First, the circular economy is a way to protect the earth’s resources
In order to achieve sustainable development in the future, it is necessary to move towards circularity, and the circular economy can provide a value of 4.5 trillion US dollars, so the EU has made the circular economy an important part of improving the competitiveness of the EU.
We now need 1.8 Earths per year, and if nothing changes to the status quo, it is expected to increase to 2.3 Earths by 2040. We extract more than 90 billion tons of resources from the earth every year, of which only 25% are renewable energy (biomass). However, instead of growing, the global circular rate has declined, from 9.1% in 2018 to 8.6% in 2020, and the trend of “reversing” towards a more linear economic model is obvious. Linear consumption patterns are responsible for 50% of global climate change, 90% of global biodiversity loss and pressure on water supplies.
Circularity would make future economic growth less dependent on the plundering of the planet. For example, the recycling rate of the most environmentally critical waste streams is currently only 25-35%, and if the recycling rate is increased to 80-90%, we can achieve 40-50 billion tons of CO2 reduction by 2040 (this is more than the 36.7 billion tons of global CO2 equivalent emissions in all of 2019).
2. Digital Product Passports (DPPs)
Currently, we do not track resources, back-end lifecycles and end-of-life along the global value chain, and lack transparency and venture capital collaboration to drive and monitor efforts to improve circularity. The European Union’s launch of Digital Product Passports (DPPs) is a tool that can help drive this shift. A digital information card attached to the product records the environmental impact (such as production water consumption, transportation emissions, repair and recycling records, maintenance guidelines, end-of-life guidelines, etc.) throughout the life cycle of the product from design to recycling, and can be consulted by relevant personnel at any time through QR codes.
DPPs have the potential to make a product’s environmental impact visible, traceable, and easily accessible to relevant departments or people along the same value chain. This will increase transparency, enhance circular venture capital cooperation, and promote circular design (e.g. design for recyclability) and circular activities (e.g. repair, refurbishment, recycling). Given the broad regulatory scope and the large size of the EU market, DPPs have great potential to expand the circularity of products and materials. The European Commission hopes to finalize the Eco-design for Sustainable Products Regulation (ESPR), including DPPs, in 2024.
Given the environmental impact and the growing problem of e-waste, one of the priority industries to be covered by this regulation is the electronics industry. The EU plans to implement DPPs on a product group basis. Product groups can be sorted based on their environmental impact (e.g., laptops first, then clothing, etc.) and then DPPs are implemented on them one by one. This may lead to industry-by-industry regulation of product groups within priority industries (e.g., in electronics: laptops first, smartphones, etc.). In this way, a set of rules for one product group can serve as a template for another product group in the same industry and provide initial guidance for companies operating in that industry, speeding up the regulatory process while establishing consistency across product groups.
The EU plans to implement DPPs in all companies. While it ensures clear expectations, efficient implementation, and full transparency for all venture capital participants, it can place a burden on SMEs and slow down implementation. Another option is to apply DPPs first to large companies and then to SMEs, or only to large companies (excluding SMEs). While the latter option may reduce complexity as fewer stakeholders are involved, it risks shifting all complexity to larger companies and losing the full transparency of venture capital.
Once it has been decided whether data storage is managed by the EU or by a company, the European Commission or the company can choose whether to store the data centrally or decentralized, respectively. Centralized storage options, such as cloud storage, offer significant benefits due to their wide range of uses, ease of implementation, and low cost. Decentralized options such as blockchain offer fewer benefits due to their high cost and novelty, but offer greater data security, transparency, and traceability.
The EU will develop general guidelines for data carriers and prescribe a list of preferred data carriers for each product group. In the current battery regulation proposal, the European Commission is leaning towards QR codes, which could be a reference example for other product groups. QR codes are relatively affordable, durable, and already widely used. However, even if the EU manages the system, this will not eliminate the company’s data storage costs, as they will still need to invest in adapting their internal systems to the new situation.
While ESPR establishes a framework to improve the environmental sustainability of products and ensure the free flow of the internal market by setting eco-design requirements for products to be placed on the market or put into use. and some initial elements outlined in the draft battery passport, but the slow regulatory process, unclear timelines and some unidentified themes suggest significant uncertainties that could hinder early adoption by businesses and risk losing corporate participation in policymaking. While the above focuses on DPP implementation scenarios in electronics, most product groups will face a similar impact in the coming years. Other priority sectors, such as textiles, plastics, construction and automotive, will also be included in the regulation. Companies across all industries can take action to prepare for the upcoming implementation of DPPs to ensure their organizations are prepared for future reporting and circular economy transitions.
Ultimately, the success of the implementation of the EU DPP will largely depend on how companies, NGOs and the European Commission work together to quickly find realistic and impactful solutions. The sooner the EU communicates clear guidance, the easier it is for companies to prepare and the sooner they can transition to circularity.
In conclusion, the EU DPP is the first circular instrument that is still in the early stages of development. As a result, many issues are still up in the air, and finding the best solution will be a daunting task. Despite the uncertainty, companies can now take several actions to prepare their organizations for DPP. Work with NGOs and industry organizations to advance industry standards to guide DPP implementation and test DPP solutions early. While the implementation of DPP is essential to increase transparency, it must be borne in mind that eco-design and circularity must be considered. Companies can use the transparency gained to create more circular products, reducing waste and resource consumption. The European Commission can incentivize circularity across Europe by linking performance requirements to DPP data. Leveraging the transparency that DPP can create to improve circularity not only opens up additional value potential for companies, but also makes more efficient use of resources that have already been extracted to reduce wasteful consumption on a global scale
Post time: Aug-29-2023