The Circular Economy a Powerful Force for Climate Mitigation

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Transformative innovation for a prosperous and low-carbon industry REVIEW DRAFT – DO NOT DISTRIBUTE

TABLE OF CONTENT

PREFACE EXECUTIVE SUMMARY

Chapter 1. HOW THE CIRCULAR ECONOMY CAN STRENGTHEN INDUSTRY AND PROTECT THE CLIMATE

Chapter 2. STEEL – TOWARDS A CIRCULAR STEEL SYSTEM

Chapter 3. PLASTICS – FINDING A PLACE WITHIN A LOW-CARBON ECONOMY

Chapter 4. ALUMINIUM – REALISING THE POTENTIAL FOR RECYCLING

Chapter 5. MOBILITY – THE PROMISE OF A SHARED CAR SYSTEM

Chapter 6. BUILDINGS AND CEMENT – MORE VALUE FROM LESS MATERIALS

2 REVIEW DRAFT – DO NOT DISTRIBUTE preface

There is intense debate about how to close the gap To our knowledge, this is the first attempt to quanti- between current climate policy and the long-term goal tatively address this issue across materials and value of the Paris Agreement: an economy with net zero emis- chains, and for the entire EU economy. As with any first sions. Within Europe, policy discussions and proposed effort, there are many uncertainties, and further ana- ‘roadmaps’ to date have focused mainly on increasing lysis will be needed. Still, our analysis shows that the energy efficiency and deploying low-carbon energy potential for emissions abatement is substantial, and sources. Both are crucial, but when it comes to industry, in many cases can be economically attractive. Indeed, a major source of emissions, they offer only a partial so- we believe that ‘materials efficiency’ deserves to be a lution. Additional strategies are needed to address the priority in discussions of industrial decarbonisation, just substantial process emissions from the production of as energy efficiency is a priority in discussions of trans- materials such as steel, cement, plastics and aluminium. forming the energy system. A more circular economy can reduce CO2 emissions, reduce the scale of the Most discussion has focussed on the supply side: the challenge of decarbonising materials production, and need to develop and deploy new industrial production contain the cost of achieving an industrial base compa- processes, turn to non-fossil feedstock and fuels, and tible with a low-carbon economy. use carbon capture and storage to offset any remaining emissions. What is mostly missing from climate and This project has been carried out by Material Eco- industrial debates is a discussion of the demand side: nomics, with the support of Climate-KIC, ClimateWorks, Can we make better use of the materials already produ- Ellen McArthur Foundation, Energy Transitions Commis- ced, and so reduce our need for new production? sion, European Climate Foundation, MAVA Foundation, and SITRA. The Steering Group has comprised Mari The concept of the ‘circular economy’ offers preci- Pantsar (SITRA), Janez Potočnik (International Resource sely this opportunity, through strategies such as re- Panel), Martin Porter (European Climate Foundation), circulating a larger share of materials, reducing waste Adair Turner (Energy Transitions Commission), and An- in production, lightweighting products and structures, ders Wijkman (Climate-KIC). Research guidance have extending the lifetimes of products, and deploying new been provided by Dr Jonathan Cullen and Prof. Frank business models based around sharing of cars, buil- Geels. The project team has included Anna Teiwik, dings, and more. Cornelia Jönsson, Stina Klingvall, and Unn Hellberg. Ma- terial Economics is extremely grateful for all the contri- This report takes a first step towards quantifying the butions of these organisations and individuals, as well potential for circular economy opportunities to reduce as many other researchers, policymakers, and business greenhouse gas emissions. It examines the key mate- representatives who have contributed their knowledge rials flows and value chains, identifies relevant circular and insight to this project. Partner organisations and economy approaches, and explores their cost-effective- their constituencies do not necessarily endorse all fin- ness. It also considers barriers that might stand in the dings or conclusions in this report. All remaining errors way of achieving a more circular economy, and policies and omissions are of course the responsibility of the and initiatives that could overcome them. authors.

Per-Anders Enkvist Per Klevnäs

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executive summary

Industrial CO2 emissions are a major concern as Euro- The key conclusion is that a more circular economy pe tries to achieve the deep emission reductions required can make deep cuts to emissions from heavy industry: for its climate commitments. In the European Commis- in an ambitious scenario, as much as 296 million tonnes

sion’s ‘Roadmap 2050’, one-quarter of the CO2 emis- CO2 per year in the EU by 2050, out of 530 in total – and sions remaining mid-century were from industry, especi- some 3.6 billion tonnes per year globally. Demand-side ally from heavy industry producing basic materials. With measures thus can take us more than halfway to net-zero more ambitious targets after the Paris Agreement, the EU emissions from EU industry, and hold as much promise must now articulate how to combine net-zero emissions as those on the supply side. Moreover, they are often with a prosperous industrial base. economically attractive.

So far, discussions of industry emissions have focused Opportunities for more productive use of materials on the supply side: reducing the emissions from the produc- therefore deserve a central place in EU climate policy. tion of steel, cement, chemicals, etc. Far less attention has Much like improving energy efficiency is central to the been given to the demand side: how a more circular eco- EU’s efforts to achieve a low-carbon energy system, a nomy could reduce emissions through better use and reuse more circular economy will be key to developing Europe-

of the materials that already exist in the economy. This study an industry while cutting its CO2 emissions. As industry aims to bridge that gap. It explores a broad range of opportu- associations and the European Commission consider nities for the four largest materials in terms of emissions (steel, new mid-century ‘roadmaps’ for industry, they should in- plastics, aluminium and cement) and two large use segments clude circular economy measures for cost-effective ways for these materials (passenger cars and buildings). to achieve deep emissions cuts.

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Demand-side measures thus can take us more than halfway to net-zero emissions from EU industry, and hold as much promise as those on the supply side. Moreover, they are often economically attractive.

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Demand-side opportunities could reduce EU industri- are wasted in construction. Another opportunity is to use al emissions by almost 300 Mt per year by 2050, or 56 more advanced materials and construction techniques, %, with attractive economics. These abatement oppor- such as high-strength steel that can cut materials use by tunities fall into three major categories: 30%. There also are opportunities to reduce over-specification, such as the near 100% overuse of steel in buil- A. Materials recirculation opportunities (178 Mt per dings relative to what is strictly required to meet design year by 2050). The EU economy is accumulating large specifications. Further gains can be achieved by tailo- stocks of metals and plastics, and by 2050 could meet ring products better to specific uses; for example, to the a large share of its need for these materials by recircu- extent that fleets of shared cars can replace individual lating what has already been produced: 75% of steel, ownership (see below), many of the cars needed will be 50% of aluminium, and 56% of plastics (cement is less smaller, just big enough for a one- or two-passenger trip amenable to recycling, although it is possible to reuse in the city. Companies already have incentives to use the- some unreacted cement). Recirculating materials cuts se strategies to some extent, but some opportunities are

CO2 emissions and requires much less energy than new missed through split incentives in complex supply cha- production does. However, current practice is not set up ins. Many measures will become much more economic to facilitate these high recycling rates. An influx of new with greater digitalisation in the mobility and buildings materials is required both to replace metals and plas- value chains and other technological development now tics that are lost, and to compensate for downgrading underway. of quality. In some cases, metals are mixed or downgraded because materials specialisation requires it, but C. New circular business models in mobility and there also are many cases where this could be avoided buildings, notably through sharing (62 Mt per year by or much reduced. For steel, the key is to ensure much 2050). This opportunity pivots on making much greater cleaner scrap flows that allow for high-quality secon- use of vehicles and buildings, which together represent a dary steel, and less pollution of steel with copper; for majority of European demand for steel, cement and alu- aluminium, smaller losses and less mixing of different minium. Currently, the utilisation of many of these assets alloys will be crucial. Mixing and downgrading effects is very low: about 2% for the average European car, and are particularly serious problems for plastics, making about 40% for European offices, even during office hours. a large share of used plastics literally worthless. This Sharing enables much more intensive use. For vehicles, study shows how 56% of plastics could be mechanically this in turn means that higher upfront costs of electric dri- recycled, with a focus on the five main types of plastic vetrains, more advanced automation technology, or hig- that account for 70% of volumes. The aim must be to her-performance materials can be paid back over many move these to a tipping point where recycling is econo- more miles. In addition, professionally managed fleets of mically viable, driven by the inherent material value. For such higher-value cars are more economical to maintain, this, as with steel and aluminium, product design and reuse, remanufacture and recycle. Vehicle lifetimes, on end-of-life disassembly need to change to enable high- a per-kilometre basis, can thus increase drastically. The value recovery. result is a self-reinforcing loop of incentives for higher utilisation, lower-carbon energy, and less materials use. B. Product materials efficiency(56 Mt per year by In a circular scenario, the materials input to mobility falls 2050). These opportunities have in common that they by 75%. It also brings many other benefits, including a reduce the total materials input to key products. One much lower total cost of travel. Sharing models are taking strategy is to reduce the amount of materials that are root by themselves, but much more could be done to lost in production: for example, half the aluminium pro- accelerate their growth, and to find ways to resolve the duced each year does not reach the final product, but concerns that have arisen with some early iterations of becomes scrap, while some 15% of building materials such business models.

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Many of these abatement opportunities are economi- bon economy must be much more circular than today’s. cally attractive on their own terms, provided that we are While this study has focussed on Europe, an extrapola- willing to organise the mobility and real estate sectors tion to other world regions suggests that the measures somewhat differently in the future. Many others cost less identified could contribute 3.6 Gt CO2 per year to global than 50 EUR per tonne CO2 avoided, less than most other efforts to cut greenhouse gas emissions by 2050. The ways to reduce these emissions, including supply-side claim on the carbon budget could be reduced by 333 Gt measures for industry. Circularity is strongly aligned with by 2100. In this setting, the additional supply-side me- the digitalisation trend that is sweeping across industry; asures required start to look manageable, and a well- for example, digitalisation means it is ever cheaper to below 2 °C objective within reach. keep track of complex supply chains and material flows, optimise sharing business models, and automate mate- Achieving these opportunities is doable and requires rials handling in construction. A more circular economy ‘energy efficiency-type’ interventions. Many of the abate- would have many other benefits as well, such as reduced ment opportunities identified are low-cost or even profita- geopolitical risks, local job creation, lower air pollution, ble, but are held back by multiple barriers. For example, and reduced water use. They therefore can contribute to product manufacturers lack incentives to enable high- several of the Sustainable Development Goals. value recycling several steps later in the value chain, and many externality advantages of sharing business models A more circular economy is indispensable for meeting are not accounted for. A higher carbon price would help global material needs without exceeding the available on the margin, but capturing a large share of the oppor- carbon budget. The Intergovernmental Panel on Climate tunities will require addressing those barriers directly. We Change has estimated a remaining ‘carbon budget’ for estimate that up to 70–80% of the abatement opportuni- this century of around 800 billion tonnes (Gt) CO2. This is ties are additional to ones already addressed by existing the amount of emissions that can be emitted until 2100 climate policy approaches. The situation resembles that for a good chance of keeping warming below 2°C – with for energy efficiency, where careful analysis of cost-effec- still less for the ‘well below 2°C’ target set by the Paris Ag- tive potentials and barriers has motivated a range of in- reement. This study estimates that, on current trends, ma- terventions, from aggregate efficiency targets to product terials production alone would result in more than 900 Gt standards and labelling schemes. Many of the circularity of emissions. Energy efficiency and low carbon energy will measures are similarly cost-effective, or could be once help, but do not resolve this dilemma: emissions add up to scaled-up, but require that barriers are overcome. The 650 Gt even with rapid adoption. This is because so much next task is to explore which policy instruments would be carbon is either built into the products themselves and most effective in pursuing different opportunities. then released at their end of life (plastics), or is inherent to the process chemistry of production (steel, cement). For The priority now should be to firmly embed circular context, note that 2°C scenarios typically ‘allocate’ about economy measures in the low-carbon agenda. This study

300 Gt CO2 to these sectors for the total world economy. is an early quantitative investigation into the low-carbon benefits of the circular economy. Much more work is required, Options to get to 300 Gt include a) aggressive sca- but we hope this report nonetheless shows the potential av- le-up of carbon capture and storage; b) the rapid intro- ailable for European industry. The most urgent priority now duction of radical process changes that are currently in is to build a solid knowledge base – and then to incorporate early development stages; and c) reducing demand for circular economy opportunities alongside low-carbon ener- primary materials through the range of circularity measu- gy supply, electrification of transport and heat, and energy res discussed above. This report argues that it is almost efficiency as a core part of the transition to a low-carbon impossible to achieve the cut to 300 Gt without a major economy. A more circular economy could play a key role in use of category c) – hence our assertion that a low-car- helping Europe and the world to meet our climate targets.

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How the circular economy can strengthen industry and protect the climate

Industrial CO2 emissions are a major total – and some 3.6 billion tonnes per year concern as Europe tries to achieve the deep globally. Demand-side measures thus hold emission reductions required for its climate as much promise as ones on the supply commitments. In the European Commissi- side. They are all but indispensable for the on’s ‘Roadmap 2050’, one quarter of CO2 joint objectives of economic development emissions remaining mid-century were from and action on climate change. Moreover, industry, and especially from heavy industry they are often economically attractive. producing basic materials. With more ambitious targets after the Paris Agreement, Opportunities for more productive use of the EU must now articulate how to combine materials therefore deserve a central place net-zero emissions with a prosperous in- in EU climate policy. Much like improving dustrial base. Without strong action, emis- energy efficiency is central to the EU’s ef- sions from the global production of basic forts to achieve a low-carbon energy sys- materials alone risk exceeding the available tem, a more circular economy will be key to ‘carbon budget’. developing European industry while cutting its CO2 emissions. As industry associations This study shows how a more circular and the European Commission consider economy can make deep cuts to emissions new ‘roadmaps’ for industry mid-century, from heavy industry: in an ambitious sce- they should include circular economy me- nario, as much as 296 million tonnes CO2 asures for cost-effective ways to achieve per year in the EU by 2050, out of 530 Mt in deep emissions cuts.

8 REVIEW DRAFT – DO NOT DISTRIBUTE ETT VÄRDEBESTÄNDIGT SVENSKT MATERIALSYSTEM / SAMMANFATTNING

9 REVIEW DRAFT – DO NOT DISTRIBUTE REVIEW DRAFT – DO NOT DISTRIBUTE MATERIALS & GHG EMISSIONS - why a 2°C economy must be circular Industry is a vital part of any modern economy. As to sharply reduce industrial emissions. The challenge for countries develop and their economies grow, they need policy-makers – and for industry – is how to curb emissions an ever-larger supply of basic industrial commodities and while continuing to meet our economies’ material needs. materials such as steel, cement, aluminium and plastics to build infrastructure, transport systems, buildings and Zero-carbon energy is a crucial part of the answer, but factories, and to produce and package consumer goods. it is not enough. This report focuses on another key step: Continued production of those materials helps fully deve- shifting to a more circular economy. Our analysis shows loped regions such as the EU to maintain their standard that circular approaches can reduce CO2 emissions from of living. A healthy industrial sector is also widely seen as materials production in the EU by almost 56% by 2050. crucial for economic competitiveness. For the EU, this represents a major opportunity to both narrow the emissions gap, and reassert itself as a trail- Yet industry is also a major source of greenhouse gas blazer and global leader in industry. A more circular eco- emissions: 40% of total emissions in 2014, and growing . If nomy also has large global potential: we estimate that it we are to achieve the Paris Agreement’s long-term goal of can close more than half the gap to industrial emissions a global economy with zero net GHG emissions, we need consistent with climate objectives.

World materials demand is set to increase 2- to 4-fold in this century Global heavy industry is growing fast. Steel production emissions from industry: steel, cement, aluminium and grew by 40% over last 10 years, with nearly 95% of this plastics. In each case, we developed a detailed sce- growth in China alone. Cement tripled in just a decade nario, based on long-term population and economic de- and global plastics demand is doubling about every 20 velopment, and using the state-of-the art approaches in years. Given the importance of these materials in modern published literature to examine how much of these four economies, it is no surprise that economic development materials would be needed in different world regions if around the world has kept increasing demand for these they develop similarly to today’s OECD economies. commodities. That growth is set to continue. Large parts of the world are still at the initial stages of urbanisation and The results of this analysis are striking: As shown in industrialisation. For example, the stock of steel in industri- Exhibit 1, steel and cement consumption could roughly alised countries is typically 10-14 tonnes per capita, but in double, aluminium triple, and plastics quadruple by the non-OECD countries, the average per capita stock is just 2 end of the century. Precisely how far and how fast de- tonnes. Similar gaps exist with other materials. mand would increase is uncertain, of course, but our findings are in line with other existing research . The core To investigate how future materials demand could in- message is clear: in a business-as-usual development, fluence CO2 emissions, this study focusses on four primary materials demand would rise rapidly and conti- materials that, together, account for 75% of direct CO2 nue to do so for many decades.

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Exhibit 1 With current patterns of materials use, global demand for key materials will need to increase by a factor of 2 to 4 this century

STEEL PLASTICS BILLION TONNES STEEL PER YEAR BILLION TONNES PLASTICS PER YEAR

4,0 1,4

1,2 3,0 1,0 x 2.3 0,8 x 4.2 2,0 0,6

0,4 EXHIBIT 1 1,0 0,2

0,0 0,0 2015 2050 2100 2015 2050 2100

Steel is used in construction and infrastructure, transportation, industrial Plastics production has grown by 50% in the past decade, to just under 350 million machinery, and consumer products. Global steel production now stands at 1.6 tonnes per year. In advanced economies, packaging is a major use, followed by billion tonnes per year, having grown by 40% in the decade to 2015. China alone construction and automotive. In Europe, current annual use of plastics is about accounted for nearly 95% of this growth. Historically, steel stocks have tended to 100 kg/person, while North America is at about 140 kg/person. Our scenario FÄRGPALETT grow fast once countries reached incomes of around 5000 USD/person, then tapered assumes illustrates the outcome if all world regions converge to 120 kg/person. o at higher income levels, at 12–15 tonnes per person. Our scenario derives the demand resulting if all world regions were to follow this pattern, with convergence to OECD levels of steel stocks of 13 t per capita.

ALUMINIUM CEMENT MILLION TONNES ALUMINIUM PER YEAR BILLION TONNES CEMENT PER YEAR

300 8,0 7,0 250 6,0 200 x 1.7 x 3.4 5,0 150 4,0 3,0 100 2,0 50 1,0 0 0,0 2015 2050 2100 2015 2050 2100

Aluminium is used in packaging, buildings, automobiles and other sectors Global Global cement production has tripled in just a decade and currently stands at just production of primary aluminium now stands at around 60 million tonnes per over 4 billion tonnes per year. Cement production is closely related to construction year, with an additional 30 million tonnes of remelted aluminium. Stocks have activity and the build-out of infrastructure. Historically, it has peaked and then been growing strongly in all advanced economies, though they vary greatly: from declined as GDP per capita grows, but with big variations: China used more 600 kg per person in the United States, to 200–500 kg per person in European cement in three years than the United States did in an entire century. Existing countries. Our scenario assumes global convergence to 400 kg. scenarios reect these uncertainties, with some suggesting minimal further growth, and others predicting an explosion. Our scenario is in the middle, anticipating cement demand of just over 7 billion tonnes per year by 2100.

EXHIBIT 1.2 11

CUMULATIVE INDUSTRY CO2 EMISSIONS IN 2ºC SCENARIOS, 2015 – 2100 GT CO2

500 417

400 ~400 100

300 ~300

200

100

0 INDUSTRY SCENARIOS1 INDUSTRY TOTAL NON-MATERIALS MATERIALS 350 –500 Gt emissions from industry ~400 Gt is the median for ~100 Gt is required for other ~300 Gt remains available across ~20 scenarios available 2ºC scenarios industry (including manufact- for materials production CCS volumes are (extremely) high in uring, pulp & paper, chemicals, (cement, steel, plastics, 600 these scenarios, reaching 20-40 Gt etc.) assuming these reach net- aluminium) per year zero emissions by 2060

1 Scenarios that meet 2C target with >2/3 probability and which report industrial emissions Source: Material Economics analysis of AR5 database

5 STEEL PLASTICS BILLION TONNES STEEL PER YEAR BILLION TONNES PLASTICS PER YEAR

4,0 1,4

1,2 3,0 1,0 x 2.3 0,8 x 4.2 2,0 0,6

0,4 EXHIBIT 1 1,0 0,2

0,0 0,0 2015 2050 2100 2015 2050 2100

Steel is used in construction and infrastructure, transportation, industrial Plastics production has grown by 50% in the past decade, to just under 350 million machinery, and consumer products. Global steel production now stands at 1.6 tonnes per year. In advanced economies, packaging is a major use, followed by billion tonnes per year, having grown by 40% in the decade to 2015. China alone construction and automotive. In Europe, current annual use of plastics is about accounted for nearly 95% of this growth. Historically, steel stocks have tended to 100 kg/person, while North America is at about 140 kg/person. Our scenario FÄRGPALETT grow fast once countries reached incomes of around 5000 USD/person, then tapered assumes illustrates the outcome if all world regions converge to 120 kg/person. o at higher income levels, at 12–15 tonnes per person. Our scenario derives the demand resulting if all world regions were to followREVIEW this pattern, DRAFT with convergence – DO NOT DISTRIBUTE to OECD levels of steel stocks of 13 t per capita.

ALUMINIUM CEMENT MILLION TONNES ALUMINIUM PER YEAR BILLION TONNES CEMENT PER YEAR

300 8,0 7,0 250 Growth in materials use risks6,0 exhausting 200 x 1.7 x 3.4 5,0 the150 CO2 budget for climate objectives4,0 3,0 100 Given the large emissions from heavy industry, the rise until2,0 2100, and still less for a ‘well-below’ 2°C or 1.5°C target in materials use has major implications for CO2 emissions. as envisaged in the Paris Agreement. This budget must cover 50 1,0 Looking ahead, rapidly increasing materials production there- all major emissions from energy and industry: not just materi- 0 0,0 fore risk laying significant claim to the available ‘CO2 budget’ als production, but also power generation, transportation, hea- 2015 2050 2100 2015 2050 2100 – i.e., the total amount of CO2 that can be emitted until 2100, ting, appliances, manufacturing and more. In fact, the amount whileAluminium limiting isthe used increase in packaging, in buildings,global automobilestemperatures and other to sectorsa given Global ‘allocated’Global cement for productionproduction has tripledof the in four just a materialsdecade and currentlyis no more stands atthan just targetproduction (see box of primary below). aluminium For anow 2°C stands scenario, at around 60 the million remaining tonnes per aboutover 4300 billion Gt tonnes CO2, per as year. shown Cement inproduction Exhibit is 2. closely related to construction budgetyear, for with emissions an additional is 30 around million tonnes800 ofbillion remelted tonnes aluminium. (Gt) Stocksof CO2 have activity and the build-out of infrastructure. Historically, it has peaked and then been growing strongly in all advanced economies, though they vary greatly: from declined as GDP per capita grows, but with big variations: China used more 600 kg per person in the United States, to 200–500 kg per person in European cement in three years than the United States did in an entire century. Existing countries. Our scenario assumes global convergence to 400 kg. scenarios reect these uncertainties, with some suggesting minimal further growth, and others predicting an explosion. Our scenario is in the middle, anticipating cement demand of just over 7 billion tonnes per year by 2100.

Exhibit 2 Existing scenarios imply that at most 300 Gt of the remaining EXHIBIT 1.2 carbon budget could be devoted to the production of materials

CUMULATIVE INDUSTRY CO EMISSIONS IN 2ºC SCENARIOS, 2015 – 2100 2 GT CO2

500 417

400 ~400 100

300 ~300

200

100

1 Scenarios that meet 2C target with >2/3 probability and which report industrial emissions Source: Material Economics analysis of AR5 database

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CLIMATE TARGETS AND CARBON BUDGETS

Greenhouse gases accumulate in the atmosphere, and as concentrations increase, they cause warming and disrupt the climate. Scientists have estimated roughly what temperature increase is associated with different CO2 concentrations, as well as the amount of CO2 emissions that would result in those concentrations, after accounting for natural carbon sinks and, in some scenarios, future ‘negative emissions’ due to carbon capture and storage (CCS) or other measures.

Subtract emissions to date, and the result is a ‘carbon budget’ for any given climate target – that is, how much can be emitted between now and the year 2100 if we are to keep warming below 2°C, for instance.

Several variables can affect the budget, including the target itself, the probability of achieving it (66% vs. 50%), the use of ‘negative emissions’, and the period covered by emissions to date. Sector-specific budgets also reflect judgements about the share of remaining emissions that should be allocated to each sector.

In our analysis, we use scenarios with at least 66% change of meeting a 2 °C objective, which are those closest to the Paris Agreement’s objective of limiting global warming to ‘well below’ 2 °C.

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Our projections of materials demand, however, imply far To take this one step further, we also investigate how far larger emissions, as much as 918 Gt CO¬2. This is true it would help to switch the energy inputs to production to even though we assume in our calculations that the ‘best low-carbon sources. Even if this was completed by 2050, available technique’ is rapidly adopted to improve energy some 649 Gt of CO2 emissions would result by 2100, more and process efficiencies, and that current practices for -ma than twice the amount that would put materials production terials recycling continues (for example, even in the baseli- on a path consistent with climate objectives (Exhibit 3). As ne scenario, the emissions per tonne of steel falls by 40%, shown in Exhibit 4, the reason for the continued high emis- mostly because there is much more scrap-based steel pro- sions is that a large share result not from fuel combustion, duction). Still, current processes are intrinsically very car- but from chemical processes in the production of materials. bon-intensive, resulting in large emissions. Decarbonising energy is therefore not enough.

Exhibit 3 Materials production alone risks exceeding the total remaining carbon budget for a 2°C scenario

CO2 EMISSIONS AND CARBON BUDGET

EXHIBIT 1.3 BILLION TONNES CO2

CARBON BUDGET TO 2100 CO2 EMISSIONS FROM MATERIALS PRODUCTION

918

800

649

300 14 % 14 %

2°C CARBON BUDGET CARBON BUDGET MATERIALS MATERIALS FOR INDUSTRY AVAILABLE FOR EMISSIONS EMISSIONS WITH ENERGY AND ENERGY MATERIALS WITH ENERGY EFFICIENCY AND EFFICIENCY ZERO-CARBON ENERGY

EXHIBIT 1.4 CUMULATIVE EMISSIONS, 2015 – 2100

GT CO2

BASELINE Best available energy e ciency fully implemented, 254 79 287 298 918 leading to 15-25% reduction in CO emissions SCENARIO 2

Emissions intensity reduced by half through full implementation of direct reduction, bio-based STEEL 100 feedstock, and carbon capture by 2050 Zero-carbon electricity for EAF production achieved by 2050

Half of production emissions eliminated. (e.g., PLASTICS 60 by using external, zero-carbon heat) by 2050 Emissions from embedded carbon remain (continued use of fossil feedstock)

38 Zero-carbon electricity used for electrolysis and ALUMINUM low-carbon energy used for alumina rening, both by 2050

All energy-related emissions (fuel, electricity, CEMENT 70 transport) eliminated by 2050

LOW-CARBON PRODUCTION 184 40 226 198 649 BY 2050

1Plastic emissions include emissions from production as well as embedded emissions CO2 EMISSIONS AND CARBON BUDGET

EXHIBIT 1.3 BILLION TONNES CO2

CARBON BUDGET TO 2100 CO2 EMISSIONS FROM MATERIALS PRODUCTION

918

800

649

300 14 % 14 %

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2°C CARBON BUDGET CARBON BUDGET MATERIALS MATERIALS FOR INDUSTRY AVAILABLE FOR EMISSIONS EMISSIONS WITH ENERGY AND ENERGY MATERIALS Exhibit 4 WITH ENERGY EFFICIENCY AND EFFICIENCY ZERO-CARBON ENERGY Even with 100% low-carbon production by 2050, emissions from materials production exceed the available carbon budget

EXHIBIT 1.4 CUMULATIVE EMISSIONS, 2015 – 2100

GT CO2

BASELINE Best available energy e ciency fully implemented, 254 79 287 298 918 leading to 15-25% reduction in CO emissions SCENARIO 2

Half of production emissions eliminated. (e.g., PLASTICS 60 by using external, zero-carbon heat) by 2050 Emissions from embedded carbon remain (continued use of fossil feedstock)

38 Zero-carbon electricity used for electrolysis and ALUMINUM low-carbon energy used for alumina rening, both by 2050

All energy-related emissions (fuel, electricity, CEMENT 70 transport) eliminated by 2050

LOW-CARBON PRODUCTION 184 40 226 198 649 BY 2050

1Plastic emissions include emissions from production as well as embedded emissions

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A MORE CIRCULAR ECONOM IS INDISPENSABLE FOR CLIMATE TARGETS Given that low-carbon energy will not solve the pro- to deploy the most expensive technologies. Circular app- blem of CO2 emissions from materials, other measures roaches already require some energy input, but less than are needed. On the supply side, a broad range of options new materials production, and they shift emissions away have been proposed, from hydrogen-based steelmaking to from hard-to-abate, costly industrial processes, towards new routes for plastics synthesis, but all are at early stages activities that are much easier to decarbonise. Notably, of development. Another option that is often discussed is unlike today’s primary materials production, much of the to deploy carbon capture and storage (CCS) – which also circular economy can be powered by low-carbon electricity. lags far behind the levels of deployment required for a 2°C scenario . Both will likely be needed to bring industry in Circular economy strategies also have multiple ‘co-be- line with the goal of net-zero emissions, but they will not nefits’ beside CO2 reductions. By reducing the need for suffice. industrial processes associated with substantial air pollution, for example (e.g. steel production using coal), they Given the scale of the challenge of low-carbon produc- can reduce disease and mortality . By reducing the need tion, it is high time that climate policy looks not just at how for mining, they reduce soil and water pollution as well as materials are produced, but at ways to reduce demand for the destruction of ecosystems. By reducing the amount new materials. In the sections that follow, we show how a of plastic left to decay in landfills and in waterways, they more circular economy could mean we get much more avoid poisoning wildlife and, through the food chain, hu- out of the materials we already have, making it possible mans. Many strategies would also create new jobs close to meet the needs of a modern economy with significantly to where materials are used, and some would make key lower levels of new primary materials production. services, such as transportation, more accessible and affordable. Thus, along with climate targets, a more circular Demand- and supply-side strategies can also be mu- economy would also make several Sustainable Develop- tually reinforcing, as is widely recognised in discussions ment Goals more achievable. of energy transitions. All low-carbon scenarios foresee a step-change in efficiency, so that essential services such Put together, these arguments make a compelling as mobility, thermal comfort, or mechanical power can be case for the circular economy not just as one option to achieved with much lower levels of energy input. Across consider in the quest to meet climate targets, but as an 2°C scenarios, energy efficiency improvements account invaluable part of the transformation we need for a pro- for some 40% of the emissions reductions. Reducing total sperous and sustainable future. energy demand also makes it easier to grow low-carbon energy sources to fully meet global needs, and to keep In the section that follows, we explore the potential for costs manageable. CO2 emission reductions. Then, in Section 3, we examine the economics of a more circular economy. We focus both The same happens with industry in a more circular analyses on the EU, an advanced economy with ambitious economy. The strategies we explore in this report effec- climate targets and a strong record in pioneering low-car- tively increase the ‘materials efficiency’ of the economy, bon technologies. The EU could spearhead many of these reducing the amount of new materials required. This nar- strategies and reap the benefits while showing the rest of rows the emissions gap that needs to be closed through the world how they, too, can reduce industrial emissions supply-side measures, buying time and reducing the need without compromising on economic development.

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Many strategies would also create new jobs close to where materials are used, and some would make key services, such as transportation, more accessible and affordable.

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A MORE CIRCULAR ECONOMY CAN REDUCE EU INDUSTRIAL EMISSIONS BY 56% BY 2050

To quantify the potential of a more circular economy ar-zero net emissions in the EU around mid-century or to reduce industrial GHG emissions, we conducted an before – leaving no or little room for residual emissions in-depth study of steel, plastics, aluminium and cement from industry. Yet existing analyses do not articulate in the European Union, as well as two key supply chains how this would be achieved for heavy industry. For ex- – passenger cars and buildings. As we describe in de- ample, the European Commission’s 2011 ‘Roadmap tail below, we found that a more circular economy could 2050’ foresaw emissions reductions from all of indu- reduce emissions from the production of these four ma- stry of 259 Mt CO¬2, while leaving 170 Mt CO¬¬2 in terials by more than half: set against emissions of 530 place, even with assumptions of very large volumes of Mt CO¬¬2 per year, the circular economy abatement po- CCS . Sector roadmaps from steel, cement and chemi- tential we identify is almost 296 Mt CO¬¬2 per year by cal industry associations left 300 Mt CO¬¬2 in place, 2050 (Exhibit 5). even after abatement of 150 Mt CO2 through CCS . The European Commission is expected to produce a new Mobilising this potential would make an indispensa- mid-century roadmap in 2019. Our analysis suggests ble contribution to the EU’s climate commitment. Me- that demand-side strategies should have a central place eting targets under the Paris Agreement requires ne- in net-zero scenarios for European industry.

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Exhibit 5 Overall abatement potential

EU EMISSIONS REDUCTIONS POTENTIAL FROM A MORE CIRCULAR ECONOMY, 2050 MILLION TONNES OF CARBON DIOXIDE PER YEAR EXHIBIT 1.5

STEEL PLASTICS ALUMINIUM CEMENT

530 178

-56 %

234

2050 BASELINE MATERIALS PRODUCT MATERIALS CIRCULAR 2050 CIRCULAR RECIRCULATION EFFICENCY BUSINESS MODELS SCENARIO

EXHIBIT 1.7

MATERIALS PRODUCTION EMISSIONS, 2015 AND 2050 19 MILLION TONNES OF CARBON DIOXIDE PER YEAR, EU

564 STEEL 530 • Steel use remains at close to 160 Mt / year as EU stock saturates, • Scrap-based production increases from 40% to 65%

• e CO2 intensity of production falls by more than 50% as a result 104 234 PLASTICS • Consumption increases from 49 Mt today to 62 Mt 2050 • Emissions increase chiey because of embedded emissions: the carbon in the plastic itself. In a low-carbon energy system, burning plastics has high net emissions 233

ALUMINIUM 132 • Aluminium use grows from 12 to 16 Mt per year, but stabilises at this level

• Clean electricity means lower CO2 intensity for both EU production and imported metal • e net result is almost stationary emissions attributable 83 to EU consumption 80

CEMENT • Consumption stays similar today, reaching 184 Mt per year 114 113 • Emissions falls by 10 percent through production process improvements

TODAY 2050

EXHIBIT 1.9

STEEL: PRIMARY VS. RECYCLED PRIMARY PLASTICS: PRIMARY VS. RECYCLED PRIMARY TCO2 / T STEEL TCO2 / T PLASTICS RECYCLED RECYCLED 2.4 2.3 2.2

1.9

14 %

0.4 0.4 0.3

0.1

TODAY 2050 TODAY 2050

ALUMINIUM: PRIMARY VS. RECYCLED CEMENT: PRIMARY VS. RECYCLED PRIMARY PRIMARY TCO2 / T ALUMINIUM TCO2 / T CEMENT RECYCLED RECYCLED

13.5 0.7 0.6

9.7 14 %

0.3

0.1

0.3 0.2

TODAY 2050 TODAY 2050 HIGHER UTILISATION PER CAR EXHIBIT 5.12v2 SHARING BUSINESS MODELS VEHICLES RE-DESIGNED AND New business models to suit new MANAGED TO MAXIMISE RUN TIME customer groups Integration with public transport system LONGER VEHICLE LIFETIMES MAJOR SHIFT OF INNOVATION FOCUS High returns to durability DIGITISATION AND AUTOMATION Longer-lived electric vehicles pro table Self-driving cars enables new service Professionally maintained eet FROM: TO: models MAXIMIZING UPFRONT MAKING THE CAR A Data-intensive optimisation of trac SALES VOLUME AND WELLFUNCTIONING MODULARITY AND REUSE PRICE EFFECTIVE PART OF URBAN MOBILITY Design for quick repair and upgrade- ability Reuse built into vehicle design

LOWER VEHICLE WEIGHT

REVIEW DRAFT – DO NOT DISTRIBUTE More varied car sizes with shared eet Advanced materials more pro table HIGHER PROFITABILITY OF Without deep transformation,CIRCULAR BUSINESS MODELS

emissions would END-OF-LIFEamount VALUE to 530 Mt CO2 in 2050

Higher EOL value (modularity, In order to gauge the potential impactvaluable of a morematerials circular etc.) 60-70% of steel, cement and aluminium use, and some 30 economy on industrial emissions, we lookedEOL ows more more predictableclosely in eetpercent of plastics. Conversely, steel, cement, aluminium at each of the four materials and the twoowned value system chains. Ex- and plastics account for 85% of the materials CO2 foot- hibit 6 provides an overview. Cars and buildings account print of buildings and passenger cars. LOWER COST OF TRANSPORT

New design and high utilisation reduce total cost Competitiveness withExhibit other modes of 6 transport increases Four materials and two value chains that account for 70% of industrial CO2 emissions

FOUR KEY MATERIALS CATEGORIES

EXHIBIT 1.6

STEEL PLASTICS ALUMINIUM CEMENT

Used across economy in In advanced economies, Key uses include Used for construction construction, packaging is a major use, buildings, automotive, of buildings and infra- transportation, followed by construction electrical machinery structure industrial machinery, and automotive and packaging Production is primarily and consumer products 100 kg/capita is consum- e EU imports 40% local due to high avail- 75% 40% of demand is ed annually in Europe, of its aluminum, some- ability of raw materials served by secondary of which secondary times from locations and high cost of transport- OF INDUSTRIAL CO2 EMISSIONS production in the EU, plastics only represent with very high CO2 ation but the industry still 10% of demand intensity of production CO2 emissions are more releases some 230 CO2 130 Mt CO2 are re- In total, the CO2 foot- than 110 Mt per year, Mt per year leased annually from print of EU demand is of which 55% are due to European production around 80 Mt annually the process chemistry rather than energy

TWO KEY VALUE CHAINS AND PRODUCT CATEGORIES

CARS/MOBILITY

Automotive sector uses 20% of steel, 10% of plastics and 20% of aluminium CO2 emissions from materials in passenger cars sold in the EU are around 50 Mt per year Embodied emissions in materials are becoming a larger share of total CO2 footprint ~50% PASSENGER CARS AND BUILDINGS JOINTLY ACCOUNT FOR ALMOST HALF OF EMISSIONS FROM STEEL, BUILDINGS/SHELTER PLASTICS, ALUMINIUM AND CEMENT Buildings account for 33% of steel, 20% of plastics, 25% of aluminium and 65% of cement e CO2 footprint of building materials in the EU is 250 Mt per year Embodied carbon is 10-20% of EU buildings’ CO2 footprint today, but already 50% in countries with low-carbon energy

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Conversely, steel, cement, aluminium and plastics account for 85% of the materials

CO2 footprint of buildings and passenger cars.

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Total emissions from the production of the four mate- tional emissions in 2050. Accounting for those emissions rials for EU consumption amounts to 564 Mt CO2. The as well as modest consumption growth, annual emis- baseline scenario sees a varied development of demand: sions from plastics are as high as 233 Mt CO2. Clearly, steel demand falls slightly, as the total steel stock sa- the incineration of fossil-based plastics cannot continue turates, whereas cement use stays constant, and plastics in a low-carbon economy. and aluminium use grows somewhat. The current production processes and practices continue to be used, In the steel sector, on the other hand, emissions decli- so that plastics production is fossil-fuel based, cement is ne even in the baseline scenario. This is due to several based on clinker production from limestone, and prima- factors: reduction in demand for steel as the EU steel ry steel continues to use basic oxygen furnaces based stock stabilises, a gradual and substantial shift toward on coal. However, trends towards lower emissions also more secondary and less primary production, and the continue: the efficiency of the processes improves by 10- decarbonisation of electricity inputs to secondary steel 20% through the rapid adoption of best available produc- production. The EU steel sector thus is already on a path tion techniques; materials use becomes more circular to a more circular economy that would significantly re- even in the baseline scenario; and the energy system is duce emissions reductions – but as we discuss below, assumed to be decarbonising, so that emissions from EU there is potential to go much further than is possible with electricity fall to near-zero levels, in line with the 2011 Eu- current practice. ropean Commission Roadmap 2050. Nonetheless, there is only a small net decrease in industrial emissions by For aluminium, the combination of a higher share 2050, to 530 Mt CO2 (Exhibit 7). scrap-based production and the decarbonisation of electricity production more than offset the growth in emissions The largest net growth in emissions in our baseline that would otherwise occur as the volume of aluminium scenario occurs in plastics. This is only partly because increases. For cement, the baseline scenario shows a very consumption increases, but more because plastics con- small decline in emissions, as improvements in process tains substantial embedded carbon in the material itself, efficiency slightly outstrip growth in demand. which is released as CO2 when plastics are incinerated. The bottom line is that despite increased recycling, espe- Today, when plastics are burned instead of other fossil cially of steel, and the transformation of EU energy supply, fuels, the net increase in emissions is relatively small. emissions from materials production in 2050 would be lar- That would change dramatically in a decarbonised en- gely similar to today. Achieving the much-larger reductions ergy system, where the alternative would be zero-carbon needed for a low-carbon economy will thus require stra- energy sources. Thus, a continuation of the current shift tegies to reduce demand, even as new technologies are towards burning plastics would result in substantial addi- deployed to reduce industrial process emissions as well.

22 EU EMISSIONS REDUCTIONS POTENTIAL FROM A MORE CIRCULAR ECONOMY, 2050 MILLION TONNES OF CARBON DIOXIDE PER YEAR EXHIBIT 1.5

STEEL PLASTICS ALUMINIUM CEMENT

530 178

-56 %

234

REVIEW DRAFT – DO NOT DISTRIBUTE

Exhibit 7 2050 BASELINE MATERIALS PRODUCT MATERIALS CIRCULAR 2050 CIRCULAR Without demand-sideRECIRCULATION measures,EFFICENCY EU emissionsBUSINESS MODELS from SCENARIO materials production barely decline by 2050

EXHIBIT 1.7

MATERIALS PRODUCTION EMISSIONS, 2015 AND 2050 MILLION TONNES OF CARBON DIOXIDE PER YEAR, EU

564 STEEL 530 • Steel use remains at close to 160 Mt / year as EU stock saturates, • Scrap-based production increases from 40% to 65%

ALUMINIUM 132 • Aluminium use grows from 12 to 16 Mt per year, but stabilises at this level

• Clean electricity means lower CO2 intensity for both EU production and imported metal • e net result is almost stationary emissions attributable 83 to EU consumption 80

CEMENT • Consumption stays similar today, reaching 184 Mt per year 114 113 • Emissions falls by 10 percent through production process improvements

TODAY 2050

EXHIBIT 1.9

23 STEEL: PRIMARY VS. RECYCLED PRIMARY PLASTICS: PRIMARY VS. RECYCLED PRIMARY TCO2 / T STEEL TCO2 / T PLASTICS RECYCLED RECYCLED 2.4 2.3 2.2

1.9

14 %

0.4 0.4 0.3

0.1

TODAY 2050 TODAY 2050

ALUMINIUM: PRIMARY VS. RECYCLED CEMENT: PRIMARY VS. RECYCLED PRIMARY PRIMARY TCO2 / T ALUMINIUM TCO2 / T CEMENT RECYCLED RECYCLED

13.5 0.7 0.6

9.7 14 %

0.3

0.1

0.3 0.2

TODAY 2050 TODAY 2050 REVIEW DRAFT – DO NOT DISTRIBUTE REVIEW DRAFT – DO NOT DISTRIBUTE

Three types of circular strategies work together to cut EU industrial emissions The demand-side potential includes a range of strate- • More material-efficient products jointly make up gies. We include under the umbrella of ‘circular economy’ opportunities with 56 Mt CO2 of abatement potential. any opportunity to provide the same economic service These opportunities have in common that they reduce with less primary material. In this section, we explore the the total materials input required to produce a given pro- potential associated with each of three categories of me- duct or structure, through lightweighting, reduced waste, asures, which are further summarised in Exhibit 8: high-strength materials, and other strategies. • New circular business models could reduce emis- • Materials recirculation opportunities provide more than sions by 62 Mt CO2. The main lever here is a large in- half of the abatement potential, at 178 Mt CO2 per year, by crease in the materials productivity of both mobility and increasing the share of materials needs that are met by using buildings: increasing the benefits derived from each buil- recycled rather than primary materials. This means increasing ding or vehicle through shared use and measures to pro- both the volume and the quality of secondary materials. long their lifetime.

Exhibit 8 How different types of circular economy strategies reduce GHG emissions

1 2 3 MATERIAL RECIRCULATION PRODUCT MATERIAL EFFICIENCY CIRCULAR BUSINESS MODELS

GHG MATERIALS PRODUCT GHG EXHIBIT 1.8 SERVICE EMISSIONS = X X X LEVEL MATERIALS PRODUCT SERVICE LEVEL

Underlaying bene t, More high-value recycling  Less material input Fewer products required to such as passenger less primary material required for each car, achieve the same bene ts or or freight kilometers production lower emissions building, etc (e.g. service (e.g number cars of transportation, or per tonne of material tonnes of material per produced for a given amount eective available Tycker streckat funkar car) of transportation) bra kring de rutor som building area “tar ut” varandra High value recycling, Reuse of components Higherutilisation and through: intensive use of products Increased collection Improved production Sharing of products ralles process Product as service Design for disassembly Less production waste and improved Avoid over-speci cation Longer lifetime of materials separation products Less contamination Designing products with Design for durability and downgrading of less materials and disassembly materials High-strenght materials Long lasting materials New design principles Improved maintenance Variation in size Remanufacturing

SOURCE: MATERIAL ECONOMICS

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Materials recirculation opportunities provide more than half of the abatement potential.

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1. MATERIALS RECIRCULATION STRATEGIES COULD CURB EMISSIONS BY 178 MT CO2 PER YEAR

From a circular economy perspective, Europe is a recycled steel can cut emissions by 90% if using largely treasure trove of recyclable materials – those that have decarbonised electricity. already been discarded, as well as millions of tonnes • Plastics: The largest potential to improve circularity more that will become available as buildings, vehic- is in plastics, where recycling rates today are low (recyc- les and products are taken out of service in the future. led volumes are just 10% of plastics in the market), and As shown in Exhibit 9, producing secondary materials CO2 gains would be substantial. A detailed assessment through recycling results in far lower emissions per tonne of plastics categories and uses identifies opportunities than producing primary materials. Thus, every piece of to greatly increase recycling levels, especially for the scrap holds the promise of CO2 savings. Across mate- biggest five plastic types that make up 70% of demand. rials, realising the potential requires creating robust sys- More than half of plastics volumes could be recycled tems for collection, avoid contamination by additives or mechanically, and a further 11% through chemical re- mixing of different qualities of materials, and producing cycling approaches. materials of sufficient quality to serve as genuine substi- tutes for the corresponding primary material. However, • Aluminium: It is less certain to what extent the stock the scope for increasing the reuse of different materials of aluminium will stabilise, but the amount of post-consu- varies significantly: mer scrap available will nonetheless increase. By 2050 potentially, post-consumer scrap generated in Europe • Steel: Current EU steel production is more than 60% could amount to as much as 75% of the production re- based on primary production, i.e. produced from iron ore. quired to meet European demand. The opportunity is to However, a detailed analysis of steel stock evolution and enable the continued use of this scrap in a wide range scrap flows suggests that, in decades to come, the EU of applications, so that it can replace a greater share of will approach the point where the need to maintain a primary metals production. near-constant stock of steel can be served to a large extent by recirculating steel that has already been pro- • Cement: Cement cannot be recycled in the conven- duced. Doing so will require reducing losses of steel, tional sense, though structural elements can be reused. changing how steel scrap is handled and traded, and In addition, as we explain below, approaches are under avoiding contamination of the steel stock with copper, development to recover unreacted cement from concrete, as we discuss below. The CO¬¬2 prize is substantial, as which can then be recycled into new concrete production.

26 EU EMISSIONS REDUCTIONS POTENTIAL FROM A MORE CIRCULAR ECONOMY, 2050 MILLION TONNES OF CARBON DIOXIDE PER YEAR EXHIBIT 1.5

STEEL PLASTICS ALUMINIUM CEMENT

530 178

-56 %

234

2050 BASELINE MATERIALS PRODUCT MATERIALS CIRCULAR 2050 CIRCULAR RECIRCULATION EFFICENCY BUSINESS MODELS SCENARIO

EXHIBIT 1.7

MATERIALS PRODUCTION EMISSIONS, 2015 AND 2050 MILLION TONNES OF CARBON DIOXIDE PER YEAR, EU

564 STEEL 530 • Steel use remains at close to 160 Mt / year as EU stock saturates, • Scrap-based production increases from 40% to 65%

ALUMINIUM 132 • Aluminium use grows from 12 to 16 Mt per year, but stabilises at this level

• Clean electricity means lower CO2 intensity for both EU production and imported metal • e net result is almost stationary emissions attributable 83 to EU consumption 80

CEMENT • Consumption stays similar today, reaching 184 Mt per year 114 113 • Emissions falls by 10 percent through production process REVIEW improvements DRAFT – DO NOT DISTRIBUTE

TODAY 2050 Exhibit 9 Materials recycling leads to significant reductions in CO2 emissions from materials production EXHIBIT 1.9

STEEL: PRIMARY VS. RECYCLED PRIMARY PLASTICS: PRIMARY VS. RECYCLED PRIMARY TCO2 / T STEEL TCO2 / T PLASTICS RECYCLED RECYCLED 2.4 2.3 2.2

1.9

14 %

0.4 0.4 0.3

0.1

TODAY 2050 TODAY 2050

ALUMINIUM: PRIMARY VS. RECYCLED CEMENT: PRIMARY VS. RECYCLED PRIMARY PRIMARY TCO2 / T ALUMINIUM TCO2 / T CEMENT RECYCLED RECYCLED

13.5 0.7 0.6

9.7 14 %

0.3

0.1

0.3 0.2

TODAY 2050 TODAY 2050

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2. MORE MATERIAL-EFFICIENT PRODUCTS CAN Fully achieving the potential gains in this category would require deep changes in how we deliver services CUT EMISSIONS BY 56 MT CO2 PER YEAR and goods, which in turn would drive major changes in how vehicles and buildings are initially built and ma- The amount of materials required also can be reduced sub- intained. But the rewards would be substantial. As we stantially through a range of approaches. One is to reduce elaborate below, there are major opportunities to boost the amount of materials that are discarded as scrap or waste productivity and achieve significant co-benefits for the -en in the manufacturing or construction process. For example, vironment, public health, and quality of life. some 15% of buildings materials are wasted in construction, a share that can be reduced substantially through best prac- In practice, these broad strategies translate into a tice. Another strategy is to use more advanced materials and wide range of measures: from changes to product design construction techniques. High-strength steel, for instance, has and materials choice, to improved technology, larger sca- the potential to cut materials use by 30–40% in a range of le in secondary materials industries, and even extensive applications, from heavy machinery to buildings and furniture. changes in the value chains and organisation of mobility It also is possible to save materials by reducing over-specifica- and buildings. tion; by one estimate, as much as 50% of steel used in buildings is in excess to what is strictly required to meet structural needs. Finally, lightweighting of products can also be achieved * * * by tailoring individual products better to specific uses; for example, while cars built for individual ownership typically need The benefits of circular approaches are strengthe- to be able to carry at least four passengers and some bagga- ned by the fact that many of these measures work well ge, cars built for a shared fleet could vary in size, with many together. For example, reducing the materials intensity just big enough for a one- or two-passenger trip in the city. of buildings and vehicles reduces the total steel stock needed, which secondary steel production needs to grow less to meet the demand. Likewise, new business 3. NEW CIRCULAR BUSINESS MODELS IN MO- models that boost the value realised from each product can drastically improve the economics of measures to BILITY AND BUILDINGS CAN REDUCE EMIS- make products more materials-efficient. Cumulatively, SIONS BY 62 MT CO2 PER YEAR these opportunities can result in a step change in resource efficiency. Fully achieving the potential gains in this category would require new business models that amount to deep changes Tracing one material in one value chain makes clear in how we deliver services and goods. These in turn would the extent the opportunity. For example, circular strate- drive major changes in how vehicles and buildings are initi- gies could jointly cut the amount of primary steel requi- ally built and maintained. But the rewards would be substan- red to serve mobility needs by 70% (Exhibit 10). Put dif- tial. As we elaborate below, there are major opportunities to ferently, the productivity of materials use has increased boost productivity and achieve significant co-benefits for the so that each tonne of steel supports more than three environment, public health, and quality of life. times as much transportation.

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Exhibit 10 Circular measures can reduce the primary steel required to support mobility by 70 percent

PRIMARY STEEL USED FOR MOBILITY SERVICES TON PRIMARY STEEL PER MILLION PASSENGER KILOMETRE

MATERIALS RECIRCULATION PRODUCT MATERIALS EFFICIENCY CIRCULAR BUSINESS MODELS

I 1.84

0.29 II

EXHIBIT 1.10 0.35 III -70 %

0.65

0.56

BASELINE CIRCULAR SCENARIO

A CIRCULAR SCENARIO RESULT IN MOBILITY SERVICES BEING PROVIDED WITH MUCH LESS PRIMARY STEEL USED PER UNIT, THROUGH:

III I MATERIALS RECIRCULATION II MORE MATERIAL IMPROVED PRODUCTIVITY OF USE already is a major part of steelmaking, with -EFFICIENT PRODUCTS has particularly large potential for vehicles. Today’s passenger cars use secondary (recycled) steel making up around can reduce steel requirements by only 2% of their capacity, because they are parked most of the time and one-third of current global production. Still, some 30%. e rst step is to often carry only one or two people when used. Replacing a large share of there is much potential to increase recycling by reduce process losses; up to half of personal vehicles with a system of eet-managed, shared vehicles would improving collection rates, avoiding steel now ends up as process scrap mean that cars could not only be used more intensively, but such use contamination with copper, reducing losses rather than in the nal product. would make a range of strategies feasible that extend their lifetimes. ese during remelting, and avoiding downgrading. A second step is to make cars in a include more durable design and higher-value materials, a greater share Together, these measures could reduce the much wider range of sizes, and to of intrinsically more durable electric vehicles, predictive and eet-man- need for global primary steel production by use more advanced materials that aged maintenance, and modular design for reuse and remanufacturing. another 14% by 2050, and as much as 80% may cost more, but pay o when e combination of sharing and longer lifetimes could almost halve the in a more mature economy such as the EU. vehicles are used more intensively. amount of materials needed per passenger-kilometre travelled.

NOTE: ANALYSIS IS BASED ON GLOBAL STEEL PRODUCTION SOURCE: MATERIAL ECONOMICS

EMISSIONS INTENSITY

t CO2 / t MATERIAL EXHIBIT 1.11

2,0 REMAINING EMISSIONS AFTER TOTAL EMISSIONS DEMAND-SIDE ABATEMENT IN THE EU 2050

234 MT 530 MT CO 2 CO2 1,5 ILLUSTRATIVE SUPPLY-SIDE

REDUCTION OF 209 MT CO2 THROUGH: CIRCULARITY REDUCES PRIMARY • EFFICIENCY AND MATERIALS DEMAND, RESULTING RENEWABLE ENERGY IN 296 MT CO2 ABATEMENT 1,0 • ELECTRIFICATION AND PROCESS BREAKTHROUGHS • CARBON CAPTURE AND STORAGE

0,5 25 MT

CO2 REMAINING EMISSIONS AFTER DEMAND – AND SUPPLY-SIDE ABATEMENT PRIMARY 0,0 MATERIALS MILLION TONNES 40 80 120 160 200 240 280 320 MATERIAL

EXHIBIT 1.12

CUMULATIVE EMISSIONS FROM MATERIALS PRODUCTION, 2015 – 2100

BILLION TONNES OF CO2

STEEL ALUMINIUM

1000 PLASTICS (PRODUCTION) CEMENT 918 333 PLASTICS (EMBEDDED) 900

800

700

178 600 To meet climate targets: Additional circularity Production process breakthroughs 500 Material substitution 408

400

300

200

100

0 BASELINE DEMAND-SIDE CURRENT REMAINING FURTHER EMISSIONS EMISSIONS MEASURES LOW-CARBON EMISSIONS REDUCTIONS REQUIRED FOR (CIRCULARITY) PROCESSES CLIMATE TARGETS

TOTAL COST REDUCTION POTENTIAL CO-BENEFITS FROM A SHIFT TOWARDS SHARED CARS EXHIBIT 1.15 EUR PER 1000 PASSENGER KILOMETRES EUR PER 1000 PASSENGER KILOMETRES

264

155

-74 %

-77 %

14 % 14 % 68 35

CURRENT CIRCULAR CURRENT CIRCULAR SCENARIO SCENARIO

COST FOR MATERIALS, COST OF SOCIETY, INCLUDING INFRASTRUCTURE, MANUFACTURING AND DISTRIBUTION PARKING AND LAND

COST OF DRIVING, INCLUDING FUEL, COST FOR CONGESTION INSURANCE, PARKING ETC.

COST FOR MAINTENANCE OTHER EXTERNALITIES, INCLUDING ACCIDENTS, NOISE AND AIR POLLUTION

Shared car eets and higher utilisation per car lower cost per kilometre Fewer cars due to higher occupancy per car result in improved Larger share of secondary materials and components reduces cost air quality and reduce noise level and congestion for materials Autonomous cars are safer, reduce need for signs, lanes Shared cars that are to a larger extent electric, autonomous and of and other infrastructure and can optimise tra c ows smaller average size reduce cost of materials and cost of driving More electric vehicles reduce noise level and have positive impact Longer car lifetime reduces costs per kilometre, while more durable on air quality, especially when shit ng towards renewable energy materials, autonomous cars etc. also have negative impact on cost savings sources REVIEW DRAFT – DO NOT DISTRIBUTE REVIEW DRAFT – DO NOT DISTRIBUTE

Demand- and supply-side measures together make deep decarbonisation of industry more feasible

The emissions reductions described above are net year, and associated emissions by 296 Mt CO2. If emis- reductions, accounting for the inputs required to imple- sions are to be reduced by an illustrative 90%, that would ment relevant measures, including transportation and still leave about 209 Mt CO2 of emissions to abate. electricity. The numbers highlight another advantage of Supply-side measures are crucial to closing that gap. these approaches: they can benefit from synergies with the decarbonisation of transport and electricity systems. Sharply reducing emissions from materials production The overall resource requirements also are modest when would require fundamental changes to industrial proces- compared with the requirements for supply-side abate- ses. Examples include replacing coal with hydrogen as ment – for example, the energy requirements are much an input to primary steel production, the synthesis of lower per tonne material produced. The intrinsic higher plastics from non-fossil feedstock (e.g. bioplastics), and resource efficiency of a more circular economy therefore novel cements. While there are promising options un- pays off not only in reduced demand for primary raw ma- der exploration, they are at low technological readiness, terials, but also in terms of inputs for low-carbon energy, and far from commercial use. Developing and deploying putting less strain on other aspects of the overall transi- them is a major undertaking, with uncertainty both about tion to a low-carbon economy. which options will prove successful, and how long they will take to scale up. Additional CO2 reductions may Yet nothing in this report should be taken to mean that be possible through further energy efficiency improve- circular economy approaches should replace supply-side ments, wider use of renewable energy and electrification measures. Both are needed if Europe is to decarbonise as well. its industry. Exhibit 11 shows the potential for demand-side emissions reductions combined with the potential on The other main option is to capture CO2 from exis- the supply side. Total 2050 baseline demand across steel, ting processes. This is being trialled at some industrial plastics, aluminium and cement is over 400 Mt per year, of sites, but is still at demonstration phase. After more than which almost 300 Mt are primary materials. As noted ear- a decade of active development, CCS still faces large lier, even assuming the use of the best available technologi- challenges, including a lack of viable storage sites for es, energy efficiency improvements, the use of low-carbon CO2, and the cost and logistics of fitting a large number energy, and circularity consistent with current trends, total of dispersed industrial sites with CCS technology. emissions from the production of these materials would be 530 Mt CO2 per year, barely changed from today. Overall, circular economy opportunities thus substantially reduce the scale of supply-side abatement required, The demand-side measures explored in this report potentially providing the majority of the emissions reduc- would reduce primary materials needs by 173 Mt per tions required for EU 2050 targets.

30 PRIMARY STEEL USED FOR MOBILITY SERVICES TON PRIMARY STEEL PER MILLION PASSENGER KILOMETRE

MATERIALS RECIRCULATION PRODUCT MATERIALS EFFICIENCY CIRCULAR BUSINESS MODELS

I 1.84

0.29 II

EXHIBIT 1.10 0.35 III -70 %

0.65

0.56

BASELINE CIRCULAR SCENARIO

A CIRCULAR SCENARIO RESULT IN MOBILITY SERVICES BEING PROVIDED WITH MUCH LESS PRIMARY STEEL USED PER UNIT, THROUGH:

III I MATERIALS RECIRCULATION II MORE MATERIAL IMPROVED PRODUCTIVITY OF USE already is a major part of steelmaking, with -EFFICIENT PRODUCTS has particularly large potential for vehicles. Today’s passenger cars use secondary (recycled) steel making up around can reduce steel requirements by only 2% of their capacity, because they are parked most of the time and one-third of current global production. Still, some 30%. e rst step is to often carry only one or two people when used. Replacing a large share of there is much potential to increase recycling byREVIEW reduce process DRAFT losses; up to– half DO of NOTpersonal DISTRIBUTE vehicles with a system of eet-managed, shared vehicles would improving collection rates, avoiding steel now ends up as process scrap mean that cars could not only be used more intensively, but such use contamination with copper, reducing losses rather than in the nal product. would make a range of strategies feasible that extend their lifetimes. ese during remelting, and avoiding downgrading. A second step is to make cars in a include more durable design and higher-value materials, a greater share Together, these measures could reduce the much wider range of sizes, and to of intrinsically more durable electric vehicles, predictive and eet-man- need for global primary steel production by use more advanced materials that aged maintenance, and modular design for reuse and remanufacturing. another 14% by 2050, and as much as 80% may cost more, but pay o when e combination of sharing and longer lifetimes could almost halve the in a more mature economy such as the EU. vehicles are used more intensively. amount of materials needed per passenger-kilometre travelled.

Exhibit 11 The role of demand- and supply-side measures in decarbonising emissions from materials production

EMISSIONS INTENSITY

t CO2 / t MATERIAL EXHIBIT 1.11

2,0 REMAINING EMISSIONS AFTER TOTAL EMISSIONS DEMAND-SIDE ABATEMENT IN THE EU 2050

234 MT 530 MT CO 2 CO2 1,5 ILLUSTRATIVE SUPPLY-SIDE

0,5 25 MT

CO2 REMAINING EMISSIONS AFTER DEMAND – AND SUPPLY-SIDE ABATEMENT PRIMARY 0,0 MATERIALS MILLION TONNES 40 80 120 160 200 240 280 320 MATERIAL

EXHIBIT 1.12

CUMULATIVE EMISSIONS FROM MATERIALS PRODUCTION, 2015 – 2100

BILLION TONNES OF CO2

STEEL ALUMINIUM

1000 PLASTICS (PRODUCTION) CEMENT 918 333 PLASTICS (EMBEDDED) 900

800

700

178 600 To meet climate targets: Additional circularity Production process breakthroughs 500 Material substitution 408

400

300

200

100

0 BASELINE DEMAND-SIDE CURRENT REMAINING FURTHER EMISSIONS EMISSIONS MEASURES LOW-CARBON EMISSIONS REDUCTIONS REQUIRED FOR (CIRCULARITY) PROCESSES CLIMATE TARGETS

TOTAL COST REDUCTION POTENTIAL CO-BENEFITS FROM A SHIFT TOWARDS SHARED CARS EXHIBIT 1.15 EUR PER 1000 PASSENGER KILOMETRES EUR PER 1000 PASSENGER KILOMETRES

264

155

-74 %

-77 %

14 % 14 % 68 35

CURRENT CIRCULAR CURRENT CIRCULAR SCENARIO SCENARIO

COST FOR MATERIALS, COST OF SOCIETY, INCLUDING INFRASTRUCTURE, MANUFACTURING AND DISTRIBUTION PARKING AND LAND

COST OF DRIVING, INCLUDING FUEL, COST FOR CONGESTION INSURANCE, PARKING ETC.

COST FOR MAINTENANCE OTHER EXTERNALITIES, INCLUDING ACCIDENTS, NOISE AND AIR POLLUTION

Globally, a more circular economy could avoid 3.6 Gt CO2 per year by 2050

The EU is well positioned to pioneer many circular eco- Altogether, we estimate the global abatement potential nomy principles, especially those focused on materials from circular measures at 3.6 billion tonnes of CO2 per year recirculation. It helps to have large stocks of materials by 2050, or nearly 45 % of baseline emissions (increasing already available for recycling. Although there is potential to 60 % later in the century). This development course is for recycling also in developing countries, it is smaller when one much more consistent with climate objectives; in terms much of production goes towards building up the total stock. of cumulative emissions to 2100, a more circular economy could cut 333 out of the 918 billion tonnes of CO2 in the Strategies focused on materials efficiency and produc- baseline scenario (Exhibit 12). Rapidly adopting current tivity of use, on the other hand, could benefit developing low-carbon technologies could cut another 178 billion ton- countries at least as much as the EU. Instead of replicating nes, so that just over 400 billion tonnes remain. To meet the inefficiencies of the mobility and buildings systems of climate objectives, emissions would need to fall still further today’s OECD economies, these countries can ‘leapfrog’ – through additional circular economy measures beyond to more efficient technologies and business models. Ma- those investigated in this study, materials substitution, and king construction more materials-efficient, for example, is cru- the development and gradual adoption of even lower-car- cial for countries that are rapidly expanding their built area. bon production processes than those available today.

32 PRIMARY STEEL USED FOR MOBILITY SERVICES TON PRIMARY STEEL PER MILLION PASSENGER KILOMETRE

MATERIALS RECIRCULATION PRODUCT MATERIALS EFFICIENCY CIRCULAR BUSINESS MODELS

I 1.84

0.29 II

EXHIBIT 1.10 0.35 III -70 %

0.65

0.56

BASELINE CIRCULAR SCENARIO

A CIRCULAR SCENARIO RESULT IN MOBILITY SERVICES BEING PROVIDED WITH MUCH LESS PRIMARY STEEL USED PER UNIT, THROUGH:

EMISSIONS INTENSITY

t CO2 / t MATERIAL EXHIBIT 1.11

2,0 REMAINING EMISSIONS AFTER TOTAL EMISSIONS DEMAND-SIDE ABATEMENT IN THE EU 2050

234 MT 530 MT CO 2 CO2 1,5 ILLUSTRATIVE SUPPLY-SIDE

0,5 25 MT

CO2 REMAINING EMISSIONS AFTER DEMAND – AND SUPPLY-SIDE ABATEMENT PRIMARY 0,0 MATERIALS MILLION TONNES 40 80 120 160 200 240 280 320 MATERIAL

REVIEW DRAFT – DO NOT DISTRIBUTE

Exhibit 12 A more circular economy could cut emissions globally by more than 300 billion tonnes to 2100 EXHIBIT 1.12

CUMULATIVE EMISSIONS FROM MATERIALS PRODUCTION, 2015 – 2100

BILLION TONNES OF CO2

STEEL ALUMINIUM

1000 PLASTICS (PRODUCTION) CEMENT 918 333 PLASTICS (EMBEDDED) 900

800

700

178 600 To meet climate targets: Additional circularity Production process breakthroughs 500 Material substitution 408

400

300

200

100

0 BASELINE DEMAND-SIDE CURRENT REMAINING FURTHER EMISSIONS EMISSIONS MEASURES LOW-CARBON EMISSIONS REDUCTIONS REQUIRED FOR (CIRCULARITY) PROCESSES CLIMATE TARGETS

TOTAL COST REDUCTION POTENTIAL CO-BENEFITS FROM A SHIFT TOWARDS SHARED CARS EXHIBIT 1.15 33 EUR PER 1000 PASSENGER KILOMETRES EUR PER 1000 PASSENGER KILOMETRES

264

155

-74 %

-77 %

14 % 14 % 68 35

CURRENT CIRCULAR CURRENT CIRCULAR SCENARIO SCENARIO

COST FOR MATERIALS, COST OF SOCIETY, INCLUDING INFRASTRUCTURE, MANUFACTURING AND DISTRIBUTION PARKING AND LAND

COST OF DRIVING, INCLUDING FUEL, COST FOR CONGESTION INSURANCE, PARKING ETC.

COST FOR MAINTENANCE OTHER EXTERNALITIES, INCLUDING ACCIDENTS, NOISE AND AIR POLLUTION

MANY CIRCULAR ECONOMY STRATEGIES ARE ECONOMICALLY ATTRACTIVE

In Section 2, we showed the substantial potential for Some care is required in interpreting a cost curve of circular economy strategies to reduce industrial emis- this type. While a negative cost shows that a measure sions. The obvious next question is, are they cost-effecti- can ‘pay for itself’ when viewed from a societal perspective? In this section, we quantify the cost of different circu- ve, that does not mean that it will be implemented without lar economy options; Exhibit 13 summarises our findings policy action. If measures that have net benefits remain, it in a cost curve. One axis shows the abatement potential is because there are barriers or market failures that pre- available, divided into groups of measures that add up to vent their implementation. In such situations, the market 296 Mt CO¬2. The other axis shows the estimated cost will not act by itself, even if prices are favourable; policy of each measure, expressed in EUR per tonne of CO¬2 interventions will be needed to overcome the barriers. avoided. Some negative-cost measures may also require sys- It is striking how economically attractive many measu- temic shifts in a value chain or sector. Car-sharing is a res appear to be, with low and even costs. Many measu- case in point; shared fleets of cars could lower costs sig- res are economically attractive, if barriers to their imple- nificantly relative to individual ownership, but this would mentation can be overcome; many others have a cost require a large-scale shift towards a different innovation of no more than 50 EUR/t CO2, less than many other focus and overall system for how to serve mobility. Rea- ways to reduce emissions (including many supply-side lising the potential CO2 and economic benefits therefore opportunities for industrial emissions). We caution that requires large-scale and systemic shifts, not just incre- this cost curve is indicative, with many uncertainties, mental change. A similar argument applies to high-value and must be followed up with deeper analysis to impro- plastics recycling: negative costs are not available today, ve the estimates. Nonetheless, the results show a clear but depend on a combination of technical progress, potential for circular economy strategies to make very change in the way that plastic is used in products and cost-effective contributions to a low-carbon economy. handled at end-of-life, and large scale in recycling acti- Moreover, ex-ante analyses of this kind often fail to cap- vities. ture many of the technological developments that will become available. In subsequent chapters of the report, To further understand the economic significance of we provide more details about the numbers underlying different measures, it helps to distinguish the costs and our analysis. benefits that arise in each category:

34 REVIEW DRAFT – DO NOT DISTRIBUTE

Exhibit 13 A cost curve for circular economy measures

to reduce EU CO2 emissions

ABATEMENT POTENTIAL AND COST FOR CIRCULAR ECONOMY LEVERS, 2050 Mt CO2 PER YEAR; EUR PER TONNE CO2 ABATED

ABATEMENT COST EXHIBIT 1.13 EUR / t CO2

Cars - Sharing Cars - Prolong lifetime Cars - Remanufacturing Buildings - Floor space sharing Other - Sharing and lifetime 100 Plastics - Higher quality recycling New cost curve Buildings - Reduced waste in construction 2018-05-29 Plastics - Reuse Steel - Reduce copper 50 Aluminium - increase collection

50 100 0 EMISSIONS 150 200 250 300 SAVINGS Mt CO2 / YEAR

Cars - Lightweighting -50 Buildings - Materials efficiency Cement - Cement recycling Steel - Reduce fabrication losses -100 Plastics - Chemical recycling Buildings - Reuse Other - Materials efficiency Plastics - Increased recycling at current quality Aluminium - avoid downgrading Steel - Increase collection

HOW TO READ THE CO2 ABATEMENT COST CURVE PLASTIC COST CURVE 2050 POTENTIAL The CO2 abatement cost curve summarises the opportunities to reduce CO2 emissions through circular EUR PER ABATED TONNE CO , EUROPE, 2050 economy opportunities. The width2 of each bar represents the CO2 potential of that opportunity to reduce CO2 emissions in 2050, relative to a baseline scenario. It accounts for overlaps and interactions that arise EXHIBIT 3.12 ABATEMENTwhen all COST the opportunities are pursued simultaneously. EUR / t CO2 The height of each bar represents the average cost of avoiding 1 tonne of CO2 emissions by 2050 through that opportunity.Agriculture Reuse In several cases, the cost is a weighted average across several sub-opportunities. All costs are in 2015B&C real Reuse Euros. The cost of abatement is calculated from a societal perspective (excluding taxes and subsidies), but doesOther not plastics account High for quality reduced increased externalities recycling or other benefits associated with the opportunities. The opportunities are orderedB&C left High to qualityright increasedwith the recycling lowest-cost abatement opportunities to the right and highest to the left. Both volume and costB&C estimates Low quality are increased of course recycling uncertain in such a long timeframe New cost curve Automotive High quality increased recycling 2018-05-29 EEE High quality increased recycling Other plastics Reuse 100 100 Agriculture High quality increased recycling Packaging High quality 35increased recycling Automotive Reuse 55 57 50 43 35 23

10 20 30 40 0 50 EMISSIONS -3 60 70 80 90 100 110 120 SAVINGS Mt CO2 / YEAR -26 EEE Low quality -50 increased recycling -53 -49 -59 Automotive Low -62 -70 quality increased recycling -100 -93 -100 -100 Agriculture Low quality increased recycling Packaging Resuse Chemical recycling Packaging Low quality increased recycling EEE Reuse Other plastics Low quality increased recycling REVIEW DRAFT – DO NOT DISTRIBUTE REVIEW DRAFT – DO NOT DISTRIBUTE

1. Materials recirculation can build on high-value production of recycled materials

The economic attractiveness of materials recircula- nor modifications could capture large additional values. tion depends in large measure on the capacity to retain Second, technology continues to improve, making circu- the material value over the use cycle. Substantial values lar economy measures more viable – through everything are created when materials are initially produced. If the- from advanced sensors, to automation, to information se can be retained and recovered, the CO2 benefits of technology and mobile apps. The costs of technology avoided primary production can be coupled to the indu- also continue to decline, to the point that the value of the strial opportunity of preserving the intrinsic value of the materials to be recovered would more than offset the cost secondary materials. This is why already, 83% of steel of implementing the necessary tools. and 77% of aluminium is recycled. The CO2 and other resource benefits in turn depends on the ability to produ- Plastics recycling offers a particularly instructive ex- ce high-quality secondary materials that are capable of ample of the dynamic. Aging, additives, contamination, substituting for primary materials. mixing of different plastic types and other factors conspi- re to hold back this market. As a result, recycling of- For further recycling to be economically attractive, it ten results in low-value secondary materials produced is necessary to either reduce the cost of collection and at relatively high cost. In CO2 terms, abatement costs secondary materials production, or to increase the value are around 50–100 EUR per tonne CO2. Even though of the material produced. A key finding of our analysis is plastics recycling rates as high as 30% are reported in that the scope for high-quality secondary materials pro- the EU, the actual volume of secondary materials in the duction is far from exhausted, for two main reasons: market is only 10%. As illustrated in Exhibit 14, a range First, there are numerous barriers and market failures that of measures to improve the collection and processing now hinder what would otherwise be cost-effective mate- of plastics for recycling could transform the economics. rials recovery and secondary materials production. One Once we have a system that retains substantial value, major problem is that current processes for product de- recycling plastics can become profitable, and take off on sign and dismantling, from cars to buildings and packa- a larger scale. Our analysis suggests that this is feasible ging, lead to significant materials degradation. Even mi- for the top five plastic types.

36 EMISSIONS FROM PLASTICS WITHIN THE EU Mt CO2 PER YEAR 24

76% EHIBIT 33 34

233

132

2017 DEMAND GROWTH INCREASED EMISSIONS IMPROVED PRODUCTION 2050 AT END OF LIFE

WITH CURRENT DEVELOPMENT, CO2 EMISSIONS FROM RECYCLING OFFERS ONE OF THE FEW WAYS TO EHIBIT 32 PLASTICS WOULD BE 40% OF 2050 TARGET REDUCE EMISSIONS

CO2 EMISSIONS FROM PLASTIC, 2017 AND 2050, AS CO2 INTENSITY OF VIRGIN AND RECYCLED MATERIAL TONNE or ton SHARE OF EMISSION TARGET TONNE CO2 PER TONNE PLASTIC Mt CO2 PER YEAR

2017 2050 BORTTAGEN4 000 51 ENERGY RECOVERY 27 500

98% 92% 60%

200 25 PRODUCTION 77 04

CURRENT EMISSIONS EMISSION EMISSIONS PRODUCTION RECYCLING TOTAL FROM TARGET FROM OF NEW PLASTIC EMISSIONS PLASTICS PLASTICS ENERGY RECOVERY

CUMULATIVE EMISSIONS TO 2100 EHIBIT 33 Gt CO2, GLOBAL, 2015-2100

PROECTED CO2 EMISSIONS FROM MATERIALS CARBON BUDGET TO 2100

914 ALUMINIUM 66 800 BORTTAGENCEMENT 254

STEEL 307 300

PLASTICS 288

BAT ASSUMING CURRENT 2 CARBON BUDGET FOR CARBON BUDGET EU LEVEL CONSUMPTION INDUSTRY AND ENERGY AVAILABLE FOR GLOBALLY MATERIALS

Share of European plastics demand (49Mt) EHIBIT 35 %, 2015

60% OF PLASTICS DEMAND

PACKAGING BUILDING AUTOMOTIVE ELECTRONICS OTHERS CONSTRUCTION

PE POLYETHEN

PP POLYPROPHEN

PS POLYSTYRENE INCL EPS FOAM

PVC POLYVINYL CHLORIDE

PET POLYETHYLENE TEREPHTHALATE

OTHER PLASTICS

40% 20% 9% 6% 26%

PLASTIC VOLUMES IN EUROPE, 2015 Mt PER YEAR EHIBIT 36 Export in products Stock build-up Misclassi ed waste Etc 9

58 4 90% 49 10 30 26 7 4 9 5 PLASTICS NET DEMAND USE BALANCE END OF LIFE UNSORTED COLLECTED LANDFILL ENERGY COLLECTED PROCESS RECYCLING PRODUCTION EPORT AND STOCK PLASTICS PLASTICS IN PLASTIC RECOVERY FOR LOSSES IN BUILDUP HOUSHOLD WASTE RECYCLING RECYCLING WASTE

FROM TO EHIBIT 37 Policy-driven system based on waste Self-sustaining system, driven by value of secondary 1 management; revenues do not cover costs materials (with regulation of externalities)

Focus on increasing collection volumes – Focus on secondary material production and ability to 2 similar to other ‘waste’ flows replace virgin material one-to-one Ludde gör denna 3 Onus on recycling industries to handle deeply Transformation through policy-driven coordination to enable direkt i InDesign? suboptimal flows in largely unchanged system simultaneous change across value chain 4 Product design does not bear costs for Materials and design choices account for recyclability, downstream externalities and costs recycled content and disassembly 5 Incentives focused on supply into recycling Demand-side incentives create market certainty and process stimulate investment in capacity 6 Recycling rooted in local, small-scale waste Large-scale and regional raw materials industry, with handling, with patchy coverage harmonized systems, specialisation, and product standards

7 Design and end-of-life treatment without focus Products designed and dismantled to retain secondary on retaining material value material value

Virgin plastics carry cost for embodied carbon (other Virgin plastics do not carry cost of externalities 8 externalities likely via regulation)

PLASTIC PRODUCTION EMISSIONS Mt CO2, EUROPE, 2050 EHIBIT 38 233

116

Rdditional recycling Substitution with other materials Renewable energy in production Biobased or CO2 feedstock 117 Process innovation

2050 WITH 100% CIRCULAR ABATEMENT REMAINING RENEWABLE RENEWABLE ENERGY RECOVERY POTENTIAL 2050 EMISSIONS ENERGY REDUCTION 2050 EMISSIONS

TOTAL

28% WHAT TAKES TO GET THERE NOT COLLECTED STOCK 47% 85% of 5 most common plastics collected for 1% recycling with signi cant yield increases (90% yield) Shift from land ll to energy recovery for non-recycled 17% Reduced stock build-up and increased collection for EHIBIT 39 recycling Reuse of: 12% 8% of packaging, especially industrial 20% Ludde xar LANDFILL 3% of B&C plastics, esp. PVC carpets, pipes etc. Minimum text 7 pt. 4% of large automotive parts

15% ENERGY RECOVERY 37%

YIELD LOSSES 8% RECYCLED 10% REUSE 0% 4% 2017 2050

PACKAGING BUILDING CONSTRUCTION AUTOMOTIVE

5% 11% NOT COLLECTED 21% 2% STOCK 18% 16% 2% 2% 47% 15% 17% 32% LANDFILL 25% 76% 12%

ENERGY RECOVERY 22% 18% 53% 30% 47% YIELD LOSSES 13% 8% 5% 32% 9% RECYCLED 19% 11% 3% REUSE 0% 10% 0% 5% 4% 0% 6% 4% 2017 2050 2017 2050 2017 2050

REMAINING EMISSIONS 2050 Mt CO EHIBIT 313 2

REBOUND 117 Recycled plastics of lower quality do not replace the same volume of virgin plastics and may lead PRODUCTION FOR STOCK BUILD to an increased demand of total plastics 11 Around 10% of demand results in net stock build-up, requiring additional primary production 22 REUSE AND RECYCLING EMISSIONS 80% from yield losses in chemical recycling, the YIELD LOSSES remainder from mechanical recycling Yield losses in pre-treatment, recycling and 14 reuse process sent to energy recovery Process improvements as well as product design and choice of material important to maximize yields

42 AGED, DEGRADED, CONTAMINATED AND NOT COLLECTED COMMON PLASTICS Relatively small given option of chemical recycling THERMOSETS AND SMALL VOLUME Remaining share is aged, contaminated, or not captured by collection systems SPECIALTY PLASTICS 16 Challenging to achieve scale in small specialty plastics streams 12

VALUE EUR/ton

EHIBIT 310 1700 EUR ORIGINAL MATERIAL VALUE, 50B EUR

ton, ore TONNE 1000 EUR

VOLUME REVIEW DRAFT – DO NOT DISTRIBUTE tonnes TODAY 55% COLLECTION CIRCULAR SYSTEM 90% value loss >80% of value still lost, 50% of value retained “30% collection” Large process losses in recycling Higher recycling yields increase but just 16% Uphill struggle to increase of volume recycling volume further – at a net cost High value retention provides Rebound eects as downgraded revenue for investment in self- plastics cannot replace virgin sustaining systems and scaling plastics in many uses Recycling can replace virgin production Exhibit 14 Plastics recycling can be made economically EHIBIT 310 viable through a range of measures REDUCED RECYCLING COSTS HIGHER REVENUES EUR / TON TREATED PLASTICS EUR / TON TREATED PLASTICS

924 926

16% COLLECTION 186 774 71% 119 SORTING 191 147 PACKAGING EXAMPLE 540 LOGISTICS 15 10

337 RECYCLING 439

162 INVESTMENT 93 REVENUES

2017 2050 2017 2050

Cleaner ows from materials choices and Increased yields give larger revenues per tonne product design optimised for recycling treated plastic (better technology, cleaner inows) Increased scale reduces unit cost Higher quality enables pricing closer to virgin Specialisation and regional integration of markets materials (additional sorting, improved technology, Technological improvement boosts eciency but cleaner ows and optimised products) requires higher investment Raised cost of virgin materials improves Reduced risk from regulations and market willingness to pay for secondary products uncertainty Better functioning markets reduce current commercial risk to buyers

DEEP TRANSFORMATION THAT REUIRES COORDINATED AND SUSTAINED ACTION ACROSS VALUE CHAIN

EMISSIONS SAVINGS Mt CO2 / YEAR 37 EHIBIT 312 80

EEE Low quality increased recycling 303 Automotive Low quality increased recycling 144 Agriculture Low quality increased recycling 97 70

NEED UPDATE Packaging Low quality increased recycling 40

60 Har lite svårt att förstå den här grafen. Handlar det om att tydliggöra inom vilka Other plastics Low quality increased recycling 21 områden man kan minska CO2 utsläppen med minsta 50 kostnaden. dvs dom 4 områden som ligger mellan B&C Low quality increased recycling 66 ~29 - 72 Mt CO2 ? Hur kan Abatement (reducerings- ?) cost vara negativ. vad innebär det. 40 Packaging High quality increased recycling 96

Agriculture High quality increased recycling 115 30 EEE High quality increased recycling 138

B&C High quality increased recycling 138

20 Automotive High quality increased recycling 149

Other plastics High quality increased recycling 170

Packaging Reuse 179

EEE Reuse 192 B&C Reuse 202 Automotive Reuse 203 200 150 100 50 0 50 100 150 200 250 300

ABATEMENT COST EUR/t CO2

EHIBIT 311

ABATEMENT COST PACKAGING EAMPLE EUR PER TON ABATED CO2

257

43 68 101

2017 COST INCREASED ABATEMENT PER REDUCED COST OF RECYCLING, INCREASED REVENUES FROM TONNE OF PLASTIC RECYCLED ESPECIALLY THROUGH HIGHERUALITY SECONDARY INCREASED YIELDS MATERIALS

EHIBIT 314 CURRENT POLICIES COVER ONLY PARTS OF THE RANGE OF BARRIERS TO HIGH-VALUE PLASTICS RECYCLING

CURRENT POLICY FOCUS NO LITTLE POLICY FOCUS TODAY PARTIAL POLICY COVER TODAY

FEES Correct for externalities for primary production of plastics RAW MATERIAL PRODUCT DESIGN Regulation and fees to correct PRODUCER RESPONSIBILITY for externalities on secondary Dierentiation to reect downstream materials FRGPALETT impacts on recyclability PRODUCT COLLECTION TARGETS Are the main denominator of LANDFILL ENERGY current policies RECOVERY TA FEE To boost value of recycling COLLECTION

PRODUCT DISPOSAL Reward practices conducive to ENDOFLIFE high value recycling TREATMENT

STANDARDISATION Quality standards for recyclates and guarantees for recycled content SECONDARY MATERIAL PUBLIC PROCUREMENT PRODUCTION To create demand pull in nascent markets

REGULATION OF ADDITIVES MARKET FOR DEMAND PULL Limiting toxic substances (current) and use RECYCLED Quotas to create demand of additives inimical to recycling (future) MATERIAL pull for nascent markets

EAMPLES OF POLICIES ALL WOULD NEED CAREFUL EVALUATION

REMAINING EMISSIONS 2050 Mt CO 2 REBOUND 117 Recycled plastics of lower quality do not replace the same volume of virgin plastics and may lead to an increased demand of total plastics 11 PRODUCTION FOR STOCK BUILD Around 10% of demand results in net stock EHIBIT 313 build-up, requiring additional primary production 22 REUSE AND RECYCLING EMISSIONS 117 80% from yield losses in chemical recycling, the remainder from mechanical recycling 14

YIELD LOSSES Yield losses in pre-treatment, recycling and reuse process sent to energy recovery Process improvements as well as product design and choice of material important to maximize yields 42 AGED, DEGRADED, CONTAMINATED AND NOT COLLECTED COMMON PLASTICS Relatively small given option of chemical recycling Remaining share is aged, contaminated, or not captured by collection systems THERMOSETS AND SMALL VOLUME SPECIALTY PLASTICS 16 Challenging to achieve scale in small specialty plastics streams 12 REVIEW DRAFT – DO NOT DISTRIBUTE REVIEW DRAFT – DO NOT DISTRIBUTE

2. Major value chains could reduce the amount of materials required for products

Measures aimed at using materials more efficiently • Increased automation can reduce the trade-off cover a wide gamut and can vary significantly in the tra- between materials efficiency and labour cost. This often de-offs between reduced materials use and other costs. is the limiting factor today; for example, a major reason What all these have in common is that they reduce ma- for over-specification of steel in buildings is the additio- terials use by changing production processes or product nal labour cost of using more custom-made components. design – encompassing measures such as reduced pro- With automation of more of the construction process, this cess scrap in manufacturing, reduced materials waste trade-off could be reduced. in construction, more materials-efficient production tech- • Increased utilisation and lifetime – as part of sha- niques such as customised structural elements in buil- ring models of mobility and buildings use – can justified dings, and the use of high-strength materials. the use of lighter but more costly materials, by spreading their cost over a much more extensive period of use. The financial benefit is primarily the avoided cost of materials. The costs of the measures, on the other hand, • Reducing the need for spare capacity – a real can include factors such as larger inventories, smaller possibility with new business models – would address scale of operation, higher labour cost, or slower produc- a major driver of materials use today. Personal vehicles tion. Interviews with market actors suggest that the ba- are a good example. Although most people rarely use lance between these two depends strongly on specific every seat in their car, few would want to own a car that circumstances, and we therefore have been cautious with can only carry one or two people. However, in a system cost estimates in the above abatement cost curve. On of shared fleets of cars, such vehicles would be more the other hand, several companies indicated in interviews economically viable. A fleet could have some larger cars, that they have found low-hanging fruit that enabled sub- and others designed for one- or two-person trips. In that stantial materials savings without large costs. context, ‘lightweighting’ could be achieved at scale at low or even negative costs simply by making smaller cars. For all the caveats, there are four broad trends that support a move to greater cost-effectiveness in improving None of this means that increased materials efficiency materials efficiency: will necessarily happen by itself. The materials footprint of products and structures often is low on the agenda • Technical advances can drastically lower the cost today. But it shows that important CO2 gains could be of reducing waste in production. A prominent example available without incurring very high costs. is ‘additive’ manufacturing methods such as 3D-printing, which can almost eliminate production scrap. Another is advances in building information management systems, which mark and track construction materials much more closely, and have shown significant potential for reducing waste of materials in the construction phase.

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A major reason for over-specification of steel in buildings is the additional labour cost of using more custom-made components.

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3. New business models could yield major productivity gains and other co-benefits

Some of the most economically attractive options are kilometres – with much lower costs as a result. Similar to be found in circularity strategies that focus on using approaches could be taken to use buildings (and indi- products more efficiently. Several of these measures vidual spaces within them) more efficiently, and to -ex would reduce CO2 emissions at a significant net profit. tend lifetimes (of whole buildings or parts) so that future This is because they involve making large systemic im- construction activity could be reduced. provements to boost productivity in the value chains for mobility and for buildings. As we discuss below, the real issue with such system shifts is not whether they would be more productive and Today, large transaction costs undermine the econo- lower-cost – they undoubtedly would, as shown in Exhi- mic efficiency with which we use key assets. The average bit 15. Moreover, they could have substantial co-bene- European car is used at 2% of its capacity, and even fits, from lower pollution to reduced traffic congestion. during business hours, the average European office spa- However, they would constitute a major shift in how mobi- ce is only used at about 40% of capacity. In contrast, lity and buildings use are organised. What the abatement a system of shared vehicles, designed to be optimised cost analysis shows is that these shifts would make a for intensive use and with much longer lifetimes, would major contribution towards a low-carbon transition, while spread the cost of cars over a much greater number of also offering economic advantages.

40 PRIMARY STEEL USED FOR MOBILITY SERVICES TON PRIMARY STEEL PER MILLION PASSENGER KILOMETRE

MATERIALS RECIRCULATION PRODUCT MATERIALS EFFICIENCY CIRCULAR BUSINESS MODELS

I 1.84

0.29 II

EXHIBIT 1.10 0.35 III -70 %

0.65

0.56

BASELINE CIRCULAR SCENARIO

A CIRCULAR SCENARIO RESULT IN MOBILITY SERVICES BEING PROVIDED WITH MUCH LESS PRIMARY STEEL USED PER UNIT, THROUGH:

EMISSIONS INTENSITY

t CO2 / t MATERIAL EXHIBIT 1.11

2,0 REMAINING EMISSIONS AFTER TOTAL EMISSIONS DEMAND-SIDE ABATEMENT IN THE EU 2050

234 MT 530 MT CO 2 CO2 1,5 ILLUSTRATIVE SUPPLY-SIDE

0,5 25 MT

CO2 REMAINING EMISSIONS AFTER DEMAND – AND SUPPLY-SIDE ABATEMENT PRIMARY 0,0 MATERIALS MILLION TONNES 40 80 120 160 200 240 280 320 MATERIAL

EXHIBIT 1.12

CUMULATIVE EMISSIONS FROM MATERIALS PRODUCTION, 2015 – 2100

BILLION TONNES OF CO2

STEEL ALUMINIUM

1000 PLASTICS (PRODUCTION) CEMENT 918 333 PLASTICS (EMBEDDED) 900

800

700

178 600 To meet climate targets: Additional circularity Production process breakthroughs 500 Material substitution 408

400

300

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100

0 BASELINE DEMAND-SIDE CURRENT REMAINING FURTHER EMISSIONS EMISSIONS MEASURES LOW-CARBON EMISSIONS REDUCTIONS REQUIRED FOR (CIRCULARITY) PROCESSESExhibit 15 CLIMATE TARGETS A systemic shift towards circularity is a major productivity opportunity – both for individual users and society

TOTAL COST REDUCTION POTENTIAL CO-BENEFITS FROM A SHIFT TOWARDS SHARED CARS EXHIBIT 1.15 EUR PER 1000 PASSENGER KILOMETRES EUR PER 1000 PASSENGER KILOMETRES

264

155

-74 %

-77 %

14 % 14 % 68 35

CURRENT CIRCULAR CURRENT CIRCULAR SCENARIO SCENARIO

COST FOR MATERIALS, COST OF SOCIETY, INCLUDING INFRASTRUCTURE, MANUFACTURING AND DISTRIBUTION PARKING AND LAND

COST OF DRIVING, INCLUDING FUEL, COST FOR CONGESTION INSURANCE, PARKING ETC.

COST FOR MAINTENANCE OTHER EXTERNALITIES, INCLUDING ACCIDENTS, NOISE AND AIR POLLUTION

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SEIZING THE OPPORTUNITY WILL REQUIRE LEADERSHIP AND CONCERTED ACTION

A key take-away from our analysis is that the potenti- the concrete mitigation and industrial opportunity is in al of circular economy measures can only be realised if each materials category and value chain, summarised in policy-makers and businesses actively pursue these op- Exhibit 16. We then turn to a discussion of the feasibility portunities. In this section, we lay out a broad implemen- of different measures, barriers that need to be overcome, tation agenda. We start by describing in more detail what and key policy interventions needed.

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Exhibit 16 Abatement opportunities across materials and key measures

DESCRIPTION KEY MEASURES AND ENABLERS CO2 ABATEMENT

As the EU steel stock saturates, there Enable high-quality secondary production is potential to meet demand to a large ex- through more advanced scrap markets tent through secondary steel production. In Avoiding contamination of steel by copper combination with low-carbon electricity, this Increase collection of post 41 MT STEEL makes possible deep cuts to emissions consumer scrap Reduce fabrication scrap

Plastics recycling is very low, despite Product design that facilitates recycling high technical potential. Secondary plas- Large-scale and specialised recycling tics production driven by intrinsic materials operations and regional integration of markets 117 MT value could see more than half of total plas- Technology development for sorting, PLASTICS tics recycled automation, and chemical recycling

Aluminium recycling can be increased Reduce collection losses further by reducing losses of aluminium, Increase alloy separation in scrap process scrap, and by avoiding the downg- recycling to avoid downgrading and 26 MT rading of aluminium through the mixing of thereby increase the usefulness of ALUMINIUM different qualities of metal secondary aluminium Reduce scrap forming during production

Cement recycling is at an early stage, Increased development of smart but both re-grinding and re-use of building crushers and increased use of recovered structural segments are now being trialled concrete in construction 25 MT CEMENT Development of local markets for re-use of structural segments

Materials in cars have the potential to be Increased lifetime and more durable more efficiently used when cars are shared materials will be keys to the economic and more intensely used logic of the sharing model 19 MT PASSENGER CARS Vehicle size customized for the number of people riding saves materials as cars can be smaller

Material use for buildings can decrease Material savings during construction by 30% as they are used more efficiently by reduction of waste Through engineering for light weighting can less material be used Development of local markets for 55 MT BUILDINGS re-use of building components Increased sharing of space to reduce total floor space

Similar CO2 abatement opportunities for Light weighting to reduce materials other product groups, such as rest of trans- per product OTHERS portation, machinery etc. Development of local markets for re-use of building components 13 MT Prolonged lifetime Leasing models to increase utilisation

43 REVIEW DRAFT – DO NOT DISTRIBUTE Understanding the opportunities and barriers across materials and value chains

STEEL

The CO2 abatement potential for steel use arises from Building such a circular system would require three the possibility that future EU steel needs could be met to main actions. First, current losses of steel need to be a large extent by recycling existing steel. Current practice reduced by higher collection of process scrap and scrap is not set up for this possibility, but instead requires a from end-of-life products. Second, secondary steel pro- substantial share of primary production – both to replace duction needs to improve to match the quality of primary steel that is lost at various points in the use cycle, and to steel. Today, secondary steel is disproportionately used compensate for downgrading of steel quality. By addres- for relatively basic construction steels, while for more de- sing these issues, the EU could transition to a much manding uses, primary metal is typically used. If secon- more circular steel system by 2050, replacing 30 Mt of dary production is to serve also more demanding product today’s 92 Mt of primary steel production by secondary groups, a more developed market is required, matching production, and reducing emissions by 57 Mt CO2 per scrap inputs to secondary steelmaking with the needs year by mid-century. and tolerances of high-quality steel production. This is doable, as demonstrated by several producers who rely Achieving this would require a major reconfiguration of on a combination of good control of scrap supplies and EU steel production. The current industry reflects a long advanced metallurgy to make some of the highest-quality legacy of building up a substantial steel stock – i.e., the steels in the world – entirely from scrap. It also would total amount of steel in use in the economy at any one create new sources of value and business opportunity in time. This has required constant additions of new, pri- a more advanced scrap market. mary metal. Primary production now accounts for nearly 60% of production, and the large majority of the sector’s Third, it is crucial to address the problem of copper CO2 emissions of around 230 Mt per year. pollution. Copper often enters steel scrap at the point of recycling, as products containing both steel and copper These parameters may change in decades ahead. The are dismantled. When cars are scrapped, for example, growth in the total stock is slowing and may well saturate it is common for the steel to have more than 0.4% of in the next decades. At this point, demand is concentra- copper content even after basic processing. This redu- ted on producing steel to replace annual stock turnover ces the quality and potential uses of the secondary steel. of 2–3%. A detailed analysis of available steel stocks and Even levels of 0.2–0.3%, which are seen in several EU flows suggests that the volume of scrap available will countries, lower the value of the steel. Moreover, once approach total steel requirements, likely by the 2030s. mixed in, copper cannot be separated from the steel with This is a major shift, with the prospect that, for the first any commercially viable technique. To keep the quality of time, an industrial economy could meet its steel requi- the steel stock, processes must be improved to dismant- rements largely by recirculating the stock it has already le products more carefully at end of life, to sort better, built up. Given the much lower CO2 emissions from se- and to separate high-copper scrap from purer varieties. condary steel production, this also could drastically redu- Design improvements can also make it easier to avoid ce CO2 emissions from steel production. cross-contamination of materials during recycling.

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PLASTICS

Most plastics can be recycled and used multiple times, product groups. Better design can make it easier to se- but as noted above, actual volumes of secondary plas- parate different types of plastic, for example, and make tics production amount to just 10% of total demand in used plastics easier to clean. This represents a major the EU. A detailed assessment of plastic types and use change from today’s practice, where plastics recycling categories suggests that 56% of plastic volumes could has sprung mostly from a waste handling logic, with little be mechanically recycled or reused, with the recovered or no adaptation ‘upstream’. In tandem, secondary plas- material value paying for much of the cost. Another 11% tics production must transition from today’s fragmented could be recouped through chemical recycling techni- and small-scale activity to large-scale operations that can ques (such as pyrolysis and depolymerisation). Together, reap substantial benefits of scale and enable specialisa- these measures would reduce emissions from 233 to tion. Finally, major investments are needed to accelerate 144 Mt CO2 per year, compared with producing new the development of technologies to mark different plas- plastics and incinerating them at end-of-life. tic types, automate sorting and processing, and recycle plastics chemically. Indeed, plastics offerthe greatest untapped potential identified in our analysis. It arises both because of the Although these changes can seem daunting given low starting point for recycling, and because the contri- today’s low starting point, much can be gained by first bution of plastics to CO2 emissions will grow drastically focusing on three key product categories – packaging, over time. Right now, the main alternative to recycling is automotive and buildings – and on the five plastic ty- incineration of plastics for energy recovery – essentially, pes that jointly represent more than 70% of plastics use. using them as a fossil fuel, and in the process releasing Over time, successful approaches can be rolled out more as much CO2 as was created when the plastics were broadly to fully realise the potential for cost savings and first produced. Today the net emissions from incinerating CO2 reductions. plastics are rarely noted and arguably modest, as another fossil fuel would likely be used instead. By mid-century, Moreover, achieving this would have significant econo- however, heat and electricity production in a low-carbon mic value: our analysis suggests that concurrent impro- EU would need to be largely emissions free. At this point, vements in product design and materials choice; increa- using plastics for energy production becomes a major sed scale in collection and recycling, and improvement source of fossil CO2 emissions. Recycling helps avoid in underlying technologies jointly can substantially im- that problem. prove the economics of recycling. Much of it could be driven by underlying value of the material, or else have To achieve recycling of 56% of plastics volumes (rather a low cost of abatement compared to many other me- than the 10% we see today) will require change throug- asures to reduce CO¬¬2. In tandem, a secondary plas- hout the value chain. Above all, the potential for high-qu- tics industry of this scale would have revenues of some ality recycling must be built into the design of the main 30 billion per year.

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ALUMINIUM

The resource gains from recycling are particularly large Specifically, today’s aluminium recycling is an ‘open in the case of aluminium, as remelting existing metal re- loop’: after first use, a variety of specialised aluminium quires just 5% of the energy of new production. Moreover, alloys are often mixed together and used to produce cast the EU imports about one third of its aluminium, much aluminium. However, the recycled material has limited of it produced with coal-fired electricity and carrying a uses; most aluminium products need to be made from CO¬2 footprint as high as 18 tonnes CO2 per tonne of metal with much more tightly controlled alloy content. aluminium – almost nine times more than one tonne of Over the next decades, a continuation of downgrading primary steel . Recycling aluminium can reduce CO2 of aluminium therefore threatens to undermine recycling. emissions by as much as 98% relative to this. This is even more so as cast aluminium is used primarily in components of internal combustion engine drivetrains Reducing the need for primary aluminium, particular- of cars. As global markets shift more and more to electric ly imports, could thus yield significant energy savings vehicles, demand for cast aluminium could fall, even as and CO2 reductions. We estimate that improvement on more and more aluminium is alloyed to the point where it current practice could avoid 3-5 Mt per year of primary has no other uses than to make cast products. aluminium production that otherwise would be required to serve European demand by 2050, or 40-60% of the In decades to come, continued aluminium recycling total. The CO2 avoided could amount to 30-50 Mt CO2 will thus require that additional flows of aluminium are per year. kept in ‘closed loops’, so that metal can be recycled and used for the same purpose repeatedly, similar to current Two changes to current practice will be necessary for practice for beverage cans. As with steel, a continued this. A first step is to reduce losses, which now amount circular system for aluminium would require product de- to almost 30%. This requires higher collection and better sign that enables separation of individual qualities, more end-of-life treatment for a range of products, alongside developed dismantling of products at end-of-life, advan- design of those products so that aluminium can be re- ced sorting technology, and additional deposit schemes. covered. Overall, aluminium therefore is yet another example It also will be necessary to improve recycling practi- of how a future circular system will require change of ce, as current methods result in irreversible downgrading current practice, with large CO¬¬2 benefits as a result. that in time will become an obstacle to recycling. This also creates new opportunities for value creation, in preserving and monetising the inherent value in secondary materials.

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PASSENGER CARS

As noted above, passenger cars offer a major opportu- ring of vehicles also makes possible a much closer match nity provide the same service with much lower materials of vehicle size to the needs of individual trips, thus redu- requirements. We find that in a system where professio- cing the average size of vehicles substantially. nally managed, shared vehicle fleets meet two thirds of travel demand, materials requirements could fall by as These factors combined can reduce materials require- much as 75%, reducing annual CO2 emissions associa- ments dramatically. The average car would be smaller, far ted with materials production by 43 Mt by 2050. more durable, and better maintained. The initial design and materials choices would be optimised for much more inten- Today’s cars are optimised for the use pattern associ- sive use. Combined with an electric drivetrain, the effective ated with ownership by individual households. The result lifetime therefore could more than double. Lightweighting is overcapacity of individual vehicles (five-seat cars used techniques that use advanced materials would be far more mostly for one-passenger trips), and vehicles that are economic than when applied to a personal car. The same is stationary 95% of the time. Vehicle design therefore also true of using automation to reduce accident risk, and apply- is optimised for this structure of use and ownership. ing more advanced manufacturing methods such as 3D-printing to reduce materials losses at the production stage. A car system built around professionally managed fleets of shared cars would change many of the underlying Although we describe this primarily in terms of materi- incentives. Sharing enables much more intensive use of als requirements, the main motivation for such a system each vehicle. Once the use of these fleets achieves suffi- is the much wider productivity opportunity that it repre- cient scale, there will be enormous incentives for changes sents. As noted above, we calculate that the cost per pas- to the design of vehicles and for innovation. Higher uti- senger-kilometre could be as much as 77% lower. Major lisation justifies much more investment in upfront costs, externalities also could be reduced by three-quarters, from the higher cost of electric-vehicle drivetrains, to more including major costs from factors such as traffic cong- advanced automation technology, or higher-performance estion, air pollution and collisions. Although the pace of materials. Professionally managed fleets in turn also ena- change will depend on many factors, not least travellers’ ble much greater control over vehicle maintenance, parts expectations and norms about car ownerships, the analy- inventory, reuse of components, and remanufacture. Sha- sis makes plain that the incentives are very strong.

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BUILDINGS AND CEMENT

The EU buildings sectors uses as much as 1.6 billion ton- Key opportunities to reduce emissions include: nes (Gt) of materials per year, a number that is likely to grow • Design for longevity and disassembly: Much of the as the total stock is slowly expanding, and a wave of post- abatement potential lies beyond 2050 but requires action war buildings will require substantial renovation or replace- today to avoid saddling future generations with unneces- ment in decades ahead. The CO¬¬2 footprint is significant, sary construction needs. and in the EU countries that have gone furthest in improving energy efficiency and decarbonising heat, the construction • Floor space sharing: Sharing principles include com- phase now accounts for as much as half of the lifetime munal space-sharing in residential settings, co-working CO¬¬2 footprint of a building (with the use-phase the remai- offices, etc. ning half) [Ref 2014 IVA report] . By 2050, we estimate that • Reuse of existing buildings: adaptive reuse (i.e. just cement, steel, aluminium and plastic used for construc- reuse of the building structure for a new purpose, e.g. tion would result in emissions of 230 Mt CO¬¬2 if they were office building becoming residential building), relocation made with today’s production processes. Demand-side me- of buildings (reuse of structure on a new site) and reuse asures could reduce this by 80 Mt CO¬¬2 per year, or 30%. of building components can save up to 70% of materials that otherwise would go to waste. The abatement potential springs from addressing sig- • Materials efficiency: reducing materials needed nificant underlying inefficiencies in the construction value per building through new materials choices, new de- chain. The building sector is characterised by multiple sign of building components, less over-design, and new stakeholders with diverse interests and contract structu- construction techniques. res from design, through to construction and use. These result in deeply split incentives; for example, a common • Reduced waste in construction: waste during situation is that the client pays for materials, whereas the construction can be reduced by 5–10% of total materi- builder can only improve profit by reducing labour costs als through increased standardization, improved planning – skewing incentives strongly against strategies to redu- and appropriate storage and transportation. ce materials use. The rate of innovation and knowledge • Cement recycling and reuse: there is some potential diffusion also is slow, as a result of high industry fragmen- both to reprocess concrete to recover some unreacted tation, high workforce turnover, a project-based business, cement, and to directly reuse structural elements. Scaling and low investment and R&D in a cyclical and volatile bu- these would depend on highly developed, local markets. siness. One marker of the inefficiencies is stagnant labour productivity, with no growth over the past 15 years (even In many cases, these strategies are underused today as manufacturing productivity increased by a third). not because they are inherently expensive, but because a range of barriers and split incentives prevent their deploy- Unsurprisingly, these features also translate to signi- ment. This resembles the situation for energy efficiency in ficant structural overuse and waste of materials. For ex- buildings, where the solution often has been to mandate ample, an estimated 50% of steel used in buildings is in minimum energy efficiency standards to capture potential excess of what is needed to achieve the desired structu- that is cost-effective. In other cases, the business case ral properties . In some segments, utilisation of building does not stack up today, but could improve with new space is very low; for example, some 60% of European technology. The clearest examples are improved materi- office space is unoccupied even during working hours. als efficiency and reduced waste in construction, both of Between 10–15% of delivered materials are not employ- which are limited today by the concern to reduce labour ed in actual construction process but wasted. Buildings cost. Digitalisation of materials management and auto- often are demolished wholesale, even when structural mation of construction could significantly reduce the cost elements (accounting for 85% of the GHG footprint of of techniques to reduce materials use. materials) have long remaining technical lifetime.

48 REVIEW DRAFT – DO NOT DISTRIBUTE Other value chains Passenger cars and buildings jointly account for just under half of emissions from cement, steel, plastics and aluminium. However, many of the underlying principles also apply to other products, including heavy-goods vehicles, machinery in agriculture and industry, packaging, some infrastructure, and several consumer goods categories. The potential in these sectors is likely to be lower than the 75% reduction in the case of passenger cars, but a conservative analysis suggests that some 13 Mt CO¬2 of additional abatement would be available in the EU through a range of circular economy strategies across additional transport, consumer goods, and infrastructure and construction value chains.

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A new policy agenda is needed to realise the CO2 abatement potential The opportunities explored above, cumulatively, would As with other climate policy challenges, a concerted significantly reduce CO2 emissions from industry. Mor- effort is needed to understand potentials, identify and eover, as shown in Section 3, many of the options are test new approaches, recognise and avoid unintended economically attractive, powered by the inherently higher consequences and undue costs, and coordinate efforts. productivity of shared mobility systems and the savings The agenda may seem daunting at first, but in many ca- from reduced waste and avoided materials costs. Yet ses, policy-makers can build on frameworks already in it is also clear that multiple barriers stand in the way. place. Some, such as the problem of copper contamination of steel, will require sector-specific measures and speciali- Our analysis did not investigate the merits of specific sed technologies; others, such as high-value plastics re- policy instruments, so we do not offer specific recom- cycling, require much more alignment of incentives along mendations. However, we sketch below the elements of value chains, from the initial design of a product to its this policy agenda at a high level, recognising that much end-of-life treatment. more investigation is required to elaborate concrete policy proposals. Four broad approaches are needed: Energy efficiency againoffers a helpful example. As the barriers that hinder progress have been recognised, 1. Set the direction and recognise the potential of the policy-makers have adopted a wide range of interventions circular economy as a major contributor to climate tar- to capture cost-effective potential – from aggregate targets. gets, through to quota systems, financing mechanisms, subsidies, and detailed product-level standards and la- 2. Create enablers: from publicly funded research, to belling schemes. Similarly, multi-faceted approaches will infrastructure, to regulatory frameworks. be needed to promote circularity. 3. Level the playing field, to remove incentives to was- Circular economy policy will require action across waste, te and improve the financial case for investment in circu- transportation, and the built environment, as well as infra- lar economy measures. structure, industrial and innovation policy. Some will cover familiar ground – such as effective waste management – 4. Take government action across a range of areas, but some will push policy-makers into unfamiliar realms and especially where government already is a major actor require learning and ingenuity. Along with EU-level policies, shaping outcomes. these measures will require national implementation as well as attention by cities and regional authorities.

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Exhibit 17 Policy approaches and examples of potential measures to achieve them for different circular economy areas

SET THE DIRECTION TILT THE PLAYING FIELD TAKE GOVERNMENT ACTION CREATE ENABLERS

Targets for high value Support for innovation Carbon pricing Public procurement recycling and technology deve- Extended producer lopment Waste regulation systems responsibility Improved transparency and statistics for waste Standards for Quotas or other support MATERIALS and recycling secondary materials for demand RECIRCULATION Waste regulations and Improved end-of-life landfill bans handling (e.g. shred- ding, demolition) Regulation of long-term destructive practices Product design (e.g. (e.g. copper, additives) Ecodesign directive)

Targets for efficient Information systems Waste charges Stimulate re-use and materials use and re-use and platforms (e.g. recycling markets in key sectors BIM) Support for design for disassembly Require high materials PRODUCT Materials passports and Labelling schemes for efficiency (re-use, design documentation materials efficiency in for disassembly, etc.) in MATERIALS construction etc. public procurement EFFICIENCY Fund innovation and technology development

Improved evidence base Create supportive city Pricing or regulation of City plans for longevity and conviction about regulations (e.g. par- congestion, air pollution and adaptability of benefits of shared mobi- king for shared cars) and other externalities buildings lity and buildings Revise barriers in exis- Include efficient mate- Integrate car sharing CIRCULAR Endorse shared mobility ting regulations (e.g., rials use or labelling in with public transport BUSINESS systems as target vision insurance) building standards systems MODELS Adapt data regulations to support in new business models

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1. SET THE DIRECTION 2. CREATE ENABLERS

The potential of circular economy measures to contri- The circular economy will be built mainly by the private se- bute to climate targets is far from recognised in cur- ctor: the companies that produce major materials, the manu- rent climate or industrial policy. Climate action plans facturers, construction firms and consumer goods sellers who at international, national, or city level make no or little put the materials to use, and waste management and recycling reference to this agenda. Thus, as a first step, there is a firms. The crucial role of the public sector in this context is to need to focus the attention of policy-makers, civil socie- facilitate and encourage private action. One key way to do this ty, researchers and business leaders. Policy can help by is to stimulate innovation. Technological advances are making clarifying the intention to incorporate circularity among circularity measures more viable than ever before. Opportuni- other aspects of EU climate and industrial policy. ties to capture value abound: from platforms for car-sharing, to autonomous vehicles, to sensor and sorting technology for The EU’s ‘20-20-20’ 2020 targets for emissions reduc- scrap metals, tracking of materials inflows to buildings, chemi- tions, renewable energy and energy efficiency provide cal marking of plastics types for easy sorting, automation of inspiration in this regard. Although some criticise the construction processes, automated disassembly of complex mixing of many targets, the long-term commitment has products, chemical recycling technologies, methods to remo- also been a significant catalyst in changing expectations ve copper from steel, etc. EU companies that seize these op- about the direction of the energy system. At the time of portunities could position themselves as future global leaders. the targets’ introduction in 2009, there was considera- Private actors may not yet be ready to make major investments ble doubt and disagreement about whether renewable in these innovations, however. The public sector can step up energy would be a major factor in the energy system the pace by funding R&D and early deployment. over the next decade. The targets agreed by EU Mem- ber States coordinated efforts to ensure that it would Regulations may also need to be adapted or introdu- be, and made a major contribution towards channelling ced to enable circular economy opportunities. As ever, the investment, supply-chain industrialisation, and inn- regulatory approaches must be weighed carefully, to ba- ovation that, in turn, helped drive down costs. Today, lance different objectives. Areas of waste regulations to many assessments indicate that a largely renewable consider include how to handle current incentives for inci- energy-based electricity system is not just feasible, but neration of waste; the impact of additives and toxicity on potentially available at a cost similar to one run on fossil plastics recycling; ‘end-of-waste’ policy that can result in fuels. A strong political signal was part of what made obstacles to the trade of secondary materials; and how to that possible. ensure clarity about ownership of and access to end-of-life materials. Standards can offer another area of developme- The circular economy needs a similar articulation of nt, and especially to encourage European or international ambitions. From a CO2 perspective, the key aim is to standards for secondary materials. develop business models and industry structures that enable us to maintain our modern economy and living Other regulatory areas to investigate include measu- standards with much lower levels of primary materials res to increase transparency and reporting. For example, production. That, in turn, requires a) secondary materi- would it be warranted to introduce reporting and track- als production, b) improved materials efficiency in major ing of materials efficiency metrics or the materials con- product groups, and c) increased lifetime and sharing of tent of buildings, much like energy performance or safety materials-intensive capital assets in the economy. Set- standards are today? Or would the impact be limited, and ting targets for these would be a good starting point for costs large? Several reports on the circular economy have the EU. also proposed that the EU expand its Ecodesign directive to consider materials more systematically, whereas others In parallel, policy-makers can help ensure that they have considered this too intrusive an approach. are moving in the right direction by kick-starting a major knowledge effort on the circular economy. Hundreds of Policy also has strong influence on many of the enablers times more research has been done on energy efficien- for new business models based on sharing vehicles or buil- cy than on the efficiency of materials use. We need new dings. These often are data-intensive, and sound approaches knowledge to ensure that long-term policy is based on a to data protection and cybersecurity can be a major factor much fuller understanding of the potential, the barriers, in their long-term viability. Likewise, infrastructure and local and the economics of circular economy measures. policies (from parking rates, to congestion charges and city planning) strongly influence mobility choices, as can public regulations that influences insurance, liability laws, etc.

52 REVIEW DRAFT – DO NOT DISTRIBUTE segments, recycled cement, recycled plastics), through 3. LEVEL THE PLAYING FIELD subsidy schemes or other mechanisms. Although these different options show the range of available possible To a great extent, market conditions today are skewed instruments, significant additional investigation would be in favour of waste and against materials efficiency and reu- required to evaluate first whether such stimulation of de- se. To improve the business case for more circular business mand is warranted, and if so which options are best suited models, the financial incentives will need to change. for different markets and specific situations.

The fact that so many negative-cost opportunities have Policy intervention may also be required to limit ‘re- yet to be seized suggests that carbon prices and related bound’ effects that can arise from increased efficiency. Re- tools will not be enough. Many of the relevant materials are bound arises when the savings from increased efficiency internationally traded commodities, making it difficult for the lead to increased consumption. This is well known in energy EU to unilaterally introduce carbon prices at the levels re- efficiency policy, but has been explored less for materials. quired for deep cuts to emissions – whether on the supply An example would be the possibility that much lower cost or the demand side. But even high carbon prices may not of transportation in a shared car system leads to increased suffice, because many of the barriers are non-financial. Exis- travel and reduced public transit use – already a challenge ting regulations also steer key sectors such as buildings and in some cities. Another risk is that the availability of inexpen- waste management in ways that may encourage or discoura- sive recycled materials (particularly if they are of low quality) ge circularity. Thus, while a carbon price can help, policy-ma- will lead to increased consumption. Policy interventions can kers will need to do much more to unleash the full potential. reduce rebound effects, even if they cannot be fully avoided.

A major issue is how best to provide incentives to manufacturers to account for the impact of materials and design 4. TAKE GOVERNMENT ACTION choices on component and materials values at the product’s end of life. To date, the main approach has been ‘extended Finally, government can also be a principal actor to enable producer responsibility’, but in practice its implementation pro- the transition to more circular outcomes. The public sector is vides little incentive to modify product design. The externality both a major provider and user of mobility services, owner or therefore remains largely in place, and it should be a priority operator of much of the built environment, and buyer of a range to consider creative approaches for how it can be addressed. of materials-intensive products. That means governments are well positioned to push the market towards a more circular This report has not evaluated which way would be the most economy through their own investments and purchases. promising way forward, and therefore does not provide specific recommendations. To give a flavour of the options that Government also already is a major shaper of outcomes have been proposed, one possibility is that new marking and for transport systems and the built environment, particularly sensor technology could enable systems that create more through decisions taken at the city level. One priority is to en- individual product responsibility incentives. If recycling com- sure public transport systems are integrated with shared car panies can distinguish products from different manufacturers, systems. City planning also influences the nature of buildings. they could then also in principle pay different amounts, depen- As the potential for reduced materials use shows, issues such ding on how adapted the products are for reuse or materials as materials efficiency and flexibility in the building stock are recovery. Another idea that has been floated is to introduce strong contenders to be considered alongside more traditional a system of charges or subsidies that mimics differentiated issues such as the density of occupation, social issues, etc. producer charges, depending on the costs that different design choices impose at end of life. If workable, these solutions Public procurement is another area open for conside- could avoid some of the risks with more direct regulation of ration. Starting to incorporate recycled content and ma- products, but they also carry their own complexities. terials efficiency into purchasing decisions could help boost nascent markets. As with other proposals discus- A second approach is to create demand for recycled sed here, further evaluation is required. materials or materials-efficient products. The ‘pledging’ -in itiative in the Commission’s Plastics Strategy, where com- * * * panies commit to using recycled plastics, is one attempt A common concern about the transition to a more circular to create a basis for investment in additional recycling ca- economy is that it requires ‘systemic’ change, which is seen pacity to create high-quality secondary plastics. Resear- as difficult if not infeasible. It is true – realising the full potential ch has identified a quota system for recycled content as described in this report would require transformative change. a possible option, similar to quotas for renewable ener- But what is most exciting about this opportunity is that smaller, gy and energy efficiency. Another proposal is to support manageable policy packages, combined with an ambitious vi- nascent markets directly (e.g. reused structural building sion for the future and strong political will, could unleash a wave of innovation and new investment that pays off for generations.

53 REVIEW DRAFT – DO NOT DISTRIBUTE

2. steel towards a circular steel system

Steel offers particular promise for a major industrialised economy could meet circular economy. Already today, one-third its needs for a fundamental material almost of the steel we use comes from recycled entirely through recycling. CO2 emissions metal, and the analysis presented here from steelmaking would drop by 80% from shows that within five decades, seconda- current levels if low-carbon electricity is ry steel could meet nearly half the world’s used. Thus, the EU would approach a CO2- steel needs. In fact, even with rapid global free steel sector in Europe – a global first. economic growth, future growth in steel demand could be met largely by reusing steel, Realising this opportunity will require with primary steel production held steady. significant changes to minimise losses in The climate benefits would be significant: volume and quality from one use cycle to that level of recycling would cut the avera- the next. The contamination of steel with ge CO2 emissions per tonne of steel pro- copper could pose particular challenges. duced by 60%, reducing overall emissions EU secondary steel production would also from steelmaking by nearly 4 billion tonnes have to be restructured, while continued pri- of CO2 per year by the end of the century. mary production would be more focussed on exports. However, the industry already For the EU, the opportunity is even more faces major challenges: global over-capa- immediate. Europe already has a large city, flagging profitability, high CO2 emis- stock of steel, near the saturation point. Our sions, and the threat of tariffs. A circular ste- analysis shows that if downgrading of steel economy offers a promising path forward el is avoided, secondary steel production by boosting productivity and making the EU could meet as much as 85% of the EU’s a pioneer and leader in the technologies of steel needs by 2050. That would be a re- the future. markable achievement: for the first time, a

54 REVIEW DRAFT – DO NOT DISTRIBUTE

Secondary steel production could meet as much as 85% of the EU’s steel needs by 2050

55 REVIEW DRAFT – DO NOT DISTRIBUTE REVIEW DRAFT – DO NOT DISTRIBUTE

UNDERSTANDING FUTURE STEEL NEEDS Steel is used across all areas of a modern, industrial with stocks ranging from about 5 tonnes per capita in economy. About half the steel produced today is used in China, to barely 1 tonne in much of Africa and India. construction and infrastructure; another 16–17% each in transportation and machinery and electrical equipment, We estimated future demand for steel by quantify- and the remaining 15% in a variety of metal products and ing the production levels needed to enable the entire appliances. With few exceptions, the benefits from steel world to gradually transition to per-capita steel stocks derive from the total amount of steel available, and the similar to those in OECD countries, following similar services this steel stock enables: shelter/buildings, infra- patterns of use (see Exhibit 1 for an explanation of structure, mobility, urban development, industrial produc- our methodology). Steel production would have to tion, and more. Steel flows, such as annual production, rise steadily, to 2.5 times the current level. CO2 emis- have little benefit except by enabling societies to develop sions levels increase less, in part because produc- and maintain this stock. tion technology improves but mostly because there is a shift towards more recycled steel even in a baseli- The analysis presented in this chapter focuses on the ne scenario. These are not best understood as fore- EU, but to understand the developments in one region, casts, but as an illustration of what would be required one needs to also take a global view. There is significant if the current pattern of steel us in mature economies international trade in raw materials, steel products and were adopted globally. As we discuss elsewhere in scrap, and steel firms operate across borders. Global this report, this may not be necessary: steel needs growth in steelmaking today is driven mainly by deve- could fall sharply if we could make do with less steel loping and emerging economies, as they build up their to provide the same mobility, shelter, or other servi- stock of steel: the total amount of steel available in the ces. Also, as we elaborate below, it is possible to re- economy. In mature economies such as the U.S. and EU, duce losses and increase the share of recycled steel this stands at about 11–14 tonnes per person , and steel beyond such a ‘business as usual’ development. On demand is already driven largely by the need to repla- both counts, there is significant potential to reduce ce older products or structures. In much of the world, the need for primary steel production, and therefore however, there is still a large unmet demand for steel, also CO2 emissions.

56 REVIEW DRAFT – DO NOT DISTRIBUTE

Exhibit 2.1 Global demand for steel projected if by 2100, steel stocks worldwide matched those in OECD countries today

3 500 PRODUCTS 3 000 MACHINERY 2 500 EHIBIT 21 DEMAND BY PRODUCT GROUP 2 000 TRANSPORTATION Mt STEEL PER YEAR, 1 500 CONSTRUCTION 2015-2100, GLOBAL 1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

4 500

4 000

3 500 Kan behövas annan font på hänvisningarna? 3 000 CO2 EMISSIONS 2 500 Mt CO2 PER YEAR, 2 000

2015-2100, GLOBAL 1 500

1 000

500

FRGPALETT 0 2020 2030 2040 2050 2060 2070 2080 2090 2100

TOTAL STEEL DEMAND 4 000

3 500 MCKINSEY, MEDIUM SCENARIO

3 000 ALLWOOD CULLEN 2012 YLIA ET AL 2017 PRODUCTION PER ROUTE 2 500 MILFORD ET AL 2013 Mt STEEL PER YEAR, 2 000 GLOBAL CALCULATOR, LOW ALLWOOD PAULIUK 2013 2015-2100, GLOBAL 1 500 VAN RUIVEN VAN UUREN 2016 1 000 IEAETP 2017

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION Mt STEEL PER YEAR, 2015-2050

220 EHIBIT 22 HISTORICAL DEMAND 200 PROECTED DEMAND 180

160

140

120

100

0 2000 2010 2020 2030 2040 2050

CO2 INTENSITY OF STEEL PRODUCTION TON CO2/TON STEEL

BASIC OYGEN FURNACE BOF BASIC OYGEN 23 e large majority of current steel production uses coal to reduce FURNACE BOF iron ore and produce steel in integrated steelworks. EHIBIT 23

INCREASED PROCESS EFFICIENCY BOF, WITH BEST 19 An estimated 15% process eciency improvement is possible within AVAILABLE TECHNOLOGY the current BOF process.

TON, ore TONNE BIOBASED INPUTS BOF, WITH BIO FUELS 11 Bio-based fuels can substitute for some of the coal input, with emissions reductions of around 50%.

DIRECT REDUCED IRON DIRECT REDUCED IRON 11 is route uses natural gas to reduce iron ore, which almost DRI halves emissions. DRI accounts for 5% of current world production.

CARBON CAPTURE AND STORAGE CCS BOF CARBON CAPTURE 09 capturing the CO2 from the blast furnace of an integrated steel plant AND STORAGE CCS can reduce overall emissions by 60%.

ELECTRIC ARC FURNACE EAF ELECTRIC ARC FURNACE 04 the main route for secondary steel uses electricity to melt steel scrap and / EAF or direct reduced iron, with only small onsite emissions

ZEROCARBON ELECTRICITY EAF: EAF ZERO CARBON 01 By using zero-carbon electricity, nearly all the emissions from steelmaking can be eliminated.

CO2 EMISSIONS, STEEL PRODUCTION CUMULATIVE CO2 EMISSIONS, STEEL PRODUCTION Gt CO PER YEAR, 2015-2100, GLOBAL EHIBIT 24 2 Gt CO2 2015-2100, GLOBAL 70

60 298

40 198

00 2020 2040 2060 2080 2100 BASELINE SCENARIO BASELINE LOW CARBON CURRENT EMISSIONS INTENSITY PROCESS BASELINE SCENARIO BASELINE LOWCARBON PROCESS

GLOBAL STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2100 EHIBIT 25 4 000 STEEL PRODUCTION

3 000

2 000 AVAILABLE STEEL SCRAP

1 000

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2050 EHIBIT 26 180

160 STEEL PRODUCTION

140

120

100 AVAILABLE STEEL SCRAP 80

0 2020 2030 2040 2050

LOSSES IN STEEL PRODUCTION EHIBIT 27 Mt STEEL 2015

NOT COLLECTED POST CONSUMER SCRAP 146 On average, 4-5% of steel is lost in the re-melting process as slag when impurities and alloying elements are removed 22 NEW SCRAP LOST Large losses at fabrication and forming means up to 27% of steel does not reach products 70-90% of resulting scrap is collected 48

Källa till diagrammet nns i PowerPoint

OLD SCRAP LOST 15% of end-of-life products are not collected for recycling – rising to 50% or more in some product categories 69

OBSOLETE STOCK 1-10% of end-of-life structures are inaccessible due to corrosion or permanent loss (e.g. underground structures) 6 MILLION TONNES OF STEEL LOST

MAIMUM COPPER CONTENT BY STEEL PRODUCT CATEGORY EHIBIT 28 Wt% COPPER IN STEEL

REBAR 040

STRUCTURAL 012

COMMERCIAL 010 Källa till diagrammet nns i PowerPoint GLOBAL PRODUCT MI 008

FINE WIRE 007

DRAWING 006 CURRENT LEVEL OECD SCRAP 02025% DEEP DRAWING 004

CO2 EMISSIONS FROM GLOBAL STEEL PRODUCTION Mt CO PER YEAR, 2015-2100 EHIBIT 29 2 BASELINE SCENARIO 5 000 MATERIALS CIRCULARITY 4 500 MATERIALS AND PRODUCT 4 000 CIRCULARITY 29% 3 500

3 000 20% 52% 2 500

500

1500

1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EHIBIT 210 GLOBAL STEEL PRODUCTION BY ROUTE Mt STEEL PER YEAR, 2015-2100

4 000

3 500 SECONDARY PRODUCTION 3 000 Circular scenario

2 500 PRIMARY PRODUCTION 2000 Basline scenario 47% 1500 PRIMARY PRODUCTION 1 000 Circular scenario

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION BY ROUTE EHIBIT 210 Mt STEEL PER YEAR, 2015-2050

180

160

140

120

100 SECONDARY PRODUCTION Circular scenario 80

60 PRIMARY PRODUCTION Circular scenario without 40 managed copper levels 20 PRIMARY PRODUCTION 0 Circular scenario 2020 2030 2040 2050

NEED UPDATE REVIEW DRAFT – DO NOT DISTRIBUTE ETT VÄRDEBESTÄNDIGT SVENSKT MATERIALSYSTEM / PLAST

GLOBAL DEMAND FOR STEEL PROJECTED IF BY 2100, STEEL STOCKS WORLDWIDE MATCHED THOSE IN OECD COUNTRIES TODAY

The modelling approach used in this study follows that developed and described in Pauliuk et al. (2013). Steel demand is modelled in four end-use sectors and 11 world regions. Demand in each sector and region is modelled with a stock-based approach, with population forecasts based on UN Population Prospects 2017, and per-capita saturation is largely completed by 2100 . Historical steel stocks are based on Pauliuk, Wang and Müller (2013), while future stock turnover is modelled with different lifetimes of products in each end-use sector following a normal distribution. Production is calibrated to recent volume and production route data for key world regions. The steps of the steel supply chain and use cycle are directly modelled, including losses in production, new scrap forma- tion, the remelting process, and collection of post-consumer scrap. The model also tracks inmixing of copper in the steel stock, and the limitations this places on use. It further represents degrees of international trade in scrap, and the dilution of steel scrap with primary steel. Note the difference between demand, which denotes the requirements for steel in final products, and production, which is the amount of crude steel required to service this demand. CO2 emissions estimates include direct emissions as well as indirect emissions from electricity, and are based on the gradual adoption of best available techniques for current production processes by 2050. The high-level results of a baseline scenario are shown below, with further elaboration throughout this chapter.

58 3 500 PRODUCTS 3 000

2 500 MACHINERY EHIBIT 21 DEMAND BY PRODUCT GROUP 2 000 TRANSPORTATION Mt STEEL PER YEAR, 1 500 CONSTRUCTION 2015-2100, GLOBAL 1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

4 500

4 000

3 500 Kan behövas annan font på hänvisningarna? 3 000 CO2 EMISSIONS 2 500 Mt CO2 PER YEAR, 2 000

2015-2100, GLOBAL 1 500

1 000

500

FRGPALETT REVIEW DRAFT – DO0 NOT DISTRIBUTE ETT VÄRDEBESTÄNDIGT SVENSKT MATERIALSYSTEM / PLAST 2020 2030 2040 2050 2060 2070 2080 2090 2100

TOTAL STEEL DEMAND 4 000 A closer look at the EU highlights the importance EU demand would fall at first, then stabilise at repla- 3 500 MCKINSEY, MEDIUM SCENARIO of saturation (Exhibit 2). The EU steel stock already cement levels of around 150 million tonnes per year. 3 000 ALLWOOD CULLEN 2012 approaches 12 tonnes per person, and the population Production by the EU steel industry could ofYLIA course ET AL 2017 level is flattening and expectedPRODUCTION to decrease. PER ROUTE Once a2 500 still increase, but would have to be driven by increasingMILFORD ET AL 2013 saturation point is reached, EUM steelt STEEL demand PER YEAR, would be2 000 exports. As we discuss below, the stabilisationGLOBAL of de CALCULATOR,- LOW ALLWOOD PAULIUK 2013 2015-2100, GLOBAL 1 500 driven almost entirely by the need to replace products mand even as stocks accumulate would enableVAN Europe RUIVEN VAN UUREN 2016 and structures as they reach the end of their life, about1 000 to rely much more heavily on recycling to meetIEAETP its own 2017

2–3% of the total stock each year. In this scenario, 500 steel needs.

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

Exhibit 2.2 EU steel demand can fall and stabilise as the steel stock saturates

EUROPEAN STEEL PRODUCTION Mt STEEL PER YEAR, 2015-2050

220 EHIBIT 22 HISTORICAL DEMAND 200 PROECTED DEMAND 180

160

140

120

100

0 2000 2010 2020 2030 2040 2050

CO2 INTENSITY OF STEEL PRODUCTION TON CO2/TON STEEL

BASIC OYGEN FURNACE BOF BASIC OYGEN 23 e large majority of current steel production uses coal to reduce FURNACE BOF NOTE: THE FIGURE DEPICTS THE PRODUCTION OF CRUDE STEEL REQUIREDiron TO SERVICEore and EUproduce DEMAND steel in integrated steelworks. EHIBIT 23 SOURCE: MATERIAL ECONOMICS MODELLING AS DESCRIBED IN TEXT

INCREASED PROCESS EFFICIENCY BOF, WITH BEST An estimated 15% process eciency improvement is possible within AVAILABLE TECHNOLOGY 19 59 the current BOF process.

TON, ore TONNE BIOBASED INPUTS BOF, WITH BIO FUELS 11 Bio-based fuels can substitute for some of the coal input, with emissions reductions of around 50%.

DIRECT REDUCED IRON DIRECT REDUCED IRON 11 is route uses natural gas to reduce iron ore, which almost DRI halves emissions. DRI accounts for 5% of current world production.

CARBON CAPTURE AND STORAGE CCS BOF CARBON CAPTURE 09 capturing the CO2 from the blast furnace of an integrated steel plant AND STORAGE CCS can reduce overall emissions by 60%.

ELECTRIC ARC FURNACE EAF ELECTRIC ARC FURNACE 04 the main route for secondary steel uses electricity to melt steel scrap and / EAF or direct reduced iron, with only small onsite emissions

ZEROCARBON ELECTRICITY EAF: EAF ZERO CARBON 01 By using zero-carbon electricity, nearly all the emissions from steelmaking can be eliminated.

CO2 EMISSIONS, STEEL PRODUCTION CUMULATIVE CO2 EMISSIONS, STEEL PRODUCTION Gt CO PER YEAR, 2015-2100, GLOBAL EHIBIT 24 2 Gt CO2 2015-2100, GLOBAL 70

60 298

40 198

00 2020 2040 2060 2080 2100 BASELINE SCENARIO BASELINE LOW CARBON CURRENT EMISSIONS INTENSITY PROCESS BASELINE SCENARIO BASELINE LOWCARBON PROCESS

GLOBAL STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2100 EHIBIT 25 4 000 STEEL PRODUCTION

3 000

2 000 AVAILABLE STEEL SCRAP

1 000

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2050 EHIBIT 26 180

160 STEEL PRODUCTION

140

120

100 AVAILABLE STEEL SCRAP 80

0 2020 2030 2040 2050

LOSSES IN STEEL PRODUCTION EHIBIT 27 Mt STEEL 2015

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OLD SCRAP LOST 15% of end-of-life products are not collected for recycling – rising to 50% or more in some product categories 69

OBSOLETE STOCK 1-10% of end-of-life structures are inaccessible due to corrosion or permanent loss (e.g. underground structures) 6 MILLION TONNES OF STEEL LOST

MAIMUM COPPER CONTENT BY STEEL PRODUCT CATEGORY EHIBIT 28 Wt% COPPER IN STEEL

REBAR 040

STRUCTURAL 012

COMMERCIAL 010 Källa till diagrammet nns i PowerPoint GLOBAL PRODUCT MI 008

FINE WIRE 007

DRAWING 006 CURRENT LEVEL OECD SCRAP 02025% DEEP DRAWING 004

CO2 EMISSIONS FROM GLOBAL STEEL PRODUCTION Mt CO PER YEAR, 2015-2100 EHIBIT 29 2 BASELINE SCENARIO 5 000 MATERIALS CIRCULARITY 4 500 MATERIALS AND PRODUCT 4 000 CIRCULARITY 29% 3 500

3 000 20% 52% 2 500

500

1500

1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EHIBIT 210 GLOBAL STEEL PRODUCTION BY ROUTE Mt STEEL PER YEAR, 2015-2100

4 000

3 500 SECONDARY PRODUCTION 3 000 Circular scenario

2 500 PRIMARY PRODUCTION 2000 Basline scenario 47% 1500 PRIMARY PRODUCTION 1 000 Circular scenario

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION BY ROUTE EHIBIT 210 Mt STEEL PER YEAR, 2015-2050

180

160

140

120

100 SECONDARY PRODUCTION Circular scenario 80

60 PRIMARY PRODUCTION Circular scenario without 40 managed copper levels 20 PRIMARY PRODUCTION 0 Circular scenario 2020 2030 2040 2050

NEED UPDATE REVIEW DRAFT – DO NOT DISTRIBUTE REVIEW DRAFT – DO NOT DISTRIBUTE

CO2 EMISSIONS FROM STEEL PRODUCTION AND USE

The need for much more steel in the future presents In contrast, clean power does not help much to reduce a dilemma for climate objectives, as the production of CO2 emissions from primary steelmaking. Most of the CO2 steel results in large emissions of CO2. Most steel pro- from primary steel production results from the chemical production in Europe and globally is primary production, cess in which iron ore is reduced, not from the energy used converting iron ore to steel through the basic oxygen for heat. Unlike in power production or heating, it therefore is furnace (BOF) route. This emits, on average, just over 2 not possible to use renewable energy directly. Established tonnes of CO2 per tonne of steel produced. Doubling options can reduce emissions by around half. For deeper primary steel production would thus double a major emissions cuts, it would be necessary to use methods of CO2 source. steel production that are still under development (Exhibit 3).

However, as the global steel stock grows, so does To quantify the climate impact of continued heavy reli- the opportunity to use remelted end-of-life steel as an ance on primary steelmaking and plausible scenarios for alternative to primary production. Secondary steel is technological improvements, we constructed two scena- made in electric arc furnaces (EAF), with one-fifth the rios for how to meet projected demand growth: CO2 emissions of primary steelmaking even when much • Baseline scenario: This sees continued reliance on of the electricity comes from fossil fuels. If power from the BOF route for primary steel production, but with best renewable sources is used in EAF, secondary steel can available technology rapidly adopted. Steel recycling be decarbonised almost entirely. A more circular steel continues with the same collection rates, loss levels and flow therefore both is inherently far less emissions-in- practices as today. tensive, and easier to decarbonise through the use of renewable energy; it is one of many examples in this re- • Low-carbon process: For illustration, we also show port of how greater circularity moves the emissions from what the gradual adoption of currently proven abatement ‘hard to abate’ sources and towards ones with much technologies in steel production would entail, so that the CO2 more established ways to cut emissions. intensity of primary steel production falls by half by 2050.

60 3 500 PRODUCTS 3 000

2 500 MACHINERY EHIBIT 21 DEMAND BY PRODUCT GROUP 2 000 TRANSPORTATION Mt STEEL PER YEAR, 1 500 CONSTRUCTION 2015-2100, GLOBAL 1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

4 500

4 000

3 500 Kan behövas annan font på hänvisningarna? 3 000 CO2 EMISSIONS 2 500 Mt CO2 PER YEAR, 2 000

2015-2100, GLOBAL 1 500

1 000

500

FRGPALETT 0 2020 2030 2040 2050 2060 2070 2080 2090 2100

TOTAL STEEL DEMAND 4 000

3 500 MCKINSEY, MEDIUM SCENARIO

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION Mt STEEL PER YEAR, 2015-2050

220 REVIEW DRAFT – DO NOT DISTRIBUTE EHIBIT 22 HISTORICAL DEMAND 200 PROECTED DEMAND 180

160

140

120 100 Exhibit 2.3 80 Steel60 recycling has significantly lower emissions than 40 20 other available options for steel production

0 2000 2010 2020 2030 2040 2050

CO2 INTENSITY OF STEEL PRODUCTION TON CO2/TON STEEL

BASIC OYGEN FURNACE BOF BASIC OYGEN 23 e large majority of current steel production uses coal to reduce FURNACE BOF iron ore and produce steel in integrated steelworks. EHIBIT 23

INCREASED PROCESS EFFICIENCY BOF, WITH BEST 19 An estimated 15% process eciency improvement is possible within AVAILABLE TECHNOLOGY the current BOF process.

TON, ore TONNE BIOBASED INPUTS BOF, WITH BIO FUELS 11 Bio-based fuels can substitute for some of the coal input, with emissions reductions of around 50%.

DIRECT REDUCED IRON DIRECT REDUCED IRON 11 is route uses natural gas to reduce iron ore, which almost DRI halves emissions. DRI accounts for 5% of current world production.

CARBON CAPTURE AND STORAGE CCS BOF CARBON CAPTURE 09 capturing the CO2 from the blast furnace of an integrated steel plant AND STORAGE CCS can reduce overall emissions by 60%.

ELECTRIC ARC FURNACE EAF ELECTRIC ARC FURNACE 04 the main route for secondary steel uses electricity to melt steel scrap and / EAF or direct reduced iron, with only small onsite emissions

ZEROCARBON ELECTRICITY EAF: EAF ZERO CARBON 01 By using zero-carbon electricity, nearly all the emissions from steelmaking can be eliminated.

CO2 EMISSIONS, STEEL PRODUCTION CUMULATIVE CO2 EMISSIONS, STEEL PRODUCTION Gt CO PER YEAR, 2015-2100, GLOBAL EHIBIT 24 2 Gt CO2 2015-2100, GLOBAL 70 Historical production based on Global Steel Association, Steel statistical yearbook (2017) 60 298

IX 40 SOURCE: SEE ENDNOTES 198

20 61

00 2020 2040 2060 2080 2100 BASELINE SCENARIO BASELINE LOW CARBON CURRENT EMISSIONS INTENSITY PROCESS BASELINE SCENARIO BASELINE LOWCARBON PROCESS

GLOBAL STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2100 EHIBIT 25 4 000 STEEL PRODUCTION

3 000

2 000 AVAILABLE STEEL SCRAP

1 000

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2050 EHIBIT 26 180

160 STEEL PRODUCTION

140

120

100 AVAILABLE STEEL SCRAP 80

0 2020 2030 2040 2050

LOSSES IN STEEL PRODUCTION EHIBIT 27 Mt STEEL 2015

Källa till diagrammet nns i PowerPoint

OLD SCRAP LOST 15% of end-of-life products are not collected for recycling – rising to 50% or more in some product categories 69

OBSOLETE STOCK 1-10% of end-of-life structures are inaccessible due to corrosion or permanent loss (e.g. underground structures) 6 MILLION TONNES OF STEEL LOST

MAIMUM COPPER CONTENT BY STEEL PRODUCT CATEGORY EHIBIT 28 Wt% COPPER IN STEEL

REBAR 040

STRUCTURAL 012

COMMERCIAL 010 Källa till diagrammet nns i PowerPoint GLOBAL PRODUCT MI 008

FINE WIRE 007

DRAWING 006 CURRENT LEVEL OECD SCRAP 02025% DEEP DRAWING 004

CO2 EMISSIONS FROM GLOBAL STEEL PRODUCTION Mt CO PER YEAR, 2015-2100 EHIBIT 29 2 BASELINE SCENARIO 5 000 MATERIALS CIRCULARITY 4 500 MATERIALS AND PRODUCT 4 000 CIRCULARITY 29% 3 500

3 000 20% 52% 2 500

500

1500

1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EHIBIT 210 GLOBAL STEEL PRODUCTION BY ROUTE Mt STEEL PER YEAR, 2015-2100

4 000

3 500 SECONDARY PRODUCTION 3 000 Circular scenario

2 500 PRIMARY PRODUCTION 2000 Basline scenario 47% 1500 PRIMARY PRODUCTION 1 000 Circular scenario

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION BY ROUTE EHIBIT 210 Mt STEEL PER YEAR, 2015-2050

180

160

140

120

100 SECONDARY PRODUCTION Circular scenario 80

60 PRIMARY PRODUCTION Circular scenario without 40 managed copper levels 20 PRIMARY PRODUCTION 0 Circular scenario 2020 2030 2040 2050

NEED UPDATE 3 500 PRODUCTS 3 000

2 500 MACHINERY EHIBIT 21 DEMAND BY PRODUCT GROUP 2 000 TRANSPORTATION Mt STEEL PER YEAR, 1 500 CONSTRUCTION 2015-2100, GLOBAL 1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

4 500

4 000

3 500 Kan behövas annan font på hänvisningarna? 3 000 CO2 EMISSIONS 2 500 Mt CO2 PER YEAR, 2 000

2015-2100, GLOBAL 1 500

1 000

500

FRGPALETT 0 2020 2030 2040 2050 2060 2070 2080 2090 2100

TOTAL STEEL DEMAND 4 000

3 500 MCKINSEY, MEDIUM SCENARIO

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION Mt STEEL PER YEAR, 2015-2050

220 EHIBIT 22 HISTORICAL DEMAND 200 PROECTED DEMAND 180

160

140

120

100

0 2000 2010 2020 2030 2040 2050

CO2 INTENSITY OF STEEL PRODUCTION TON CO2/TON STEEL REVIEW DRAFT – DO NOT DISTRIBUTE BASIC OYGEN FURNACE BOF BASIC OYGEN 23 e large majority of current steel production uses coal to reduce ThereFURNACE are good BOF and bad news in this scenario (Exhibit lion tonnes (Gt) CO2 by 2100. Yet as noted in Chapter 1, iron ore and produce steel in integrated steelworks. EHIBIT 23 4). The good news is that even current practices would to stay within a carbon budget consistent with the com- enable a much higher share of recycled steel in the futu- mitments of the Paris Agreement, emissions from all ma- re, as the amount of available scrap grows over time (see terialsINCREASED production PROCESS could notEFFICIENCY exceed 300 Gt CO2. Esta- next BOF,section). WITH BEST EAF production could thus grow from19 26% blishedAn supply-side estimated 15% processmeasures eciency in improvement the low-carbon is possible scenario within today,AVAILABLE to 36%TECHNOLOGY by 2050. This alone would reduce the CO2 help, butthe current even BOF if those process. technologies were fully rolled out intensity of steel by one third compared with the current by 2050, as in our ‘low-carbon production’ scenario, situation. We are thus already set to reap some of the cumulative emissions would still reach 198 Gt CO2. TON, ore TONNE climate benefits of increased circularity of steel use. BIOBASED INPUTS BOF, WITH BIO FUELS 11 The mainBio-based conclusion fuels can substitute from for some this of theanalysis coal input, is with that de- The bad news is that this leaves much of the potenti- mand-sideemissions measures reductions of arearound crucial 50%. to meeting climate ob- al for demand-side improvements on the table, through jectives. Achieving deep cuts on the supply side alone a combination of steel losses and downgrading. CO2 would require extraordinarily rapid, global implementa- emissions would therefore be higher than they need to tion ofDIRECT processes REDUCED for IRONsteelmaking that are still unproven DIRECT REDUCED IRON be. As we detail in subsequent sections, improving prac- at scale.is Thisroute usesis notnatural to gassay to thatreduce developing iron ore, which and almost deploying DRI 11 tices could raise the share of scrap-based steelmaking these halvestechnologies emissions. DRI should accounts not for 5%be of a current priority: world they production. are ne - to almost half by 2050, further reducing emissions by cessary to handle the primary production that will still be several hundred million tonnes of CO2 per year. necessary. But demand-side action is urgently needed as well,CARBON both CAPTUREbecause AND of the STORAGE emissions CCS reductions they TheBOF other CARBON CAPTUREpiece of bad news is that emissions re- provide,capturing and thebecause CO2 from they the blast reduce furnace theof an challengeintegrated steel on plant the AND STORAGE CCS 09 main far higher than required to meet climate objectives. supply-sidecan reduce significantly overall emissions byby 60%. reducing the volume of pri- Cumulative emissions from steelmaking reach 298 bil- mary steel required.

ELECTRIC ARC FURNACE EAF ELECTRIC ARC FURNACE 04 the main route for secondary steel uses electricity to melt steel scrap and / EAF or direct reduced iron, with only small onsite emissions Exhibit 2.4

ZEROCARBON ELECTRICITY EAF: A baseline scenario sees large reductions in the CO2 EAF ZERO CARBON 01 By using zero-carbon electricity, nearly all the emissions from intensity of production, but largesteelmaking emissions can be eliminated. remain

CO2 EMISSIONS, STEEL PRODUCTION CUMULATIVE CO2 EMISSIONS, STEEL PRODUCTION Gt CO PER YEAR, 2015-2100, GLOBAL EHIBIT 24 2 Gt CO2 2015-2100, GLOBAL 70

60 298

40 198

00 2020 2040 2060 2080 2100 BASELINE SCENARIO BASELINE LOW CARBON CURRENT EMISSIONS INTENSITY PROCESS BASELINE SCENARIO BASELINE LOWCARBON PROCESS

GLOBAL STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH62 STOCK EIT Mt STEEL PER YEAR, 2015-2100 EHIBIT 25 4 000 STEEL PRODUCTION

3 000

2 000 AVAILABLE STEEL SCRAP

1 000

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2050 EHIBIT 26 180

160 STEEL PRODUCTION

140

120

100 AVAILABLE STEEL SCRAP 80

0 2020 2030 2040 2050

LOSSES IN STEEL PRODUCTION EHIBIT 27 Mt STEEL 2015

Källa till diagrammet nns i PowerPoint

OLD SCRAP LOST 15% of end-of-life products are not collected for recycling – rising to 50% or more in some product categories 69

OBSOLETE STOCK 1-10% of end-of-life structures are inaccessible due to corrosion or permanent loss (e.g. underground structures) 6 MILLION TONNES OF STEEL LOST

MAIMUM COPPER CONTENT BY STEEL PRODUCT CATEGORY EHIBIT 28 Wt% COPPER IN STEEL

REBAR 040

STRUCTURAL 012

COMMERCIAL 010 Källa till diagrammet nns i PowerPoint GLOBAL PRODUCT MI 008

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CO2 EMISSIONS FROM GLOBAL STEEL PRODUCTION Mt CO PER YEAR, 2015-2100 EHIBIT 29 2 BASELINE SCENARIO 5 000 MATERIALS CIRCULARITY 4 500 MATERIALS AND PRODUCT 4 000 CIRCULARITY 29% 3 500

3 000 20% 52% 2 500

500

1500

1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EHIBIT 210 GLOBAL STEEL PRODUCTION BY ROUTE Mt STEEL PER YEAR, 2015-2100

4 000

3 500 SECONDARY PRODUCTION 3 000 Circular scenario

2 500 PRIMARY PRODUCTION 2000 Basline scenario 47% 1500 PRIMARY PRODUCTION 1 000 Circular scenario

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION BY ROUTE EHIBIT 210 Mt STEEL PER YEAR, 2015-2050

180

160

140

120

100 SECONDARY PRODUCTION Circular scenario 80

60 PRIMARY PRODUCTION Circular scenario without 40 managed copper levels 20 PRIMARY PRODUCTION 0 Circular scenario 2020 2030 2040 2050

NEED UPDATE REVIEW DRAFT – DO NOT DISTRIBUTE

The main conclusion from this analysis is that demand-side measures are crucial to meeting climate objectives.

63 3 500 PRODUCTS 3 000

2 500 MACHINERY EHIBIT 21 DEMAND BY PRODUCT GROUP 2 000 TRANSPORTATION Mt STEEL PER YEAR, 1 500 CONSTRUCTION 2015-2100, GLOBAL 1 000

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

4 500

4 000

3 500 Kan behövas annan font på hänvisningarna? 3 000 CO2 EMISSIONS 2 500 Mt CO2 PER YEAR, 2 000

2015-2100, GLOBAL 1 500

1 000

500

FRGPALETT 0 2020 2030 2040 2050 2060 2070 2080 2090 2100

TOTAL STEEL DEMAND 4 000

3 500 MCKINSEY, MEDIUM SCENARIO

500

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

EUROPEAN STEEL PRODUCTION Mt STEEL PER YEAR, 2015-2050

220 EHIBIT 22 HISTORICAL DEMAND 200 PROECTED DEMAND 180

160

140

120

100

0 2000 2010 2020 2030 2040 2050

CO2 INTENSITY OF STEEL PRODUCTION TON CO2/TON STEEL

BASIC OYGEN FURNACE BOF BASIC OYGEN 23 e large majority of current steel production uses coal to reduce FURNACE BOF iron ore and produce steel in integrated steelworks. EHIBIT 23

INCREASED PROCESS EFFICIENCY BOF, WITH BEST 19 An estimated 15% process eciency improvement is possible within AVAILABLE TECHNOLOGY the current BOF process.

TON, ore TONNE BIOBASED INPUTS BOF, WITH BIO FUELS 11 Bio-based fuels can substitute for some of the coal input, with emissions reductions of around 50%.

DIRECT REDUCED IRON DIRECT REDUCED IRON 11 is route uses natural gas to reduce iron ore, which almost DRI halves emissions. DRI accounts for 5% of current world production.

CARBON CAPTURE AND STORAGE CCS BOF CARBON CAPTURE 09 capturing the CO2 from the blast furnace of an integrated steel plant AND STORAGE CCS can reduce overall emissions by 60%.

ELECTRIC ARC FURNACE EAF ELECTRIC ARC FURNACE 04 the main route for secondary steel uses electricity to melt steel scrap and / EAF REVIEW DRAFT – DO NOT DISTRIBUTEor direct reduced iron, with only small onsite emissions

ZEROCARBON ELECTRICITY EAF: EAF ZERO CARBON 01 By using zero-carbon electricity, nearly all the emissions from steelmaking can be eliminated. REALISING THE POTENTIAL FOR

CIRCULARITYCO2 EMISSIONS, STEEL PRODUCTIONIN THE STEEL SECTOR CUMULATIVE CO2 EMISSIONS, STEEL PRODUCTION Gt CO PER YEAR, 2015-2100, GLOBAL EHIBIT 24 The steel sector2 has a head start in the circular eco- de, with strikingGt CO 2results: 2015-2100, In principle, GLOBAL the scrap availa- nomy, 70especially in mature markets such as Europe – but ble around the world would be sufficient to meet most as steel stocks saturate, there is significant potential to of future growth in steel demand with secondary steel scale 60up recycling and minimise demand for virgin steel. (Exhibit 5). Primary production298 is still required, but only Already, EU steel demand is driven mainly by the need to for net additions to the steel stock in rapidly growing 50 replace products and structures at the end of their useful countries. For economic and environmental reasons,

life. As40 the total steel stock saturates, the resulting scrap it makes sense to seize this opportunity198 – and that can be re-melted to provide an ever larger share of the means making it a priority to adopt the practices requi-

flow of30 steel required. red to enable future recycling: from collection at end- of-life, to keeping steel stocks pure from contaminants We modelled20 the amount of scrap available worldwi- that could otherwise limit the uses of recycled steel.

00 2020 2040 2060 2080 2100 BASELINE SCENARIO BASELINE LOW CARBON CURRENT EMISSIONS INTENSITY Exhibit 2.5 PROCESS BASELINE SCENARIO BASELINEEven inLOWCARBON a growing PROCESS world, recycling of steel could meet most of the growth in future demand

GLOBAL STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2100 EHIBIT 25 4 000 STEEL PRODUCTION

3 000

2 000 AVAILABLE STEEL SCRAP

1 000

0 2020 2030 2040 2050 2060 2070 2080 2090 2100

SOURCE: MATERIAL ECONOMICS ANALYSIS AS DESCRIBED IN TEXT EUROPEAN STEEL PRODUCTION AND AVAILABLE SCRAP THROUGH STOCK EIT Mt STEEL PER YEAR, 2015-2050 EHIBIT 26 180 64