Industry, the Circular Economy, improving regulation and going further

Improving circular material use by industry is key in delivering Europe's circular economy. The main regulatory instrument, the Industrial Emissions Directive, supports this to some extent and the recent proposal by the Commission to amend this will provide further impetus. However, there are limits to what regulation can achieve.

Industrial sectors are major users and producers of many materials and how they function is critical to whether Europe’s economy moves from being linear to circular. The EU Circular Economy Action Plan (COM (2020)98 and the Green Deal (COM (2019)640 both correctly emphasise the importance of European industry contributing to a “clean and circular economy” and, in particular, the resource intensive sectors. Industry is subject to regulation under EU law and proposals have been made to improve this. The question is how far can regulation drive circular material use by industry and how far are other actions required?

The main regulatory instrument for industry is the 2010 EU Industrial Emissions Directive (IED) which regulates thousands of Europe’s larger industrial activities. The IED does not explicitly mention circular material use (or the term “circular economy”). It does, however, aim to improve resource efficiency. The resource efficiency objectives are seen in Articles 11-15 and Annex 3, covering aspects such as in setting objectives for operations of installations, contents of a permit application, issues to be included in a permit, etc. Resource efficiency is an important contributor to a circular economy, but it is not sufficient – it also could drive a more efficient linear economy. Circularity involves actions such as using secondary materials rather than primary raw materials and generating either by-products or waste that can be more readily processed to secondary materials rather than disposed of.

Circularity of industry, waste and secondary materials

Different industrial sectors have made important strides in becoming more circular in their material flows. Indeed, on the output side, industry argues that disposal of waste is so expensive that this forms a huge incentive to reduce waste and create by-products, etc. While it might be expected that material circularity is moving in a positive direction (slowly or otherwise), this is not always necessarily the case. Metal ore processors in Sweden, for example, have for decades supplied slag for construction activities. However, the country’s policy on a non-toxic environment has questioned its use. It is possible that some might, therefore, become waste. However, different aspects of regulation (including EU waste law) and economic drivers have led different industries to make more circular choices.

There are other legal constraints on circular material use in industry beyond environmental law. For example, there are strict conditions for packaging that touches food, and industry can find it difficult to ensure this quality with some secondary materials.

There are also technical constraints associated with use of secondary materials. For example, the glass industry usually readily uses recycled glass, but some products have to be of high quality requiring the use of raw materials. Even where industry is happy to use secondary materials, it may have concerns over the quality control of suppliers. Can they be sure they will not try to pass off sub-standard materials?

It is particularly hard to regulate the use of secondary materials by industry. To do so presumes they are even available. This is not always the case and, in particular, not necessarily across Europe. It is perhaps easier to design regulatory requirements for outputs of materials. However, it is not possible simply to require industry to produce “by-products” rather than waste, as the definition of a by-product in EU waste law is not solely determined by the nature of the material, but also whether someone will buy it. If a business lost its customer, its output of by-product becomes waste with no change in the process.

It is important to stress that the circular economy is an economy and that decisions by industry on the materials they use (and who might use their by-products) are economic decisions. If raw materials cost less, then they will be used. This is not something that IED can regulate, but it is something that can be addressed in wider EU and national policies. Taxation, for example, can be used to ensure that secondary materials have an economic advantage. If the fiscal environment does not drive the circular economy, then no tinkering with regulation or pressure from regulators will overcome the barriers.

Evaluation and Next Steps

The Commission has recently evaluated the IED. A key consideration during the evaluation was how it supports delivery of the EU’s circular economy policies (all adopted since the 2010 directive). It concluded that “there are still shortcomings in addressing resource efficiency, circular economy and non-toxic production methods”. The evaluation recognised the importance of regulation, but also its limits within a material and economic market. Key decisions are needed on a case by case basis rather than blanket obligations.

In April 2022, the Commission proposed a revision to the IED (COM/2022/156). The proposal seeks to integrate circular material use in a specific way through new Articles 14a and 27d, which require operators of many (but not all) IED regulated activities to have an environmental management system, which will include a “transformation plan” of how the industrial installation will “transform itself during the 2030-2050 period in order to contribute to the emergence of a sustainable, clean, circular and climate-neutral economy by 2050”. Within such a plan an operator can set out the opportunities (and limits) on issues such as use of secondary raw materials, markets for by-products, etc. If done well, this can be a powerful tool to aid circularity, but it requires understanding, support and drive from regulators. To do this requires the regulators to move beyond the basics of regulatory decision making to the wider environmental, economic and material context of an installation. Thus, the proposal does not seek to detail obligations on specific actions for circular material use, but to establish a process for case-by-case improvements.

While improvements in the IED and its implementation are needed, regulators and industry need to look beyond this. There are good examples of regulators working with industrial sectors to explore how to improve their use of secondary materials and reduce waste outputs that cannot be addressed within the confines of IED (such as working with other actors upstream and downstream of industry). Exploring how industry sits in the wider materials economy is key to transforming it and key to, eventually, producing a European circular economy.

Photo by Bozhin Karaivanov on Unsplash