCULAR ECONOMY IN EUROPE AND ITALY

Nothing is wasted, everything is transformed: this is how we could summarise the circular economy, a new economic model that is becoming increasingly widespread and that originates and evolves from observing mechanisms in nature and from the realisation that the linear economy, in which resources are considered unlimited, is no longer sustainable for our planet.

The circular economy is confirming its environmental, economic and also social benefits as a stimulus for research and innovation, as well as in the creation of new professions and jobs. This economic system is spreading thanks to technology that allows better management, control and monitoring of the production system, but also thanks to the support of national and EU policies driving increasingly green lifestyles.

Below, we will look at the history of the circular economy, the new way in which it organises the economy and also take stock of what Italy and the European Union are doing to encourage the dissemination of this new economic model.

Circular economy: its history and what it is

Circular economy: a new way of organising the economy

The circular economy is a production and consumption model that aims to minimise the waste of resources (energy and materials). At the end of a product’s life, the materials it is made of are recovered and reused, helping to reduce to a minimum the waste generated. These materials will become new raw materials and can be reused several times within production cycles, generating further value. But that's not all: from the outset, the product is designed to produce less production waste or reusable waste, to be easily dismantled so its parts can be turned into secondary raw materials, and to use as little energy as possible in production itself. The circular economy is about sharing, lending, reusing, repairing, reconditioning and recycling materials and products in order to extend the life of the materials from which they are made as much as possible.

The circular economy is therefore a planned economic system to reuse materials in subsequent production cycles, reducing waste to a minimum.

The origins of the circular economy: a new economic model from observing the environment

The circular economy originates from the observation of the mechanisms present in natural systems. According to this model, economic systems must function as organisms, in which nutrients are processed and used, and then re-introduced into both the biological and technical cycle for further re-use by other organisms.

There is no precise moment in history at which the circular economy model was born. It was created through the development of concepts that began in the 1960s and evolved into the current definition of the circular economy coined by Ellen McArthur in the early 2000s.

The main steps that led to the emergence of the circular economy:

• 1966: the concept of the circular economy first appeared in the article "The Economics of the Coming Spaceship Earth" by economist Kenneth E. Boulding. Boulding defines our planet as a spaceship with a limited availability of resources, so we have to behave as if we were in a closed, regenerating system where the only external source allowed is energy.
• 1976: Walter Stahel and Genevieve Reday conducted a study for the European Commission entitled “The Potential for Substituting Manpower for Energy”. In it, they described their vision of the economy of the future: a new economic model capable of creating jobs, saving resources and reducing waste.
• 1981: Orio Giarini, an economist from Trieste, published a study entitled "Dialogue on Wealth and Welfare", in which he strongly criticised the linear economic model, 
• highlighting the need to create a new economic model that combines economy and ecology and stressing that companies should manage their production according to the available natural resources.
• 2010: Ellen McArthur founds the Ellen MacArthur Foundation after sailing solo around the world. According to the Foundation, the circular economy is "based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems".

Linear economy and circular economy: principles and differences

The three phases of the linear economy

Extract raw materials, produce goods, sell, use, dispose of at the end of its life: this is an accurate summary of the linear economy. It is an economic and production model that does not take into account its impact on the environment and unfolded over three stages:

1.  Extraction of virgin raw materials without concern for their availability over time;
2. Processing of raw materials into goods that are sold and used until they are no longer needed;
3. Disposal: at the end of its life cycle, the product is considered useless and thrown into landfill, without the still usable raw materials it contains being recovered.

The value of a product in the linear economy is created by producing and selling as many as possible; planned obsolescence is a legal way of increasing the sales of the product itself or similar goods; it is a model based only on economic interests. 

The five basic principles of the circular economy

The aim of the circular economy is to consume as few material and energy resources as possible by reusing, recycling and sharing in order to extend the use of products for as long as possible. The circular economy therefore acts on the life of the product from its design and follows it through to the end of its life, when its main use ceases and the process of turning its components into new raw materials begins. 

Five principles describe the circular economy:

1. Resource sustainability: renewable, re-used/recycled or biodegradable sources and materials should be used in multiple life cycles as a priority;
2. Product-as-a-service: the use of products-as-a-service implies that the producing company remains the owner and takes care of its maintenance, but leases it. In this way, once the user no longer needs the product, it can continue to be used and its life cycle can thus be extended;
3. Sharing platforms: the use of platforms to connect owners and users of goods makes it possible to optimise the costs of goods and services and the resources used to produce them, thus promoting their efficient use;
4. Life cycle extension: goods should be designed and produced with the aim of extending their life cycle, i.e. they should be easily repairable, upgradable and regenerable, so as to avoid and limit the use of materials and energy;
5. Recovery and recycling: production cycles should be designed so as to avoid waste that cannot be recycled or reused.

Source: European Union 

The differences between the linear and circular economy

In the linear economy, the product is the source of value creation: profit margins are derived from the difference between the selling price on the market and the cost of production. To increase profits, the aim is both to sell as many products as possible and to minimise production costs. Products have a limited period of use due to technology that seeks to make goods obsolete quickly, the high cost of repair, the limited cost of new goods: in this way, consumers are enticed to buy goods again and again.

The linear economy does not take into account the environmental impact of goods over their life cycle.

Natural resources are used without concern for their availability over the long term. Waste generated in the production process and goods at the end of their life cycle are considered useless and worthless. 

In the circular economy, products are part of an integrated business model; goods are also considered a service. Competition between producers is also based on creating added value by providing a service, and not only on the value of selling the product. There is an attempt to extend product life cycles as long as possible by encouraging consumers to upgrade or repair them. Planned obsolescence of goods is considered harmful, and attempts are made to limit the practice through legislation. The circular economy introduces the concept of extended producer responsibility.

Environmental awareness is introduced into the production cycle of goods from the design stage, thereby optimising the consumption of resources which are planned to be as limited over time. At the end of its life cycle, the product has a value provided by the possibility of recycling, reusing and dismantling it in order to extract raw materials that can be used in new production cycles.

Circular economy: environmental and other benefits

Saving resources, reusing, recycling and managing cycles better not only has environmental benefits, but also economic and social benefits. The circular economy is therefore an economic system that integrates into and interacts positively with various aspects of daily life.

The benefits generated by the circular economy can be summarised as follows:

• Reducing pressure (impact) on the environment;
• Saving companies money and reducing their total annual greenhouse gas emissions;
• Possibility of recovering secondary raw materials in short supply chains, making some sectors almost self-sufficient;
• Availability of raw materials secure over the long term;
• Increased competitiveness to seek better products and additional services;
• Encourages innovation and economic growth;
• Increased employment;
• More durable and innovative products that can save money and improve consumers' quality of life.

Switch to a circular economy is necessary

The switch from a linear to a circular economy model is becoming increasingly necessary, chiefly because:

• demand for raw materials is growing but thee supply is limited. The circular economy solves this problem by finding alternative sources of raw materials.

• countries need to be independent in the supply of raw materials. Some states are completely dependent on foreign suppliers of raw materials, and the circular economy allows new “mines” to be created on a national scale.
• the environmental impact of production processes needs to be limited. The processes of extracting and using raw materials have a major impact on the environment. Using raw materials more rationally can help to reduce these impacts and in particular CO₂ emissions. Recycling raw materials consumes less energy and releases less carbon dioxide into the environment than processing virgin raw materials.
   

Source
- European Parliament, Circular Economy: definition, importance and benefits, 2021

Business models in the era of the circular economy

The five principles of the circular economy are translated into business models that allow companies to reorganise their production and marketing model, thereby creating new value for their products.

• Product-as-a-service (reuse, renewal and regeneration of goods): the producing company also becomes a provider of services related to the use of the product. It also recovers and repairs products at the end of their first life cycle, which it can then re-introduce several times onto the market.
• Sharing of goods: sharing is usually managed by the company, which also maintains the good themselves. Shared use of goods ensures that they can be used to their best advantage. Fewer goods will be needed to satisfy the same number of users.
• Transformation of products into new goods: when the goods are overused or cannot be repaired, the company takes care of its collection, recovering the components and materials and reusing them in other goods or recycling them easily. This is possible thanks to the product design, which from its creation makes it easy and inexpensive to dismantle and its components easy to recover without waste.
• Material recycling: in the circular economy, new companies are being established that are increasingly specialised in recycling materials. Innovation and research are leading to the emergence of technologies that make it possible to produce high-quality materials from waste and scrap from numerous sectors.

Sources:
- Maurizio Dallocchio, Leonella Gori, Emanuele Teti, rivista.microcredito.gov.it I modelli di business dell'economia circolare [The business models of the circular economy] 
- 5 Business Model per l’Economia Circolare [5 Business Models for the Circular Economy], 2019, CsquaRE 
- Cos'è l'Economia Circolare [What is the Circular Economy]

Circular economy and digital technologies

Digital technologies play an important role within the circular economy. They play a part in all stages of the life and management of products, enabling companies to better organise the information needed for their design, production and management. At the same time, the digital economy stimulates research and development to meet the new needs arising in this new economic environment.

Digital technologies in the circular economy:

• facilitate the organisation and management of the information needed to optimise the supply chains of input materials in the production process;
• facilitate design choices by creating design templates;
• facilitate product monitoring throughout its life cycle, thereby improving management and design choices for subsequent models or product upgrades;
• are fundamental in managing business models for product sharing, products-as-a-service and the provision of additional services;
• help consumers get more information about the product, enabling better product purchasing and management choices;
• facilitate access to and the sharing of information about the product, which is very important particularly in the phases of repair, reuse, recycling, where all stakeholders in the value chain need access to complete information about the product.

Sources: 
- Industria e sostenibilità, quanto il 4.0 impatta sull’economia circolare [Industry and sustainability, how 4.0 impacts the circular economy], agendadigitale.eu
- Tiziano Mendutto, L'economia circolare, la digitalizzazione e la sicurezza sul lavoro [The circular economy, digitisation and safety at work,] puntosicuro.it, 2021
- Perché è necessario digitalizzare l'Economia Circolare? Sfide e opportunità in questo nuovo settore [Why is it necessary to digitise the Circular Economy? Challenges and opportunities in this new sector,] sfridoo.com, 2021

Examples of the Circular Economy

The circular economy passes mainly through waste management. Italy now has several well-established circular economy experiences, ranging from: the reuse of materials to produce new goods, such as the production of furniture with recycled wood by the Saviola Group in Milan; the reuse of goods such as fruit boxes (including Sistema Oikos, winner at the 2016 Climathon in Turin of the Business Redesign Award consisting of five replaceable, repairable and infinitely reusable elements); the development and implementation of new technologies to better recycle materials, such as the chemical recycling of plastics; the search for new technologies and easily recyclable materials as in the textile sector, where various projects are under way, including the EU's REACT, which seeks to manage acrylic textile waste from awnings and outdoor furnishings; actions to extend the life of products, such as the inclusion of accelerometers in pumps, to monitor their condition in real time through vibration analysis and to be able to maintain them batter.

In December, the Symbola foundation published the paper 100 Italian Circular Economy Stories 2021, a collection of the 100 circular economy stories that the foundation's consultants considered particularly significant, both for the sound solutions adopted and their originality.

Sources:
- Symbola Foundation, 100 Italian Circular Economy Stories, symbola.net, 202
- Economia circolare 5 esempi [Circular economy 5 examples]
- Fondazione Symbola: cento casi di economia circolare [Symbola Foundation: one hundred circular economy cases]
- Rifiuti tessili ed economia circolare: quali prospettive per il futuro? [Textile waste and the circular economy: what prospects for the future?], ecomondo.com, 2021 
- Incrementare il riutilizzo della plastica con il riciclo chimico [Increasing plastic reuse through chemical recycling], ecomondo.com, 2021, 

Europe and Italy for the circular economy

In December 2015, the European Commission adopted the first Action Plan for the Circular Economy, which included 54 actions that have largely been implemented.

In December 2019, the European Commission adopted the European Green Deal with the aim of achieving climate neutrality by 2050.  

In March 2020, the European Commission adopted the New Circular Economy Action Plan for a Cleaner and More Competitive Europe, which, in line with the European Green Deal, aims to make the European economy greener. The action plan focuses in particular on the design and production system for goods to be used in the circular economy. The aim is to ensure that the resources used are kept in the EU economy for as long as possible.

The plan includes stricter recycling standards and binding targets for 2030 on the use and ecological footprint of materials.

Specifically, the plan provides for the following:

• sustainable products will become the norm in the EU: through appropriate standards to be introduced, products placed on the EU market will be designed to last longer, to be easier to reuse, repair and recycle, and contain as much recycled materials as possible. There will also be measures to limit the use of single-use goods. Planned obsolescence and the destruction of unsold goods are prohibited;
• empowering consumers: i.e. providing them with information to encourage sustainable choices on how to manage goods;
• a focus on sectors that use more resources and have a high potential for circularity, in particular electronics, batteries and vehicles, packaging, plastics, textiles, construction and building, and food, which will be subject to specific legislation;
• a reduction in waste: avoid generating waste by turning end-of-life goods into high quality secondary resources, with an efficient secondary raw materials market. The Commission will assess the possibility of introducing a harmonised model for waste separation and labelling in the EU to encourage recovery and recycling on an industrial scale, while minimising costs.

Implementing the Action Plan for the Circular Economy

Since December 2020, the European Commission has been issuing new detailed standards and regulations on transforming the principles of the Action Plan into concrete actions. Specifically, the Commission has done the following:

• December 2020: adopted the proposal for a new regulation on sustainable batteries;
• February 2021: launched the Global Alliance on Circular Economy and Resource Efficiency (GACERE), an alliance that aims to identify knowledge and governance gaps in advancing a circular economy and take forward partnership initiatives, including major economies;
• October 2021: adopted the proposal to update regulations on persistent organic pollutants in waste;
• November 2021: adopted a proposal for new regulations on waste shipments;
• 2022: several implementation initiatives are under way for the Action Plan, including a proposal to make industry greener, the textile waste strategy, the sustainable products initiative, which includes the revision of the eco-compatible design directive, and the updating of EU legislation on industrial emissions.
   

Sources:
- European Commission, Action Plan for the Circular Economy, 
- Cosa prevede il Circular Economy Action Plan appena adottato dall'Europa? [What does the Circular Economy Action Plan just adopted by Europe include?], sfridoo.com, 2020
- European Parliament, Nuove regole dell'UE per batterie più sostenibili ed etiche [New EU rules for more sustainable and ethical batteries]

The circular economy in Italy

2017 saw the publication of the document Verso un modello di economia circolare per l’Italia. Documento di inquadramento e di posizionamento strategico [Towards a circular economy model for Italy. Framework and strategic positioning document]. Its aim was to provide a general framework for the circular economy, and to define Italy’s strategic positioning on the issue, also in light of the commitments adopted within the framework of the Paris Agreement on climate change, the United Nations 2030 Agenda on sustainable development, within the G7 and the European Union.

Since 2017, the context has changed, and it has been necessary to update the strategic guidelines to bring them into line with the new global challenges.

With the new 'National Strategy for the Circular Economy', new tools have been defined to improve the secondary raw materials market, extended producer and consumer responsibility, the spread of sharing and “product-as-a-service” practices, to help achieve climate neutrality goals, and to define the scheduling of actions and measurable targets up to 2040.

The new national strategy:

• defines the new digital waste traceability system, which will, on the one hand, help develop a market for secondary raw materials and, on the other, help control and prevent illegal waste management phenomena;
• sets out tax incentive systems to support the use of materials from recycling value chains;
• provides for the introduction of a taxation system to make recycling cheaper than landfilling;
• promotes actions to reuse and repair;
• reforms EPR (Extended Producer Responsibility) systems and consortia to support the achievement of EU objectives; 
• strengthens existing regulatory instruments (End of Waste legislation, Minimum Environmental Criteria and the application of these tools in strategic sectors: construction, textiles, plastics, WEEE; 
• supports the development of industrial symbiosis projects

What is changing for waste management in Italy?

The concept of the circular economy in Italian legislation was introduced in 2020 with the transposition of the European directives contained in the package of measures approved in June 2018 (Directives 849/2018, 850/2018, 851/2018 and 852/2018), and in particular through:

• decree 116/2020 - circular economy package
• decree 118/2020 - WEEE 
• decree 119/2020 - end-of-life vehicles
• decree 121/2020 - landfill

The circular economy package sets targets for recycling and municipal waste: at least 55% by 2025, at least 60% by 2030, at least 65% by 2035 and a limit on disposing of it in landfill of no more than 10% by 2035.

The new legislation provides for a reform of the extended producer responsibility system, the establishment of a special national register of producers, and the modification of the waste identification form to facilitate its transport. It is also planned to simplify the re-use of parts of end-of-life vehicles that can be used as spare parts, maintenance and minor construction work.

Sources:
- Circular Economy Network (editor), Third report on the circular economy in Italy 2021
- Ministry of Ecological Transition, National Strategy for the Circular Economy – Updating Guidelines, mite.gov.it, 2021

The National Recovery and Resilience Plan (NRRP) and the circular economy

The National Recovery and Resilience Plan (NRRP) was launched in November. The issue of the circular economy is addressed in Mission 3: Green Revolution and Ecological Transition. The plan provides for funding and new regulations for the major themes of agriculture, mobility, energy efficiency of buildings, pollution, the circular economy and energy transition, in order to foster a progressive green evolution towards management systems that consume as few resources as possible and produce as little waste as possible.

Funds and regulatory reforms will be used to address structural gaps that hinder the achievement of a new and better balance between nature, food systems, biodiversity and the circularity of resources, in line with the objectives of the EU's Action Plan for the Circular Economy.

Mission 3 is divided into four components and allocates EUR 59.33 billion to achieve its objectives, distributed as follows:

• Component 1 – The circular economy and sustainable agriculture: EUR 5.27 billion
• Component 2 - Renewable energy, hydrogen grid and energy transition and sustainable mobility: EUR 23.78 billion;
• Component 3 - Energy efficiency and upgrading buildings: EUR 15.22 billion;
• Component 4 – Protection of land and water resources: EUR 15.06 billion.

Component 1 – The circular economy and sustainable agriculture.

Objectives:

• to improve waste management and the circular economy by strengthening infrastructure and systems for separate collection, modernising or developing new waste treatment plants, bridging the gap between northern and central/southern regions and implementing highly innovative strategic projects for strategic sectors such as waste electrical and electronic equipment (WEEE), the paper and cardboard industry, textiles, mechanical recycling and plastics chemicals;
• to develop an agricultural/food chain that reduces its environmental impact, also through the product distribution chain;
• to develop integrated projects (circularity, mobility, renewables) on islands and communities.

In particular with regard to waste management, the measure sets out two reforms:

• the National Strategy for the Circular Economy, which will be adopted by June 2022, will include in its areas of action ecodesign, ecoproducts, the blue economy, the bioeconomy and critical raw materials; it will focus on tools, indicators and monitoring systems to assess progress towards meeting its objectives;
• the National Waste Management Programme will help to avoid further infringement procedures and will allow plant and management gaps to be filled.

Component 2 - Renewable energy, hydrogen grid and energy transition and sustainable mobility.

The objective is to promote decarbonisation, including in the mobility sector, by gradually reducing the use of fossil fuels by investing in innovation.

The measures adopted and financed for this component are: the development of energy communities, the promotion of innovative plants, hydrogen and biomethane as well as off-shore plants, the strengthening of smart grids as well as measures to develop sustainable mobility, both cycling and collective mobility.

Component 3 - Energy efficiency and upgrading buildings.

This component promotes the improvement of energy efficiency in buildings, also in view of the fact that more than 60% of buildings in Italy are over 45 years old.

Component 4 - Protection of land and water resources.

Starting from an awareness of the value and fragility of our unique territory in both environmental and cultural terms, the NRRP puts in place actions to make the country more resilient to inevitable climate changes, protect nature and biodiversity, and ensure the safety and efficiency of the water system. The key actions within this Component are monitoring, reducing hydrogeological risk, energy resilience and efficiency, enhancement of urban and non-urban green areas, reclamation of polluted sites, investments in improving the water network and purification, and simplification of procedures related to these issues.

Further investments to promote the transition to the green economy are allocated in Mission 3 - Investments for sustainable mobility. This mission aims to make mobility infrastructure more modern, digital and sustainable by 2026, in order to meet the decarbonisation challenge set out by the European Union with the strategies associated with the European Green Deal.
 

Sources:
- Italian government, National Recovery and Resilience Plan, governo.it, 2021 
- Italian government, NRRP: Green revolution and ecological transition, governo.it, 2021 
- Ministry of Ecological Transition, NRRP for the Circular Economy, mite.gov.it, 2022 
- Ministry of Ecological Transition, NRRP - Publication of Circular Economy Decrees, mite.gov.it, 2022
- L’economia circolare nel Pnrr: una finestra stretta [The circular economy in the NRRP: a narrow window]