[Special Feature: Toward a Circular Economy and Society] Eiji Hosoda: Challenges for Realizing a Circular Economy in the SDGs Era

2022/12/05

Currently, faced with various problems in the economy, society, and the natural environment, conventional capitalism is being forced to undergo a review. When I was a student, it might have been possible to frame the discussion as capitalism versus socialism, but such a framing no longer makes much sense today. If that is the case, we must seriously explore the direction of a new capitalist economy, or a new economy for the near future, from a different perspective. In doing so, the concept of a circular economy serves as a hint. Here, I would like to identify the problems of the conventional economy from the viewpoints of resources and the environment, and clarify that the concept of a circular economy will be a vital element in indicating the direction for constructing a new economy.

The American philosopher and poet George Santayana is said to have stated, "Those who cannot remember the past are condemned to repeat it." In this article, as we look toward constructing a new economy, I would like to briefly touch upon the history of waste and recycling. The history of waste and recycling goes back to the time when humanity first began to enjoy the benefits of civilization, but that would be far too circuitous. Therefore, I will limit my discussion to post-war events directly relevant to this article.

The period of high economic growth (approx. 1955–1970) was the catalyst for Japan, which had been reduced to ashes in the Pacific War, to join the ranks of so-called developed nations. Economic recovery from a situation where more than a quarter of capital stock had been lost excited the Japanese people and stimulated their desire for consumption. It was an era where goods themselves were added value, and items represented by terms like the "Three Sacred Treasures" (black-and-white TV, electric washing machine, electric refrigerator) and the "3Cs" (car, air conditioner, color TV) sold explosively.

As consumption increased, the volume of waste increased accordingly. The era of high economic growth was also an era of high growth in waste. It was around this time that phrases like "waste is a barometer of wealth" appeared. Looking back now, it is surprising, but throwing things away was even considered a virtue.

It was obvious that such an economy would soon become unsustainable. The problem manifested toward the end of the high economic growth period in the form of the "Garbage War." In 1971, amid a movement opposing the construction of a waste incineration plant in Takaido, Suginami Ward, the then Governor of Tokyo, Ryokichi Minobe, issued a "Declaration of Garbage War." This issue eventually reached the point where Koto Ward, which housed the final disposal site (landfill), blocked the entry of waste from Suginami Ward. Construction of the Suginami incineration plant began in 1978, and the problem saw a temporary resolution, but similar issues were occurring all over Japan.

"We produce waste, but we don't want a treatment facility built near our homes." This is, so to speak, human nature, and one cannot entirely deny that feeling. However, it is also a fact that it is impossible to live without waste treatment facilities. How to solve this problem is the key to building a circular economy, and a hint lies in the slogan: "Separate it and it's a resource; mix it and it's garbage." At the time, every municipality was struggling with waste issues. It was an especially urgent issue for municipalities without their own final disposal sites.

What emerged then was the idea of recycling household residues through separation, under the slogan "Separate it and it's a resource; mix it and it's garbage." By doing so, both the volume of incineration and the volume of landfill could be reduced. This idea led to the later widespread 3Rs (Reduce, Reuse, Recycle). However, there was also a view that rubbish and kitchen waste were unsanitary unless incinerated, so the construction of cleaning plants (incineration facilities) continued. The fact that the incineration rate for municipal solid waste (waste from households and some businesses) is at a globally high level of 80% can be said to be a result of the waste management policies of that time. While the high incineration rate helped solve the waste problem, it has also become one of the obstacles to creating a circular economy. I will discuss this later.

With the promotion of recycling through the separation of residues and the development of incineration facilities, the waste problems of the high economic growth period subsided. However, the problem reappeared in a different form during the Heisei boom, namely the bubble era (approx. 1986–1991). Intoxicated by rising asset prices decoupled from the real economy, the Japanese people began to walk the path of diversifying consumption. The problem was that containers for alcohol, fruit juices, and soft drinks, and even food packaging, became diversified.

In the past, there were standardized containers, such as the 1.8-liter bottle and 720ml bottle for sake, and large, medium, and small bottles for beer, which could be easily reused. Even cola bottles used to be used repeatedly. However, during the bubble era, a movement arose to differentiate consumption by diversifying containers and packaging, which made reuse and recycling difficult. This is because separation required more effort, and if the lots were small, reuse or recycling would not be profitable. Consequently, used containers and packaging simply became waste.

In addition, the disposal of automobiles and home appliances became an issue. When automobiles and home appliances reached the end of their useful lives, there was no system—or an insufficient one—to process and recycle them efficiently. As a result, improper processing and illegal dumping became rampant. If producers simply make products and have no duty or responsibility for processing or recycling once they are used, proper processing and recycling are unlikely. This also applies to containers and packaging. Therefore, the concept of Extended Producer Responsibility (EPR) was conceived, suggesting that the relevant producer should bear a certain level of responsibility for the processing and recycling of products after use. In fact, recycling laws for individual products embodying EPR were established and implemented one after another. Thanks to these efforts, the waste problem that originated in the bubble era also showed signs of subsiding.

If that is the case, why is the "circular economy" becoming a global trend now? Why is it that we cannot simply say "the 3Rs are enough"? Before explaining that, I must first describe what a circular economy is. Although there are slight differences in definitions depending on the theorist, it can generally be summarized as follows: A circular economy is an economy that improves the added value per unit of resource by suppressing the input of resources into the economic system as much as possible and increasing the degree of resource-saving and circular use within the economic system, while also minimizing the discharge of residues into the natural system. What is noteworthy is that the concept of "economy" has entered the picture, which was not present in concepts represented by "Separate it and it's a resource; mix it and it's garbage" or the "3Rs." Some might think this is obvious since the term circular economy is used, but that is not necessarily the case.

Let me explain. Increasing the added value per unit of input resource means changing the very foundation of the economic system. Of course, a capitalist economy based on market principles also possesses mechanisms to improve resource efficiency. However, the driving force toward realizing a sustainable economic society, as presented by the SDGs, is not found in the conventional capitalist economy. Contrary to the assumptions of market fundamentalists, the market economy does not guarantee resource use that realizes the wealth of future generations' lives. Furthermore, even in terms of the wealth of the current generation, the market economy is deficient in terms of the fair use of resources when considering equity. If that is the case, when trying to depict a new sustainable vision of economic society, an economy that realizes a high level of circular resource use—namely, a circular economy—becomes an indispensable concept.

The concept of a circular economy spread worldwide largely due to the presentation of the EU's "Circular Economy Package" in 2015. Reading the EU documents, one can clearly see a win-win stance between the economy and the environment/resources. The circular economy is perceived as an essential element for ensuring the sustainability of economic society. While one cannot deny the impression that this is a bit optimistic, the general view is that there is no choice but to proceed in this direction, and various countries have begun exploring paths toward a circular economy.

Therefore, the key points of a circular economy can be summarized as follows. First, when products, parts, and materials have been used, they should be processed according to the Waste Hierarchy: (1) Prevention, (2) Reuse, (3) Recycling, (4) Incineration/Energy Recovery, and (5) Proper Disposal. Prevention means making products from the design and production stages so that they do not become waste, or are less likely to do so; one method to ensure this is the aforementioned EPR. Furthermore, by imposing EPR on producers, incentives are also provided to create products that are easy to reuse or recycle.

Next is to optimize and streamline the logistics involved in the separate collection and transport of used products, parts, and materials—namely, reverse logistics. Proper separation is the key to realizing efficient reuse and recycling. The idea of "Separate it and it's a resource; mix it and it's garbage" mentioned earlier also takes on great significance by being progressively utilized within the reverse logistics system. In other words, separation fulfills its original role only when it is integrated into an efficient reverse logistics system. Since used products, parts, and materials are generated sparsely, it is an urgent task to collect information using ICT, AI, etc., and build an efficient and systematic logistics system.

To achieve the above, a major point in creating a circular economy is to develop institutional infrastructure to compensate for market failures while effectively utilizing market mechanisms. Here, institutional infrastructure refers to a system of norms that combines hard law (legal norms such as ordinary laws and ordinances where enforcement power is guaranteed by the state or local governments) and soft law (non-legal norms that do not have guaranteed enforcement power but constrain the actions of subjects in a certain direction). The author believes that this soft law will play a major role in building a circular economy in the future.

As described above, the foundation of a circular economy is built through the development of recycling laws for individual products to promote circular resource use, the fulfillment of producer responsibility through EPR, the thorough application of the waste hierarchy, and the optimization and streamlining of reverse logistics through the use of ICT and AI. As explained earlier, the synchronization of the market and institutional infrastructure is indispensable for creating a circular economy. To ensure that both future generations and people living today equally enjoy the benefits of a rich environment and resources, economic reform in this direction is necessary. However, this alone is not enough.

What is missing? It is that the elements of circular economy construction discussed so far concern only the production or supply side. In other words, I have not touched upon demand based on consumers' willingness to pay, or, in more macroeconomic terms, effective demand. As is well known, an economy is established by the balancing of supply and demand. A circular economy that does not consider demand is nothing more than a pie in the sky. Especially when thinking about the macroeconomy, one cannot consider employment or growth without the concept of effective demand.

Surprisingly, however, as far as the author knows, this perspective is missing from the documents published by the EU. They claim that if the production structure is converted to a resource-circulating type, employment will increase and the economic growth rate will rise higher than before. It should be impossible to make such a claim without an increase in effective demand. Certainly, such a claim might be possible if one relies on the classical concept that "supply creates its own demand," but the economy does not work that way. In fact, although the EU unemployment rate is on an improving trend, the youth unemployment rate remains high.

Simultaneously with converting the production or supply structure to a resource-circulating type, it is necessary to convert the demand structure to a resource-circulating type. In fact, this is no easy task, and it indicates that the path to a circular economy becomes possible only after passing through a "narrow gate."

Let's look at this somewhat economically. For a circular economy to be realized, consumers must first show a willingness to pay for low-environmental-impact, resource-circulating goods. Demand is not created where there is no willingness to pay. However, this is a micro-level story. Even if demand is born in one place, if it merely diminishes other demand, it does not lead to an increase in effective demand at the macro level. In other words, unless the increase in willingness to pay for low-environmental-impact, resource-circulating goods at the micro level leads to an increase in effective demand at the macro level, making the economy circular will not necessarily increase employment or raise the growth rate.

However, there is no need to be pessimistic. This is because we are now seeing signs of consumption styles changing from material to non-material things. As material goods such as consumer durables spread to every household, consumer preferences are shifting toward non-material things.

Furthermore, services that sell the functions or experiences provided by goods rather than the goods themselves—namely, PaaS (Product as a Service)—and services that sell mobility rather than the vehicles themselves—namely, MaaS (Mobility as a Service)—are particularly popular among young people, and business styles are changing accordingly. Also, looking at online news, popular items like clothing are those with a "story," which are non-material things that cannot be held in one's hand.

While it may take time for these changes in consumption styles to manifest as macro demand, there is a good possibility they will eventually become a major trend, given that SDGs education is being conducted from primary and secondary education. I am aware that there is a fair amount of criticism regarding the SDGs, but few would deny the 17 goals themselves. As long as diverse actors attempt to realize a sustainable economic society in diverse ways, it should be impossible to deny linking the SDGs goals to one's own actions. There is a strong possibility that SDGs education will contribute to creating demand for low-environmental-impact, resource-circulating products and services.

Moreover, even if new demand does not fit into market-based value assessments and does not lead to an increase in GDP, it should lead to people's spiritual wealth. In a present where material goods are sufficiently abundant from a macroeconomic perspective, should we not consider that what will truly make people happy from now on is spiritual wealth?

Finally, I would like to discuss the possibility of achieving both a circular economy and carbon neutrality (balancing greenhouse gas emissions and removals). It goes without saying that some form of energy source is required even for reuse and recycling. It is also necessary to understand that incinerating anything other than bio-derived materials will result in carbon dioxide emissions.

Regarding the former, thorough streamlining and decarbonization of reverse logistics systems are necessary. We will likely need to create a roadmap for transitioning first to hybrid logistics, then to electric vehicles, hydrogen, and so on. Of course, regarding the conversion of energy sources for reuse and recycling, we must prepare a path starting with low-carbonization followed by decarbonization.

The problem is the incineration of waste. As mentioned at the beginning, Japan has relied on incineration for the treatment of waste (municipal solid waste). This is one reason why the recycling rate is lower compared to EU countries. Since incineration always emits carbon dioxide, incinerating plastics derived from crude oil does not lead to carbon neutrality. Furthermore, considering the possibility that the mindset that "incineration is fine" has hindered the promotion of reuse and recycling in Japan, it is necessary to break away from the philosophy of incineration-centrism. This is difficult for municipalities that have relied on incineration for waste treatment, but it is an unavoidable choice. It is impossible and meaningless to eliminate incineration all at once. What is required now is the creation of a specific roadmap for the phased-out reduction of incineration over time and the promotion of circular resource use.