A €320-BILLION CIRCULAR ACHIEVING ECONOMY INVESTMENT OPPORTUNITY AVAILABLE ‘GROWTH TO EUROPE UP TO 2025 WITHIN’
ACHIEVING ‘GROWTH WITHIN’ | 3
CONTENTS
02 FOREWORD
03 IN SUPPORT OF THE REPORT
06 ACKNOWLEDGEMENTS
08 EXECUTIVE SUMMARY
16 MAIN FINDINGS
54 10 INVESTMENT THEMES
135 APPENDIX – ANALYTICAL METHODOLOGY
139 REFERENCES 4 | ACHIEVING ‘GROWTH WITHIN’
FOREWORD
The shift from a linear to circular economy in Europe is accelerating by the transitional power of new technology and business models. As the previous report “Growth Within” (2015) pointed out the value chains mobility, building and food- representing 60 percent of the average EU household budget and 80 percent of resource consumption - could contribute significantly to Europe’s overall economic performance and welfare by adapting a restorative and regenerative economic system. Circular mobility, building environment and circular food systems offer ground-breaking, attractive innovation and investment opportunities, and the EU is uniquely placed to exploit these. This comes at a time when the EU is in great need of industrial renewal and attractive investment opportunities. Circular economic investments offer resilience and transformation of those assets that otherwise might face being stranded or becoming redundant. However, circular economy investment opportunities have remained unrealized until now.
I am therefore very pleased with the A European transition would also have insights that this report “Achieving impact far beyond its borders: it could Growth Within” gives in ten attractive create de facto global standards for circular innovation and investment product design and material choices, themes , totaling €320 billion through and provide other world regions with a to 2025: much-needed blueprint. This would put - €135 billion in the mobility system Europe’s political as well as corporate - €70 billion in the food system. leaders at the forefront of a major - €115 billion in the built environment global industrial innovation. These ‘next wave’ of priority circular economy investments could realistically Achieving Growth Within is well- be unlocked with modest policy reform timed and inspiring. I wish you a or action by industry in the near term. pleasant reading.
I endorse the message of this report Wiebe Draijer that increasing investments into the Chairman Executive Board circular economy is a very attractive Rabobank option for Europe’s companies and policymakers. This agenda is hugely synergistic to Europe’s social, competitive, regional, environmental and digital agenda. A circular economy system could provide Europe with a new industrial agenda with a clear and positive message. ACHIEVING ‘GROWTH WITHIN’ | 5
IN SUPPORT OF THE REPORT
“The European Commission’s circular economy package resulted from a genuine cross-sectoral effort within the Commission, and benefited from fruitful discussions with businesses, NGOs, national authorities and academia. It remains a central political project for Europe, with an enormous potential for renewed competitiveness, innovation and job creation. The circular economy can make a substantial contribution to sustainable development; as well as to some of our major political commitments. We are progressing towards a circular economy; implementing the package and learning with others in the process. Investment is of course a key element here. The environmental community needs to work together with the investment community to ensure that we deliver on the Sustainable Development Goals, the Paris Agreement on climate change, the transition to resource-efficient, circular economies, to halting biodiversity loss and the degradation of our natural capital. This new, inspiring report is a useful and timely contribution to help us focus our efforts and resources on the most promising aspects of the circular economy.”
Karmenu Vella, European Commissioner for the Environment, Maritime Affairs and Fisheries
“This report shows clearly how unlocking the significant potential of circular models could be reached within relatively short time. it reminds us policy makers that change doesn’t come by itself - but also that major benefits can be realised relatively painlessly with targeted policy moves. Europe needs to be more circular: old, linear ways of thinking, producing and consuming have made us reach the limits of our planet. Once again, this report stands to show that circularity is a win for our environment but even more so, a great win for our economy.”
Sirpa Pietikäinen, Member of the European Parliament 6 | ACHIEVING ‘GROWTH WITHIN’
IN SUPPORT OF THE REPORT
“The circular economy offers a real opportunity for economic growth and for managing that growth sustainably, making better use of existing assets and space, leveraging technology innovation. We aspire to London becoming the global centre for circular economy leadership by engaging and collaborating with a range of actors in the space. This is becoming an unstoppable movement with a wide range of like- minded organisations coalescing in the city to start demonstrating the impact that circular practice can bring. This report helps to bring focus and clarity to the areas that can have the greatest impact – the potential economic benefits identified to the European economy should make every business leader sit up, take note and join the movement!”
Wayne Hubbard, Chief Operating Officer, London Waste & Recycling Board
“Shifting Europe towards a fully circular economy has been forecasted to provide significant economic, environmental and societal benefits. Achieving this will require investments towards technology and business model innovations. Increasing the capital deployment towards these innovations will require investors, both small and large, to identify these new growth opportunities as well as understand their risks. This report provides new ideas on how to approach this topic for the investment community. PGGM, as founder of a joint working group FinanCE, welcomes this dedicated research very much.”
Else Bos, Chief Executive Officer, PGGM ACHIEVING ‘GROWTH WITHIN’ | 7
“In a resource constrained environment, Circular economy must become a priority for Europe, and the world. While European investment is still lagging behind since the crisis, banking on the Circular Economy, coupled with the digital transformation, offers a unique opportunity to boost growth, employment and reduce CO2 emissions. Suez believes that the resource revolution will be circular, concrete and collaborative, and has already started to invest in innovative circular water and resource recovery technologies and business models, notably through its corporate venture vehicle. Businesses need to close the loop on resources to become more competitive and protect themselves from resource scarcity and price volatility. This is particularly true in areas such as mobility, food systems, or the built environment. The Achieving Growth Within report provides substantial evidence that Circular Economy is becoming a game changer investment opportunity.”
Jean-Louis Chaussade, Chief Executive Officer, Suez Environment 8 | ACHIEVING ‘GROWTH WITHIN’
ACKNOWLEDGEMENTS
This report has been sponsored and training platforms on the circular by SUN (Stiftungsfonds für economy, encompassing work with Umweltökonomie und Nachhaltigkeit) leading universities, schools and and authored by the Ellen MacArthur colleges, and online events such as Foundation and SYSTEMIQ the Disruptive Innovation Festival. By establishing platforms such as the SUN Institute Environment & New Plastics Economy initiative, the Sustainability (Stiftungsfonds für Foundation works to transform key Umweltökonomie und Nachhaltigkeit material flows, applying a global, cross- GmbH) The Deutsche Post Foundation sectoral, cross value chain approach established SUN as a non-profit that aims to effect systems change. organisation in September 2014 in The Foundation promotes the idea order to strengthen its international of a circular economy via research activities supporting institutions, reports, case studies and books programmes, and projects dealing with series, using multiple channels, web the challenges and opportunities of and social media platforms, including globalisation and enhanced cross-border Circulatenews.org which provides activities. Research funded by SUN aims a leading online source for circular at developing concepts to reconcile economy news and insight. economic needs with ecological reason and social responsibility. Further information: ellenmacarthurfoundation.org The Ellen MacArthur Foundation @circulareconomy The Ellen MacArthur Foundation was created in 2010 to accelerate the SYSTEMIQ Ltd. is a new kind of transition to a circular economy. The enterprise, that combines advisory, Foundation works across five areas: business building and investment insight and analysis, business and expertise to deploy human talent government, education and training, and long term capital into new and systemic initiatives, and communication. disruptive systems of land use, energy With its Knowledge Partners (Arup, generation, circular industrial systems IDEO, McKinsey & Co., and SYSTEMIQ), and urban living. SYSTEMIQ, accelerates the Foundation works to quantify system change by cultivating, the economic opportunity of a incubating and scaling solutions more circular model and to develop that deliver superior economic, approaches for capturing its value. The environmental and social value. Foundation collaborates with its Global Partners (Cisco, Danone, Google, H&M, Steering committee Intesa Sanpaolo, NIKE, Inc., Philips, We are grateful for the support and Renault, Unilever), and its CE100 guidance of our Steering Committee. network (businesses, universities, Klaus Zumwinkel Chairman of emerging innovators, governments, Deutsche Post Foundation cities and affiliate organisations), to Janez Potočnik Co-Chair of the UNEP build capacity, explore collaboration International Resource Panel, Partner, opportunities and to develop circular SYSTEMIQ business initiatives. The Foundation Andrew Morlet CEO, Ellen MacArthur has created global teaching, learning Foundation ACHIEVING ‘GROWTH WITHIN’ | 9
ACKNOWLEDGEMENTS
Martin R. Stuchtey Managing Partner, Clement Ray Co-founder, Innovafeed SYSTEMIQ Dustin Benton Acting deputy director, Per-Anders Enkvist Founding Partner, Green Alliance Material Economics Anne Christine Steenkjær Product and Stef Kranendijk, Partner, SYSTEMIQ project leader, Teknologisk Institut Coert Zachariasse CEO, Delta Experts consulted Development Group Our special thanks go to the many Josef Hargrave Global Foresight other leading academic, industry, Manager, Arup and government agency experts who David Cheshire Regional Sustainability provided invaluable perspectives and Director, AECOM expertise throughout this project: Jason Drew Director, Agriprotein Ben Peace Sustainable Manufacturing Eric Hannon Partner, McKinsey & Lead, Knowledge Transfer Network Company Anders Kildegaard Knudsen Shannon Bouton Chief Operating Sustainable Business Consultant, Arriva Officer, McKinsey Center for Business Gunnar Froh Founder and CEO, Wunder and Environment Ian Briggs Managing Director, Kate Brandt Lead for Sustainability, MCT Reman Ltd Google Markus Bjerre Economist, Danish Business Authority Core project team Mikkel Stenbæk Hansen Deputy Head Ellen Macarthur Foundation: of Division at Danish Ministery of the Jocelyn Blériot Executive Officer – Environment, Environmental Protection Communication & Policy Lead Agency Andrea Carrera, Research Analyst Maurice Golden Shadow Cabinet Stephanie Hubold Knowledge Secretary for the Environment, Climate Partnerships Lead Change and Land Reform, Scottish Conservatives SYSTEMIQ David Fitzsimons Managing Director, Martin R. Stuchtey Managing Partner Oakdene Hollins Jaap Strengers Associate Doug Simpson Principal Policy and Lauren Boutillier Associate Programme Officer, Greater London Authority Material Economics: Charlotte Morton Chief Executive, The Per-Anders Enkvist Founding Partner Anaerobic Digestion and Bioresources Association Production Amy Braun Sustainability Director, Editors: Kellogg Company Joanna de Vries and Emma Parkin Louisa Burwood Taylor Chief editor, Conker House Publishing Consultancy AgFunder Ian Banks Leontino Balbo Executive Director, Ellen MacArthur Foundation Balbo Group Egbert Sonneveld Co-founder, Volterra Design: Ecosystems Graham Pritchard Paul McMahon Managing Partner, Graham Pritchard Design SLM Partners
10 | ACHIEVING ‘GROWTH WITHIN’ EXECUTIVE SUMMARY
An additional €320 billion of circular economy investment opportunities is available to investors in the European Union (EU) until 2025 that can be unlocked through modest action by policy makers or industry. This investment would put the EU on the path to seize the economic, societal, and environmental benefits of the transition to a circular economy and mitigate the mounting risks that reside in conventional industrial assets in an era of rapid change.
Shifting the EU towards a circular The circular economy offers economy that is restorative and ground-breaking, attractive regenerative means moving away 1 innovation and investment from today’s wasteful use of resources. opportunities, and the EU is uniquely This transition would bring with it placed to exploit them. The circular substantial economic, societal, and economy enjoys political and business environmental benefits.1 The time is support due to its many benefits ripe as the circular economy has now for growth, employment, resource gained attention within the EU political dependency, health, and environment. landscape at the European Commission, As such, making the transition to it is Member State, regional, and city level. a key prerequisite in reaching many of Additionally, certain corporations and the 17 Sustainable Development Goals investors are looking to shift towards (SDGs) that the EU officially signed more circular practices and investments up to in 2015.3 The circular economy as they realise the enormous business provides a systemic shift in the opportunity this presents. industrial landscape, including product design, business models, resource flows, One of the main barriers to fulfilling and value creation. It offers a different the true extent of these opportunities industrial logic that in the future will is the lack of investment. The circular guide investment in physical and digital economy has not yet become a products and infrastructures. This mainstream investment area for the shift also points towards the opening private sector, leaving the transition up of many attractive innovation lacking in funds and therefore risking opportunities, and will lead to the the realisation of its full benefits. While emergence of novel market segments previous reports2 have outlined long- and companies. It is enabled by, and term circular economy visions for the highly synergistic with, the digital EU, this report focuses on identifying disruption that is now reshaping the the ‘next wave’ of priority circular industrial landscape, and offering economy investments that could opportunities for sharing, virtualisation, realistically be unlocked in the near and remanufacturing. Specifically, the term, and describes what the EU needs EU has the unique combination of scale, to do to capture them. It has eight key integrated markets (notably through findings: the single market), and political and economic institutions that can facilitate an acceleration in the development of the circular economy. If successfully pursued, a transition to the circular economy could become a major source ACHIEVING ‘GROWTH WITHIN’ | 11
of innovation and renewal for the EU Circular economy investment economy over the next decades, and it opportunities remain unrealised. could provide the EU with a new joint 3 There are niches related to the project to rally around – an important circular economy that enjoy rapid political opportunity for the Union to growth in investments, such as R&D for gain industrial leadership globally in an electric vehicles and autonomous cars area that sits at the core of its strengths. or space sharing start-ups. However, the majority of circular opportunities, This comes at a time when the including car remanufacturing, EU is in need both of industrial car sharing, anaerobic digestion 2 renewal and of attractive (AD), organic farming, and building investment opportunities. The context materials reuse, still only constitute of circular economy investments is a <10% of their respective markets, with weakened European economy that has conventional linear investment making not fully recovered from the financial up the remaining 90% to 100%. Waste crisis, with corresponding stagnating management, the most ‘traditional’ industrial investments. Indeed, the circular investment area for which role of industrial investments as an public statistics are available, has economic driver has decreased from seen flat investment levels between on average c.7% of GDP between 2009 and 2013 (the last year for 2000 and 2009 to 6% of GDP which statistics are available). Some between 2010 and 2015.4 Post-crisis of the smaller circular opportunities recovery of EU investments versus (e.g. sharing of cars and houses) are other mature markets, such as Japan growing rapidly, and there are also or the US, is lagging significantly. In numerous policy successes that could addition, since the crisis, returns on well lead to additional investments capital investments within the EU have (for example, the creation of an recovered only to levels similar to those organic fertiliser market), but these of 2000. Trying to stimulate demand are exceptions to a general pattern of and investment, central banks have underinvestment. In many cases, the pushed interest rates to record lows, key reasons seem to be: an uncertainty but the 75 largest EU corporates still about which strategic direction the held 40% more cash in 2016 than in value chain is moving in; a set of policy 2010, interpreted by many as a sign of a barriers; transition costs; and, in some perceived lack of attractive investment cases, a lack of awareness about opportunities. This lack of investment circular opportunities and their benefits seriously hampers the EU’s industrial among company executives, who have innovation and renewal, its future been raised in a linear economy. competitiveness, and it puts Europe’s The lack of underlying profitability industrial core at risk of is an issue only in some cases, and slow erosion. therefore does not seem to be the primary barrier. 12 | ACHIEVING ‘GROWTH WITHIN’
EXECUTIVE SUMMARY
Ten attractive circular innovation a. €135 billion in the mobility system and investment themes, totalling could be invested in: creating modally 4 €320 billion through to 2025, integrated shared mobility systems; have been identified and could be transitioning to circular car designs; unlocked with modest policy reform and ramping up the reverse value or action by industry. These themes chain for vehicles through focusing on represent investments in the circular remanufacturing. economy that were identified as needing b. €70 billion in the food system could modest intervention to achieve their be invested in: fully regenerative full potential and to take off at scale. agricultural practices; closing organic As such, these ten areas are potential nutrient loops; scaling high-productivity innovation and investment ‘hot spots’ that indoor urban farming opportunities; policymakers and companies should work and developing next-wave protein on jump-starting. They provide a new sources. lens for building high-growth industrial c. €115 billion in the built environment investment portfolios. As can be seen in could be invested in: designing and Figure 1, by 2030, these hot spots could constructing buildings based on circular create an additional 7% of GDP growth; principles; closing the loop on building reduce raw material consumption by an construction and demolition materials;
additional 10%; and reduce annual CO2 and building circular cities. emissions by 17% more than would be achieved within the current development Circular economic investments pattern. The ten themes are all in line offer resilience and with the EU’s long-term circular economy 5 transformation of those assets strategy.5 They are all fertile ground for that otherwise might face being innovation: for example, imagine if the EU stranded or becoming redundant. transitioned its mobility system towards a Powerful technology and market trends shared, integrated mobility infrastructure are underway with the potential to instead of the current single-mode, create unprecedented stranded assets single-owner system, this would lead across Europe. The shift from a linear to vehicles being designed and built to a circular industrial model presents to fit that system; different materials a way to mitigate that risk. Two factors being used and reused; new service drive the risk of assets and companies and access models; and a data-rich being stranded: businesses relying on mobility environment in which new apps one-way volume flows (leaving them and systems would emerge to increase open to being damaged by higher efficiency and convenience. The scope asset utilisation, materials looping, of this report encompasses mobility, and the cutting out of intermediaries) food, and the built environment, as these and businesses not carrying their value chains represent 60% of consumer environmental costs (this applies to spending and 80% of resource use; much of the process industry, according there are likely to be additional themes to recent estimates). This is particularly and opportunities that lie beyond this the case for capital intensive, long- scope. However, these areas offer lived assets such as power plants; compelling cases: the major write-offs in the EU’s utility industry over recent years show the ACHIEVING ‘GROWTH WITHIN’ | 13
scale of the risk. However, unlike other b. Removing policy barriers. An transitions, the circular transition is inventory of regulatory change more likely to take decades rather requirements to unlock the ten than a few years, and if the stranded investment themes has been made asset risk is responsibly managed, and is presented in this report. As our belief is that it can largely be recent work of the Ellen MacArthur avoided. Four principles of ‘circular Foundation has highlighted, this economy-compliant’ investment have includes addressing unintended been developed and are presented in regulatory consequences that this report. Adopting these or similar prevent circular economy solutions principles would provide investors with from taking off, such as the current a more thematic approach to investing strict limitations on how food waste not offered by ‘modern portfolio theory’ may be used or how remanufactured (MPT), which is often used to identify car parts can be utilised. a diversified investment portfolio, but typically overlooks risks that run across c. Creating platforms for dialogue, seemingly uncorrelated assets.6 cooperation, and awareness creation. From 2012 to 2014, the European Policymakers at the European, Resource Efficiency Platform national, regional, and city (EREP) was widely seen as central 6 levels should take four roles: to the creation of the European setting direction for the transition, Commission’s first circular economy removing policy barriers, facilitating package in June 2014. It acted as cooperation and innovation along an effective mechanism to attract the value chain, and shifting public attention, increase knowledge, gather investment towards the ten themes. input from relevant stakeholders, develop pragmatic solutions, and a. Setting direction and showing build support. Moving forward, we commitment. One of the success believe similar platforms – ideally factors of the ongoing clean energy separate ones for mobility, food, and revolution is its clarity of direction, the built environment – could serve something that has been lacking for the a comparable purpose. Additionally, majority of the ten circular investment creating awareness, in both consumer themes. As a result, too many investors and producer groups, of the take a ‘wait-and-see’ approach. possibilities and benefits of the shift Therefore, providing such direction towards a circular economy would be a is a crucial task for policymakers, be key enabler. it through targets, strategies, public investments, consistent international trade agreements or industry convening. One implication of setting direction is to strive to level the playing field for circular business models. 14 | ACHIEVING ‘GROWTH WITHIN’
EXECUTIVE SUMMARY
d. Focus public procurement, public operations lens allowed executives to circular economy investments, and see a whole new set of improvement existing subsidy regimes towards options, the circular economy lens most the ten themes. For example, EU often allows executives to see a new public funding from Horizon 2020 wave of opportunities. Again, generally and the European Fund for Strategic companies operating within the EU Investments (EFSI) currently only are short on attractive investment partially overlap with the next wave opportunities, as their cash build-up of circular economy investment signifies. Being a first-mover in this opportunities. Specifically, directing space often allows companies to secure funds towards the hot spot innovation the most attractive opportunities and investment themes within food (the so-called ‘low-hanging fruit’) and and buildings is a major opportunity to as such make the most of profitable increase returns on public investment business options. In parallel, executives (whereas there is a better overlap should shift business strategy and for mobility opportunities). Getting investments away from the resource- biorefineries, 3D printing of building intensive business models most at risk elements, and urban food farms of getting stranded. through the proof-of-commercial- concept phase are good examples of The strong synergies between high-return opportunities for public Europe’s digital agenda and investment. Moreover, providing fiscal 8 the circular economy transition incentives for the identified investment should be captured. The digital opportunities could be an effective way revolution is a crucial enabler for many to stimulate investments. parts of the circular economy transition, for example sharing, virtualisation, Company executives should managing complex reverse logistics move early and carve out their chains, and keeping track of valuable 7 role within the ten investment assets. At the same time, improving themes, in parallel with scaling back growth and employment – two important from investments at risk of becoming effects of a circular economy transition – stranded. Participating in these themes are the ultimate aims of the EU’s digital will often require experimentation with agenda. Currently, these strong mutual new business models and partnerships, synergies are only partially captured. as many of the themes require changes Specifically, the EU’s digital agenda could from stakeholders along the value strengthen three synergy areas, which are chain. Having consulted a wide variety further explored in this report: intelligent of industrial companies, it is clear assets / digital product IDs; open data that many of them see the promising material platforms; and setting up a business opportunities within the ten measuring and evaluation system themes. In the same way that the lean to track progress on the circular economy transition. ACHIEVING ‘GROWTH WITHIN’ | 15
For all these reasons, the conclusion of this report is that increasing investments into the circular economy is a very attractive option for the EU’s companies and policymakers, and a very achievable one. This agenda is hugely synergistic with the EU’s societal, competitive, regional, environmental, and digital agenda. In terms of size and importance, the opportunity could even compare to the creation of the internal European market, or to a European ‘Energiewende’ (Germany’s revolutionary transition to a low-carbon energy supply). Politically, it could provide the EU with a new industrial agenda that has a clear and positive message.
An EU-wide transition would also have impact far beyond its borders: it could create de facto global standards for product design and material choices, and provide other world regions with a much-needed blueprint. This would put the EU’s political, as well as its corporate, leaders at the forefront of a major global industrial innovation. 16 | ACHIEVING ‘GROWTH WITHIN’
EXECUTIVE SUMMARY
FIGURE 1 INVESTMENTS REQUIRED TO ACHIEVE CIRCULAR ECONOMY BENEFITS
320 875 Total investments 70 identified in the EU 210 FOOD circular economy 135 until 2025 £ billion
115 555 260 MOBILITY 140
125
BUILT 405 ENVIRONMENT 290
CURRENT NEXT WAVE TOTAL DEVELOPMENTS CIRCULAR ECONOMY
1 Total impact across mobility, food and built environment value chains. 100% of ‘Growth Within’ impact assumed to be achieved, even though some levers – most notably dietary shift – are not driven by direct investments. Sources: ‘Growth Within’; SYSTEMIQ. ACHIEVING ‘GROWTH WITHIN’ | 17
Benefits of circular economy based on ‘Growth Within’ Indexed values, 2012 = 1001
130 GDP 2030 SCENARIOS 120
110 +7% 100 90 80 -10 % 70 60 -17 %
50 PRIMARY RESOURCE 40 COST 30 20 CO2 10 EMISSIONS 0 2012 CURRENT NEXT WAVE 2050 DEVELOPMENTS CIRCULAR ECONOMY
2030 18 | ACHIEVING ‘GROWTH WITHIN’
INDUSTRIAL INVESTMENT WITHIN THE EU: IN SEARCH OF ATTRACTIVE OPPORTUNITIES
The context for circular economy investments in the EU is one where there is a clear need for attractive industrial investment opportunities, and specifically investments that contribute to innovation and renewal, and to the transition towards a more restorative and regenerative economy. In reaching this conclusion, three factors have been considered:
Industrial investment in Europe over the last 30 years to 4.5–6.0% return is in a long period of stagnation: over the next 20 years.10 The reasons for 1 investments as a share of GDP are this vary across industries and countries, still well below the level seen before but common themes include the EU’s the start of the financial crisis in 2008, weak macro-economic development, with absolute EU investment levels only high cost of labour, weak demand getting back to 2008 levels in 2015 in growth, and high resource prices. nominal terms. In comparison, nominal US investment levels were 16% higher Whatever the reasons, the consequences and Japanese investments levels 7% for the EU economy are serious: higher in 2015 versus 2008. In addition, the resulting low investment levels returns on invested capital have been significantly hamper the EU’s industrial not recovered to pre-crisis levels at innovation and renewal, and put the EU’s c.24% in 2015 compared to c.26% on industrial core at risk of eroding. This is average between 2000 and 2007 particularly true in a time of fast change, (see Figure 2). with ever-shorter product cycles. In the current climate of a slow-growing EU The stagnating investments are not economy, increased investments would due to a lack of available capital: also act as a much-needed stimulus. approximately 40% more cash is held on corporate balance sheets across the top Governments in the EU and 75 largest EU corporates in 2016 than it globally have come to realise was in 2010.7 Despite record-low interest 2 that the current direction the rates, implying record-low returns on economy is heading in is unsustainable, holding cash or short-term financial not only in terms of growth but also investments, companies seem to from an environmental and resource-use increasingly prefer this option compared perspective. Recent agreements such to making industrial investments within as the United Nation’s (UN) Sustainable the EU. Industrial executives and Development Goals and the Paris investors do not seem to find enough Agreement on climate change have investment opportunities that they provided objectives, but the strategic consider attractive.8 They may be right: direction and associated concrete action EU corporates have experienced an plans have yet to be developed, and average gross profit margin decline of investments need to shift substantially 1.5% over the last ten years,9 and returns faster towards sustainable business on European equity are projected to models and assets than they are decrease from an average of 7.9% return doing currently. ACHIEVING ‘GROWTH WITHIN’ | 19
A digital and broader technology FIGURE 2 HISTORICAL INVESTMENT LEVELS AND INVESTMENT RETURNS IN THE EU disruption is revolutionising the 3 economy. It has so far primarily transformed information sectors EU-28 investments as share of GDP like retail banking, entertainment, 25% and communication, but is now quickly starting to also transform 20% the large physical systems, most Other importantly food, mobility, and 15% Industrial1 the built environment. Examples 10% include: growing R&D investments in Construction autonomous driving and a shift towards 5% electric vehicles in the mobility sector; increasing use of precision agriculture 0% in the food sector; and 3D printing 2015 2010 2005 and modular building techniques in 2000 the built environment. The technology disruption will change these value EU-28 investments since financial chains quickly and fundamentally, crisis versus Japan and US 2008=100 whether the EU wants that or not. Given this, perhaps it is better to 120 use the disruption as a tailwind to US transition to a more restorative and 110 Japan regenerative economy? 100 EU-28
90 So, in summary, the current context of industrial investment in Europe 0 2011 2012 2015 is one where good sustainable 2013 2014 2010 2008 2009 investment opportunities are scarce and urgently needed. Euro area return on capital employed before tax2
29% 28% 27% 26% 25% 24% 23% 22% 21%
0% 2015 2010 2005 2000
1 Using investments in machinery and equipment as a proxy for industrial investments. 2 Return on capital employed for non-financial corporations; EU-28 data unavailable. Sources: Eurostat; OECD; SYSTEMIQ. 20 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
The circular economy have shown this include, but are not offers a new, sizeable, and limited to: Club of Rome, Cambridge Econometrics & BIO Intelligence attractive area for industrial Service, the Netherlands Organisation innovation and investment for Applied Scientific Research (TNO), The Waste and Resources Action In this context, the circular economy Programme (WRAP), and the Green offers a new innovation investment Alliance. Specifically, the 2015 Growth theme that, if mobilised across the Within: a circular economy vision for EU, could arguably become one of a competitive Europe report delivered the most attractive structural reform by the Ellen MacArthur Foundation, opportunities available at this point. McKinsey&Company, and the SUN A substantial body of research has Foundation, which is in many ways emerged over recent years, highlighting the precursor to this report, identified the benefits of a circular economy for a broad set of benefits offered by a economic growth, reduced greenhouse circular transition as shown in Figure 3. gas emissions, reduced resource supply risks, improved trade balance, health, In recognition of these benefits, and employment. Institutions that political leaders in the EU, as well as
FIGURE 3 BENEFITS OF MOVING TOWARD A CIRCULAR ECONOMY ACCORDING TO ‘GROWTH WITHIN’
Current development scenario Circular scenario EU-27, indexed (2012 = 100)
HOUSEHOLD DISPOSABLE INCOME GDP DIRECT USER CASH OUT COSTS1 144 124 127 118 115 111 107 104 90 81 74 59
2030 2050 2030 2050 2030 2050
1,2 1 1,3 SOCIETAL COSTS CO2 EMISSIONS PRIMARY MATERIAL CONSUMPTION
85 78 67 69 68 57 59 52 47 34 39 17
2030 2050 2030 2050 2030 2050
1 Numbers only cover mobility, food, and built environment 2 Including cash out costs (e.g., health costs, governance, infrastructure) and
externalities (e.g., congestion, CO2, productivity losses) 3 Including virgin automotive and construction material, virgin synthetic fertiliser, pesticides, agriculture land and water use, car and heating fuel, land for residential and office buildings, and non-renewable electricity. ACHIEVING ‘GROWTH WITHIN’ | 21
many Member States, are pursuing its EU presidency in Spring 2016 and the circular economy. In June 2014, created its ‘Circular Economy in the the European Commission adopted Netherlands by 2050’ plan; Finland has its initial circular economy package published an ambitious roadmap to with a revised version being adopted the circular economy; and Scotland has in December 2015. The package presented its circular economy strategy consists of a circular economy action through its February 2016 Making plan and revised legislative proposals Things Last report, as well as setting up on waste management. The action an investment fund geared towards the plan contains measures covering circular economy through Zero Waste the whole cycle (from production Scotland. In fact, the circular economy and consumption, through waste as a topic on the political agenda management, to markets for secondary across the EU seems to have more raw materials). The revised legislative momentum than the climate change proposals on waste management agenda had during the early 2000s. provide clear targets for the reduction But is it also a sizeable and attractive of waste and improved recycling transformation theme for industry? rates, as well as establishing a long- The conclusion of this report is that term path for resource management it is. Circular business models imply (e.g. promoting reuse and stimulating significant shifts for many companies industrial symbiosis). The Commission and industries, in everything from has also put in place financial support R&D to product design, purchasing, mechanisms for circular economy customer relationships, marketing, investments, with funding for waste and value proposition. It is relevant projects coming from the ESIF (€5.5 to almost all industries that are based billion), from the Horizon 2020’s on physical products. As such, it is ‘Industry 2020 in the circular economy’ clearly a significant shift and the initiative (over €650 million), from €320 billion of additional investment the Programme for the Environment opportunity comes on top of a €555 and Climate Action (LIFE, €223 billion investment in circular economy million), as well as from supporting areas that is poised to happen due programmes such as the European to current development trends. In Fund for Strategic Investments (EFSI) total, this makes for an opportunity of and Competitiveness of Enterprises €875 billion, or about 33% of the total and Small and Medium-Sized investments in the studied systems. Enterprises (COSME). Concurrently, the Moreover, as circular markets scale-up, Commission is progressing on several this share will surely grow. circular initiatives, such as the creation of a market for organic fertilisers. Alongside offering sizeable investment opportunities, the underlying business In addition, several Member States opportunities based on circularity are moving towards defining their principles also provide an estimated circular economy strategy. For example, market opportunity of €150 billion the Netherlands has positioned per annum through to 2025, mainly itself through the Netherlands in markets that typically generate Circular Hotspot campaign during between 10% and 20% Earnings 22 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
Before Interest, Taxes, Depreciation, year. Indeed, these circular growth areas and Amortisation (EBITDA) margins.11 across the mobility, food, and building Importantly, the circular investment systems have provided investors with opportunities pass a number of filters substantial investment opportunities. applied by executives when making For example, Airbnb has so far raised investment decisions, most notably US$2.4 billion in equity funding.14 consistency with sustainability goals, However, these are fast-growing digitisation as a driver for growth, exceptions against a broader trend following policy direction, and providing of single-digit growth in many of the access to innovative technologies and most obvious circular markets. business models. So, while there are exciting pioneers The broader circular in almost every segment as described economy is currently above, they are so far marginal in size. This is not a problem per se – any underinvested transition needs to start somewhere and renewable power technologies, Although there are tangible changes that now correspond to more than 50% towards a more circular system in of all power generation investments specific pockets of the economy, such worldwide, were at a similar place 15 as electric vehicles and the sharing years ago. But what is worrying is that economy as described above, total the circular investments do not scale very investment levels in the circular economy fast, beyond individual niches, and that are generally far too low to put the few industrial companies and financial EU onto a circular economy pathway. investors have made circularity Investment in the waste sector, typically a mainstream investment area. the most embedded circular sector, have been stable or slightly decreasing Our interviews and discussions have between 2009 and 2013, the last year revealed four major reasons for this: for which EU-wide figures are available.12 This is despite the large amount of EU The systemic nature of the circular funding that has gone into this area. transition and associated transition 1 costs. Typically, ramping up circular Looking at broader circular business models is different from ramping opportunities, such as circular design up a linear business model, in that it is of cars and buildings, food nutrient not simply a matter of launching a new recovery or car remanufacturing, the product or using a new technology picture that emerges is that circular to improve efficiency. It nearly always investments are still less than 10% of necessitates redefining roles along the linear investments. As can be seen in value chain, for suppliers as well as Figure 4, some niches are growing customers. For example, remanufacturing fast, primarily electric vehicles and the requires securing sufficient supply sharing economy: car sharing is growing of end-of-life material at predictable 13 by 25% per annum and Airbnb recently volumes and quality on the one hand, surpassed the total hotel sector in while finding customers willing to take the number of rooms added over the last remanufactured parts or materials on the ACHIEVING ‘GROWTH WITHIN’ | 23
FIGURE 4 CIRCULAR ECONOMY INVESTMENT LEVELS ASSESSMENT
SHARE OF TOTAL MARKET ANNUAL GROWTH CIRCULAR SIZE FOR INDICATOR MARKETS 1 BUSINESS MODEL2
LINEAR CIRCULAR BUSINESS BUSINESS CATEGORIES MODELS MODELS
CAR SHARING 100% <1% 25%
OFFICE SHARING 100% <1% 80%
ELECTRIC VEHICLES 99% 1% 100%+ (EVs)
CAR REMANUFACTURING 99% 1% 3%
RESIDENTIAL SPACE SHARING 98% 2% 100%+
ONLINE GROCERY SHOPPING 97% 3% 25%
ORGANIC FARMING 95% 5% 5%
ORGANIC WASTE PROCESSING 95% 5% 10%
BUILDINGS RECYCLING 91% 9% 6%
ALUMINIUM USAGE IN CARS 90% 10% 3%
1 % of total cars for sharing, % of office workers at co-working areas, % of EV registration for total car registration, % of total material for remanufacturing/recycling, % total hotel rooms occupancy for space sharing, % of grocery shopping for online shopping, % of total hectares agricultural land for organic, % of total waste arising for waste processing, % of construction waste recovered, % of total material per car for aluminium. 2 Depending on data availability, based on between 1 and 10 years of historical data. Sources: ACEA; McKinsey&Company; Oakdene Hollins; Airbnb; Planet Retail; BCG; Wards Auto; Volkswagen; Reuters; European Commission; OWS; Eurostat COFOG and SBS; SYSTEMIQ. 24 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
other. Likewise, shifting to regenerative high of 13% per annum during 2009–11 agricultural practices means not only in the middle of the resource boom, securing the required inputs, but also but has since decreased by -8% per ensuring there will be sufficient offtake annum until 2015. This has reduced the for the products at the right price point. perceived urgency and importance of the overall transition. But also at a local Investing in the circular economy is level, if cities convincingly signalled different from other ‘new’ investment they were fully committed to making areas, such as clean-tech; the latter local mobility systems integrated and has generally been a technology shared, this would do wonders for play focused on the speed of cost the local investment appetite. Similar reduction, whereas investing in circular examples could be given for many of businesses is mainly a systems play. the other themes. Although circular opportunities can use innovative technology, in many cases Policy barriers. Although our proven technologies can be employed research has shown that the initially with additional technologies 3 main barriers for initial scaling being included as and when these of circular business models are typically reach sufficient maturity. For example, not policy changes, there are still many designing and producing circular complex policies that increase (real cars or buildings can be done using or perceived) complexity and cost, materials and technologies available and therefore hold back the progress today, while further innovations, such of circular models. This is true for as incorporating autonomous driving food waste, remanufacturing, sharing could be included in the production models, and many other areas. process over time. Therefore, the initial investment risk is less a technology risk, Mindsets and lack of awareness. but rather a system risk. In many cases, the main players 4 relevant to a specific circular Uncertainty about the direction. business opportunity lack awareness While many companies buy into of the costs and benefits that shifting 2 the attractiveness of a circular to a circular business model would end state for their value chains, and bring. Examples include 54% of UK for the economy at large, they still car repair shops not having heard of feel uncertain about if, and when, the remanufacturing,15 many farmers not transition will happen. Unlike for clean knowing in detail what the benefits energy, the race is not seen to be on are of shifting to more regenerative and hence companies are not willing practices, and the building construction to go ‘all in’ the way they know they market generally being conservative need to for solar PV, batteries or wind when it comes to moving to innovative technology. Overall, this uncertainty is business models. Often in addition to amplified by the raw material bust. The awareness creation, a lack of the skills World Bank’s non-energy commodity and capabilities needed to implement index increased on average by 7% per circular business models further annum during the 2000–06 period, to a hampers the ramp-up of the transition. ACHIEVING ‘GROWTH WITHIN’ | 25
Nevertheless, importantly most Prioritise these innovation and companies consulted could still identify investment areas according to the plenty of circular opportunities with 2 likelihood of realisation by 2025.19 a sound underlying profitability, once As is shown in Figure 5 below, three the initial transition costs have been categories were used: amortized. Regenerative farming a. Areas that are about to materialise practices can generate similar, if not already in a ‘current development’ higher, profits than conventional scenario, for example a certain growth practices;16 designing and producing for in car sharing. The project did not focus prolonging and looping is often profitable, on these areas as they are expected to even if in some cases this implies higher happen anyway. production costs, as it opens up potential b. Areas that could be unlocked through new revenue streams and some emerging what we judge as modest policy or customer segments are likely to be industry interventions. We judge these willing to pay a premium because the interventions as entirely achievable by product has a higher value to them;17 and 2025, and crucially realistic enough for the market for producing premium food policymakers and companies to spend products continues to grow,18 providing time on and invest in. We call these ‘next profitable market segments for produce wave’ circular economy investments and from indoor vertical farms or next-wave these are the focus of this report. protein sources. c. Areas that are further out in time, requiring multiple policy changes, Ten new circular investment uncertain technology advancements or fundamentally redesigned value chains. themes representing a total The project did not focus on these areas of €320 billion up to 2025 as they are not expected to happen in a material way within the time Building on the research carried out horizon analysed. for the 2015 Growth Within report, the research for this report also focused on Each of the ten innovation and the three main human needs that together investment areas that fell into account for 60% of EU household spend 3 the ‘B’ category was then and 80% of resource use – mobility, explored in depth including quantification food, and the built environment. Using of its possible size, a literature review, the trends and projections pinpointed and multiple interviews with 50+ for ‘Growth Within’ across these three relevant experts. systems, ten circular investment themes were identified using the following three- step approach: The ten investment themes across the Translate the ‘Growth Within’ mobility, food, and built environment circular economy scenario for systems can be seen in Figure 6 below. 1 each of the three systems to a Each of these themes includes one or set of well-defined innovation and more investment opportunities, the details investment areas. of which can be found in the appendix. Taken together, a total capital deployment 26 | ACHIEVING ‘GROWTH WITHIN’
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FIGURE 5 INVESTMENT THEME FEASIBILITY FRAMEWORK Increasing level of risk reduction required before opportunity becomes investable at scale
A B C
DESCRIPTION Businesses and projects that Businesses and projects that Businesses and projects currently receive substantial receive limited investments that receive no/very limited investments and are the main today as these are just outside investments today as these driver of the CE transition the private capital investment require substantial risk space reductions to become attractive at scale These opportunities require 1 – 2 interventions to become investable
INTERVENTION None Maximum one additional Multiple government support REQUIRED government support scheme, schemes or; TO MAKE INVESTMENT- and/or; READY Using unproven technology or; Maximum one new value chain collaboration initiative Consumer/ government acceptance deemed highly unlikely in the near-term
RISK/RETURN Low Medium-High High; mainly outside of PROFILE private capital focus
EXAMPLES Taxi/ car/ ride sharing Integration of vehicle sharing Integrating fully autonomous companies with public transport driving vehicles made with highly durable materials Small-scale urban Transitioning to regenerative farming projects farming practices Integrated E2E local supply chain leveraging blockchain of Shared office space IoT/ effective tracking system with almost zero waste Organic farming
Opportunities in the current Next wave circular economy development’ scenario in opportunities ‘Growth Within’ Circular economy transition Opportunities in the ‘circular’ accelerated scenario in ‘Growth Within’
Source: SYSTEMIQ ACHIEVING ‘GROWTH WITHIN’ | 27
FIGURE 6 DESCRIPTION OF NEXT-WAVE CIRCULAR ECONOMY INVESTMENT THEMES
INVESTMENTS CASE UP TO 20251 CROSS-CUTTING DESCRIPTION EXAMPLES € BILLION OPPORTUNITIES
Integrating Fully integrate the public mobility transport system with 100 systems shared vehicles
MOBILITY Designing Design and produce zero- and producing emission cars made for looping 35 circular cars with durable materials MATERIAL TRACKING SYSTEM THROUGH SECONDARY MATERIAL MARKET
Remanufacturing Rollout remanufacturing car parts of car parts at scale 1 DIGITAL INNOVATIONS (IOT, APPLICATIONS, ANALYTICS)
Deploying regenerative Shifting towards an agricultural agricultural practices system that regenerates the 15 soil and revitalises ecosystems FOOD
Closing Scaling nutrient and energy nutrient loops recovery from various waste streams using anaerobic 10 digestion or biorefineries
Farming through Scaling hydroponic, indoor urban farms aquaponic, and aeroponic 45 farms in urban areas
Developing next-wave Develop new and efficient protein sources sources of protein from vegetables, bacteria, 2 algae or insects
Designing and producing Design and produce multi- circular building usage highly modular and 105 energy positive buildings made of durable non-toxic materials
Closing building loops Ramp up recycling and re- manufacturing of building materials 2
Developing circular cities Integrate circularity into urban developments through innovative business models 10 BUILT ENVIRONMENT BUILT
1 Total investments by system and across systems have been rounded to nearest €5 billion throughout the report. Source: SYSTEMIQ. 28 | ACHIEVING ‘GROWTH WITHIN’
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FIGURE 7 CIRCULAR ECONOMY INVESTMENT IDENTIFIED Average annual investment identified until 2025,€ billion Food Mobility Built environment • Main investments included
36 98 50 8 8 • Next-wave CE: Current All except for R&D and public investment 23 infrastructure investments • All 10 next-wave CE 9 levels across 15 1 investment opportunities the EU economy • Current developments: Mainly energy-efficient 13 retrofits, shared vehicles, 290 61 33 and prefabricated buildings • Waste management 28 production facility • Shift to organic agriculture 15 investments 47 100 • Car sharing • Next-wave CE: 14 15 • Electric vehicle development Mainly R&D and public and production infrastructure investments 130 • Prefab construction 46 20 • Current developments: • Rollout of smart grids and 32 Mainly EV R&D and distributed power generation production, waste, smart • Shared office and residential space 12 grids, and shared office 60 investments circular economy Next wave Total developments Current New Replacements 2 2
1 Defined as ‘gross capital formation’ for government investments and ‘gross investment in tangible goods’ for private sector investments. 2 New investments defined as investments in a fully new asset class or investments in new assets that compete directly with existing production facilities. Replacements defined as those investments which will most likely come from existing capex budgets. Sources: Expert interviews; internet search; Eurostat COFOG and SBS; EC agriculture data; SYSTEMIQ.
potential of up to €320 billion, or €36 in autonomous cars will lead to a more billion on average per annum, by 2025 shared, interconnected, and cleaner has been identified across these ten transport system in the future. Although themes. This is on top of an estimated this would shift the mobility system €61 billion investments on average towards greater circularity, additional per annum in current developments potential benefits are left untouched. (‘category A’) as can be seen in Setting up modally integrated transport Figure 7. If this total of €98 billion per systems with closed-loop cars, based on annum until 2025 materialises, the circular design principles, could further EU will move onto a circular economy increase vehicle lifetime and utilisation, transition pathway. grow the use of public transport, and reduce the need for virgin materials Investing $135 billion to produce vehicles. To achieve this, until 2025 in a Circular three investment and innovation areas have been identified that the EU can 20 Mobility system realistically act on before 2025 and that would unlock a total of up to €135 billion The current trends in electric vehicle in investment. rollout, vehicle sharing growth, and R&D ACHIEVING ‘GROWTH WITHIN’ | 29
First, the full integration of by most car manufacturers but with shared vehicles with urban limited scale; for example, Renault 1 transport systems would not is known to be focusing part of its only make the sharing of (clean) R&D budget on materials for greater vehicles more attractive, but also durability, such as high-quality and spark the development of new journey thinner steel, aluminium chassis and optimisation apps, payments, and powertrain parts, magnesium body traffic optimisation systems. This would panels, in addition to serial production require investments in the adaptation solutions like plastic fenders.21 Through of public transport infrastructure, for the strong growth in shared cars, a example the construction of “modal” new sizeable market segment suitable drop-off and pick-up points and for more durable cars that sell at preferred lanes for shared vehicles. a premium is opening up, Ford is The total capital deployment potential moving into this segment as it has between the vehicle fleet build-up and recently announced it is developing (digital) infrastructure construction is autonomous cars specifically for 22 estimated to be €100 billion by 2025. sharing. Companies managing a Some early pilot projects on modal fleet of shared vehicles23 are likely to integration exist across the EU, such value durability more and have longer as the DriveNow partnership with payback time requirements than Arriva in Copenhagen. However, to individuals. These companies could scale this investment theme, city and provide a market for higher priced cars national governments would need to that have enhanced lifetime benefits. set the right conditions for shared For investors to deploy capital in this vehicle companies and other relevant opportunity of up to €35 billion by private funders and operators to invest 2025, car developers would need to in this integrated model. This could collaborate with car sharing companies be done by supplying the necessary to create the commercial conditions transport infrastructure based on required to attract the capital for R&D modal integration principles, as well and setting up of new production as providing the private sector with lines. A relevant example of this is the required incentives, for example General Motors investing US$500 through tenders or direct procurement million in Lyft in January 2016 to push of shared vehicles used for modal the development of autonomous, on- integration. Close collaboration demand cars. between private and public sector organisations would be essential for a Third, a ramp-up in fast growth of this investment theme. remanufacturing capacity 3 and associated investments Second, designing and setting is needed. The EU currently has an up production lines for automotive remanufacturing market 2 remanufacturing of cars using estimated at 7.4 billion,24 mainly € high-value, durable materials is required comprised of small facilities that to prolong the lifetime of cars and allow serve local car manufacturers, with a for end-of-life looping of materials. limited number of Original Equipment Currently, innovative materials are used Manufacturers (OEMs), such as 30 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
Renault or Bosch, active in this space. revolution driven by fast digital Doubling that market by 2025 would developments across Big Data put the EU onto a circular transition analytics, robotics, and the Internet pathway, which would require up to €1 of Things (IoT), and in parts of the billion of investments during that time. world it is also starting to be changed As remanufactured car parts can be by policymakers recognising that cheaper than newly manufactured parts current agricultural practices are and can typically provide the same deeply unsustainable (specifically quality level, the main risk for potential around freshwater use, nitrogen and investors looking to deploy capital in phosphorous flows, and soil depletion). remanufacturing plants is the deficit of Although EU governments have sufficient customers (garages) willing focused on shifting away from sending to buy the parts. A combination of lack (food) waste to landfill, investments of awareness of the cost and benefits in waste management have been flat of remanufactured parts and concerns over the last five years.27 A further four over reputational risk when using investment themes have been identified remanufactured parts prevents this across the food system all of which market from scaling. Limited availability could realistically be unlocked in the of efficient markets for secondary EU by 2025. automotive parts will also make it difficult to achieve scale. Therefore, for First, shifting beyond organic this opportunity to become investable farming to regenerative agricultural in the next few years, collaboration 1 practices28 would attract multiple networks between car manufacturers new funding opportunities. Although and remanufacturers are needed in the EU’s agriculture sector has been order to agree on quality standards, transitioning towards organic farming at provide attractive economics for both a rate of on average 0.5 million hectares parties, and set up efficient reverse (ha) per annum, the combination of a logistics processes. Also, car insurers faster ramp-up and a stronger shift to could play a role in scaling these fully regenerative practices is needed. activities as quality remanufacturing There are currently companies active offers an opportunity to drive down in this space, such as Volterra in Spain the costs of claims. This would have or the Balbo Group in Brazil. However, to be done in parallel with creating most farmers are unaware of the markets for end-of-life parts based on benefits and costs (such as equipment standardised quality measures for parts, purchases and obtaining of skills) of which should result in an increasing moving to these systems and therefore volume of parts becoming available.25 the shift is not happening at scale. Transitioning to these practices may well Investing €70 billion lead to reduced profitability for the first by 2025 in a circular 2–4 years, depending on the type of agricultural practice used, but after this 26 food system initial period, profit levels could be up to 200% higher than before.29 Therefore, The food system is being changed the investment of up to €15 billion by through the ‘precision agriculture’ 2025 needed to finance the transition ACHIEVING ‘GROWTH WITHIN’ | 31
consists not only of investments in organic waste for feedstocks, through specific equipment and machinery, but the mandating and managing of waste also of providing bridge finance during separation and collection. Moreover, those initial years. Redirecting existing government financial support would be support mechanisms for EU agriculture needed temporarily to allow for further such as the Common Agricultural capital expenditure and operational Policy (CAP) through future revisions expenditure reduction in anaerobic to favour regenerative practices and digestion plants, as well as to provide create awareness programmes for proof-of-concept for biorefineries. The farmers would be an efficient way of European Commission has taken initial accelerating the transition. Companies steps on the policy front through the up the food value chain, such as large creation of an EU-wide organic fertiliser food retailers, could also actively market as part of the implementation of encourage farmers to switch. the circular economy package. Further policy support would be required Second, substantial infrastructure over time, such as allowing complete investments are required to proteins recovered from organic waste 2 shift away from landfilling or to be used for human consumption. incinerating organic waste, to obtaining higher value from these waste streams Third, the drive towards through the extraction of nutrients and more resource-efficient food energy recovery from organic waste. 3 production will attract agriculture Currently, this is generally carried out technology investments through the via anaerobic digestion, which at a rollout of indoor vertical urban farming, capacity of 7.5 million tonnes per annum which uses high-tech to produce mainly (MTPA) feedstocks30 – mainly across fruit and vegetables efficiently. Initial Germany, Switzerland, UK, and the commercial success has been shown Netherlands – only addresses a fraction by US-based AeroFarms who manage of the total estimated organic waste over 100,000 square feet of indoor volume of c.150 MTPA.31 In addition, urban farms across Newark, New Jersey pilot projects for biorefineries that take and who have raised US$90 million in organic waste as feedstocks, with the debt and equity over recent years from aim of producing high-end chemicals venture capital investors, as well as or proteins, are being developed across banks.32 Some initial indoor farm pilot the EU. For example, in Denmark the projects are being created in the EU, SUBLEEM generic biorefining pilot for example the UrbanFarmers UF002 aims to extract high-value products – De Schilde in The Hague, Netherlands. such as proteins, peptides, oils, soluble Currently, the economics of indoor fibres, peptides, and saponins – from urban farms are not sufficiently positive excess biowaste, e.g. sugar beet without some form of government leaves, beach cast, and residues from support, such as reduced rents, long- beer production. For these organic term energy price guarantees or waste processing facilities to become direct financial support. However, the investable at up to €10 billion until AeroFarms example shows that if the 2025, it would be key for governments right government support is put in to provide stable, large volumes of place, private investors are willing to 32 | ACHIEVING ‘GROWTH WITHIN’
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provide the majority of the required sharing of offices and residential space, capital.33 Also as the (digital) technology and net-zero energy buildings are used matures and operators gain scaling fast. There are also emerging experience, the cost of operating these and potentially disruptive trends around innovative farms will further decrease, 3D printing of the building exterior, further de-risking the estimated and more modular building techniques. investment opportunity of If scaled up sufficiently by attracting up to €45 billion by 2025 the required investments, these trends would shift value from the construction The fourth and final investment process and energy suppliers, to real theme in the food system estate managers who excel at getting 4 is to develop next-wave value out of existing buildings and sustainable protein sources. Investment deep retrofits. opportunities in this area of up to €2 billion by 2025 consist of investments First, in order to scale up the in technologies and companies that required circular business models create complete protein sources, such 1 in the built environment, the as animal feed in processed food or as buildings construction sector would food for direct human consumption. need to see an increase in investments Next-wave protein sources range from in new production facilities. This would seaweed and insects to microalgae and facilitate the ramp-up of the number vegetables, all offering higher resource of new buildings with modular design efficiency versus conventional protein and adaptable to different uses, and the sources. As shown by InnovaFeed, a development of building materials that French company focused on producing are designed for end-of-life reuse, as insect-based farmed fish feed, next- well as technologies aimed at making wave protein sources could provide an these buildings energy-positive. A good attractive new investment opportunity example of this is Park 2020 in the to develop its agro-industrial model and Netherlands, which is developed by the scaling production in Europe. The main Delta Group based on cradle-to-cradle issue holding back faster growth in this principles using designs that bear the area is the need for proof-of-concept reuse of materials in mind.35 Modular at scale for the underlying technologies design of buildings is already happening – which is why it is currently mainly an across the EU, but further change to area for venture capital investors – while building design is required, such as legislative change to allow different the removal of toxic materials in order protein sources in the human food to allow for reuse and the utilising of chain would be required for scale-up. innovative technologies, e.g. 3D printing for construction. In addition, although Investing €115 billion by new buildings currently are highly 2025 in a circular built energy efficient, driven by the Energy Performance of Buildings Directive, a 34 environment further shift towards energy-positive buildings is required. This would need The built environment is currently being combined investments of up to €105 disrupted by a very strong growth in billion by 2025 in R&D, new construction ACHIEVING ‘GROWTH WITHIN’ | 33
facilities to produce prefabricated case for these models comes with other and modularised buildings, and the risks due to new pricing structures additional construction costs to make and longer investment payback times. buildings energy-positive. However, A way to overcome this is for design two main risks exist that prevent this companies, construction companies and from happening: the business case for other stakeholders to jointly collaborate selling circular buildings is typically too to set up end-of-use processing of risky due to high upfront costs and due materials, as well as integration of to fragmentation in the construction circularity principles within building sector. This fragmentation does not sector standards. An additional key provide a solid basis for end-of-life factor will be awareness creation, material value extraction due to split specifically among small and medium- incentives, high transaction costs, and sized enterprises (SMEs) active in the lack of the necessary capabilities and construction space, of the need to shift skills. This can be mitigated by shifting to innovative circular building design to performance-based or service-based and capacity building on the relevant business models where buildings are design principles, as well as of (reverse) rented or leased. However the business construction technologies.
FIGURE 8 MAIN BARRIERS IDENTIFIED FOR THE MOBILITY SYSTEM
ECONOMICS MARKETS REGULATORY SOCIETAL
INTEGRATING Lack of alignment of Required commitment of Potential resistance from MOBILITY SYSTEMS structure of business public sector at city level to incumbents against car case across different EU create/allow the required sharing countries and cities for market conditions such as clean vehicles focused clean-technology charging on modal integration stations, parking spaces or drop-off and pick-up points MOBILITY
DESIGNING AND Uncertainty of business Uncertainty of business case PRODUCING case related to income related to size of customer CIRCULAR CARS beyond the point of car segment willing to pay sale linked to end-of-life premium for durable cars value recovery Lack of sizeable secondary car material markets
REMANUFACTURING Lack of efficient processes Policies preventing The OEMs’ perception CAR PARTS regarding reverse logistics use of remanufactured of reputational risk parts; for example the Difficulty combining OEM EC Directives related OEMs’ concern over new and remanufactured to end-of-life vehicles, cannibalisation of new spare parts procurement electronic equipment, spare parts business and the disposal of Difficulty in disassembling hazardous waste focus Lack of awareness car parts primarily on recycling and among OEMs have mixed effects on remanufacturing activities
Source: Expert interviews; internet search; SYSTEMIQ. 34 | ACHIEVING ‘GROWTH WITHIN’
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FIGURE 9 MAIN BARRIERS IDENTIFIED FOR THE FOOD SYSTEM
ECONOMICS MARKETS REGULATORY SOCIETAL
DEPLOYING Farmers need to overcome Lack of awareness and REGENERATIVE temporary volatility in skills required for new AGRICULTURAL profits during the transition practices among farmers (as PRACTICES that can vary between 1 regenerative practices are FOOD to 8 years depending on more knowledge-intensive) the starting point and regenerative practices Lack of awareness of benefits implemented among consumers
CLOSING Anaerobic Digestion plants Insufficient stability in volumes ‘Not In My Back Yard’ trend for NUTRIENT LOOPS are typically not profitable and quality of organic waste large infrastructure projects at the scale at which these streams can create too high dealing with waste streams are deployed today without risk to build plants at scale support, given energy prices Lack of skills required to and feedstock costs operate plants if rolled out at scale Biorefineries for chemicals/ fertiliser production typically still require proof- of-concept at scale
FARMING Uncertainty on return on Uncertainty on demand for Urban permits and zoning Lack of consumer awareness THROUGH INDOOR investments required to urban farms products sold at laws preventing construction regarding benefits of food URBAN FARMS design and build urban premium price, if rolled out of new indoor farms from indoor urban farms farms due to novelty of at scale production methodology
DEVELOPING NEXT- Facilities innovating protein Restrictions currently Lack of awareness of benefits WAVE PROTEIN production typically require imposed by human food and willingness to shift to SOURCES proof-of-concept at scale chain legislation next-wave protein sources
Sources: Expert interviews; internet search; SYSTEMIQ. ACHIEVING ‘GROWTH WITHIN’ | 35
FIGURE 10 MAIN BARRIERS IDENTIFIED FOR THE BUILT ENVIRONMENT
ECONOMICS MARKETS REGULATORY SOCIETAL
DESIGNING AND Risks related to longer The fragmentation of the Construction sector PRODUCING investment payback times sector does not provide a fragmented and conservative CIRCULAR when business models are solid basis for end-of-life to circular design technologies BUILDINGS used that are service-based material value extraction and business models and/or link the payback over time to the building’s Lack of sizeable secondary performance building material markets
CLOSING Lack of stable flows of Legislation preventing Resistance from businesses BUILDINGS buildings materials construction players due to attachment to current LOOPS from certifying non-virgin habits, and sometimes Lack of industry standard for inputs and using some defiance towards non-virgin secondary materials associated machinery materials BUILT ENVIRONMENT BUILT
DEVELOPING Lack of track record for Required commitment of Lack of knowledge among CIRCULAR CITIES structuring of projects that public sector at city level to city government of different link investments to benefits create the market conditions business model possibilities realised in the context of to achieve circular urban circular urban developments planning
Lack of pricing of negative externalities at city level
Sources: Expert interviews; internet search; SYSTEMIQ. 36 | ACHIEVING ‘GROWTH WITHIN’
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FIGURE 11 CIRCULAR ECONOMY INVESTMENTS IMPACT ASSESSMENT ON EUROPE’S PRIORITY AREAS
MAIN AREAS OF PRIORITY FOR EUROPE Competitive- SDG3 and ness & Climate Growth1 Jobs Innovation Goals
++ Very positive MOBILITY Integrating mobility systems + Investment + ++ + Positive opportunities Designing and producing provide new jobs +/- Neutral circular cars +/- directly; the jobs ++ + reduced as a Remanufacturing car parts result in sectors + with stranded +/- + assets most likely shift to service FOOD Deploying regenerative sector which agricultural practices +/- has low labour ++ ++ productivity2 Closing nutrient loops + + ++ Farming through indoor urban farms ++ ++ + Developing next-wave protein sources + ++ ++
BUILT Designing and producing ENVIRONMENT circular buildings ++ ++ ++
Closing buildings loops + +/- +
Developing circular cities + + +
1 Taking into account both short-term and long-term growth impact. 2 Based on analysis done for Growth Within 3 Sustainable Development Goals, mainly 2. good health and well-being; 7. affordable and clean energy; 8. Decent work and economic growth; 9. Industry, innovation, and infrastructure; 11. Sustainable cities and infrastructure, and; 12. Responsible consumption and production. Source: SYSTEMIQ.
Second, materials from certified, and, on the other, securing demolished or – preferably – sufficient offtake of the processed 2 deconstructed buildings should materials by creating platforms or a increasingly be recycled or repurposed collaboration network of construction where possible, requiring sizeable companies committed to using the funding for newly built facilities. materials. Providing a new income Currently, on average 54% of demolition stream for these used materials would materials from buildings are going to also alleviate issues related to the longer landfill, however in some countries time it would take to deconstruct rather this is only 6%,36 indicating that with than demolish buildings. the right incentives it is possible to reuse these materials. Ramping up Last, a shift towards fully circular the recycling and remanufacturing cities implies urban planning facilities could provide an investment 3 that – next to new approaches opportunity of up to €2 billion by 2025. in mobility and urban living as already The main risk reductions required for mentioned – is based on circularity these investments to happen are, on principles, such as increasing green the one hand, a change in legislation spaces, grey water systems, and preventing building materials made energy-efficient street lighting. The of non-virgin constituents from being underlying business models for ACHIEVING ‘GROWTH WITHIN’ | 37
FIGURE 12 IMPACT OF NATURAL CAPITAL COSTS ON PROFITABILITY
Profit margin (EBIT) before and after natural capital costs, based on top two companies in each Morgan Stanley Composite Index category, 2012 15 15 11 9 11 9
3 3 5 5 Before 11 9
3
After -1 -1 -6 -8 -11 -78 -165 Cattle farming Wheat farming Cement Synthetic fertiliser Paper-board Silver mining Bauxite mining Iron and Steel metals smelting Non-ferr generation Coal power ous
Source: Adapted from: Trucost and TEEB (2013)
these separate opportunities are well underlying business case. In addition to researched37 and initial projects have providing an attractive business case to been implemented, for example in the the private sector for individual projects, area of energy-efficient street lighting.38 (local) governments would need to However, a more comprehensive define clear plans for how to base future rollout is required. This could provide urban developments on circularity an additional investment opportunity principles in order to provide investors over and above current urban planning with clarity on the way forwards. The investments of c.€10 billion by 2025. The European Commission has taken a step public sector would need to supply the in that direction by including standards necessary conditions for private capital for increased water reuse in its circular to invest. In most circumstances, the economy action plan. underlying business case requires an innovative contractual structure to link A massive stranded asset the societal savings, such as reduced risk to be avoided water or energy use, directly to the investment in order to provide attractive The shift from a linear to a circular risk-adjusted returns to investors; this industrial model will entail major shifts would involve a shift towards the total in the demand for different types of cost of ownership when assessing the 38 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
goods, shifts in value creation, and global economy. Economic history hence changes in asset value. If the shows that industries can get away with ten investment themes represent being at odds with their surrounding the upside of the circular economy societies for some years, but not decade business opportunity, the stranded after decade. With raising awareness asset risk represents the downside. It is and transparency of these damages, a substantial and a near-term risk that customers, regulators, and investors will investors should start to manage. increase pressure on these companies In fact, it is becoming more widely to act, and the stranded asset risk accepted that the main risk- will rise. In fact, an increasing number management methodology, the modern of executives take externalities into portfolio theory, no longer holds. account when defining their strategy.40 This theory teaches that investing in uncorrelated asset classes provides Volume-based businesses a diversified investment portfolio. risking negative growth and However, the stranded asset risks 2 a disproportionate negative described below run across seemingly impact on profitability. Many capital- uncorrelated asset classes. intensive businesses share the same characteristics: assets are inflexible Two main forces are at work, and once built, and profitability crucially often both are present for the same depends on high asset utilisation and type of assets: high market prices, which in turn is explained by a delicate supply versus Business activities not carrying demand balance. In the EU, many their environmental and societal capital-intensive businesses also 1 costs. A mapping39 of all the major suffer from low demand growth, often environmental externalities globally of only 1–2% per annum. Now, such estimated that unpriced environmental linear business models are coming damages amounted to a staggering under greater threat, as new circular 13% of global GDP in 2009. They come models can offer increased customer in five major forms: greenhouse gas value and utilisation out of existing emissions, overuse of water, negative products, materials, and infrastructures, land use effects, air pollution, and instead of building new ones. Take waste generation. These environmental office buildings as an example: the damages are disproportionally caused construction market has been growing by a relatively small number of resource by c.1% per annum over recent years extraction and primary processing in the EU,41 and currently, the average industries. The study estimated what European office is occupied only the profitability of these industries 35–50% of the time even during office would be if they had to carry their hours. There are several strong circular environmental cost. The result was forces now at work to reduce the startling: almost none of them would growth: office sharing, teleworking, and be profitable at all, and many of them more flexible office layouts. Together, would be deeply unprofitable (see these forces might well make growth Figure 12). This represents a major negative and shift business to other stranded asset risk at the heart of the sectors and companies. ACHIEVING ‘GROWTH WITHIN’ | 39
FIGURE 13 POTENTIAL IMPACT OF CIRCULAR ECONOMY TRANSITION ON CAR PRODUCT DEMAND Estimates of the impact of circular economy scenario on EU car demand until 2025, based on Growth Within
EU CAR DEMAND MILLION 16.5 HISTORICAL ANNUAL GROWTH RATE 16.0 0.5-1.0%1 15.5
15.0
14.5
14.0
13.5 SHARING RESULTING GROWTH 13.0 -0.5% P.A 12.5 LONGER LIFETIME 12.0 TRAVEL VIRTUALISATION REBOUND EFFECT 11.5 Cost of travel reduces by c.20% leading to 11.0 increased travel due to price elasticity 10.5
0 2015 2025 2020
ASSUMPTIONS
SHARING LONGER LIFETIME TRAVEL VIRTUALISATION 1 shared car replaces Electric vehicles can last up Increase in remote working 8 owned cars to 50% longer than ICE leading to reduction in passenger km of 7% Use of durable materials for the main body can further enhance lifetime by c.100%
1 Average pre-crisis annual growth rate between 1990-2007 for EU-15 + EFTA Sources: ‘Growth Within’; ACEA; SYSTEMIQ 40 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
FIGURE 14 FRAMEWORK FOR ASSESSING STRANDED ASSET RISK Size of market EU Risk of product demand decline
HIGH CIRCULAR ECONOMY RISK INVESTMENT CLASS High Automotive Petroleum refining Oil and Gas production
Iron and Steel Cement
Building construction
Medium LOW/MEDIUM CIRCULAR ECONOMY RISK INVESTMENT CLASS
Meat products
Pulp & Paper
Software Waste management
Low Low Medium High Natural Capital Cost Level (currently not paid by producer)
Sources: Eurostat, SYSTEMIQ.
Negative growth means a dramatically percentage points off the growth: less attractive business in many See Figure 13 for an example in the industries – and hence a stranded automotive sector. In total, the ‘Growth asset risk – since three negative Within’ report estimated a reduction of developments combine: lower demand, European raw material use of 32% by increased price pressure as competitors 2030 in an ambitious circular economy try to offload their volumes, and a hit transition scenario. in the stock market as future growth expectations are slashed. As a result, The European electricity industry many industries see a ‘tipping point’ illustrates many of these effects, and logic when growth turns negative, might serve as a warning case: a This risk is tangible, and may materialise very slow underlying demand growth much faster than many investors combined with a continued quick build- believe. First, growth and profitability out of renewable power generation is weak in many European primary and created a situation of negative processing industries already today. growth for the incumbent coal- and Second, for many of these industries gas-based generation technologies. the trends of sharing, virtualisation, This, in combination with the risk of
reuse and remanufacturing are together future increases in CO2 prices, caused strong enough to shave several revenues and growth prospects to all ACHIEVING ‘GROWTH WITHIN’ | 41
but collapse, which results in the Regulators and consumers have many top 16 utilities across Europe writing ways of detecting and pressurising 42 off €22.9 billion in 2014. such companies. For example, water- intensive industrial activities often get Examples of asset classes at risk shut down in times of shortage, have can be seen in Figure 14. They production permits withdrawn include many of the traditional raw or expansion curtailed. materials industries, but also some of the materials- and capital-intense C. Avoid companies generating manufacturing industries. However, large amounts of waste. Waste is the there are major differences between ultimate indicator of poor design and various segments of these industries, an undermanaged business, and most as well as major company-level circular economy efforts will ultimately differences. For example, in the steel result in less waste. Therefore, waste industry, a company such as Ovako generation itself is often a good acid Steel uses almost exclusively secondary test of a company’s circular economy steel as an input, and by doing so has compliance. significantly reduced its risk, compared to those relying on primary steel. So D. Avoid companies without a clear not all assets within these industries roadmap to circularity. While few are at risk, but still the size and urgency businesses have fully adopted all make it crucial for investors to watch circular economy principles in their these trends, and identify which strategy and operations, leaders have companies bear the largest risks. already come some way towards improving product design and material To avoid getting stuck with stranded choices, employing innovative business assets, and their disproportional value models, and developing advanced loss, this report would like to suggest reverse cycle capabilities. Observing that companies adopt a more thematic what strategies and roadmaps style to investing that looks across companies have in place is a useful the classic silos as defined by the indicator of the stranded asset risk. modern portfolio theory, by adopting the following set of investment The decline in output during the principles. Of course, these need transition towards the circular economy to be weighed up against other for those industries most at risk from company-specific criteria: both circular business models and from allocation of natural capital cost is a A. Avoid companies that have a low topic that will need to become part of utilisation rate of valuable assets. government agendas across the EU. This is specifically the case in sectors Planning to deal with stranded assets where new technologies and business can minimise the risks of this transition. models (e.g. sharing) now make Identifying early on the industries most substantially better utilisation an likely to be affected and engaging attractive opportunity. Office buildings, with them on re-training employees for road vehicles, boats, and high-end circular business models could machinery are good examples. increase the likelihood of job retention. Crucially, the earlier industry executives B. Avoid companies where unpriced environmental damage is large assess the extent of the stranded asset compared to current profitability. risks facing their current and planned 42 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
FIGURE 15 EUROPEAN COMMISSION FUNDING TOWARDS 10 INVESTMENT THEMES
Dedicated funding1 Investment focus Investments not included Dedicated EU funding1 million € million € Total MOBILITY funding Integrating 170 • Increase sustainability of • Implementation of transport 16000 14500 mobility systems public infrastructure and optimisation technology transport hubs • Specific infrastructure required
Designing and 116 • Use of lightweight material • Integration of full circularity producing • 3D printing in car design and production circular cars • Autonomous cars • Material tracking systems
Non-CE Remanufacturing • n/a • All car parts 14300 13200
FOOD
Deploying regenerative 82 • Soil planning and management • Transition cost funding agricultural practices • R&D for appropriate CE current 1130/1300 regeneration policies developments c. €800 million of general Closing nutrient loops 67 • Close nutrient loops in the • R&D outside of agriculture manufacturing agriculture sector • AD or biorefining innovation funding • Nutrient loops from water infrastructure investments included which could include Farming through • n/a • All some of the 10 indoor urban farms opportunities
CE 10 Developing next-wave • n/a • All opportunities 570/70 protein sources
BUILT ENVIRONMENT Designing and 13/70 • Develop reusable • Investments in new producing construction structures production facilities circular buildings • 3D printing • Material tracking systems
Closing buildings • n/a • All loops
Developing 122 • Integration of energy efficient • Holistic shift to fully circular circular cities technologies at a district level districts and cities
TOTAL 570/70
Horizon 2020 ’16/’17 EFSI ‘15/16
1 Horizon 2020 budget for ’16/’17 and EFSI funding spent to date for the part of the fund managed by the EIB. Sources: EIB; European Commission Horizon 2020 website; SYSTEMIQ. ACHIEVING ‘GROWTH WITHIN’ | 43
capital investments, the higher are their than resource taxes even though labour chances of effectively addressing them. should be maximised and resource use minimised. Obvious externalities, Policymakers should focus such as congestion and environmental on four areas damages are not priced, to take just a few examples.
Each of the ten opportunities has its Removing policy barriers. own solutions to the barriers identified Many of the identified themes that are relevant to policymakers, but 2 require legislative changes to four overarching themes emerge: become investable at scale. Most often, these consist of removing policy barriers Setting direction and showing (so-called unintended consequences) commitment. One of the success that prevent specific investment themes 1 factors of the ongoing clean energy from taking off, such as the current revolution is its clarity of direction. strict limitations on how remanufactured Few company executives, researchers cars or building components can be or policymakers doubt that the EU used, or how proteins from sources and the world are moving towards a transforming agricultural by-products clean energy system. Therefore, they or food waste may be used. Often invest business development and these barriers currently exist to manage research resources based on that belief, consumer health and safety risks but further reducing cost and increasing in the context of adoption of circular attractiveness, and making the clean economy business innovation, these energy transition a self-fulfilling risks are manageable. For example, prophecy. There is no such clarity for quality and safety standards could be the majority of the ten themes. As a set for remanufactured parts or food result, too many investors take a ‘wait- proteins. A good analogy is the removal and-see’ approach, or they bet on of policy barriers to open up the market countervailing trends, such as shorter for energy efficiency in buildings. use-cycles, more resource-intensity, and Depending on the specific legislation lower product costs. So, providing such the change may be required at EU or direction is a crucial policymaker task, Member State level.43 be it through targets, strategies, public investments, consistent international Creating platforms for dialogue, trade agreements or industry convening. cooperation, and awareness One specific case is to constantly strive 3 creation. Successful examples of to level the playing field for circular circular business models clearly show business models. Again and again when the need for multiple stakeholders along analysing circular business cases, the the value chain to change (part of) historic bias for linear business models the way they execute their business becomes obvious: primary materials model. For example, in the case of can be easily internationally traded, looping waste streams, new suppliers while substantial hurdles exist to trade would have to be found and contracted secondary ones. Taxi hailing is hindered to provide required waste streams, by incumbents where it should be while the stakeholders creating the helped, labour taxes are ten times higher waste would need to be incentivised 44 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
FIGURE 16 SOLUTIONS TO OVERCOME THE BARRIERS FOR THE MOBILITY SYSTEM
POLICY MAKER INTERVENTION OPTIONS
SETTING DIRECTION POLICY CHANGES STAKEHOLDER PLATFORMS FINANCIAL SUPPORT
INTEGRATING Provide long-term strategic Provide market conditions Set up public-private MOBILITY SYSTEMS direction towards a fully for shared vehicles to shift partnerships or public integrated transport system towards modal integration procurement to establish integrated shared vehicle schemes and develop required digital infrastructure
MOBILITY Develop required public transport infrastructure, such as parking spaces and pick-up and drop-off points
DESIGNING AND Set long-term strategic Mandate or provide support Create consumer Support innovations in circular PRODUCING direction towards clean, to shift towards circular car awareness of benefits of car design and production CIRCULAR CARS durable cars design circular cars Support dialogue between Public procurement for car manufacturers and circular cars target customers to determine market needs
REMANUFACTURING Set a precise definition of Mandate or provide Create consumer Public procurement for CAR PARTS circular cars, especially support towards the use awareness of benefits and remanufactured parts related to remanufacturing of remanufactured parts quality of remanufactured and re-use parts
Support dialogue between car manufacturers and remanufacturers
Sources: Expert interviews, internet search, SYSTEMIQ.
FIGURE 17 SOLUTIONS TO OVERCOME THE BARRIERS FOR THE BUILT ENVIRONMENT
POLICY MAKER INTERVENTION OPTIONS
SETTING DIRECTION POLICY CHANGES STAKEHOLDER PLATFORMS FINANCIAL SUPPORT
DESIGNING AND Adjust legislation to drive Support innovative Public procurement for PRODUCING the inclusion of circularity business models that circular buildings CIRCULAR in the buildings sector allows for sharing risks BUILDINGS standards and regulation between players to Provide support for material stimulate material looping production technology innovations
CLOSING Adjust legislation preventing Support dialogue between BUILDINGS construction players from construction companies LOOPS certifying non-virgin inputs and material recycling companies to create Provide strong incentives, further market growth such as mandating of increased use of non-virgin materials to overcome resistance from businesses BUILT ENVIRONMENT BUILT
DEVELOPING Setting direction/ targets on Support setting up of Set up public-private CIRCULAR rollout of circular cities new business models partnerships to mitigate CITIES underpinning investments risks in circular infrastructure Rollout public infrastructure required for circular districts
Sources: Expert interviews, internet search, SYSTEMIQ. ACHIEVING ‘GROWTH WITHIN’ | 45
FIGURE 18 SOLUTIONS TO OVERCOME THE BARRIERS FOR THE FOOD SYSTEM
POLICY MAKER INTERVENTION OPTIONS
SETTING DIRECTION POLICY CHANGES STAKEHOLDER PLATFORMS FINANCIAL SUPPORT
DEPLOYING Support awareness, Public procurement for food REGENERATIVE skill-building and demo products from regenerative AGRICULTURAL farming projects delivered farms PRACTICE by best-practice farmers FOOD Focus agriculture subsidies (e.g. CAP) on transition
Provide financial support for pilots or full transition to regenerative practices
CLOSING Continue to set direction Further improve organic Engage local communities Scale-up waste collection NUTRIENT for shift towards greater waste collection processes in new infrastructure logistics and infrastructure LOOPS (organic) waste separation through simplification and project development and collection standardisation Provide (financial) support to AD, biorefineries or other Pricing in negative organic waste processing externalities facilities
FARMING Incorporate urban farms Support provision of permits Create consumer Public procurement for food THROUGH INDOOR in urban planning and and leases to build farms in awareness of benefits products from indoor urban URBAN FARMS development urban areas and quality of food from farms indoor urban farms Provide incentives that reduces the risks to investors, such as tax breaks
Provide support for technology innovations
DEVELOPING Research a legal framework Promote public Public procurement for food NEXT-WAVE at the EU level to allow and awareness of benefits products from next-wave PROTEIN SOURCES ease next-wave sustainable protein sources protein sources complying with quality and safety Support technology standards innovations
Sources: Expert interviews, internet search, SYSTEMIQ.
to separate and collect the waste in European Resource Efficiency Platform the required volumes and quality. (EREP) set up during 2012–14, which In addition, customers would have was generally acknowledged as being to become aware of the benefits in vital to the creation of the European order to shift from only accepting Commission’s first circular economy newly created products to adding package in June 2014. It acted as an products made from the end-of-life effective mechanism to gather input streams (such as remanufactured from relevant stakeholders, develop cars or building materials). All of this pragmatic solutions, and build support. requires awareness creation, dialogue, Therefore, similar platforms should be and negotiations between players set up, ideally separate ones for mobility, varying from producers to consumers food, and the built environment. This to financers. The public sector could should not only be done for those play an active role by setting up themes where the public sector plays platforms with the right set of players a large if not leading role, such as to facilitate these discussions. A integrating mobility systems or scaling successful example of this was the circular urban environment, but also 46 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
for those where the private sector is related investments (see Figure 15). more likely to lead, such as industrial As the circular investment themes design based on circular principles or identified in this report have large remanufacturing of materials.44 infrastructure components, allocating a budget within existing funds for them Focus public procurement, would shift investments towards public circular economy circular opportunities while providing 4 investments, and financial new growth opportunities to those support towards the ten themes. funds, but also, at the same time, Some of the investment themes shifts investments towards circular require technology innovations such opportunities. Investment funds at the as biorefineries, indoor farming or 3D Member State level could well provide printing. As private capital is not always an additional supply of public capital set up to invest in the perceived risk towards the investments themes. level of these innovations, focused Lastly, reforms to existing subsidy public financial support would be frameworks should be considered, needed to de-risk these innovations mainly in the area of shifting linear sufficiently for the private sector to agricultural practices towards more provide 100% of the funding required. circular ones, while fiscal incentives Investing in pilot projects to get these should also be geared towards circular innovations through the proof-of- business models. commercial-concept phase is a good example of high-return opportunities Company executives for public investment. Although the should carve out their role circular economy budget within Horizon 2020 funding is currently within the ten themes already being deployed in this area, it does not yet cover the identified Successful examples of themes and underlying innovation fully. businesses shifting to a circular If funds were directed towards the model show the importance of hot spot innovation and investment bringing together relevant players to themes within food and the built collectively driving the change needed. environment (there is already a better Examples of this include working with overlap for mobility opportunities), a suppliers to design and build products major opportunity to increase returns with looping in mind; working with on public investment would be opened customers to convince them of the up. In addition to innovation funding, additional value of buying a premium- the public sector has been supporting priced product because of its end-of- lower risk investments at larger scale life worth; and increasing the appetite for alternative, performance- or with a central focus on infrastructure. For example, European Investment service-based business models (‘access over ownership’). As such, in order for Bank (EIB) has been investing c.€14.5 billion over the last two years through company executives to start investing the EFSI fund mostly in infrastructure in circular opportunities, identification projects, however less than 10% of of the most relevant investment this is going to circular economy- theme(s) is needed. Depending on ACHIEVING ‘GROWTH WITHIN’ | 47
the current role a company has in the to see a whole new set of improvement value chain, it could make more sense opportunities, the circular lens often to invest in looping than investing in opens up an undiscovered wave of prolonging for example, which in its opportunities. Examples of profitable turn would depend on the existing skills circular business models, such as DESSO and capabilities in the organisation, as or the Balbo Group,45 show that typical well as the required risk/return profile success factors for implementing and of the available capital. investing in a fully circular business model are: Furthermore, a mapping of the relevant stakeholders along the value 1. Clear vision of the target business chain is essential, including a strategy model; that defines the necessary change 2. Identification of specific market from each and how to achieve this. segments where suppliers and For example, in the case of scaling up consumers could be lined up to provide remanufacturing in the mobility sector, initial revenue at the right price levels; the leading organisation aiming to 3. Executive commitment and leadership invest in new remanufacturing in a player in the value chain that can facilities would need to decrease the bring together the required stakeholders. risks sufficiently to deploy capital. This could be done by ensuring the To illustrate how private players can supply of available components start investing across the ten themes with the required specifications, in the near term across the risk/return commitment from manufacturers to spectrum, examples of potential incorporate the remanufactured parts opportunities are summarised in Figure into their supply chain, as well as 19 below. A number of these are indeed making sure experienced staff could be about starting engagement with employed in the new remanufacturing suppliers, customers or relevant public facility. Achieving this entails, besides sector organisations to identify suitable access to the required type of capital, locations across the EU with the most the right network of businesses along favourable economics where developing the value chain, skills and capabilities to investable projects is likely to be easiest. rollout and operate the remanufacturing facility, and a strong senior management At the same time, executives should shift commitment to achieve the business strategy and/or investments desired outcome. away from linear business models most at risk from the circular economy Moving towards circular business transition. This could be done by adding models will often call for some a ‘filter’ to the investment- and strategy- experimentation with new business setting process that analyses each models and partnerships. However, the opportunity in line with the principles majority of the industrial companies of circular investing. Additionally, they involved in this research could identify should analyse their existing asset promising opportunities within the ten portfolio to determine the exposure to themes. In the same way that the lean these risks. For those assets most at operations lens has allowed executives risk, a progress-tracking process should 48 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
FIGURE 19 EXAMPLE PRIVATE CAPITAL INVESTMENT AREAS ACROSS THE RISK/ RETURN SPECTRUM
HIGH MEDIUM LOW
• Developing digital • (Clean) vehicle sharing • Upgrading public transport Integrating mobility MOBILITY infrastructure for modal business linked to public infrastructure systems integration transport Designing and • Innovative production • Developing cars with • n/a producing circular cars technologies such as 3D incremental circular features printing • Developing fully circular cars
Remanufacturing • Digital secondary car • Fully new car remanufacturing • Scaling existing car parts part market supply chains1 remanufacturing in supply chains
FOOD Deploying regenerative • Precision agriculture • New ecological/ regenerative • Transition financing to agricultural practices technologies for regenerative farms existing farms farming practices
Closing nutrient loops • Biorefineries • AD plants • Organic waste collection businesses
Farming through • New vertical farm technologies • Urban farm infrastructure • Conventional green houses indoor urban farms and businesses
Developing next-wave • Next-wave protein production • Scaling existing vegetable- • n/a protein sources technology providers based production facilities
BUILT Designing and producing • Innovative production • Buildings with new circular • Buildings with well-understood ENVIRONMENT circular buildings technologies such as 3D features, such as materials circular features, such as ~ printing with lower toxicity prefabrication • Developing fully circular buildings
Closing buildings loops • Digital secondary building • New building material looping • Scaling existing building material market supply chains1 material looping supply chains
Developing circular cities • New circular city models • Replicating existing circular • Green urban infrastructure without track record2 city projects with existing track record2
1 Including use of new components and materials. 2 New models such as grey water systems; existing projects such as energy-efficient lightning. Source: SYSTEMIQ.
be implemented that measures the For example, synthetic fertiliser penetration of competing circular business producers could set ‘boundary’ models and progress in natural capital penetration levels for organic fertilisers cost allocation for the relevant products. in their respective markets that, when This would size the risk from the circular met, would allow them to either find economy transition on a regular basis and, alternative markets for their production if done properly, should allow executives facilities or lead to a managed to start implementing transition measures accelerated depreciation of their assets when needed. during which time they could decide to enter the organic fertiliser market or find alternative business strategies. ACHIEVING ‘GROWTH WITHIN’ | 49
CIRCULARITY CAPITAL
Circularity Capital is a specialist private Circularity Capital uses the circular equity firm founded to provide clients economy as a framework to identify with access to investment opportunities and assist selected European SMEs to created by the circular economy. The capture the value creation opportunities firm has raised £17.6 million to date and from their continued adoption of circular plans to start deploying capital in Q1 economic practices. The firm seeks out 2017. The creation of this dedicated businesses that can outperform the fund was driven by growing investor market and their linear competitors appetite for such business models and by applying the circular economy the recognition that companies in this framework. Circularity Capital targets space have unique growth trajectories investments of £1–5 million in the and face unique challenges. In growth stage of SMEs operating in the particular, its investors were interested circular economy across the EU. The in deploying capital in the circular team leverages its specialist expertise economy because of the catalytic nature and network in the circular economy to of Circularity Capital’s proposition and identify, source, and secure proprietary the opportunity to support circular investment opportunities. SME growth and innovation, thereby delivering commercial returns in addition to positive environmental and societal impacts. 50 | ACHIEVING ‘GROWTH WITHIN’
EXAMPLES OF PRIVATE SECTOR INVESTING IN THE CIRCULAR ECONOMY
a continuous senior management commitment to the transition.
INTERNAL ORGANISATION The organisation initially responded with resistance, having changed ownership An example of a successful transition several times in recent years, but towards a business based on circularity Kranendijk was able to incentivise them principles is DESSO, a Dutch carpet tile through: consistent internal messaging; manufacturer. Led by its CEO Stef dedicated presentations and training; Kranendijk, DESSO set out to ensure concentrating on ‘quick wins’ that that all its products would be Cradle to produced tangible results and motivated Cradle® certified and that it would run employees; and aligning Key Performance on 100% renewable energy by 2020. In Indicator (KPI) with the new focus on 2008, DESSO started to remove chemicals innovation and sustainability. From the day that did not meet EPEA3 standards and he communicated the transition internally to introduce new purer materials. During in 2008, Kranendijk also made speeches the initial phase, between 2008 and 2015, and gave interviews in numerous media this allowed DESSO not only to double channels. The transition became known its carpet tile market share (in Europe as ‘the DESSO Case’ and the company from 15% to 30%), but also, alongside a gained a reputation for doing good rather restructuring programme, to increase than less bad, which had a hugely positive its carpet EBIT margins from 1% in 2007 impact on employee satisfaction because, to 9% in 2011 and an estimated 12–14% as Kranendijk notes, “it feels great to in 2015. do good”.
After coming in as co-owner and CEO SUPPLIERS in 2007, Kranendijk set innovation as a The transition to Cradle to Cradle® core strategic priority to reinvigorate the required obtaining large amounts of business. He adopted a strong focus on information from DESSO’s suppliers about design and on sustainability with substance. the toxicity of their inputs, and placed After learning about Michael Braungart’s a burden on them to alter products to Cradle to Cradle® approach, Kranendijk comply with more onerous requirements. committed to obtaining this certification DESSO focused on getting supplier for the company’s products by focusing cooperation through in-person meetings on healthy materials, design for easy to demonstrate their commitment and disassembly, take back and recycling, making the process as easy as possible. and switching to renewable energy. Some of DESSO’s suppliers were still hesitant to adopt the new standards, but The strategy initially increased risks the ones who were willing to cooperate with key groups of stakeholders, but the went further in reconsidering the making team was able to successfully mitigate of their products and welcomed co- these through clear target setting and development opportunities. DESSO also ACHIEVING ‘GROWTH WITHIN’ | 51
developed a multi-supplier strategy for each as described above, and the remaining key input to ensure sufficient availability bitumen to companies such as Heijmans in and support industry-wide adoption. Two the roadbuilding industry. collaborations stand out. The first, with Aquafil, Europe’s largest yarn manufacturer, SHAREHOLDERS built a $20 million plant to depolymerise On joining the company the CEO was old yarn into the original monomer from under pressure from investors to turn which new yarn could be made. Before the company around, and the proposed Aquafil built the plant, DESSO committed transition plan required high upfront to become its launch customer. Currently, investment. However, the shareholders had more than 50% of DESSO’s carpet tile sufficient faith in the management team to volume is made from up to 100% recycled give them a ‘grace period’, and DESSO’s yarn. The second, with chemical giant Dow, subsequent ability to show financial results led to the development of a 100% pure and outperform competitors convinced material (polyolefin) as a replacement for the shareholders. The first private equity the conventional bitumen tile backing. investor in the company, NPM Capital, which in 2007 co-invested with management, got CUSTOMERS eight times their money back (including DESSO’s shift to Cradle to Cradle® loans) in 2011. The subsequent private led to a greater focus on carpet tiles investor got twice their money back specified by architects and designers (including loans) in January 2015. These with a commitment to sustainability. are both remarkable returns on investment This focus led to a significant change in in an extremely tough macro-economic customer profile, towards those willing to period. In 2011, the CEO of Tarkett, came to pay a premium for high specification DESSO headquarters to be convinced that tiles. Extensive external presentations implementing Cradle to Cradle® principles by DESSO’s CEO and managers to their is not only good for people and the planet, opposite numbers in many companies but also good for business. As a result directly or via the World Economic Forum, of that visit Tarkett decided to become a London Business School, IMD Lausanne Cradle to Cradle® certified company, and in and the Rotterdam School of Management, 2015 acquired Desso. led to high awareness of ‘the DESSO Case’ in the business community and had a tremendously positive effect on all customers. DESSO also shifted to a differentiated selling strategy by providing their products in advance, in accordance with specifications. Additionally, the company set up its own Take Back System to collect used carpet tiles. Once it had separated the yarn from the bitumen backing the company sold the recovered yarn to Aquafil to be made into new yarn, 52 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
Capturing the synergies setting standards and creating digital between the EU’s digital platforms to reduce transaction costs and facilitate business models agenda and the circular that require cooperation between economy transition companies. There are three additional areas that currently do not receive The digital revolution is a crucial substantial funding and would benefit enabler for many parts of the circular from it: economy transition, including asset sharing business models, virtualising Product IDs There are two key products, managing complex reverse reasons why secondary markets logistics systems, and keeping track 1 for materials and products show of valuable assets. Vice versa, it is slow growth: first it is hard for buyers only tangible societal benefits such as to know the content and quality of those offered by the circular economy what they are buying; and second it is transition, that can motivate public hard for sellers, especially consumers, spending on a digital agenda. The to know how to most profitably sell synergies are strong. their products after use. The result is that the market for secondary goods Most spending on digital technology in the EU is a very small fraction of in the next-wave opportunities that for new goods. This could all outlined above will be inherent to change with new technology. Imagine if those investments and will be done products and materials carried suitable with private sector financing. One IDs, in the form of barcodes, cheap example is Google’s Waze ‘Connected electronic tags or other such labelling Citizens’ initiative, which transmits data technology (the best technical solution between commuters and governments will vary by product and material). As to improve traffic flow. Another is the an example, suppose barcodes were Quartz Project,46 an open data platform required to carry relevant information on building materials that provides about the contents and exact type of information on the environmental a product, so consumers could scan and health impact of over 100 that barcode with their smartphones building materials. whenever they made a purchase of a durable good. This would give There are, however, several areas consumers, with very little hassle, an where public intervention is beneficial. inventory system as sophisticated as The EU is already allocating funding some companies have today. After towards the circular economy digital some years, when the consumer agenda, mainly through its Horizon is ready to get rid of the product, 2020 programme. Figure 20 shows he or she highlights this with the that this budget only covers some of smartphone, getting buy-back offers the ten investment themes identified. from remanufacturers, secondary For circular economy opportunities, material providers, recyclers, and so on. the public role is primarily about An early example of such an approach ACHIEVING ‘GROWTH WITHIN’ | 53
in the retail sector is Stuffstr, a company Circular economy evaluation that lets consumers find buyers to reuse and measuring systems As or recycle their items after-use, and 3 support efforts to shift economies provides access to a large, transparent towards circularity pick up across repair services market during use. Such the EU, an increasing need to track a service drastically reduces transaction progress will arise. Such monitoring is costs and gives used products a real important to assess the effectiveness value. If they were widespread, such of initiatives, as well as to determine systems would prompt manufacturers the best allocation of funding. While to compete on the secondary value of robust systems are in place to track products and would make designing greenhouse gas emissions, similar for easy disassembly and using pure systems to monitor material efficiency materials valuable business strategies. at a detailed level are lacking. Examples Creating such standards and systems include: comprehensive data on waste would be a substantial achievement for generation and treatment in the the European Commission. construction and demolition industries is virtually non-existen; the EU only Open platforms for secondary requires Member States to provide materials Although many waste data every two years with 2012 2 companies are interested in the the latest available year; high quality notion of ramping up the market for data on the sharing of cars, buildings secondary materials, most are not or other assets is lacking. Therefore, to actively pushing this and are looking start tracking material flows as part of at others to take the initiative. The a ‘circular economy Key Performance main barriers are a lack of market Indicator dashboard’ would require transparency and profitable business not only increasing the quality, detail cases. As is shown by the relatively and collection frequency of data, but low rates of remanufacturing across also improving the interfaces used to different sectors, it is difficult to set up report and view it. Similar to how the a business at scale that has suppliers of Carbon Disclosure Project developed a sufficient volume of suitable end-of- its greenhouse gas emission reporting use components, and customers willing system over time, such as dashboard to buy remanufactured components. could be built up from company Therefore, an open, online secondary to industry or city level to create marketplace would require public transparency on resource efficiency support to take off, as there will be at a detailed level. a lead time before its business case becomes positive. 54 | ACHIEVING ‘GROWTH WITHIN’
MAIN FINDINGS
Conclusion
Investing in the circular economy is a compelling proposition for EU companies and policymakers alike. The economic and innovation opportunities it provides are sizeable and could influence EU industrial strategy in a positive and powerful way. If such investments prove successful, they could see the EU become a world leader in circular economy, at the forefront of a global shift that could be truly transformative. ACHIEVING ‘GROWTH WITHIN’ | 55
FIGURE 20 HORIZON 2020 FUNDING FOR DIGITAL PROJECTS TOWARDS THE TEN INVESTMENT THEMES
€ MILLION HORIZON 2020 DIGITAL ENABLERS DIGITAL ENABLERS NOT FUNDING INCLUDED IN H2020 INCLUDED IN H2020
MOBILITY Integrating mobility 119 R&D for SMEs Innovation Integrated app planning systems on transport & Smart cities optimised multi-modal journey & managing Digital road automation seamless payment
Designing and 100 Autonomous cars Car material tracking producing circular cars system 3D printing (through general manufacturing funding)
Remanufacturing Automotive open
car parts material platforms Secondary material market systems CE monitoring and evaluation FOOD R&D of robotic Precision agriculture Deploying regenerative 70
agricultural practices technology for precision technology for Product passports farming and harvesting regenerative practices
Closing nutrient loops 50 R&D on digital monitoring of water cycles to increase the nutrient recovery
Farming through Urban farming indoor urban farms monitoring and operating technology
Developing next-wave Production monitoring protein sources and operating technology
BUILT Designing and producing Building material ENVIRONMENT circular buildings tracking system
Closing buildings loops Buildings open material platforms
Developing circular cities 96 R&D on digitalisation Digital advanced for energy optimisation lighting, power, water technologies at and waste sub-metering district level & management
Total 435
Source: European Commission Horizon 2020 website; SYSTEMIQ. 56 | ACHIEVING ‘GROWTH WITHIN’ ACHIEVING ‘GROWTH WITHIN’ | 57 10 INVESTMENT THEMES
INTEGRATING FARMING MOBILITY THROUGH INDOOR 1 SYSTEMS 6 URBAN FARMS
DESIGNING AND DEVELOPING PRODUCING NEW PROTEIN 2 CIRCULAR CARS 7 SOURCES
REMANUFACTURING DESIGNING AND CAR PARTS PRODUCING 3 8 CIRCULAR BUILDINGS
DEPLOYING CLOSING REGENERATIVE BUILDING 4 AGRICULTURAL 9 LOOPS PRACTICES
CLOSING DEVELOPING NUTRIENT CIRCULAR 5 LOOPS 10 CITIES 58 | ACHIEVING ‘GROWTH WITHIN’
10 INVESTMENT THEMES
INTEGRATING MOBILITY 1 SYSTEMS Further growing the use of European Union (EU). However, if shared vehicles through seamless cities throughout Europe moved integration with public transport towards an integrated transport could be achieved by investing up system with a focus on zero-emission to €100 billion between now and vehicles, this percentage could 2025. This investment could be increase to above 10%.49 directed towards the build-up of an integrated fleet of zero-emission This shift would see benefits from shared vehicles, associated public a variety of perspectives. Transport transport infrastructure, and required time would be shortened, as transition digital systems. Such an investment from public transport to the final could put Europe on a pathway to destination becomes easier thanks to achieve total societal cost reduction the combining of public transport and 48 of up to €175 billion per annum shared vehicles, and the optimisation by 2030 on a number of fronts, of these services through multi- e.g. reduced congestion or fewer modal journey planning. Indeed, these parking spaces required. Strong changes would make it possible to public sector commitment to provide reduce total car fleet size, and thus the infrastructure and incentivise traffic congestion. Greenhouse gas customers to switch would be emissions and air pollution in cities needed, while the private sector would be significantly decreased could move forward concurrently as the smaller car fleet would also through integrating the necessary be more environmentally friendly. digital systems and rolling out the This would further lower the cost associated vehicle fleet. of mobility for users and allow for a better use of inner-city land – of which Relevance of currently as much as 50% is devoted investment theme to roads and parking spaces.50
All these benefits contrast with the What if journeys combining public current picture of commuting, as a transport and zero-emission shared source of significant inefficiency, air vehicles were to become the norm pollution, and traffic congestion in across most European cities by 2025? large cities. Today’s typical European At the current rate of development, car is owned by an individual and is it is estimated that by 2025 c.2% of parked 92% of the time – often on passenger kilometre travelled could valuable inner-city land – and, when be made in shared cars across the it is used, on average only 1.5 of the 5 ACHIEVING ‘GROWTH WITHIN’ | 59
available seats are occupied. Even at • Additional incentives to shift, such rush hour, cars cover only 10% of road as priority lanes for buses and zero- area taken as average across Europe. emission shared vehicles or free parking. Yet, traffic congestion costs verge on 2% of GDP in cities such as Stuttgart Recent developments and Paris.51 The time is ripe for such a transition: To capture the full potential, mobility better mobility systems are a key services would need to be made priority for most cities, and new so attractive that users would be technologies and innovative business prepared to make a wholesale shift models are now available to enable the in their current commuting modes. shift. Indeed, car sharing is growing So, the challenge is to make shared at a rate of 40% per annum, electric journeys flexible, fast, and affordable vehicles are becoming competitive compared to personal car journeys. with conventional vehicles on price This can be achieved by combining and performance,52 and software as many as possible of the following developments allow users to optimise levers to incentivise users to shift shared vehicle fleets, as well as instantly to sharing: plan their journeys using a variety of transport options. The new generation • A fully integrated user app allowing of urban citizens seems less attached people to plan journeys that minimise to car ownership and increasingly seeks commuting time by combining public on-demand and/or shared mobility.53 transport and zero-emission shared vehicles, enabled by optimised fleet New journey-planning apps make it management systems. easier for consumers to use different • Seamlessly integrated payment transport modes. Most apps do not yet options embedded in apps. provide full modal integration options, • A fleet of zero-emission shared which would allow the user to easily vehicles, including bikes and cars/ transition from one type of transport to shuttles, run on electricity, hydrogen another, but some examples approach or other technologies. this functionality. For example, Uber • Infrastructure for these zero- Ride Request offers passengers emission shared vehicles, such as convenient first and last mile rides charging stations and parking spaces. to and from public transport54 and in • Infrastructure for an unbroken September 2016 Uber partnered with transition between public transport public transport apps in Australia to and zero-emission shared vehicles integrate public transport planning.55 (e.g. spaces for seamless pick-ups and The Xerox Go Los Angeles app comes drop-offs). closest to full modal integration by • Optimised public transport capturing available public and private infrastructure such as lanes exclusively transportation options and computes for buses and shared vehicles or the shortest, cheapest, and most increased metro capacity. sustainable way to get to the chosen destination.56 On the other hand, many 60 | ACHIEVING ‘GROWTH WITHIN’
10 INVESTMENT THEMES
journey-planning apps remain focused • Developing digital infrastructure, on a subset of options, i.e. only public most notably: transport, taxi hailing, bike or car sharing. - Establishing integrated user apps to plan optimised journeys that combine Some European cities – such as Helsinki, public transport and zero-emission Copenhagen, and Hamburg – have shared vehicles. These could build started the shift towards full modal on existing initiatives, such as the integration. The Finnish company, MaaS DriveNow or MaaS projects, or be Global, launched in June 2016 the first new apps. To make an app a ‘one-stop all-inclusive multi-modal transport shop’, it will need to include a payment service in Helsinki, which is to be rolled system adding to the total investment out across the city by the end of 2016 requirement. and eventually to all Finland’s cities and - Creating a fleet optimisation platform. public transport networks.57 In Hamburg, Making use of a public transport the city provides incentives such as system integrated with shared vehicles reserved parking spaces for shared cars, sufficiently attractive for customers free shared bikes, and charging stations will require continuous optimisation of for electric vehicles are provided to traffic flows to reduce congestion and, encourage users to shift. Hamburg also in turn, total travel time. New digital has the Switchh app that allows users to innovations, such as Google’s Waze, design the optimal multi-modal journey. currently provide solutions driven by In Copenhagen, the mobility system Big Data analytics that allow planners that integrates zero-emission shared to optimise traffic flows, but these cars and public transport was set up by need to be tied into an overall transport DriveNow, which provides users with a optimisation platform. common app and integrated payment options, a fleet of zero-emission • Providing and managing fleets of shared vehicles, charging stations, zero-emission shared vehicles, including and free parking. associated infrastructure such as charging stations. Investment will These are a few examples of successful have to be made in the vehicles that ways in which the public and private will be used for sharing, as well as the sectors have come together to grasp charging/fuelling stations and possibly the opportunities for integrated mobility some facilities to allow for vehicle systems, but there is much still to be maintenance (if this is kept in-house). done to achieve the target level of integration across Europe. • Constructing and upgrading current public infrastructure. To improve the Investment opportunities speed and cost of using public transport identified and zero-emission shared vehicles for consumers, construction of spaces for seamless pick-ups and drop-offs would The shift towards integrated urban be needed, while at the same time transport systems provides investors further improving public transport to with multiple investment opportunities allow for increased passenger numbers. of up to 100 billion between now and € This implies a re-allocation of public 2025. They include: ACHIEVING ‘GROWTH WITHIN’ | 61
infrastructure spending, geared towards provide attractive returns on the an integrated multi-modal transport capital deployed. system with improved public transport infrastructure, and additional incentives Moreover, the risk of opposition from to shift towards integration, such as incumbents such as original equipment priority lanes for buses and zero- manufacturers (OEMs) and taxi drivers emission shared vehicles. threatened by car sharing if deployed at scale could provide a barrier to Current barriers growth. Currently, opposition is mainly to investments focused on ride sharing platforms such as Uber, which are disrupting the taxi industry globally, while car sharing is At the moment, the main barrier not under the same degree of scrutiny, preventing integration of zero-emission probably due to the difference in scale shared cars and public transport of the disruption to date.59 However, from scaling up is the lack of a clear if car sharing becomes the norm and commitment to such integration from the transition is not managed properly, relevant public sector bodies. The incumbent opposition could limit private sector by itself could further its growth. expand some of the activities that have already been set in motion, such as rolling out combined car sharing and Interventions to scale up public transport journey-planning apps investments or creating car sharing parking spaces near public transport stations. However, To put the EU on a path to a fully a step-change in modal integration integrated urban mobility system, a would require public sector commitment strong push by relevant public bodies on all fronts, even though this would be needed. Many elements would commitment could take various forms need to ramp up at the same time, such and levels of intensity depending on as public transport infrastructure, zero- local situations.58 For example, creating emission shared vehicle fleets (and an integrated payment system on top their charging networks), and all the of the journey-planning app involves relvant digital infrastructure. As these access to public transport payment investments are in different asset classes platforms; allowing shared car parking with their own risk and return profiles spaces near train or metro stations and associated investor types, risks would require public sector approval; would have to be properly managed and using electric-only shared vehicles during the growth phase, something would require the rollout of charging the private sector cannot do alone. stations. Furthermore, without the Nevertheless, there is a clear role the required infrastructure, such as pick-up private sector can play in technological and drop-off points, the business case to and fleet development, as already provide a fleet of zero-emission shared outlined. Furthermore, by actively cars specifically for modal integration engaging with city administrations, would likely not be positive, as car as BMW is doing with its DriveNow utilisation rates would be too low to initiative, private sector companies 62 | ACHIEVING ‘GROWTH WITHIN’
10 INVESTMENT THEMES
can achieve the required momentum. electricity prices for charging stations. However, action is needed by all parties: In addition, detailed plans regarding the construction and funding of • European Commission: The main public transport infrastructure role for the European Commission would be required. Lastly, clarity could be to incentivise innovations, would be needed on how the digital as well as providing the infrastructure infrastructure requiring government build-up needed to underpin an collaboration would be developed integrated mobility system. This is and scaled. already being done through some of the Horizon 2020 funding geared The most effective way to achieve towards Smart Transport; allocating this is through bold, coordinated more funding both towards these action among all relevant public and (digital) innovations, as well as private sector players. This would be the public transport infrastructure necessary in order to incorporate views required, will further support the on feasibility of not only the technical, transition. In addition, initiatives could but also the economic aspects of the be rolled out aimed at providing transition, before starting to implement strategic guidance and knowledge the different elements. For example, sharing to EU city governments about building up a shared electric car fleet integrating mobility systems, as well geared towards modal integration as supporting consumer awareness would require a minimum vehicle programmes. utilisation rate to achieve the return on investment required by investors. • National, regional, and local This return would also depend on the governments: To achieve a fully pricing strategy, which would have integrated system national, regional, to be competitive with individuals and local governments would need to using their own cars. In addition, play a leading role, and in particular the utilisation of shared cars would those organisations that deal with rely on the ease of use of shared urban infrastructure and public vehicles for ‘the last mile’, i.e. from transport planning and funding. They the public transport station to the would need to provide the near-term desired end location. For this to be vision and associated detailed plans successful, many elements would need on how to integrate the mobility to come together at the right time, system in such a way that investors requiring close collaboration between have sufficient confidence to develop stakeholders. the required (digital) infrastructure and zero-emission shared car The risk of incumbent opposition could fleet. This could include setting up be mitigated by ensuring a level playing incentives for consumers to switch, field, for example all potential providers such as introducing congestion of car sharing services and their users charges, car taxes, zones free of fossil could be plugged into the integrated fuel-powered cars or discounted app and benefit from incentives, ACHIEVING ‘GROWTH WITHIN’ | 63
provided they met the conditions required (e.g. using rented or shared zero-emission vehicles). Exclusivity should not be granted to a few players or, if this is the case, only for a limited period of time (e.g. for the first one to two years), after which the system would be open to all players.
• Private sector: Despite the onus being on the public sector to achieve a fully integrated (zero-emission) urban transport system, the private sector could continue to push ahead with specific elements. Building on examples that are already being rolled out, this includes the integration of public transport journey planning apps and shared vehicle apps. For example, the public transport journey- planning app Citymapper60 is already providing the option to order a ride share through Uber directly, however the next step would be to integrate available shared cars into the app. Additionally, focusing car sharing growth on public transport stations by securing parking spaces in those areas would allow consumers to further test using shared cars for ‘the last mile’. This, in turn, could show the public sector the way forward and lead to further buy-in. Private players in the space could also advise governments on relevant policies and infrastructure planning. 64 | ACHIEVING ‘GROWTH WITHIN’
10 INVESTMENT THEMES
CASE STUDY MAAS GLOBAL
In June 2016, Finnish company Turkish automotive company MaaS Global launched the first Karsan Otomotiv both owning 20%, all-inclusive multi-modal transport alongside Finnish company Veho as service to be rolled out across all of a majority shareholder.62 Finland’s cities and public transport networks.61 The launch is the culmination of six years of planning, involving multiple To get around the city, commute or public and private stakeholders, escape for the weekend, Helsinki including Finland’s rail and city dwellers and tourists can now use public transport companies, the a single multi-modal mobility app Finnish company Mobility-as-a- giving them instant access to bus, Service Global (which produced train, shared bikes, taxis or hire cars, the Whim app), and the car hire and multi-modal planning features. company Sixt. In particular, the The same card is used for public Finnish government has been buses, metro, trains, and shared pushing the initiative, saying that: cars. Monthly mobility packages are ‘The biggest driver has been jobs available but users can also choose and economic growth’. Mobility the pay-as-you-go option. packages run from less than €100 for public transport access to The initiative was officially launched €1,000 packages that give users in mid-June 2016 together with the unlimited access to a hire car beta test, which aims to fine-tune without the hassle of ownership. the mobile validation technology. Full rollout across the country Moving forward, upgrading began in September 2016, starting infrastructure such as intermodal with the Helsinki region. Twenty- transition points may be required four organisations put money into to grow the user base even further. the project with eight emerging as Looking beyond Finland, MaaS is shareholders: four Finnish companies already in negotiations with other and four international companies countries and regions across the invested, with international French globe, and they hope that Estonia transport company TransDev and will come on board shortly. ACHIEVING ‘GROWTH WITHIN’ | 65
CASE STUDY DRIVE NOW
In Copenhagen, DriveNow has set up and get 20 minutes’ bonus parking the largest mobility system in Europe time when they park and plug in integrating zero-emission shared cars the car at a charging station.65 The and public transport. infrastructure will also be expanded as the energy group E.ON plans to build On a business area of 82.8km2 in 640 charging points for the benefit Copenhagen, 400 fully electric BMW of all electric vehicle drivers. Priority i3 cars63 are integrated with the public lanes for electric vehicles are already transport system. Users are thus in place at Copenhagen’s airport. provided with an easy, flexible, and clean option for their journeys: they This easy, flexible and zero-emission can reserve the nearest electric car mobility service was made possible with only one click on the DriveNow by a close partnership between a set app, and return it promptly anywhere, of public and private players. Indeed, at any time, within the area. Everything the Arriva-DriveNow partnership66 can be found at a glance on the app: is supported by the Danish Energy from the route of the vehicle, to the Agency and the Capital Region of charging stations for the free refuelling Denmark. and the satellite locations where the cars can be parked. The app is also These examples provide clear the key to the 400 cars, which can be templates for how this shift can be opened or closed with the DriveNow realised through public and private card or the Rejsekort travel card. sector investment and cooperation. The planning and payment system for these shared electric cars is also fully integrated with public transport. Users can park for free almost everywhere64 66 | ACHIEVING ‘GROWTH WITHIN’
10 INVESTMENT THEMES
DESIGNING AND PRODUCING 2 CIRCULAR CARS Moving to the design and production non-traditional players, such as of fully circular cars would create a technology companies, are dedicating car industry based on more durable an increasing part of their R&D vehicles, the looping of component budgets to autonomous vehicles. and material flows, and reductions Combining all of these elements into in negative externalities. This a single model of car design could transition would leverage innovative provide a step-change towards the technologies for car production production of fully circular cars. (such as robotics and 3D printing), lightweight materials, and end-to-end Such cars would be material banks, material tracking. The introduction of from which used or unfashionable such circular cars could be achieved parts could be removed and replaced with an investment of up to €35 billion by remanufactured parts ready for between now and 2025, and could put another life. They could also be the EU on a pathway to realise a total designed to maximise the potential cost benefit of€ 75 billion per annum for upgrades in functionality, features, by 2030, driven mainly by reduced size or performance. If higher-value costs of materials, and a smaller total materials are used that provide car fleet. increased durability, incentives to remanufacture those would grow in Relevance of order to avoid losing value. investment theme Indeed, designing and producing such circular cars would shift the transition Multiple features of circularity are to an overall circular economy into already established in specific a higher gear and generate sizeable segments of the European car industry. economic value, notably through Remanufacturing has a positive increased resource efficiency, as well economic case (as shown in Investment as reaping significant environmental Theme ‘Remanufacturing car parts’),67 benefits70 that would otherwise not which could be further enhanced be captured. The need for primary if cars are designed that take into materials, the volume of waste, and account disassembly. Some companies greenhouse gas emissions would all are exploring and, in some cases, be reduced due to the combination already producing, cars with durable of longer lifetimes, clean technologies materials,68 while electric vehicle and increased reuse, remanufacturing, sales in the EU are growing rapidly.69 and recycling. Meanwhile, both manufacturers and ACHIEVING ‘GROWTH WITHIN’ | 67
The economic benefits are derived to allow for the looping of battery from a number of factors: mainly parts would generate cost savings as the lower cost of remanufactured recycling costs would be reduced74 parts versus the cost of new parts; and valuable parts that are subject to energy and water savings; reduced supply risks could be recovered. The lead times and lowering of costs project has also developed a business associated with long supply chains, as model in which the battery might be well as associated security risks;71 and owned by someone other than the car decreased costs in the mitigation of owner, therefore easing the process risks related to the scarcity and price of battery collection, and also likely volatility of material inputs.72 Designing increasing sales of electric cars as and producing circular cars makes it reduces their upfront cost – a key these benefits even more substantial consumer concern.75 as circular car parts can, by definition, be looped more systematically, more The benefits captured are even greater easily, and more efficiently. when the same player manufactures and owns circular cars. Some Designing for looping would also manufacturers, such as Rolls Royce, allow manufacturers to deal with a have recognised that by employing faulty unit without recalling all their leasing models, the selling of a product products. The cost savings involved as a service can incentivise better could be substantial, as shown by a design and generate mutual benefits, battery pack manufacturer that went where customers are guaranteed a into bankruptcy after a faulty unit fixed engine maintenance cost over an was discovered post-production: the extended period of time, and the car company tried to recall just the batch manufacturer retains the product and from which the faulty unit came, but the associated benefits of looping it because the units were not designed and its components and materials. Such for looping, the serial numbers were a business model implies combining not accessible, so they were forced to the production of circular cars with recall all of their products.73 service offerings such as car leasing or car sharing. Indeed, in this set up In addition, producing cars that the car manufacturers are incentivised are both low emission and made to invest even more in higher-value for looping would generate cost materials and design for looping: they synergies. For example, the project will own the cars throughout their life ABACUS run by a consortium that cycles, and therefore know they can includes Jaguar Land Rover, WMG, recover the majority of the substantial University of Warwick, Potenza investments they have put into the cars Technology, and G&P Batteries, has at some point through looping. Thus, investigated the synergies between the focus shifts towards producing a designing for looping and using car that is both as durable and as easy lithium ion batteries to power electric to loop as possible , which fully phases and hybrid vehicles. The project has out planned obsolescence.76 found that adjustments in the design 68 | ACHIEVING ‘GROWTH WITHIN’
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When driverless car technologies reach • Innovative production technologies, the commercialisation phase, they including robotics and 3D printing, will open up additional investment could be powerful ways to reduce opportunities for circular cars. production costs for cars made to be looped and the subsequent Recent developments remanufacturing costs. Currently, disassembly operations are complex The timing is now opportune to and tend to be mostly manually design and produce such cars. Indeed, executed, but the development innovative technologies and business of more efficient production and models are available to effectively allow remanufacturing processes, which this change to take place: leverage robotic technologies to carry out disassembly in a collaborative • The use of higher-value parts and fashion between man and machine, materials is an important step towards or with minimal human intervention, the production of cars made for is increasingly the focus of pilot looping. For example, headlamps and research projects.81 Indeed, the have a much higher value today (at stakeholder workshop dialogue 77 ‘Supporting Excellence in UK least €100 each), than they used to. Therefore, it is more profitable to Remanufacturing’, which involved remanufacture headlamps than it is to industry leaders, top academics, and buy new ones. Specifically, higher-value supporting organisations82 reached materials that are also more durable the conclusion that: ‘Improvements in and lightweight, such as aluminium, automation, decision-support systems, can make reuse, remanufacturing or and other technologies are helping recycling more attractive78 as there is to drastically improve the efficiency no loss of quality during the process.79 of remanufacturing processes and reduce costs. Other technologies such • Electric vehicle sales grew by as 3D printing or laser cladding are more than 100% in 2015 and many also improving the cost and quality of car manufacturers are spending an remanufacturing.’83 increasing share of their R&D budgets on this technology.80 • Car sharing shifts the focus from car purchase price to total cost of • Many OEMs, as well as technology and ownership, as car ownership transfers car sharing companies, are devoting an from consumers to car sharing increasing budget to the development companies. Businesses typically of autonomous cars. take into account the full cost of owning cars, including depreciation • Digital technologies and innovations and maintenance, therefore more (such as digital passport IDs) are durable cars with lower maintenance emerging that allow for the monitoring requirements – and possibly with lower and tracking of car parts and materials fuel costs because they are lighter – end-to-end, making it easier to collect that can be easily upgraded are likely end-of-life parts. on balance to be favoured over more traditional cars. Additionally, if a car ACHIEVING ‘GROWTH WITHIN’ | 69
has a higher market value at the end (durability, optimisation for looping, of its life, it should also improve the low-emission technology) could be economics of the industry. integrated. Based on the potential designs, market testing would have to • Service-based business models, demonstrate which designs would be such as car sharing, provide car most commercial. This testing could manufacturers with more opportunities lead to adjustments in elements of to create and foster direct interface the car’s design and further testing with clients. Indeed, such integrated would have to be carried out in order service offerings could be a way for car to move towards the setting up of a manufacturers to be seen as providers new production line. This investment of value-added services,84 rather than opportunity consists of different pure hardware suppliers. The world- sub-parts, such as design, prototype leading manufacturer Caterpillar Inc. building, and market testing, and would demonstrates that service-based likely require a range of specialist offerings, such as leasing or servicing, companies to be involved. As the are a powerful lever to building design of a new car model can typically and maintaining a long-term client cost between €1–3 billion, investments relationship. in the design and testing of a fully circular car would potentially need to • As the new generation of car users come from a large (corporate) investor. is willing to extend their increasingly connected lifestyle to more day-to- • If the testing phase of the newly day activities, there is an opportunity designed circular car showed positive to design a circular car that would results, a new production line would provide features specifically created to have to be established, with a variety enhance car sharing, such as innovative of component production facilities in-transit services (e.g. desktops for supplying the assembly plant. passengers allowing them to work and Depending on how different the make video calls during their journey). production process is from existing production lines, this could either Investment imply upgrades or completely new opportunities identified production facilities. As production of the BMW i-series has shown, with its material production plant in the US and Three main areas of investment have assembly plant in Germany, the whole been identified: circular car design and investment does not necessarily have development; establishing production to be made in the EU. lines; and rolling out digital tracking systems for car materials: • Investment in material tracking system innovation could be made • The first investments would have concurrently to that in the design to be made in the design and and manufacturing processes. This development of circular cars. Initial would enable manufacturers to track designs would have to show how materials and components throughout far the key elements of circular cars their lifetimes and to identify – when 70 | ACHIEVING ‘GROWTH WITHIN’
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they approach their end-of-life stage As a result, the business case is too risky – where they are in the system, what for the typical business model which is condition they are in, and what the best based on car manufacturers selling cars looping option (reuse, remanufacture to customers. or recycle) would be. This system could be embedded into both the The higher costs of circular cars new circular car designs and also in are driven both by the use of more other new car models. Such a system expensive materials to generate could include:86 increased durability, as well as the use of low-emission technologies such as - Product information (i.e. a ‘product batteries. However, it is proposed that passport’) to enable traceability and both of these elements have scope for understanding of what conditions cost reduction.87 products and parts have been subjected to during their lifetime, In order to make a positive business and how/whether they can be case for cars designed for durability and remanufactured; looping, the value recovery mechanism at the end-of-life stage needs to be - Labelling for products that are clear. This clarity would have to be designed for disassembly. This would such that customers of the new circular enable dismantlers or component car could take this value into account brokers to easily determine how to when assessing the attractiveness of channel products collected at the the circular car versus its competition. end-of-life stage. Consequently, car buyers (companies or consumers) would also have to shift - Support systems to determine from valuing a car based on its purchase whether products are fit for reuse, price only to total cost of ownership. remanufacture or recycling. A ramping up of remanufacturing Current barriers would be required to make circular car to investments design and production attractive. This investment theme is therefore closely linked to the investment theme on If an OEM perceives a sufficiently remanufacturing car parts. It would not attractive market for a new car model, be able to scale fully unless barriers to its design and production investments car remanufacturing outlined in that will naturally increase. As indicated theme are lifted in the near term. above, car manufacturers have already been designing cars with some elements of circular cars in mind but Interventions to scale so far have not integrated all elements up investments into one model. A fully circular car design has not yet taken off at scale The main solutions to increasing the largely due to a combination of high design and production of circular cars upfront costs and a lack of certainty lie in reducing the market risk. Explicitly, regarding capturing value at end-of-use. this means providing car designers ACHIEVING ‘GROWTH WITHIN’ | 71
and manufacturers with sufficient - Support for circular cars similar to certainty on market potential to start support schemes for electric vehicles; deploying capital towards the initial - Public procurement of circular cars. design process. Achieving this will require collaborative efforts between Moreover, the public sector could car designers, manufacturers, and support the creation of secondary potential customers, which could include materials and component markets car sharing or leasing companies and similar to the efforts around the potentially public sector bodies. Further organic fertiliser markets;89 by aligning efforts to set up innovative business standards and definitions across models would also be required: for car borders, it should become easier for car manufacturers such models could focus (re)manufacturers to source predictable on providing clarity on end-of-life volumes of parts and materials if such value recovery, but also on shifting to a market exists at scale. Creating service offerings such as car leasing consumer awareness of the benefits or car sharing. of circular cars would also support demand for such vehicles. • Governments at EU, national, regional, and local level: Although In parallel, both the public and private the main work around car design, sectors should provide support to development, and production ramping up remanufacturing, notably would have to be led by the private through collaboration across the value sector, the public sector could play chain (such as Intellectual Property a facilitating role by further bringing sharing models); the rollout of more together the required stakeholders, efficient reverse logistics systems; such as manufacturers and circular awareness building among consumers car customers. Additionally, financial and governments; and the promotion support through schemes, including of procurement policies that make direct funding or tax support, along the decisions based on total cost of full car value chain could be provided, ownership. such as: • Private sector: One key step forward - Pilots for car design technology would be for the private sector to bring innovations. Horizon 2020 is already together car designers, manufacturers, providing funding in the area of electric remanufacturers, and customers in vehicles and the use of lightweight order to determine more specifically materials88 and this could be broadened which circular car designs would likely to include design for remanufacturing lead to greatest market penetration. and integrated designs taking all these Probable primary market segments factors into account; are car sharing and leasing companies - Investments in circular car like commercial fleet managers, but production facilities; taxi drivers could also be considered. - Innovations in digital material All potential market segments have tracking systems and secondary in common that they own highly material markets; utilised cars90 and would therefore 72 | ACHIEVING ‘GROWTH WITHIN’
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benefit from longer vehicle lifetimes, lower maintenance and fuel costs, and retained value at end-of-use. Other DRIVERLESS market segments could be customers who procure cars based on a whole CARS life valuation91 or those who are willing to pay a premium for the resource efficiency and environmental benefits generated by circular cars made for looping, e.g. customers looking to build Significant investment has already started an environmentally friendly reputation into R&D for driverless car technologies. or attract and retain talented workers. Examples of OEMs operating in this area include General Motors investing $500 Although these market segments are million in Lyft during the early part of likely to be willing to pay a premium 2016; Ford announcing its move into price for circular cars, further efforts this sector by developing autonomous to set up innovative business models cars specifically for sharing;93 and Tesla would be required to derive the full developing its own driverless electric value from circular cars.92 These model. Additionally, non-OEMs, such as innovative business models could focus Google and Uber, are developing their on providing clarity on end-of-life own driverless vehicle technologies, and value recovery, but also on shifting to new entrants have appeared such as Zoox, service offerings such as car leasing or which has raised $290 million to date94 car sharing, as this has the advantage and has developed a completely new car of lifting the two key barriers: high model designed without a steering wheel. cost and lack of certainty regarding capturing value at the vehicle’s end-of- According to expert views, driverless life stage. vehicles could be available commercially within five years,95 with a launch by a first Lastly, car designers, manufacturers, mover most probable in a medium-sized and remanufacturers could set up an city. This rollout is unlikely to be very fast open automotive material backbone as the driverless technology needs to be centralising standardised data on adapted city by city, with an estimated durable easy-to-loop materials. This initial rollout of a maximum of 1,000 to would allow designers, manufacturers, 2,000 driverless vehicles.96 Driverless and remanufacturers to get an overview cars are not likely to be a cost-effective of materials’ performance but also its technology in the next few years, and durability and easiness to loop, and thus legislation for driverless cars will not be foster design of circular cars. widespread for some time. ACHIEVING ‘GROWTH WITHIN’ | 73
CASE STUDY VOLVO
A car designed for disassembly Specifically, designing for disassembly by Volvo dispenses the myth that is attractive for Volvo as it already has remanufacturing and a reputation as a a remanufacturing process in place that supplier of safe, solid, and high-quality remanufactures parts to its original cars do not mix well. specification, called the Exchange System. Newly designed components Volvo has adopted a market-leading – such as the high-voltage battery, approach to integrating circularity rear axle drive, and integrated starter into its business strategy. Disassembly generator – can be included in the and opportunities for remanufacturing Exchange System. The economic case have played a central role in the design for this system is strong for Volvo – a process of its flagship twin-engine remanufactured part uses up to 85% plug-in hybrid XC90 t8. For example, it less raw materials and 80% less energy uses screws instead of glue or welded than a new product. In 2015, Volvo joints when sealing the casing of certain saved over 780 tonnes of steel and 300 components such as the high-voltage tonnes of aluminium. In total, Volvo’s battery casing, all of which allows for Exchange System accounts for 15% of easier disassembly. Also, in August its spare part sales, which is therefore 2016, Uber and Volvo announced a expected to increase through its newly partnership in which both companies designed car model. The drive to will jointly invest $300 million to develop mainstream disassembly throughout its a fully autonomous, self-driving car. design process demonstrates Volvo’s Both companies will use the same base confidence in its business case and vehicle, the XC90, for the next stage commitment to integrating a circular of their respective developmental approach to its manufacturing process. processes. The partnership highlights the systemic change underscoring the automotive industry, and the opportunities for investment into new frontiers of technology. 74 | ACHIEVING ‘GROWTH WITHIN’
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REMANUFACTURING 3 CAR PARTS Remanufacturing is defined as ‘a remanufactured today are engines, series of manufacturing steps acting gearboxes, transfer boxes, and power on an end-of-life part or product take-off systems.99 Remanufactured in order to return it to like-new or parts are typically supplied to vehicle better performance, with warranty to manufacturers or directly to the third- match’.97 The used product typically party aftermarket,100 thus ensuring goes through a number of stages: that these parts do not end their life after being disassembled, its useable in landfill or an incinerator generating parts or components are cleaned, a significant value loss for players,101 restored, and tested, before being as well as adding to greenhouse gas reassembled to obtain a product that emissions. Most remanufactured matches or is superior to the original parts are sold via the aftermarket102 product when it comes to performance, and dealer network, the automotive warranty, and all other specifications aftermarket being one of the most including design and safety. There profitable markets for OEM and is a clear investment opportunity to original equipment suppliers (OES). ramp up car remanufacturing for the current car fleet (i.e. cars not designed Indeed, car remanufacturing activities for looping). It is estimated that by present a strong economic case for investing up to €1 billion between companies in the space mainly due to today and 2025 in car remanufacturing, the lower cost of remanufactured versus could move the EU onto a pathway to new parts. Remanufacturing allows the achieve a €30 billion benefit by 2030, industry to recover the total value of largely through a reduction in the costs the materials,103 with minimal additional of manufacturing new car parts. input of raw material. In contrast, recycling – which reduces the product Relevance of into raw materials, which can then be investment theme used again104 – only allows players to recover the materials but not their value-added potential. Remanufacturing Car remanufacturing has been in could offer savings of 88% in material place for decades, with examples of costs.105 Remanufacturing also remanufacturing operations found in typically uses 85% less energy than a range of automotive parts, including manufacturing,106 as well as lower water but not limited to: engines, transmission consumption. Conservative estimates and drivetrain parts, rotating electrics show that with reduced input costs and ignition parts, as well as air and increased labour spend there can conditioning.98 Car parts commonly ACHIEVING ‘GROWTH WITHIN’ | 75
still be up to a 50% increase in gross has shown that they typically do not profit.107 By keeping products ‘whole’, seek the latest product features.112 remanufacturing also reduces lead times and costs of long supply chains In order to further grow car and their associated security risks.108 remanufacturing profitably, a few key Companies could also mitigate the elements need to come together: impact of a scarcity of new material inputs and price volatility by retaining • A stable flow of end-of-life car parts or reclaiming ownership of products and of similar types to provide parts at their end-of-first-life.109 remanufacturers with the input needed to run their facilities without Renault’s remanufacturing plant at having to manage large fluctuations in Choisy le Roi is testament to the volume, type, and quality of parts; benefits of car remanufacturing: it is the • The building of additional group’s most profitable industrial site – remanufacturing facilities and the it reuses 43% of carcasses and recycles training of qualified staff to operate them; 48% of materials in foundries to produce • A growing demand for remanufactured new parts.110 Remanufacturing could parts from car manufacturers, willing to also provide a competitive advantage commit to buying them at pre-specified for car manufacturers, increasing quality standards. customer loyalty and boosting market share. According to Ben Walsh, Recent developments former manager of the Centre for Remanufacturing and Reuse: ‘For The European car remanufacturing market businesses remanufacturing is about is estimated at €7.4 billion and could retaining both the value of products and continue growing at a relatively slow rate a client base.’ For example, Caterpillar of 3% a year, following the trajectory of Inc. shows that this can be achieved current developments.113 by keeping the price low for clients and leveraging service-based business However, the time is ripe for growth. models (e.g. leasing and servicing) to The 2015 European Remanufacturing build and maintain long-term client Network Study for EU Horizon 2020114 relationships. In fact, remanufacturing estimated that the European automotive could open up new market segments remanufacturing sector has the potential for car manufacturers. Given that lower to increase its annual growth to up to 18% price points can be achieved with by 2030, which would unlock sizeable remanufactured products, one option economic, environmental, and societal could be to offer remanufactured parts benefits. This accelerated ramp-up could to clients who are more price-sensitive, generate an additional turnover of up to creating brand equity and loyalty €11.5 billion, create up to 18,600 net jobs, with these new customers.111 A basic and avoid up to 5 million tonnes remanufacturing process using longer- of carbon dioxide emissions. These life products could even be established additional benefits brought by an for these client segments, as research accelerated scenario, would not be realised in the current development 76 | ACHIEVING ‘GROWTH WITHIN’
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course of events.115 116 According to reach and loyalty, and the increasing experts in automotive remanufacturing, momentum behind the shift towards a huge opportunity to increase car circularity. Indeed, several experts see remanufacturing exists even without remanufacturing as an interesting area changing the way cars are designed, and for private equity players to consider OEMs as well as external players are now investing in.121 taking this opportunity more seriously.117 Beyond growing the current volumes Current barriers of remanufactured mechanical car to investments parts, additional opportunities exist to remanufacture higher-value parts The main barriers that prevent the including electric motors. According to European car remanufacturing industry the Society of Motor Manufacturers and from growing faster in the near term Traders, turbochargers, engine control are resistance and lack of awareness units, instrument clusters, clutches, among car manufacturers, as well and steering pumps and gears will be as policy barriers. Some of these among the fastest-growing product barriers include: the need for adapted lines for remanufacturers.118 Batteries procurement systems122 to coordinate for electric vehicles and hybrids may supply from remanufactured parts and not be viably remanufactured as such, new parts, lack of an efficient market but the electrochemical elements for end-of-life parts, and the difficulty in inside them could be.119 Indeed, disassembling parts, particularly when some companies, such as LiTHIUM they are glued, riveted or welded. BALANCE, are exploring the possibility of remanufacturing batteries from The resistance among car manufacturers electric vehicles and using them for to ramp up remanufacturing volumes alternative purposes, such as storage for stems partly from concerns over photovoltaic systems.120 reputational risk, and partly from
concerns about the cannibalisation Investment of their new spare part market. opportunities identified Concerns around reputational risk relate mainly to the potential damage The accelerated growth of the car fleet to a brand known to provide robust, remanufacturing market mainly requires safe vehicles. However, this view varies investments in new remanufacturing in adjacent sectors. For example, facilities, estimated to be worth up to in the heavy-duty vehicle sector, €1 billion between now and 2025. Caterpillar Inc. explicitly markets its Although typical investments per remanufacturing activities as enabling remanufacturing facility are smaller the group to keep prices low for its than a new car production facility, clients while maintaining its quality.123 the returns could be attractive due Remanufacturing in other sectors is to the combination of a profitable common practice: for example, 12% of underlying business case, the untapped parts used in the European aviation growth opportunity, the associated industry are remanufactured, for opportunities to enhance customer instance.124 DLL, a European financial ACHIEVING ‘GROWTH WITHIN’ | 77
institution, recently concluded that Property (IP) protection. In addition, remanufactured second-life assets may policies designed to incentivise car enhance financial performance125 due remanufacturing and stimulate the to benefits such as protection of brand market for end-of-use car parts are image from third-party brand dilution needed to speed up the shift. The public and customer demand for second-life sector could provide further stimulus assets. Alongside resistance to car by requiring public procurement of remanufacturing in some parts of the remanufactured parts. industry, other car manufacturers are unaware of its potential. • Governments at EU, national, regional, and local level: The three main areas Currently, EU policies are not always where the European Commission as designed to encourage remanufacturing. well as governments in Member States Even though the European Commission could provide support to stimulate has issued several directives that car remanufacturing are: increasing encourage reuse, recycling, and demand for remanufactured cars recovery – such as those relating to end- through public procurement; increasing of-life vehicles, electronic equipment, consumer awareness of the benefits and and the disposal of hazardous waste126 supporting the creation of an EU-wide – these policies focus primarily on market for remanufactured parts similar recycling and have mixed effects to the creation of the market for organic on remanufacturing activities.127 For fertilisers; and providing policies that example, the EU’s Restriction of the incentivise the use of remanufactured Use of Certain Hazardous Substances parts. The latter could be done through (RoHS) Directive has reportedly driven financial incentives, legislative changes up costs and/or reduced the recovery or direct mandating. For example: of parts for some EU remanufacturers by prohibiting the reuse of electric - Providing funding for innovations and electronic parts containing certain and pilot schemes to improve car substances such as lead, cadmium, remanufacturing processes;128 and mercury. - Implementing tax breaks for remanufacturers, so encouraging the Interventions to scale uptake of remanufacturing; up investments - Implementing procurement policies that favour remanufactured cars (e.g. by adopting whole-life costing129 and To achieve a step-change in the other procurement measures). For growth in sales of remanufactured example, the US Senate passed the automotive parts across Europe of Federal Vehicle Repair Cost Savings up to 18% per annum and unlock the Act in October 2015 which requires significant investment opportunities, all federal agencies to consider using car manufacturers and remanufacturers remanufactured parts when maintaining would have to jointly set up clear the federal vehicle fleet – a similar quality standards, establish efficient policy change could be implemented reverse logistic processes, and ensure across Europe;130 proper value-sharing and Intellectual 78 | ACHIEVING ‘GROWTH WITHIN’
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- Adopting a common definition of the product’s whole life cycle. This may remanufacturing across Europe to mean doing a lifecycle cost analysis provide clarity to businesses when and developing an environmental distinguishing between it and other balance sheet that can bring to the fore circular economy concepts, such as the gains that are made as a result of refurbishment and reuse;131 remanufacturing;137 - Amending legislation to distinguish - Requiring garages to offer clients products that can be remanufactured remanufactured parts as well as new from those that cannot to ensure that parts for the repair and maintenance of products that can be remanufactured their vehicles (a similar law was passed do not fall under the remit of waste in France in January 2016);138 regulations (all equipment could be - Collaborating to incorporate classified as a product before it is recommendations in remanufacturing fully assessed and only then could it from private sector players such as the be deemed waste132). Indeed, since business standards company, BSI.139 remanufacturing occurs during the use- phase of the vehicle, remanufacturing • Private sector: A good way to should be addressed by a use-phase accelerate market development is to policy instrument;133 set up collaboration schemes between - Legislating for access to product manufacturers and remanufacturers specifications (e.g. set the requirement to increase remanufacturing volumes that a designer is compelled to state, in a controlled way that reduces risks upon request from a manufacturer sufficiently for (re)manufacturers to or remanufacturer, the components invest in new facilities.140 of a product to enable easier The following elements should be remanufacturing); considered in these collaborations:141 - Revising ISO 9001 to include - Certification schemes for remanufacturing134 and re-examining remanufactured products to meet Waste Electrical and Electronic defined standards; Equipment (WEEE) targets to - Integrated reverse logistics or services place more importance on reuse/ to reclaim end-of-life parts; remanufacture over recycling;135 - Fair sharing of economic value - Considering the potential of a certified between manufacturers and mark for remanufactured products to remanufacturers that incentivises close demonstrate that they have been tested collaboration and high availability and comply fully with the standards of a of parts (e.g. through royalties from new product; remanufactured products); - Setting targets that push - IP-sharing models that enable remanufacturing and focus on the value manufacturers to maintain control over retained in the economy, rather than IP, while providing remanufacturers the volume of waste shredded,136 such with access to critical data, such as as minimum remanufactured content in materials and process requirements, or new cars; disassembly sequences. - Accounting for the environmental benefits from remanufactured parts in ACHIEVING ‘GROWTH WITHIN’ | 79
Additionally, private sector organisations More widely, the private sector can looking to drive the growth in help create awareness among remanufacturing markets could support consumers and governments by: the rollout of a more efficient reverse - Advising governments on the relevant logistics system and the creation of a incentives and legislative changes market for remanufactured parts. Ways required to make remanufacturing in which this could be done include: business models work. An example of this is the new business-led Council - Incentivising users to return cars and/ for Remanufacturing, which has been or parts, so they can be remanufactured. created by Oakdene Hollins in Brussels This could work in a similar way to to lobby for change;145 Xerox, which operates a reverse logistics - Establishing joint training and process to get back all their end-of-life capacity building programmes;146 products so they can be remanufactured. - Supporting joint consumer In order to incentivise consumers to do awareness programmes. so, the company buys back each product at a given rate, based on demand;142 - Promoting a whole-life costing approach in procurement;143 - Considering setting up digital marketplaces for automotive parts; - Developing quality marks for remanufactured products, which could reassure customers; - Running pilot schemes that demonstrate cost-effectiveness for innovative business and operation models, which incorporate re- manufacturing (e.g. for end-of-life car parts collection systems).
Insurance companies in particular could play a role in accelerating the growth of car remanufacturing, as they take ownership of large volumes of cars when they are written off. Indeed, insurance companies have been invited to promote the use of remanufactured parts and have been generally positive about doing so.144 80 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDY MCT ReMAN LTD
Driven by the recent growth of interest in (relating to what will still be a current remanufacturing from new players, the specification engine or gearbox) is clear. English car contract remanufacturer MCT The OEMs collect failed units (referred ReMan Ltd is exploring opportunities to to as ‘cores’), via their dealer network, expand remanufacturing to more car parts and transfer them to MCT. Ownership of and components, including in the electric the core transfers to MCT, although it is vehicle drivetrain. ‘free issued’ (free of any payment either way). MCT carries out its remanufacturing MCT ReMan Ltd, based in Weston-Super-Mare, processes, including the procurement of England, is a remanufacturer of automotive genuine OEM components and testing. MCT’s engines and gearboxes. Emerging from the remanufacturing process takes an average of manufacture of industrial fans in the 1960s, it ten hours for a typical engine, from receipt moved into remanufacturing in the mid-1970s of the core to dispatch. MCT gets paid upon to respond to demand from its customer, receipt of the remanufactured unit back Ford. With a turnover of £7 million and 68 at the OEM’s warehouse. From there, the employees, MCT remains focused on this key units are distributed and installed in the end facet of the circular economy, remanufacturing user’s vehicle via the OEM’s main dealer a broad range of high-volume engines and network (see Figure 21). Liability relating to gearboxes for a variety of OEMs. the warranty on the remanufactured unit is owned by MCT. The duration of this warranty Although OEMs could (and do) carry out is the same as for a brand-new unit. However, remanufacturing themselves, they often find the unit the end user receives is unlikely to be it beneficial to outsource to smaller specialists the very same unit that failed. Instead, MCT, due to their unfamiliarity with some of the working with the OEM, keeps an appropriate processes involved (e.g. disassembly, cleaning, level of cores in stock, which reduces lead and the procurement of small volumes of time and risks. components) and their characteristics, such as variability, risk, and relatively small throughput. Recognising the quality and value of MCT’s services, a variety of OEMs make use of them, To provide OEMs with car parts in the most including: Ford, Jaguar LandRover, Volvo, optimal and cost-effective manner, MCT’s Mitsubishi, GM, Opel, and the London Taxi business model is based on taking ownership Company. MCT remanufactures a total of of the product and warranty before returning approximately 14,000 units per year. MCT them to the end user via the OEM and their works closely in partnership with OEMs to dealer network. The company primarily understand their particular balance of needs remanufactures engines and gearboxes that and drivers. It does compete with other are still in warranty but have failed. At this similar contract remanufacturers, but there is point, the logistics of collection and return room for several players in the marketplace, is straightforward, and the value returned which keeps their costs and risks manageable. ACHIEVING ‘GROWTH WITHIN’ | 81
FIGURE 21 MCT REMAN LTD’S PLACE IN THE VALUE CHAIN
VEHICLES IN FAILED UNTIS MARKET
MAIN DEALER NETWORK
REMANUFACTURING INSPECTION REMANUFACTURE
FACILITY REMANUFACTURED UNITS TEST QA PACKAGE MCT ReMan MCT ReMan
OEM WAREHOUSE
MAIN DEALER NETWORK
While MCT has all the paperwork gathering/tracking, metrology, automation, (accreditations, processes, and management and additive manufacturing) as an enabler of and ownership of risk) and sophisticated its work. Working with sister company Tecforce, testing equipment that one would expect, it is deploying its expertise for the benefit of remanufacturing by contract remanufacturers the rail industry. like MCT ultimately relies upon reputations and trusted relationships. This trust manifests “MCT have been remanufacturing for over itself in the additional services that MCT is 40 years. We have recently seen a growth asked to provide, including problem solving of interest in the industry from external and support for new product development. sources and new players, which is very positive. A major enabler of future growth The company is now exploring opportunities will be increased collaboration with the to expand remanufacturing to more parts and manufacturers.” components. Beyond automotive engines Ian Briggs, MCT ReMan Ltd, 2016 and gearboxes, MCT is also increasingly remanufacturing other products, such as MCT ReMan Ltd is an exemplar of the way compressors and hydraulic components. remanufacturing can flourish and support To expand its remanufacturing operations the whole automotive industry. It also clearly to other products, it is considering mostly demonstrates the opportunities for growth electric and hybrid vehicle components and investment in this crucial part of the and renewable energy technology. It is also circular economy. looking to new technology (such as data 82 | ACHIEVING ‘GROWTH WITHIN’
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DEPLOYING REGENERATIVE AGRICULTURAL 4 PRACTICES Regenerative agriculture could be for major crops starting to decline broadly defined as the synergistic around the world.150 The annual cost of combination of as many practices soil degradation in Europe amounts to 151 as possible, including permaculture, €38 billion. Indeed, gains in European organic, no till,147 holistic grazing, and agricultural productivity have fallen keyline land preparation. steadily from 2.5% per annum in the 1970s to 1.3% per annum in the Shifting towards an agricultural 2000s and 0.9% in 2010. This slowing model that regenerates the soil and of productivity gains has continued revitalises ecosystems through farming despite significant increases in the management practices and technologies use of fertilisers, chemicals (such as could bring Europe onto a pathway to pesticides, herbicides, fungicides, and achieve overall economic benefits of insecticides), fuels, and other inputs 152 up to €35 billion per annum by 2030, designed to increase yields. Currently, against an estimated investment of 73km3 of water is poured into the €15 billion between now and 2025. The European agricultural system each year primary areas of potential investment are (of which only 40% actually reaches the in providing funding to farmers to bridge plants),153 alongside 16 million tonnes the transition towards regenerative of synthetic fertiliser (of which only 5% practices, as well as investments in actually goes into nutrients absorbed specific technologies and machinery by humans). Excessive application of enabling these practices. This transition chemical fertilisers creates dependency would see economic rewards based on imports154 and heightens risk within largely on a reduced dependency on the system. For example, nitrogen fertiliser and pesticides throughout fixation and phosphorus have already the agricultural industry, alongside an exceeded the safe operating limits of overall reduction in agriculture-related the planet by a factor of two.155 At the greenhouse gas emissions. same time, conventional agriculture does not always produce healthy Relevance of outcomes. In a recent report, the investment theme nutritional content of several types of fruits and vegetables, including cucumbers and tomatoes, was shown It is becoming increasingly evident how to have fallen significantly during the deeply harmful conventional agricultural second half of the twentieth century.156 practices can be.148 Our current farming Some foods also often contains traces model has resulted in 30%–85% of EU of toxic chemicals and plastics.157 agricultural land being affected by soil degradation149 and productivity gains ACHIEVING ‘GROWTH WITHIN’ | 83
However, emerging practices and that produced with the help of synthetic technologies are providing increasing fertilisers and other chemicals; evidence that one does not have to • Giving farmers greater control over their choose between preserving the soil and cost base, as inputs such as fertiliser are using it for agriculture. In fact, profitable generated by the farm itself. agricultural practices exist that not only preserve the soil, but regenerate The idea at the core of these ‘regenerative it. These practices revitalise the farm’s agricultural’ practices and technologies entire ecosystem, resulting in many is that everything in the farm should be benefits, including: reinvented to mimic nature: in the words of agri-pioneer, Leontino Balbo: ‘If we • The removal of greenhouse gas can restore soil to natural ecosystems emissions from the atmosphere to be conditions, nature will do the rest’.159 stored in the ground in the form of This shift goes far beyond resource carbon; efficiency, which focuses on using water • Greater yield stability due to a and other inputs more economically. reduced reliance on fertilisers (crops will Pioneer farmers, landowners, and eventually become more resistant to scientists are starting to think outside viruses and weather changes because the box on many levels, such as in the healthy soils cope better with droughts choice of crops and livestock on farms, and floods);158 the harvesting methods and equipment, • Decreased water usage; and the management techniques for • Production of healthier food with water, waste, energy, and above all, land. a higher-quality nutrient profile than A shift in all these factors could mean
FIGURE 22 OVERVIEW OF AGRICULTURAL PRACTICES REGENERATIVE AGRICULTURE
The combination of as many practices as possible
Permaculture CONSERVATION AGRICULTURE • Introduction of trees and bushes • Swales for water retention
• Crop rotation Organic agriculture • No till • Crop rotation • Heavy use of herbicides • • Use of chemical fertilisers No use of chemicals and genetically modified organism INDUSTRIAL AGRICULTURE • Mechanical weed control
No till polyculture • Monoculture • Mix of different crops (only for grazing) • Use of turning plough • No use of chemicals • Use of chemical fertilisers Holistic grazing • Short time and limited space grazing plans • Soil regeneration thanks to manure
Key line land preparation • Cultivation along contour lines • Optimised water retention
Sources: Volterra Ecosystems; Rodale Inst., Gabe Brown (No till polyculture); Allan Savory (Holistic grazing); P.A. Yeomans (Key line land preparation);160 http://ec.europa.eu/eurostat/statistics-explained/index.php/Organic_farming_statistics; http://www.sciencedirect.com/science/article/pii/S209563391530016 84 | ACHIEVING ‘GROWTH WITHIN’
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that nature is able to revive the entire • Regenerative fruit/vegetable/cash ecosystem, generating strong levels of crops multi-culture; natural capital on which to build highly • Holistic-planned grazing for bovine, productive agricultural businesses. ovine, porcine, and poultry farming; • Agroforestry systems with alley Current organic agricultural practices cropping;163 can be considered as regenerative to • Low-input pasture-based dairy some extent, as it implies stopping systems.164 the use of pesticides and conventional fertilisers, and allowing the soil to start regenerating once these inputs Figure 23 gives an overview of the have been removed. However, organic business case for three examples of agriculture is just one step towards regenerative practices165 implemented the soil regeneration and ecosystem by Volterra Ecosystems. This Spanish revitalisation that are essential to company focuses on integrating various regenerative agriculture. Also, existing practices into coherent management organic agricultural practices fail to systems aimed at regenerating farmland capture most of the potential economic within profitable enterprises. The and environmental benefits if they are profitability results assessed in Figure not combined with other regenerative 23 are based on initiatives that have practices. As shown in Figure 22, already achieved such profitability levels combining several regenerative in Europe.166 practices (rather than implementing one) unlocks tremendous economic Another player in this space, SLM value for farmers. For example, a 50% Partners, scales up profitable higher profitability could be achieved regenerative practices by acquiring and by shifting to organic vegetable managing land on behalf of institutional monoculture (i.e. by stopping using investors. Direct investment in corporate conventional inputs).161 But a 200% vehicles gives investors the security higher profitability could be achieved of land ownership, but also maximum by shifting to regenerative vegetable control over how the land is managed, multi-culture (i.e. by introducing and full equity exposure to the returns a mix of annual and perennial from regenerative farming. SLM Partners plants, and implementing holistic has identified a number of proven ecosystem management in a way regenerative agricultural systems that that mimics nature).162 are applicable at commercial scale and provide economic returns that Recent developments are as good, or better than, industrial production models.167 They are currently Multiple transitions to regenerative investing in one of these systems agricultural practices have started in (holistic-planned grazing for beef cattle Europe, specifically over the last years. and sheep) and are exploring others for Advanced regenerative agricultural further investment opportunities. practices with a positive business case These examples demonstrate not only and successful proof-of-concept are: viability, but also a willingness to start embracing these methods in key parts ACHIEVING ‘GROWTH WITHIN’ | 85
of the industry, making now a Current barriers conducive time for investment. to investment Investment opportunities The present-day barriers that prevent identified farmers from shifting towards regenerative practices at scale can be Although a set of regenerative broken down as follows: agricultural practices are profitable, leveraging innovative technologies • Most farmers are not familiar with designed to mimic nature – such as regenerative practices and may be Big Data and robotics – has good risk-averse or resistant towards them, potential to further enhance profitability as the shift to organic farming has and substantially reduce the payback been challenging on some farms. In time as shown by the Balbo Group’s addition, incumbent suppliers, such as innovations, detailed in the case agrichemical and heavy land equipment study below. The opening up of this companies have vested interests regenerative agricultural market offers that prevent them from proactively four key investment opportunities: supporting the move to regenerative practices. • Investment by farmers or farming • New skills are required to manage companies and landowners in innovative regenerative farms, as the machinery, tools, technologies, practices involved are more knowledge- proprietary agricultural practices, trees intensive and need to be tailored to local or livestock to shift to regenerative conditions. agriculture. • Consumer awareness of regenerative • Provision of finance solutions to practices is very low overall, even farmers during the transition phase though it is increasing in regard to to bridge the temporary cash flow organic practices as shown by the reduction they face when shifting to growing sales of organic products. specific regenerative practices and/or • The shift towards regenerative meeting their needs for capital to invest practices is challenging for farmers or in machinery or other assets when farm owners, as income is more unstable required.168 during the transition period and • Development and dissemination of investment payback times are medium innovative technologies and services to long term, especially for tree crop designed to drive the transition, such models. as Big Data, robotics, apps, and farm management methods aimed at Interventions to enhancing current agricultural practices scale up investments (e.g the Agros Fortis model in the case example). To escalate the shift towards • Creation of cooperative, not-for- regenerative practices would require profit or public bodies to develop the farms to be incentivised to switch and deploy programmes to increase at scale. This could be achieved by farmer awareness of and capabilities in increasing the demand/pull for products regenerative agricultural practices. 86 | ACHIEVING ‘GROWTH WITHIN’
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FIGURE 23 OVERVIEW OF THE BUSINESS CASE FOR THREE REGENERATIVE PRACTICES DEVELOPED BY VOLTERRA ECOSYSTEMS
STEP 1 STATUS QUO STEP 1 TOWARDS REGENERATIVE AGRICULTURE
STARTING POINT SHORT DEFINITION INVESTMENT NEEDED NUMBER OF YEARS PROFITABILITY BEFORE SIMILAR/ ACHIEVED AFTER BETTER PROFITABILITY THIS DELAY ACHIEVED
1. Fruit/vegetable/cash Organic fruit/ €500 euro per hectare Two to three years, 50% higher than crops conventional, vegetable/cash crops (ha) to introduce the depending on how profitability at starting modern monoculture monoculture (defined right micro- organisms contaminated and point, but losses in the (defined by the use by no use of chemical and other elements depleted the soil is; the first two years have to of chemical inputs, inputs and absence organic certifier decides be taken into account such as pesticides or of GMOs); use of on the number of years fertilisers, and the likely chemicals can be for conversion presence of genetically reduced gradually modified organisms (GMOs)); irrigated with excess of water
2. Traditional Remove underwood €400,000 to provide One to two years, Profitability dependent agroforestry (defined and use biomass in a French state-of the- depending on the type on type and by presence of trees production of energy, art mobile biomass of trees application of biomass on land that is not compost, animal feed, harvesting and and time needed to used anymore/ charcoal, etc processing machine for (re)introduce livestock unproductive, but in at least 2,000 ha per into the system principle is suitable for Promote natural annum (pa) producing feed and/or regeneration, and livestock) diversify tree, bush, and grass species
3. Unproductive (bare), Activate soil with €300–500 per ha Two to three years for 50% higher than rain-fed land destroyed cover crop and the land to become profitability at starting by agrichemicals and micro-organisms productive again point, but possible monoculture (mainly (mycorrhizae) in first (defined by the presence loss of crop in first two cereals) year and crop rotation of weeds, fertility, pests, years for corn/sugar OR and associated crops etc) without chemical beet has to be taken Unproductive in years thereafter products into account (bare), irrigated land destroyed by Decompaction, if Yield per ha on irrigated agrichemicals and required land is about two or monoculture (mainly three times that from corn and sugar beet) rain-fed land ACHIEVING ‘GROWTH WITHIN’ | 87
STEP 2 STEP 2 TOWARDS REGENERATIVE AGRICULTURE
SHORT DEFINITION INVESTMENT NEEDED NUMBER OF YEARS PROFITABILITY BEFORE SIMILAR/ ACHIEVED AFTER BETTER PROFITABILITY THIS DELAY ACHIEVED
Regenerative fruit/ €200,000–€500,000 Three to five years, 200% higher than vegetable/cash crops for GPS on a 50–100 ha depending on the type profitability at starting multi-culture (defined farm, special weeding of crops and trees (for point, with requirement by a mix of annual and equipment, and cold example, three years to be organically perennial plants and storage of product for almonds and five for certified holistic ecosystem pistachios) management in a way that mimics nature, including the management of the land, soil, air, water, biodiversity, etc)
Introduction of bovine, Dependent on livestock One to three years, Higher than ovine, porcine, and prices, which will vary depending on the type profitability at starting poultry livestock widely based on type of of animals and the point for best practices (defined by a mix of animals and number potential of the land (several projects one to two cows per to demonstrate ha and three to six and quantify the sheep per ha, plus one profitability are to two pigs per ha, ongoing169) alongside poultry, such as chickens and/or turkeys)
Introduction of rotational grazing (holistic approach)
Agroforestry170 with or Dependent on trees: Three to four years, 200% higher without irrigation depending on the type profitability against €500 (almonds, of trees (for example, a starting point of chestnuts, hazelnut, three years for almonds, cereals and 300% walnuts, wood trees) five for pistachios, and higher profitability 25 to 30 years for wood against a starting point Up to €2,000 (50 if the starting point of corn/sugar beet (pistachios) was cereals)) (with requirement to be organically certified) 88 | ACHIEVING ‘GROWTH WITHIN’
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from transitioned farms by large players that applies for each tier; and a up the food supply chain. A push by clear definition of key performance governments through the provision of indicators to measure the level of financial incentives to switch would also transition needed to qualify for certain accelerate the shift. subsidy allocations.173 As the CAP aims to provide guidance on supported • European Commission: The European practices, partnerships could be set up Commission could leverage existing with cooperative/not-for-profit training policy and funding frameworks, such bodies deploying capability-building as the Common Agricultural Policy and awareness programmes delivered (CAP), the European Innovation by farmers for farmers. Partnership for Agricultural Productivity and Sustainability or Horizon 2020 to • National, regional, and local provide incentives for farmers to shift. governments: Concurrently with the This could be achieved by supporting European Commission, the public innovations171 and pilots that are sector in Member States could support improving regenerative practices or the deployment of capability-building providing specific funding solutions and awareness programmes, both for to farmers for the transition phase. farmers and consumers. The public Additionally, support could be given sector could also provide direct to the rollout of farmer and consumer support to the transition phase or awareness programmes, as well as the towards innovations and pilots related building up of skills and knowledge. to regenerative practices. Moreover, it could provide markets for food These initiatives could build on existing products from regenerative agriculture European Commission initiatives, for through public procurement and example the creation of an EU market procurement guarantees. A good for organic and waste-based fertilisers example of Member State action aimed at stimulating agroforestry and towards regenerative practices is the crops diversification.172 4‰ or ‘4 per 1,000’ initiative driven by the French government that aims to Using the CAP could also be an increase the soil carbon stock at a rate effective mechanism. Some adjustments of 0.4% per annum, thereby halting in current policy could include: the the current increase in atmospheric
adoption of an accurate definition of CO2. The initiative helps contributors regenerative practices, including the in the public and private sectors to concept of a two-tiered transition; commit to a voluntary action plan the identification of the CAP pillar to implement farming practices that maintain or enhance soil carbon stock. Financial support mechanisms and favourable policies and tools are in ACHIEVING ‘GROWTH WITHIN’ | 89
place for farmers innovating to this the most powerful enabler of driving end.174 Projects, practical action, and change among farmers is simplicity. results relating to regenerative practices The shift should follow a step-by-step could also be shared on a blog, enabling approach, starting with the practices all participants to benefit from pooled that are the easiest to implement and experience. the most relevant based on the farmer’s own experience, expectations, scale, • Private sector: Retail companies in and climate area. For example, Volterra particular can have a significant impact Ecosystems’ experts support farmers on farming practices, as has been shown and landowners to identify which in the past.175 Impact can be achieved regenerative practices they should start by retailers either changing their implementing, and tailor these practices requirements for the food products they to local conditions. Farmers are also purchase, or by supporting farmers by supported on the ground throughout providing volume and price guarantees. the transition period to review Recent digital developments176 are benefits achieved, train staff, fulfil the providing retailers with additional conditions for the land to be certified tools to measure the benefits of as organic, and prepare for the future switching to buying food from commercialisation of the produce.177 regenerative agricultural systems. These developments are also enabling retailers Lastly, finance providers could structure to explore the possibility of launching specific products geared towards a collaborative effort to shift to transition finance, such as the MilkFlex regenerative models in their extended loan fund. This fund provides a financial supply chain. Digital technologies could solution designed to match the cash be further used to increase the reach of flow generated during the transition to regenerative products in the market and regenerative farming. This provides the establish customer loyalty to them. affordable and flexible capital farmers need to shift, with no repayments In addition, farmer awareness, during times of low prices and increased capability-building, and technology- repayments at times of high prices, as transfer programmes would need well as inbuilt ‘flex triggers’. Glanbia to be designed and financed. These Co-operative Society, the Ireland would most likely require involvement Strategic Investment Fund, Rabobank, from cooperatives, NGOs or private and Finance Ireland have announced the companies. The lessons from existing planned creation of a new €100-million programmes should be taken into ‘Glanbia MilkFlex Fund’ in March 2016.178 account during this process. Indeed, existing programmes have shown that 90 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDY THE BALBO GROUP
How Brazil’s largest organic sugarcane As Balbo explained in 2012: ‘At Native grower reinvented farming practices [the Balbo Group’s agricultural brand], and leveraged robotics to revitalise our production system now achieves 20% ecosystems and attain higher yields than higher productivity than conventional conventional agricultural systems.179 sugarcane production, with genuine concern for environmental, social, and The executive vice-president of the economic factors. It is the first time that Balbo Group, Leontino Balbo, made the an organic, large-scale initiative has bet that reinventing traditional practices produced a higher yield than conventional and machines in order to regenerate the agriculture!’ 180 His business is thriving, ecosystem could revive ailing crops and producing 75,000 tonnes of organic sugar land, as well as boost profitability. – 34% of the world market and a figure he is planning to increase in line with demand Balbo joined the family business after his – and 55,000m3 of organic ethanol each graduation as an Agronomist Engineer year from a crop of approximately in 1986. He soon realised the common 1.2 million tonnes of cane. His sugar is ground manual harvesting method used sold on five continents and used in about at the time – which depended on burning 120 high profile products. The Balbo sugarcane straw before harvesting – was Group produces 100% of the energy it incompatible with the modern tropical needs to process around 6 million tonnes agricultural techniques he had just learned of sugarcane per year in thermoelectric and which promoted the benefits of mulch. power plants running on sugarcane He decided to pursue new and more bagasse (the pulpy residue left after sustainable methods for harvesting green the juice of the sugarcane has been cane, and ended up developing the first extracted). Beyond that, thanks to its mechanical harvester in partnership with investment in cutting-edge technology, a local manufacturer. The new harvesting Balbo has generated enough extra power system proved viable and – combined with to supply a city of 540,000 inhabitants. other agro-ecological techniques such as Indicators of Sustainability have been green manure cropping, biological pest defined with leading universities and control, reforestation, and soil compaction research centres to assess the health of avoidance – made it possible for Balbo to the soil on the farm, including its fertility build a comprehensive new production and levels of water, air, and biodiversity, system that he named Ecosystem and they provide clear evidence that the Revitalization Agriculture (ERA). After agricultural activity is regenerative (the many years of iterative implementation indicators can be accessed at projects, the sugarcanes grew stronger www.nativealimentos.com.br).181 and ERA started to prove its worth. ACHIEVING ‘GROWTH WITHIN’ | 91
THE BALBO GROUP
These benefits were achieved through • A system to recycle organic by-products reinventing a set of farming practices was put in place. The solid residue from and robotics that help replicate the self- juice filtration, the ash from the boilers, and sustaining ecosystem of uncultivated land: the liquid residue left over after ethanol distillation, were all collected, applied back • The group developed the first Brazilian to the fields, and dry matter was fed directly cane harvester, a machine that cuts cane into a furnace, producing 200 tonnes of into pieces and feeds them into a hopper steam per hour. where opposing currents of air strip off the leaves and spray them onto the ground, • Beyond agricultural practices and thereby returning 20 tonnes of previously technologies, consumer awareness was unused cane per hectare to the soil each raised through demos in supermarkets with year. This restores nutrients and forms a animators showing customers the benefits mulch that helps keep weeds down and of ERA. prevents water evaporation. The Balbo Group continues to take • The workers were trained and earned innovative action. Aiming to find a qualifications to take more highly solution which can be widely used in skilled positions in the new production agriculture, it has launched a project programme. to construct a prototype of a 100% autonomous weed control robot. Balbo • Chemical fertilisers were replaced by a explains that: ‘This can avoid the use of unique Integrated Organic Fertilisation pesticides not just in organic agriculture. Programme. The benefit for humankind and the planet can be enormous’. • Pesticides were exchanged for an integrated, natural pest and disease To disseminate ERA practices and management system, which leverages technologies, a technology-transfer naturally resistant crop varieties, a company, Agros Fortis, has been created. biological control programme, and cultural Farmers will be charged a certain amount agricultural practices. per hectare of land to apply ERA practices and technologies, as well as a share of the • To address the problem of soil additional revenue generated. According compression by conventional equipment, to Balbo: ‘I feel it is my duty to disclose this high flotation tyres were adopted, which expertise, and I hope it will help apply our are partially deflated before vehicles are findings to other fields, other crops. I hope driven into the fields.182 Native will be seen as an example of what can be achieved for the future, as living proof that anything is possible.’183 92 | ACHIEVING ‘GROWTH WITHIN’
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CLOSING NUTRIENT 5 LOOPS Currently, 44% of municipal organic lakes, and oceans creates a waste produced across Europe is breeding ground for algae leading to collected separately and composted eutrophication (an unhealthy overgrowth or recycled,184 the other 56% is usually of plant life), as well as the depletion deposited in landfill or incinerated. fish stocks and other species.185 Getting rid of this organic waste rather than capturing its embedded One of the significant shifts towards a nutrients and energy potential is a more circular system in the food value typical feature of a linear system. chain could be through gasification Shifting towards a system that captures of organic waste such as food waste. as much of the nutrients and energy This is commonly achieved through potential as possible would reduce anaerobic digestion (AD), whereby chemical inputs to the agricultural naturally occurring bacteria break down sector, and thereby decrease reliance the organic materials in the absence of on fossil fuels for energy and oxygen. This process produces biogas, chemicals. A total investment of which can be used to generate power €10 billion could see a benefit of or fuel vehicles. For example, AD for €2 billion across Europe, mainly due to processing organic municipal waste
a 5% reduction in CO2 emissions and is currently used in many countries, value creation from extracted nutrients. generally in northwest Europe, with a total installed capacity to process Relevance of up to 7.8 million tonnes of biowaste investment theme feedstocks a year, equivalent to around 5% of the total organic municipal waste generated in Europe.186 However, it has There is a growing recognition of the taken Europe more than 20 years to economic value being lost in organic achieve this capacity, with an average waste, particularly as key nutrients annual growth rate of approximately still have to be manufactured or 10%,187 which is substantially lower than imported; e.g. more than 95% of the for other renewable energy sources. For consumed phosphorus in Europe is example, solar PV systems have seen currently imported. Also, the current annual growth rates of at least 60% over open nutrient loops lead to huge the last ten years.188 environmental problems. Nitrogen fixation and phosphorus flows into Using AD plants provides multiple the ocean have exceeded the safe benefits, a key one being that they operating limits of the planet by a can process a relatively diverse mix of factor of two, while the run-off of organic feedstocks (including waste fertilisers from the soil into rivers, water and sewage sludge) making them ACHIEVING ‘GROWTH WITHIN’ | 93
suitable for municipal waste, while Recent developments both methane and CO2 emissions are avoided. Additionally, the production It is an opportune moment for such of biogas can be used to power inner- investments: substantial capital has city buses, offering advantages such as been deployed in AD in recent years reduced air pollution from particulates, mainly in northwest Europe, indeed lower noise levels, and decreased the UK saw an estimated €1.1 billion volatility in fuel costs. The process of of investments between 2014-15.191 AD also produces a solid digestate However this scale-up could benefit that can be used as a fertiliser. from a broader EU rollout. Pilot biorefineries have also been developed Biorefining as a technology includes recently to test new practices: an a variety of biochemical processes example is the Danish SUBLEEM that all have one thing in common: project that focuses on chemicals the feedstocks consists of biomass production. Biorefineries on the other (typically a relatively homogenous hand are not yet rolled out at scale, but flow of biowaste) and, through the many pilot projects are running across refining process, organic chemicals are Europe and there is a commonly held produced that can be used for further belief that biorefining could contribute processing. Most of these outputs can substantially to the looping of continue in the food value chain (e.g. organic waste.192 proteins), as agricultural inputs (e.g. fertilisers) or in the chemical industry Through the proposed escalation of (e.g. polyethylene). organic waste processing, AD plants would likely take on a different role To transition from current linear waste from biorefineries. AD plants can disposal models to circular biowaste handle mixed organic feedstocks and solutions would require a substantial can be deployed at scale, which means increase in organic waste separation, they would be well suited to municipal collection, and treatment. This change organic waste treatment. On the other would provide clear benefits of up to hand, biorefineries rely on specific 5% CO reduction and a 10% decrease 2 organic material feedstocks to produce 189 in synthetic fertiliser use by 2030. the targeted nutrient or chemical, However, the infrastructure needed which makes them less suitable for to treat organic waste, such as AD processing municipal waste, but more plants and biorefineries, is relatively suitable for treating specific industrial capital intensive. Current estimates organic waste streams, or as an add-on indicate an investment opportunity to existing production facilities with a of up to €10 billion between now biological waste product. and 2025, if Europe can increase the growth in organic municipal waste Undoubtedly, the shift towards treatment capacity from the 10% per processing biowaste through both 190 annum seen over the last decade to methods would reap rewards approximately 40% per annum in the economically and environmentally. years leading up to 2025. 94 | ACHIEVING ‘GROWTH WITHIN’
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Investment higher value products to be extracted, opportunities identified but with greater technology, feedstock, and market risks.
As outlined above, two key investment opportunities exist to treat organic Current barriers to waste: the development, construction, investments and operation of AD plants and of biorefineries. The key issues that currently prevent these two investment opportunities As mainstream investment funds from taking off in the near term are: have put substantial capital into the lack of stable volumes and AD facilities over the last years, the sufficient quality of feedstocks; the business case and associated risks lack of stable financial support for AD; are well understood by investors. and the lack of proof of viability at Although many AD plants have recently scale for biorefineries. been constructed on farms, to make a significant shift in waste treatment In order to provide attractive risk- city-scale AD plants would be required adjusted returns for both AD and and these present a clear investment biorefinery investments, not only would opportunity.193 strong offtake contracts be needed (for the gas, energy, digestate, and Biorefineries focused on using organic chemicals produced), but also sufficient waste for the production of high-end certainty of feedstocks supply. As chemicals and nutrients have not yet the typical payback times for these seen substantial investment, as in some infrastructure-type investments are cases the technologies and processes relatively long, a multi-year outlook for involved still require proof-of-concept feedstocks sourcing would be required, in order to bring them to commercial detailing tonnage as well as quality. scale. This means that typical Currently, to mitigate the feedstocks investments in these assets have mainly supply risk, the majority of AD (as well been through high-risk capital with as biorefinery) plants are located close government backing or grant funding.194 to their feedstocks source, for example Broadly speaking, there are two types on a farm or industrial site. In order to of biorefineries that can be considered increase the scale of the plants, these for investment, each with a different locations might no longer be viable, risk profile. The first type of plant uses leading to an increased feedstocks fermentation to produce chemicals for supply risk, which would have to be plastics. The process to create these resolved. Adding to the complexity of chemicals is usually tolerant of multiple this picture is that, unlike for example and varied feedstocks and is able to biomass from wood, organic waste produce multiple and varied outputs. cannot be stockpiled in a cost-effective This type of refinery is therefore way as it will start to decay. Therefore, resilient to feedstocks and market risks. the turnaround time between delivery The second type of plant relies on the to other sites and processing would extraction of specialist chemicals from have to be relatively short. separated feedstocks. This enables In the absence of any financial ACHIEVING ‘GROWTH WITHIN’ | 95
incentive, such as waste gate fees such as crude oil and could therefore or feed-in-tariffs, AD plants are meet some resistance from chemical typically not yet profitable enough companies. Furthermore, regulatory to provide attractive returns to restrictions exist that may prevent investors. Although the levelised cost proteins recovered from organic of electricity production has decreased waste being used in animal and by 50% over the last 10 years,195 it is human food chains. still more expensive than alternative electricity generation technologies, Interventions to while the risks remain higher in scale up investments comparison. Financial incentives to support AD plants would therefore be needed to mitigate this investment risk. In the near term, the first priorities for Biorefineries that produce chemicals scaling up AD plants in urban areas are typically still at the pilot project is the securing of a stable feedstocks rather than full commercial plant supply and clear offtake agreements. stage. Although the technologies are Concurrently, the business case for not considered nascent, a need for such investments needs to be made proof of viability at scale exists sufficiently attractive. This could be before these become a greater achieved either through the pricing in investment opportunity. of negative externalities, in the form of waste gate fees or a carbon tax, or Finally, some additional barriers through fiscal incentives such as tariffs exist that might prevent scaling of or tax breaks. these opportunities. The first is the common ‘not in my back yard’ (NIMBY) Bringing biorefineries producing response by residents to proposals chemicals to commercial scale would for large infrastructure projects near necessitate the running of multiple residential areas, particularly in this successful pilot projects testing case due to the perception that they different technologies, organic waste would produce gases or strong odours. feedstocks, and chemical outputs. This These potential planning concerns work would have to be done in close could delay or prevent such projects. collaboration with the purchaser of the Second, issues could arise related to a outputs to ensure they are of the right shortage of skilled operators needed to quality and composition. The outcomes run AD plants. Operating an AD plant of these pilot projects would be used demands the skills needed to manage to determine the best way to roll out the gasification process carefully. biorefineries at scale. If AD plants are being rolled out at scale, specific training of operators • European Commission: would be required. Third, outputs from The European Commission, in biorefineries that serve as feedstocks implementing its Circular Economy to highly specialised chemical Package, has started to set up a market processes could have a slightly for organic fertilisers that will provide a different composition from feedstocks strong platform to expand production derived from traditional sources facilities for these products. In order 96 | ACHIEVING ‘GROWTH WITHIN’
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to also ensure sufficient feedstocks positive business case for investors and for these products – and for chemical facilitate collaboration to reduce the products and biogas – the European risks involved to manageable levels. Commission would need to lend more As this report has explored, some of support to the mandating of organic the ways this could be done include: waste separation and collection. Within ensuring that the required permits are the circularity space, waste has been provided; offering offtake agreements a one of the main areas of focus for for biogas to be used in city buses; and the Commission, through its Waste providing sufficient financial incentives. Framework Directive. This framework Alongside these measures, it would be could be used to further increase the important to raise consumer awareness supply of organic waste across Member about both the benefits of, and need States. Additionally, it could provide for, waste separation, as well as the direct funding for either biorefining importance of building organic waste projects or AD plants. treatment plants.
Finally, a shift towards allowing the use The city of Milan offers a successful of recovered nutrients in food value example of strong government chains would be needed to ensure intervention to significantly improve overall success. Currently, the use of organic waste collection, separation, recovered nutrients is regulated by two and processing. In 2012, the city European Commission directives,196 as introduced the collection of separated well as Member State legislation (e.g. household food waste to be sent environmental codes).197 In order to – among other destinations – to support the growth of biorefineries AD plants to create biogas. Waste producing proteins, adjusting or collection company Amsa was granted removing such legislative barriers full government support in rolling out would be necessary. the new scheme and it benefitted from a large consumer awareness • National, regional, and local programme, distribution of dedicated governments: Alongside the European bins, and the use of biodegradable Commission, national and local bags. Organic waste recovery rose governments could further push for from around 53kg per capita in 2013 to organic waste separation and collection. around 92kg per capita in 2015, one of This could be achieved through a the highest rates in Europe.198 variety of means, for example through mandates or economic incentives such In order to support the construction as waste gate fees. In order to ensure of new biorefineries, national and local that the additional waste volumes governments could not only provide are indeed treated by AD plants or funding for new pilot projects, but also biorefineries, collaboration would be broker agreements between feedstocks needed with developers and operators suppliers and biorefinery developers. of these plants to confirm that sufficient For example, the Green Alliance infrastructure would be built to treat analysed biorefining opportunities for the waste. This support would also the food and drink sector in Scotland need to help determine a sufficiently and found that due to the high number ACHIEVING ‘GROWTH WITHIN’ | 97
of relatively small companies involved, processing site. This example shows support would be required to access that no government intervention may high-value recovery opportunities in be needed for specific organic waste the form of a matchmaking service. treatment technologies, as long as Examples of potential areas of there are sufficient feedstocks nearby collaboration included: recovering (ensuring low transport costs) and fishmeal and oils from fallen stock on a ready market for its products. The salmon farms; recovery of protein and company is currently still in its seed platform chemicals from the higher- investment phase and recently raised volume whisky distilleries; and lignin- $5.9 million through Keiretsu Forum based biorefining from forestry Northwest. by-products.199 Harvest Power is also showing how • Private sector: For the development private capital can be unlocked for of new city-level AD plants, project scaling AD. The US-based company developers and investors could work develops and operates mainly AD with local governments to identify the plants that produce fertilisers and most important barriers and the best energy through biogas. It manages the ways to overcome them, whether they end-to-end process of collecting waste, be in feedstocks supply, offtake of operating the plants, and delivering gas, energy and digestate, permitting fertilisers. Its operation comprises three processes, or community engagement. AD plants with a total waste capacity One of the key factors in moving into of 160,000 tonnes, and total investment the construction and operation of from 2009 to 2016 is $193 million.200 biorefineries would be to create the links between the supplier of the right type of feedstocks, the biorefinery operator, and the buyer of the final products. This would need to happen at the same time as identifying other relevant stakeholders such as investors and specialised construction companies.
As we have seen, initially most biorefineries would likely be located near their feedstocks source to minimise the risks related to stability of supply. A good example of this is California Safe Soil (CSS). The company uses food that supermarkets cannot sell and turns it into Harvest-to-Harvest liquid fertiliser that can be applied in conventional ways. The supermarkets, that are paying CSS to take away the food, are about 12 miles from the 98 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDYTHE BALBO SUBLEEMGROUP BIOREFINERY
Biorefining pilot supported types of biomass and residues, and finding by the Danish Business Authority201 the optimal equipment and processing technologies to recover nutrients from them. The SUBLEEM generic biorefining pilot The pilot project manager Dr Anne Christine was launched by a partnership led Steenkjær Hastrup, explains: ‘We want for by the Danish Technological Institute the companies setting up these facilities [to (a Danish research and technology have] business models and plants [that are] organisation involving the Municipality successful even when using low volumes of of Guldborgsund) with involvement from local waste supply, so that we can manage companies such as Nordic Seaweed, better the risk of insufficient or unstable Nordic Sugar, HedeDanmark, and SEGES, volumes of organic waste’. as well as research institutions202 and the cluster and management organisation The team estimates that such a model could Agro Business Park. The purpose of the achieve a total profit 200% higher than that pilot is to assess the business potential of of a typical biofuel-based biorefinery, that establishing full-scale biorefining facilities three to five plants could come online in the extracting high-value products (e.g. next five years in Denmark, and that they proteins, peptides, oils, soluble fibres, and could then be rolled out to other European saponins) from excess bio-resources, such countries. In general, it makes sense for such as sugar beet leaves, and residues from biorefining operations to be launched first beer production. After the facility is up and in countries such as Denmark where existing running, the partnership will be planning infrastructure can be leveraged. an event for companies to come and see how they could potentially create value Building the processing infrastructure to from their excess resources, and to discuss make such a scheme work would require future business opportunities. private investment of €5 million to €20 million depending on scale (for a range This pilot approach is very different of 1,000 tonnes to hundreds of thousands from the classic approach to biofuels, of tonnes of waste processed per year). the main focus of which in recent years Public or semi-public investments would has been on profitability involving large likely be needed to build or upgrade the industrial partners. By contrast, the focus collection infrastructure in order to secure at SUBLEEM is on designing innovative stable feedstocks supply. Nevertheless, business models and production plants this example demonstrates what that are profitable as well as scaleable. This could be achieved through innovation is done by identifying the most interesting and collaboration. ACHIEVING ‘GROWTH WITHIN’ | 99
FARMING THROUGH INDOOR SUBLEEM BIOREFINERY 6 URBAN FARMS The agricultural sector is being changed the effects of climate change are realised through technological innovations, through extreme weather patterns, where a novel way of producing food devastating crop yields and increasing is emerging: indoor vertical farms. By food prices, and consumers become more harnessing agricultural technology, fruit conscious of their carbon footprint, the and vegetables can be grown without demand for sustainable farming continues soil, indoors in closed environments to grow. that are fully independent of the weather fluctuations. This allows these Over the last five years, vertical farms farms to be located in urban areas, near have emerged as one of the potential the target markets for their produce. solutions to overcoming the environmental These indoor urban farms use systems challenges affecting traditional farming. such as aeroponics, aquaponics, and Vertical farms maximise the use of urban hydroponics in multi-layered crop land, providing high-quality produce beds, to produce high-quality healthy within the built environment, using 70%– vegetables, fruit, herbs, and fish right 98% less water than traditional farming inside or on top of city buildings. A total methods. Led by Japan, Singapore and the investment of €45 billion in this shift US, the rest of the world needs to wake up towards urban agriculture over the next to the potential of disrupting the $5 trillion years leading up to 2025 could reap food and agribusiness industry.206 an economic reward across Europe of up to €50 billion, with the key benefits Vertical farms are essentially multi-storey being the freeing up of much-needed greenhouses using innovative aquaponics land space and reducing the reliance on or hydroponics systems. Hydroponic fertilisers and pesticides. farming is a method of growing produce without soil. Seeds are planted in a soil Relevance of substitute, then grown in nutrient-rich investment theme water. The water is then recirculated. Water temperature, salinity, humidity, and By 2050, the world’s urban population air temperature are controlled to induce is projected to grow by 3 billion.203 At maximum yield.207 Aquaponic farming current trends, caloric demand will combines hydroponics with aquaculture increase by 70% and crop demand for (fish farming) to create a closed loop human consumption and animal feed will system. The nutrient-rich water containing rise by 100% in the same period.204 Using fish waste is pumped to the roots of current practices, feeding the expanding plants, where microbacteria convert the population would require dedicating nutrients into natural fertilisers. The plants 1 billion hectares of new land to in turn purify the water, which is pumped farming205 – more than the area of Brazil back into the fish tanks.208 and Indonesia combined. Moreover, as 100 | ACHIEVING ‘GROWTH WITHIN’
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Growing crops in urban farms provides shift through directly lowering energy multiple societal benefits: usage, but also through creating better • A reduction in food waste along the insulated buildings as it is no longer supply chain; necessary to ventilate the heat generated • Reduced land use and soil degradation; from the lights. As technology advances, • Up to a 98% decrease in water usage LED lighting will become increasingly through looped systems;209 efficient, and energy costs will continue • Reductions of up to 70% in to fall. Between 2012 and 2014, LED fertiliser usage;210 lighting efficiency increased by 50% and • Complete alleviation of the need for between 2008 and 2014, the price of pesticides and herbicides;211 LEDs fell by 85%.213 • Production of healthier food unpolluted by chemicals; With current technologies aiding • Significant decreases in transport production, there is a clear opportunity costs and related emissions; to invest in an agro-industry that • More stable year-round production, could bring such obvious economic, as crops are protected from the volatility environmental, and societal benefits. of weather and overall changes in the climate. Recent developments
Vertical farming also makes efficient use Indoor urban vertical farming as an of land restraints: crops are grown in investment theme is taking off globally. In high-rises in multiple levels that vastly 2015, start-ups producing technologies in reduce land footprint requirements. and around the indoor agriculture space An American start-up from Nashville raised slightly more than $107 million in the US, Greener Roots Farm, claims in funding globally, which was just over to produce pesticide and GMO-free 2% of the $4.6 billion total invested in produce that travels no more than agricultural technology across the year.214 ten miles to its end destination. It also There are currently around 230 vertical claims to use 90% less land and water farms globally, the majority of which are than conventional farming, and boasts a based in Japan. However, the segment tenfold increase in production per square is gathering pace in other markets, foot.212 Further, vertical farms have started especially in areas where food production to demonstrate potential viability as a has structural problems, particularly profitable enterprises as was shown for around water resources, for example in example by Spread’s Kameoka plant the US.215 In 2013, FarmedHere opened in Japan. North America’s largest indoor farm, a space of around 8,400m2 in Bedford However, one issue related to these Park, Illinois, yielding a fifteen-fold practices is the high-energy usage increase in the number of crop cycles required, mainly to power the necessary yielded by traditional farming.216 In 2014, indoor lighting. Although this is certainly Green Sense Farms constructed a vertical a considerable share of the total cost farm of around 2,000m2 in Portage, of running these farms, increased use Indiana. In 2015, it partnered with Star of specialised highly efficient LED Global Agriculture to build a network technology is mitigating this problem. of farms in China, the first of which, in LED technology is not only aiding this Shenzen, became operational earlier this ACHIEVING ‘GROWTH WITHIN’ | 101
year. It currently has ten additional farms Group supermarket chain, growing in its developmental pipeline across the produce in store. 226 Despite these US, Canada, China, and Scandinavia.217 examples, vertical farming in Europe has Also, in August 2016, Kimbal Musk yet to scale to the same extent as it has in launched a vertical farm incubator in Asia and the US. Brooklyn, New York.218 Vertical farm experts generally agree that In Japan, the majority of vertical farms the timing is right to start scaling up the are owned by electronics companies, indoor vertical farming capacity as a few such as Toshiba, Panasonic, and Fujitsu. key trends have all sufficiently progressed The exceptions to the rule are its two to enable success. These include: largest vertical farms, owned by Mirai • The evolution of high-efficiency LED and Spread respectively. Mirai’s farm lighting technology specifically made for is located in the Miyagi Prefecture, the indoor farming; region affected by the earthquake and • Cost reductions in the sensing and data tsunami in 2011. According to Shinji collection technologies needed; Inada, Spread’s CEO, momentum for • Growth in the knowledge base for vertical farming in Japan grew rapidly in producing food through the use of the aftermath of the Fukushima nuclear hydroponics technology. disaster in 2011, after which Japanese consumers took greater interest in the The combination of these developments content of its produce.219 has effectively moved indoor vertical farming out of the R&D phase and into In the rest of Asia, vertical farming the proof-of-concept stage.227 continues to grow. China’s government has engaged Green Sense Farms to roll Investment out twenty sites across China.220 Given its opportunities identified climate vulnerabilities, with temperatures falling as low as -55°C, China has begun The current number of installed indoor to embrace vertical farming. In 2013, urban farms in Europe is considered to there were 75 commercial plants in be relatively low. Nevertheless, the EU China, of which 25 used artificial light.221 is seeing some initial indoor farm pilot In 2011, Sky Greens, the world’s first low- projects, such as the Urban Farming carbon, hydraulic-driven vertical farm De Schilde in The Hague. Therefore, an was launched in Singapore, delivering opportunity exists to support the scale- produce to national supermarkets.222 It up of indoor vertical farms in Europe, uses rainwater to power a water-pulley through providing the investments system rotating growing troughs around required to establish the necessary an aluminium tower. The same rainwater infrastructure (including the associated used to power the pulley system technology). nourishes the plants.223 Vertical farms in Europe have been slower to spread.224 At the moment, the food products from Earlier this year, Urban Crops opened indoor vertical farms are mainly targeted Europe’s largest automated plant factory at consumer segments that are looking in Waregem, Belgium.225 Infarm, a vertical for healthy, homegrown food and that farming start-up in Berlin, Germany, is are generally willing to pay a premium running a pilot project with the Metro for such produce. Typical customers are 102 | ACHIEVING ‘GROWTH WITHIN’
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restaurants, organic and health-focussed Current barriers to food retailers or direct sales to consumers investments through local farmers’ markets. This consumer segment is relatively large Although the global market for indoor and has been growing substantially over vertical farms is projected to grow up recent years. For example, the European to 30% per annum between 2015 and market for organic food was estimated to 2020,231 the main driver for growth be worth a total of €26 billion (around 2% is considered to be the Asia–Pacific 228 of the total food market ) and showing (APAC) region, in particular Japan a growth of approximately 8% per annum and China. The main barriers holding in 2014.229 back growth in Europe are: perceived risk regarding the technology used; In addition to these identified consumer uncertainty about profitability due to the segments for the sale of the produce novelty of using these technologies at from indoor farms, there is also an scale; and issues with securing permits opportunity for players in the space to and leases. sell entire indoor farms to countries or companies that would operate these. A key problem with setting up a new Due to the likely decreases in the cost indoor vertical farm is the high level of of production for indoor urban farms upfront capital investment and high as operators gain experience and the perceived risk of new technology. technology continues to be optimised, For example, the Sky Greens project in the future, urban farms should be in Singapore required $1 million to able to compete with conventional food launch, while the farm’s total costs production outputs. at completion totalled $28 million.232 The perception of risk is driven by The potential benefits from this uncertainty on production stability opportunity have convinced multiple having not used these technologies at investors over the last year to deploy scale coupled with the possible need capital. For example, US-based for premium pricing, and, in turn, the Aerofarms, which manages over associated issues of a limited market 2 9,000m of indoor urban farms in size versus that for conventional Newark, New Jersey, has raised $20 production outputs. Given that the million, while another US-based operator, industry is so young, there has been Bright Farms, has raised $14 million. little opportunity to observe existing Both deals were the companies’ Series market players making significant profit. B financing, raised in 2015, mainly from Although Spread’s Kameoka plant venture capital investors.230 has been declared profitable, many vertical farms are yet to make profit.233 Alongside investment in set-up and Profitability is especially elusive for infrastructure, additional investments aquaponic farms; a 2015 US Department would be required to further develop and of Agriculture study on the economics scale up the production for the required of aquaponics found indoor fish rearing technology. Such opportunities include to be two to three times more expensive further support for the development of than raising fish in open ponds.234 A 2013 LED lighting technology specifically for study found fewer than one-third of farming or development of data-driven aquaponics farms to be profitable.235 farm management systems. ACHIEVING ‘GROWTH WITHIN’ | 103
Another factor is that, if these indoor • National, regional, and local farms are to be scaled up across urban governments: The public sector could areas, issues with obtaining the required provide direct support for indoor urban permits and leases could arise, as real farming pilots and projects in a variety estate in urban areas is scarce across of ways, e.g. through long-term many countries in Europe and so these guaranteed energy prices, specific farms would be competing with funding instruments or tax breaks. other organisations requiring The AeroFarms project was awarded commercial property. $9 million in city and state money via tax breaks and grants.237 Additionally, Relatively low consumer awareness local support towards obtaining permits regarding the benefits of buying and leases could be provided, possibly products from urban farms might pose through the designation of specific areas an additional barrier to growth, as well for urban farming. Generally urban farms as the availability of a sufficiently able can find suitable locations in old industrial workforce as operating these farms sites or abandoned buildings or even requires a specialist skillset. underground 238 so not only in prime real estate areas. As a result, creative thinking Interventions to scale and co-operation with planners could up investments open up potential sites for development. Finally, public procurement of food could Europe could see an increase in the support further growth in market size. scale-up of these farms, if sufficient Once these farming practices start to take support is provided to achieve proof-of- off in specific cities, additional consumer concept at scale and if the required real awareness and training programmes estate is made available at a reasonable could be rolled out to offer more support price. Playing an active role in increasing to the scale-up. consumer awareness and specific training would be important areas for • Private sector: Initial efforts to develop stakeholder contributions. new projects could focus on identifying the most suitable areas for urban farms • European Commission: Further projects, specifically honing in on cities funding for urban farming R&D and where the market for premium priced pilot projects could be considered.236 fruit and vegetables is large and growing, Concurrently, existing agriculture and where backing for these innovative frameworks, such as the Common practices exists within local government. Agricultural Policy (CAP), could Using the model of the Urban Farmers stimulate urban farming as a recognised project in The Hague, a support structure practice which would create more of could be agreed with local government a level playing field versus traditional in order to make these initial projects agricultural practices. Additional support financially viable, while at the same time could be provided by linking project securing offtake contracts from local developers, technology providers, and food retailers and restaurants. Once the investors for indoor urban farms across concept is proven sufficiently, scaling of the EU, enabling them to share their production could potentially be achieved learning and experiences. without further government support. 104 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDY AEROFARMS
US-based AeroFarms demonstrates how not use fertilisers at all, but instead use the right level of government support a pest-resistant design to ensure pests can help to make the risks manageable cannot get access to their crops. They for institutional capital. deploy LED lights throughout their crop beds to allow for maximum productivity AeroFarms builds and operates aeroponic and control. They have also developed indoor urban farms within the US. Their a smart, patented substrate cloth made anchor project is a 6,500m2 farm in from recycled plastic. These methods Newark, New Jersey, which saw its first give them 75% more productivity per seeding in September 2016. This new farm square metre than a conventional field is set to become their global headquarters farm and enable scaling to suit a range of and will be one of the largest indoor sites and needs.240 farming projects in the world. They also operate a number of other facilities The AeroFarms model is testament to in Newark: a 5,000m2 R&D farm (first how local government support, coupled seeding November 2013), a 2,750m2 with private sector funding, can make ‘Newark Farm’ (first seeding August 2015), urban farms viable and profitable at and a 5m2 School Farm (first seeding scale. In 2009, AeroFarms were granted September 2011) in a local academy where $0.5 million seed funding and in 2015 students can harvest their own produce they received up to $39 million of venture for their lunches. All of these sites are capital funding from multiple investors, based in Newark, New Jersey, and (apart with Wheatsheaf being the leading from the School Farm) have reused old investor. They also secured a $30 million industrial buildings, including a steel mill, debt package from Goldman Sachs and nightclub, and paintball arena to create received an additional $9 million in state indoor agriculture spaces.239 funding, tax credits, and grants. They have recently raised a further $20 million They use a combination of a patented in equity funding. aeroponic system and proven technology . to achieve a 50% reduced growth time for their crops, stable yields, and healthy produce with minimal environmental impact. Their aeroponic system is a closed loop model that uses 95% less water and 40% less hydroponics than conventional farming methods. They do ACHIEVING ‘GROWTH WITHIN’ | 105
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CASE STUDY SPREAD
Japan-based Spread delivers profitability responsible for the initial planting of then turns its eye to the world’s first seeds, robots will take on all other tasks, robot-run farm. including re-seeding, watering, trimming, and harvesting crops.242 Spread’s In 2007, Spread constructed the Kameoka automated model will increase lettuce plant in Kyoto, with the stated mission yields by an additional 30,000 heads of ‘continually work[ing] towards the of lettuce a day to 51,000 between its realisation of a sustainable society while two farms. It is also projected to reduce protecting the environment through the labour costs by 50%, cut energy use by use of food technology for the comfort 30%, and recycle 98% of water needed and safety of our children and of future to grow the crops.243 Furthermore, it is generations.’241 The plant has the capacity slated to host an integrated research and to produce 21,000 heads of lettuce, and development centre. The total cost of the at opening, it was the world’s largest second farm is estimated between ¥1.6 indoor farm in terms of production. After and ¥2.0 billion ($15–$19 million) with six years of operation, it declared the an estimated payback time of between Kameoka plant to be profitable in 2013. seven and nine years. Spread is currently constructing a new farm, designed to be almost entirely . robot-run. Although humans will remain 106 | ACHIEVING ‘GROWTH WITHIN’
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DEVELOPING NEXT-WAVE 7 PROTEIN SOURCES Bringing to market sustainable productivity gain in the past, agricultural complete protein sources244 would productivity gain is now dropping in alleviate the looming crisis of demand Europe and around the world. For for meat and fish outstripping supply. example, agricultural productivity This would unleash significant gain has fallen steadily from 2.5% per rewards, both societally and in annum in the 1970s to 1.3% in the 2000s, investment return for any potential decreasing further to 0.9% in 2010. This investor. Supporting the development is despite significant increases in inputs and escalation of the market for these and technologies aimed at supporting protein sources ranging from insects or boosting productivity, such as to seaweed and microalgae, through fertilisers, chemicals, and fuels. investments of up to €2 billion over the next ten years, could result in a Moreover, the further expansion of total benefit across Europe of up to conventional production systems to €40 billion by 2030, mainly through meet demand growth would also reduction of reliance on fertilisers and be challenging in a variety of ways. pesticides, reduced water usage, as Expansion is already constrained well as contributing to a decrease in by severe pressures on land assets greenhouse gas emissions. and fish stocks, and poses high environmental and societal risks. For Relevance of example, more than 30% of soils are investment theme already classed as moderately to highly degraded worldwide;247 and 61% of commercialised fish populations As a result of continuous worldwide are fully fished, with another 29% population growth and an increasing being fished at a level that prevents requirement for meat and fish, the regeneration of the ocean’s stock. In market for complete proteins245 addition, expansion of conventional is expanding rapidly. Indeed, it is livestock production is already the expected that by 2030 protein main driver of agricultural greenhouse demand for human consumption and gas emissions248 and demands high animal feed will have grown worldwide water input.249 Yet, regardless of this by 40%.246 This exponential growth is massive use of resources, conventional more than the conventional production production systems do not provide safe, systems can supply. healthy outputs, as complete protein food often contain traces of antibiotics, Indeed, while growth in demand toxic chemicals or plastics.250 for complete proteins has been met primarily through significant ACHIEVING ‘GROWTH WITHIN’ | 107
In this context, the EU’s food supply and vegetable-based protein sources chain is especially at risk. The EU is for human consumption. Additional already highly dependent on imports opportunities are also emerging for such strategic products, with 70% (e.g. commercialising insects or lab- of its complete proteins being sourced grown meat as food for direct human externally.251 In fact, the EU runs the risk consumption) that have not been of competing with China – the largest included here, as they are considered importer of complete proteins – notably less likely to be scaleable within the for the supply of key animal feed next decade due to barriers in consumer products, such as soybean. The Waste acceptance, legislation or cost-effective and Resources Action Programme technology.254 (WRAP) estimates that traditional feed prices will fluctuate in the lead up to The next-wave complete protein sources 2025 (as has already been witnessed in in our focus offer sizeable advantages the fishmeal market), causing a direct from a variety of perspectives, which knock-on effect on food prices.252 would otherwise not be captured in conventional systems. Complete protein One of the ways to meet the growing production represents a major reservoir demand for complete proteins in Europe of growth for the European economy, could be to increase the consumption accounting for €20–35 billion in GDP of products that require less land globally in 2015. Next-wave protein and resources than red meat, such sources would also open up new market as chicken, fish or vegetable-based segments, such as the high-value products, alongside the development sustainable fish market, as insect-based of sustainable aquaculture and land fish feed could allow producers to agricultural systems. control inputs to make sure these are sustainable, something that is currently Another key way to meet the demand not possible. Economic growth in this could be through the use of next-wave area could also be driven by valuable sustainable complete protein sources. by-products with potential for sale into On a positive note, there are sustainable further food or fuel applications, such as complete protein sources that are not high-value molecules with antimicrobial being tapped into currently, and the properties for insects, or triglyceride production of which could scaled in oils and ingredients for microalgae.255 the near term. For example, insects are Such changes would ensure the EU’s surprisingly efficient protein converters dependency on foreign high-protein and can turn low-grade inputs into high- sources would be reduced.256 grade nutritional products. The focus of this theme is on the commercialisation Next-wave protein sources are typically of a set protein sources for specific uses, environmentally friendly, causing fewer as it is becoming increasingly apparent greenhouse gas emissions and requiring that these opportunities could be few resources, thereby alleviating particularly promising over the next ten pressure on land, energy, and water years.253 Insects and bacteria for animal (microalgae can produce 50 times more feed, seaweed and micro-algae for oil than corn per hectare; insects require animal feed and human consumption, ten times less land at the most, far less 108 | ACHIEVING ‘GROWTH WITHIN’
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FIGURE 24 TYPICAL INPUT FOR THE PRODUCTION OF 1KG OF PROTEIN FROM BEEF, PORK, CHICKEN, AND INSECTS261
Energy use (MJ) Land use (m2)
GHG emissions (CO2-eq.) (Plant) feed (kg per edible weight)
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250
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0 BEEF PORK CHICKEN NEXT-WAVE PROTEIN SOURCE (INSECTS) Source: http://www.fao.org/docrep/018/i3253e/i3253e05.pdf262
plant feed,257 and produce significantly • 55–70% protein content in insects; fewer greenhouse gas emissions than • Up to 47% for seaweed, of which most beef, as shown by Figure 24). Societal types contain all the essential amino benefits would also be generated acids that may help increase body through local job creation, e.g. within condition and wool production in sheep local insect production units and the and milk production in cows ; revitalisation of the farming industry. • High lipid (oil) content in microalgae; Indeed, the purchase of production • Up to 60% protein levels in bacteria. inputs that are not used currently, such as agricultural by-products or Recent developments waste, would provide new sources of revenue for farmers.258 Human health Promising solutions are currently being and animal health would also benefit developed for the most attractive of from next-wave protein sources, due to these next-wave protein sources. A few their healthy and nutrient-rich content, examples are provided below, but this is alongside a more easily digested amino not an exhaustive overview of the players acid mix259 (90% digestibility levels emerging in this space. for insects) that could likely help to reduce the use of antibiotics in the food A new insect-rearing industry is being chain.260 For example, the potential shaped, using insects to transform nutrient and health benefits of next- low-value by-products (such as olive wave protein sources include: pulp or brewery waste,263 pre-consumer food waste left over from production, transformation or distribution or post- ACHIEVING ‘GROWTH WITHIN’ | 109
consumer food waste) or organic waste facility is already operational with an from local agro-businesses into high- estimated capacity of 13 tonnes per day. quality products. This is subsequently The company plans to reach its target used as feed, mainly for farmed animals of 80 tonnes per day capacity within including chicken, pigs, and fish, as 18 months.269 well as for pet food, fish oil, and non- feed products.264 Numerous companies Concurrently, players are also tapping have entered this market in Europe into the opportunity to use seaweed and abroad. For example, the French and microalgae for animal feed, food company Innovafeed is leveraging for human consumption, and biofuel. A agricultural by-products and insects new study even shows that microalgae to produce insect-based fish feed and may be a viable option to replace corn in aims to launch a 300-tonne capacity cattle feed, and algae could potentially unit in 2017 and deploy a 25,000-tonne replace up to 30% of soybean meal in capacity by 2020. The South African- diets for pigs and chickens. The US- based company AgriProtein is using based company Solazyme manufactures waste food and flies to produce 7 metric a food additive by fermenting, growing, tonnes of animal feed mainly for fish, harvesting, concentrating, and drying chicken, and pigs,265 as well as 3 metric algae. After the launch of large-scale tonnes of fish oil and 8 metric tonnes of production in 2014, the company fertiliser per day. The company raised operates two production units in the US $11 million from the Bill and Melinda and a large site in Brazil with a capacity Gates Foundation and private investors of 100,000 metric tonnes per year. In the in 2012 to build its first commercial future, capacity may expand to 100,000 farms.266 Other companies, such as metric tonnes per year in Iowa.270 Ynsect, are focusing on pet food; their small industrial-scale production in Commercialisation of various next- France will have a 20,000-tonne per wave protein food and meals for human year capacity, with further plans to build consumption has already started and a large-scale plant in 2017.267 Ynsect has is being rolled out in some territories, raised €7.3 million in two investment especially in the US. Currently, 22,000 rounds, with two French venture capital tonnes of mycoprotein products are funds and one Singaporean investment manufactured per annum and sold in company, together with public support, 16 countries by Quorn. The US-based in particular from the French investment company derives its mycoprotein from bank Bpifrance.268 fungi and wheat-derived glucose syrup, which are then mixed with egg albumen The production of next-wave animal and water to obtain Meat-Free Mince, feed is also driven by current Chicken Style Pieces or Fillets that are developments in bacterial science. steam-cooked and rapidly frozen to For example, the US-based company enhance texture. With 3 billion meals Nutrinsic manufactures meals for being prepared across the world and chicken, pigs, and fish from a culture of a growing demand (+30% in the US bacteria that is fed with waste provided 2014–2015), the company launched by food and beverage processors and operations in Germany, Italy, and Spain biofuel manufacturers. A production in 2015. There have been £30 million 110 | ACHIEVING ‘GROWTH WITHIN’
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investments made to double the UK would need to be built to expand the plant capacity to 40,000 tonnes, with production of proteins, which would a view to meeting growing demand in also require further capital. the UK, the US, and European markets.271 Vegetable-based meat and meals Current barriers are also gaining ground, as shown by to investments Beyond Meat whose 100% plant-based products are sold in the meat section Two key barriers need to be lifted for of grocery stores across the US. The all of the next-wave protein sources to company provides heat-and-eat meals, become viable at scale. such as beef crumbles or chicken strips, made mostly with non-GMO pea protein. The first is the need for high upfront The veggie burgers are said to taste, investments which as yet have uncertain sizzle, and smell like meat burgers when returns. These are required to complete cooked, and sold out in one hour when R&D, develop an agro-industrial model, they went on sale in one Whole Foods and scale production in the EU. Indeed, store in Colorado. bringing to the market and scaling next- wave protein sources would require Investment such high initial investments, while no opportunities identified significant track record exists to provide a good basis to project likely return Investors who are looking to deploy on these investments. For some next- capital in the area of next-wave protein wave protein sources such as insects, sources have to determine which protein the focus would possibly be on the sources and which offtake market is establishment of commercial production the most attractive for them: insect, at a cost-effective level and scaling,272 bacteria, seaweed, micro-algae or other whereas for other protein sources the vegetable-based proteins, with some focus would also need to be on R&D aimed at animal feed only, others for to develop the necessary engineering human consumption only, and some for solutions.273 In all cases, the level of both. All of these opportunities have mechanisation and automation involved the potential to play a substantial role in would be a key driver to achieve cost the EU’s food market and have already effectiveness at scale.274 received multiple investments indicating investors’ interest. However, as yet it The second barrier is the restriction is unclear which of these sectors will currently imposed by human food chain eventually provide the best returns. legislation, e.g. in regulations related to the use of insects to feed animals Once an investment decision has been destined for the human food chain as made, capital deployed will likely be outlined below (no such restrictions needed to further research and develop exist for pet food275). Besides these the production process, including the two key common issues, an additional setting up of pilot plants. Depending barrier exists for protein sources on the exact investment opportunity, destined for direct human consumption commercial-scale production facilities – that of consumer acceptance.276 ACHIEVING ‘GROWTH WITHIN’ | 111
However, the ‘yuck factor’ is likely to deployed, the current EU legislation be very limited for the selected near- would need to recognise next-wave term opportunities, as the protein protein sources281 and allow them to sources identified as destined for be used where food safety can be human consumption tend not to secured.282 One illustration is the use of trigger negative consumer attitudes insect meal in livestock feed which is (vegetables, seaweed, and microalgae) regulated by two European directives,283 compared to lab-grown meat or as well as government legislation (e.g. insects.277 In contrast, protein sources the environmental codes284). In the EU, selected for animal feed tend to spark the use of insects to feed livestock is positive consumer attitudes278 and currently not authorised, although in are bringing strong benefits that can many cases it is what these animals incentivise consumers and food retailers would eat in the wild. However, the to shift. For example, the recent uptake regulation is starting to change. The of insect protein flour in North America European Parliament has adopted a has been in response to its nutritional resolution to address the EU’s protein benefits,279 and it has also been shown deficit, stating that urgent action is that environmental concerns can play needed to replace imported protein a part in changing attitudes.280 Leading crops with alternative European European food retailers have already sources. In October 2015, the European expressed a willingness to pay a Food Safety Authority (EFSA) premium for some of these next-wave published an initial positive view, which protein sources, such as insects, as it was confirmed on 27 April 2016 by the would enable them to present their fish PROteINSECT research programme.285 and meat products as locally grown, The European Commission is free of antibiotics, and more respectful expected to authorise insect meals of the environment. for aquaculture during 2017286 (this will apply only to insects fed with Interventions to scale agricultural vegetal co-products287). up these investments Insect meals are already authorised in Switzerland,288 Japan, Korea, Africa, and certain states of the US. The legal To lift these barriers and unlock the framework to allow broader insect- investment opportunities, the primary based proteins into the human food role of players is to make the case for chain should also be researched as this next-wave protein sources through is currently creating a significant barrier pilots that reflect conditions of scaling, to growth. as well as providing a clear commitment that legislation will become neutral/ • National, regional, and local favourable in the short term and governments: Main areas of action in guarantees of short-term demand. government at all levels are supporting Specifically for each stakeholder group, the necessary legal framework potential actions include: adjustments (as outlined above), providing innovation funding, opening • European Commission: For the up markets, and raising consumer innovations in the space to be fully awareness of the benefits of insect- 112 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDY INNOVAFEED
InnovaFeed is developing a new insect- • Recycle agricultural by-products as rearing agricultural industry for competitive, part of the shift to a circular economy and sustainable, and natural animal feed. improve the European commercial balance.
InnovaFeed was created by the coming The global addressable market for insect together of an innovative technology for large- meal in aquaculture only is estimated at €5 scale insect rearing, developed over more billion in revenue and could grow to reach than 30 years in the labs of IPC (Insect Pest €30 billion by 2030. Control, a joint IAEA/FAO research unit), and the critical need for sustainable sources of • Make the ecological revolution a lever complete protein. of growth and employment for the EU as a whole. The need for next-wave protein sources is especially strong for aquaculture feed. The global addressable market for insect Aquaculture is one of the most dynamic meal in aquaculture only is estimated at agro-food sectors (+8% per annum). Currently, €5 billion in revenue and could grow to farmed fish feed is a mix of wild fish meal, reach €30 billion by 2030. such as anchovies and sardines, and of plant proteins,291 such as soybean (that account InnovaFeed has developed technologies respectively for around 30% and around enabling the production of high-quality 70% of farmed fish feed292). Neither of insect meal at industrial scale and these products can meet the need for more competitive costs. InnovaFeed has set up complete proteins as feed for farmed fish: the a profitable model enabling the industrial former – known as wild fish meal – is available development of the insect industry. The in limited quantities and is already not model, developed and implemented at sustainable, as it is emptying the oceans;293 and scale, provides a high EBITDA margin of the latter – plant proteins – cannot account for 35% to 45%. This performance is supported more than an average of 70% of fish feed as a by three main technological developments: higher proportion of plant proteins would be • Product quality optimisation: InnovaFeed unsatisfactory from a nutritional perspective.294 has optimised the value of its products by improving the lipid profile of the insect oil Insect meal stands out as a relevant solution and by identifying and valorising highly to address this problem and drive the valuable bio-actives. development of sustainable aquaculture. • Substrate formulation: InnovaFeed has InnovaFeed’s aims are threefold: developed a diet composed of agricultural by-products currently not valorised. The • Provide an environmentally sustainable, fine-tuning of the formulation has allowed health-friendly, high-quality, and safe feed it to improve by 40% the feed conversion source for aquaculture in order to realise the ratio295 of the black soldier fly (Hermetia sector’s growth potential. illucens) and to reduce substrate sourcing ACHIEVING ‘GROWTH WITHIN’ | 113
based feed, for example through public procurement, providing innovation funding (possibly through the Horizon 2020 programme), and opening up INNOVAFEED markets and raising consumer awareness of the benefits of insect-based feed, for example through public procurement. cost by 55% (substrate being the main production cost). • Private sector: Food production • Automation: InnovaFeed has leveraged companies, as well as retailers, could and adapted the industrial knowhow of its play a significant role in the growth of technical partners to define fully automated next-wave protein sources. Retailers processes that reduce capital expenditure could source part of their protein and operational costs. supply from these new producers, provide volume and price guarantees, Having matured these technological and dedicate shelf space to create developments, InnovaFeed is now in an visibility of these goods, as Jumbo did industrial phase and is preparing the launch 289 of a 300-tonne insect meal capacity unit in in the Netherlands in 2014, thereby the first half of 2017. This unit will be scaled enhancing consumer awareness. Food up to 1,000 tonnes by the end of 2017. production companies could also This industrial development is also driven dedicate R&D funding to these new by very strong commercial prospects. production methodologies or directly InnovaFeed has received firm commercial invest in emerging businesses in this commitments from clients in target market space. Collaboration between traditional segments (aquaculture in Europe and food producers, retailers, and start- Africa) and from clients in high-value ups could further ensure buy-in along market segments (pet food in the EU). the value chain. Private players could have a role to play in creating the best All developments to date have been conditions for favourable legislation performed with non-dilutive funding changes, through demonstrating that (€1.4 million). InnovaFeed is now planning to involve a financial partner (by Q1 2017) risks to human health are very limited or to accelerate its industrial development. could be fully controlled throughout the The priorities of this phase will be to: human food supply chain. • Scale up production to reach target capacity for 2017; • Prepare the industrial development phase (25,000-tonne capacity by 2020); • Recruit key talent to move R&D and industrial development to the next level (e.g. optimise biotechnology production processes and identify new bio-actives). 114 | ACHIEVING ‘GROWTH WITHIN’
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DESIGNING AND PRODUCING 8CIRCULAR BUILDINGS Shifting to circular buildings would arrangements allowing for changes or involve designing and producing upgrades in layout, size or functionality. buildings made for looping, using Also, they could typically generate the renewable/recyclable healthy energy needed to operate them or materials, tracking end-to-end, produce extra energy to be sold on planning for modularity and possibly the grid.297 adaptability,296 and ensuring that the finished construction is energy- Multiple benefits could be generated by positive. The investment opportunity these truly circular buildings that would within this sector is significant, otherwise not be captured. Advantages amounting to €105 billion between include: a decrease in virgin material now and 2025, which could lead to a consumption and mitigation of total economic benefit of up to €135 fluctuating material prices; land billion by 2030 in reduced repair savings; and minimised waste, and maintenance cost, as well as greenhouse gas emissions, and energy utility costs. consumption, not only during the lifetime of the buildings, but also during Relevance of their construction and demolition investment theme phases. Faster construction would also be achieved through shortened drying Even though looping today’s building times and optimised workflow, as well stock is a sizeable opportunity, as optimised maintenance through designing and producing buildings for simple connection logic and detailed 298 looping from the start would open up information at component level. A far greater opportunities on all fronts: study by Arup estimated that designing economic, environmental, and societal. steel for reuse could generate high potential value for building owners, Such circular buildings would become with likely savings of 6–27% for a material banks, from which companies warehouse, 9–43% for an office, and could remove used or unwanted 2–10% for a whole building, as well parts and materials, to replace them as up to 25% savings on material 299 with recovered ones that are ready costs. Benefits would also be felt by for another life. Materials used would those living or working inside these generally be renewable or recyclable, buildings, such as greater flexibility produced to ensure that high quality and customisation, as well as better is retained over time, life cycle after indoor air quality and improved health life cycle. They could be adaptable and well-being due to the use of non- to suit various uses, with convenient toxic materials. All this contributes to ACHIEVING ‘GROWTH WITHIN’ | 115
increasing employee productivity and traditional design over the reducing absenteeism as shown by building’s lifetime.307 Delta Park2020 buildings.300 Clearly, those engaging in the design In contrast, today’s mainstream and production of circular buildings building methods are unsustainable, would be pushing the limits of produce large amounts of waste and sustainability, flexibility, customisation, greenhouse gas emissions during and well-being. As such, they would be construction and throughout a unlocking benefits for the environment building’s lifespan, as well as through and society, as well as differentiation the disposal of demolition waste. strategies and revenue potential for In fact, buildings account for 36%301 construction companies and investors. of total CO2 emissions and 40% of energy demand in Europe, while Recent developments construction and demolition projects generate 25–30% of the total waste in Timing is now opportune to make Europe.302 More than half of demolition this shift to circular building design materials are landfilled, although some and construction, due to a number of countries manage to landfill only 6%.303 recent innovations, including: In particular, a number of small-sized building firms operate without any • Innovative industrial processes, form of consideration for materials such as modular-building308 and leakage. Despite the significant amount 3D printing. These make it simpler of waste and emissions generated to to produce easy-to-loop buildings. construct them, conventional buildings Indeed, these processes consist of end up being under-occupied. Even slotting together various elements during working hours, only 35–40% of of the building, which can also ease European offices are used, despite high disassembly and reassembly of parts prices for space on expensive inner-city and materials. These processes are land,304 while 49% of owner-occupied already revolutionising construction, homes are under-occupied in the demonstrating: 50% (in some cases 305 UK. Because conventional building higher) faster construction rates,309 materials often contain toxic elements, costs lowered by as much as 30%,310 they can be harmful to occupants’ and possibilities for increased flexibility health throughout the building’s life. and accuracy in design. For example, in For the same reason, most building 2014 ten houses were built in 24 hours materials are hard to separate and by the 3D printing company WinSun at reuse or recover at the end of the a cost of €5,000 per house, using 30– building’s life.306 60% fewer materials than conventional building companies.311 A total life cycle assessment for a 42,000m2 office space done by • Innovative renewable/recyclable 3XN, a Danish architect, has shown materials are coming to life, some that designing and constructing this of them literally. For example, the building in a fully circular manner has a bioMASON plant in Durham, North positive business case versus using the Carolina, grows ‘500 biological cement 116 | ACHIEVING ‘GROWTH WITHIN’
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bricks a week with sand and natural materials.316 Google is also developing, bacteria’.312 Nutrients and minerals together with other partners, an open required in the process are obtained database of composition, health from natural, renewable sources, but hazard, and environmental impact data may also be extracted from industrial for building products. This could drive waste streams. Accoya wood offers the shift towards less toxic and more another example of innovation in the environmentally friendly buildings.317 field. Manufactured by Accsys using its propriety acetylation technology, • Technologies are also available that Accoya wood delivers outstanding allow buildings to generate the energy levels of performance and durability, needed to operate them, or even but also boasts: zero trace of toxic extra energy to be sold on the grid. chemicals within the product, These technologies include power-use sustainable wood sourcing, the use sub-metering, rooftop photovoltaic of more than 50% renewable energy systems, solar water heating, and in the manufacturing process, and a battery storage or low-impact fit-out material reutilisation score of 89%.313 components (e.g. LED lights), as well as At the end of (one) life, Accoya can closed-loop systems such as anaerobic be reused in applications with the digestion (AD) or bio-reactive same or even higher added value façades. For example, the SolarLeaf’s (known as upcycling), such as the building façade generates renewable manufacturing of Tricoya.314 If upcycling energy from algal biomass and solar is not possible, Accoya wood may be thermal heat. These outputs are then used for energy production through transferred by a closed-loop system
incineration, releasing only the CO2 to the building’s energy management absorbed during growth, and no centre, where the biomass is harvested additional toxic substances, unlike through flotation and the heat is wood chemically impregnated with captured by a heat exchanger. Thanks metal salts.315 to full integration with the building’s services, the excess heat can be stored • Innovative digital technologies or used to heat water throughout that make it possible for end-to-end the building.318 monitoring and tracking building parts and materials end-to-end, e.g. by • Innovative service-based business adding digital passport IDs on parts models are emerging that further and materials. This technology allows incentivise companies to invest for easy recalling of parts that have in designing and producing more reached the end of their (first) life or circular buildings. These models are to be removed to allow for more work especially well for the building’s flexibility/upgrades. The EU-funded services layer319 (i.e. the pipes, wires, Buildings as Material Banks (BAMB) energy, and heating systems) and stuff project launched in September 2015, layer, which includes the furniture and is developing Material Passports and lighting. They typically allow building Reversible Building Design tools owners and users to pay only for that will enable the shift to buildings their actual use through the leasing functioning as banks of valuable or renting of services or stuff, with ACHIEVING ‘GROWTH WITHIN’ | 117
a guarantee of high performance manufacturing.320 The prefabricated over time. Through this set-up, the modules are provided at a cost that is providers know that they will recover 50% lower than on-site construction321 most of the investments made in these and some of them leverage looping more circular building elements at (e.g. recycled cotton denim is used to some point. So, their focus shifts to produce the 100% renewable cotton designing building elements that are fibre wall insulation). as circular as possible, by making them perform well over time, requiring little The Belgian company, Beddeleem has ongoing maintenance, and easy to also tapped into the great potential of loop and upgrade. DESSO has been combining circular design principles innovating in the space by leasing and modular technologies for building its carpet tiles, implementing take- interiors. The construction company back programmes, and developing specialises in the manufacture of products that can be separated from relocatable partition walls, glazed the backing and used over and over partitions, suspended ceilings, and again. Philips is now renting lighting door systems.322 It has leveraged to clients through quarterly payments these principles in its glazed partition and is responsible for maintenance, products, which are made of healthy performance, and disposal. materials323 that take advantage of looping324 and are easily relocatable The modular and digital technologies thanks to a smart linking system. mentioned above could also make it easier to design buildings that All of these examples clearly show are adaptable (i.e. that could match that there is already substantial various purposes), for example activity and innovation within this workplace or residential space, various sector and demonstrate the potential uses such as different sizing or layouts, opportunities for growth. or even various locations (e.g. through relocating the building to another Investment place). Clients would get the option to opportunities identified adapt the size, layout or performance of the rooms to the needs of the Players keen to get ahead of this moment through smooth arrangements shift towards circular buildings could or upgrades. Do It Right This Time tap into three main investment (DIRTT) provides an insight into how opportunities: these possibilities could be realised. • R&D and production facility The Canadian company produces investments to design and produce innovative prefabricated modules so buildings made for looping. These interiors are customised to suit the investments could comprise of space dimensionally, functionally, and funding design and construction aesthetically. To achieve this, they companies or separate projects rely on their proprietary Institute for new production facilities. of Civil Engineers (ICE) 3D design, • Funding the additional construction configuration, and manufacturing costs needed for circular buildings software with integrated in-house compared to those for conventional 118 | ACHIEVING ‘GROWTH WITHIN’
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buildings. This could be done through applicability of circular building traditional mortgage-style financing, design and production across the but also through more innovative fragmented construction industry: structures whereby the payback is uncertain market size for newly linked to the benefits realised. This designed buildings and longer payback model is already being tested by some times for investments required. companies in order to lower the upfront cost to the potential customers, while The first is the fragmentation of the sharing the risk of realising the benefits construction sector. This does not – effectively putting some skin in the provide a solid basis for end-of-life game for the construction company or material value extraction due to split other stakeholders involved.325 incentives, high transaction costs, and • Investments to secure digital lack of the necessary capabilities and enablement through the development skills. If a construction company opts of end-to-end material tracking for selling the circular building entirely systems, which optimise the use and at the time of construction, it would recovery of materials. Such digital likely have to sell it at a higher price systems could include:326 than that of conventional buildings - Product information (e.g. product to cover both the investments made passports) to enable traceability and to develop the new building as well understanding of what conditions as the (potentially) higher costs products and parts have been of production, depending on the subjected to during their lifetime, materials and technologies chosen. and how/whether they can be This price premium can be (partially) remanufactured. offset only if the end-of-life value can - Labelling (e.g. product codes) to be priced in, which is difficult given the indicate products that are designed current sector fragmentation. for disassembly. This would enable dismantlers/core brokers to easily In addition, investment payback times determine how to channel products can be longer if business models are collected at their end-of-first-life phase. used that are service-based and/ - Open built-environment material or link the payback over time to the database, to centralise standardised buildings performance. Although information on the properties of these business models could lower the building materials and their potential demand uncertainty barrier for circular for durability, looping, and adaptability. buildings (by spreading payments This could also develop into digital over time instead of requiring a high marketplaces for built-environment initial payment or by providing strong materials and parts. performance guarantees), they also come with risks for the players involved Current barriers in the building design and production. to investments For example, those involved face a risk of lower revenues than forecast, as these may vary depending on Two key barriers need to be lifted in the performance generated by the order to achieve scaleability and broad ACHIEVING ‘GROWTH WITHIN’ | 119
building over time.327 They also face and additional incentives for complexity regarding the funding of construction players to switch, such the building, as they could end up as guarantees of future demand and having more limited revenues during favourable legislation. the construction phase and significant assets on their balance sheet. • European Commission: Although the main work around building design, Alongside these key barriers, development, and production will have other issues that could slow down to be led by the private sector, the scaling, include: the need to enthuse European Commission could facilitate new attitudes and habits into the the shift in the following ways: fragmented and conservative - Research legal framework at EU construction sector, as well as the level to incentivise players to shift to current low awareness about the circular buildings in the short term benefits of circular buildings among (e.g. tax breaks/subsidies/discounted construction players and clients. electricity pricing). In fact, the poor integration of the - Use the expansion of the existing construction sector leads to limited Ecodesign Directive as a way to extend information sharing and transparency, producer responsibility schemes to transaction costs, and split incentives, promote durable, repairable, recyclable, as each player naturally focuses on and upgradeable products. improving its own profit.328 Whereas, - Change the definition of construction the design and production of circular and demolition (C&D) waste and buildings requires collaboration and associated recycling targets to facilitate aligned incentives across the value the shift towards reuse, thereby chain, including between investors, providing long-term certainty architects, developers, engineers, to investors. (sub)contractors, owners, and tenants. - Provide funding for technology In addition, current valuation and innovation related to multi-usage, accounting practices are not yet highly modular buildings that tailored to sufficiently price in are constructed from durable end-of-first-life value. Legislation non-toxic materials. could also be a barrier to scaling, - Support the creation of a European although the situation varies across market for secondary building European countries.329 materials, in a similar way to the European Commission’s creation of a Interventions required market for organic fertilisers. This could to scale up investments potentially start with specific materials, such as concrete, wood or metals. The Waste Directive already pushes waste The key levers to achieve a substantial away from landfill, but barriers remain ramp-up of circular buildings are: to reuse these materials rather than collaboration schemes, allowing for deploying them for backfilling. broad applicability of service-based - Provide energy efficiency standards, circular business models across the not only for the building envelope but industry; integration of circularity also the building interior. within building sector standards; 120 | ACHIEVING ‘GROWTH WITHIN’
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National, regional, and local based business models described governments: Working alongside the above, collaborative responsibility European Commission, the public structures331 could be developed to sector in Member States could offer allow multiple players to share and further direct and indirect support mitigate risks. The players involved towards the transition, including: might include: investors, architects, - Directly provide demand for developers, engineers, (sub)contractors, circular buildings (e.g. through public service providers, remanufacturers, procurement);330 recyclers, and demolition companies, - Offer funding for technology as well as possibly banks, insurance innovation related to multi-usage, companies, owners, and tenants. They highly modular buildings that are made could typically align on a long-term of durable non-toxic materials; outlook for building performance, - Roll out capability building and and link this to revenue using Key awareness programmes that could Performance Indicators (KPIs) based be delivered by industry players to on a contract that allows sharing of highlight the benefits of such buildings; risks and revenues between players. - Support sharing of building space Multiple pilot projects are being for both residential and commercial launched in this area across the EU purposes, in order to increase by organisations such as DELTA and utilisation of the building stock; Arup. An intermediary company could - Facilitate the creation of advocacy also facilitate collaborative projects platforms to push the circular design by helping players achieve contractual and production agenda. arrangements between them. There is a specific opportunity for financial Private sector: Beyond further players to provide new forms of capital increasing collaborative/open design flows or alternative earnings models and co-development of prototypes that incentivise these circular building and projects with partners across business models, and for legal players the value chain, the private sector to effectively update contracts for could play a leading role in setting up the ownership and use of assets. innovative, collaborative schemes that For example, the R50 Baugruppen mitigate risks for players wanting to co-housing project in Berlin uses shift, building and scaling construction innovative financing models where a standards that take circularity into collective construction funding package account, and providing business-to- is structured by the bank and project business guarantees of future demand manager through pooling the future for circular buildings. More specifically, residents’ mortgages, and architect-led further efforts would be required participatory design involving to set up innovative, collaborative the future residents to explore a schemes to effectively address the new way to collaboratively fund and complexity and risk associated with create buildings.332 circular buildings. For example, to mitigate the risks associated with the - Industry standards will play a role service-based and/or performance- in accelerating the shift to circular ACHIEVING ‘GROWTH WITHIN’ | 121
buildings. Players in the space could and easy-to-loop building materials. agree on construction standards This would allow players across the taking circularity into account and/or value chain to get an overview of not update existing standards, and ensure only the materials’ performance, but the integration of these construction also its durability and easiness to loop, standards. For example, this could thereby fostering the design of be achieved by adjusting the criteria circular buildings. for quality certifications, such as the - Create awareness about the benefits Building Research Establishment of circular buildings among users at Environmental Assessment Method all levels. (BREEAM) or the Leadership in Energy and Environmental Design (LEED).
- Commercial buyers of new buildings could change their selection process for construction companies based on the long-term costs and performance of the building rather than just the construction costs. This shift has been made by the Danish government for the construction of the office hub for four Danish government agencies; a Private–Public Partnership (PPP) was set up that required the contractors to compete on the operation and maintenance costs of the project over a 30-year period333 (see case example for more details). • In addition, architects, developers, engineers, (sub)contractors, service providers, remanufacturers, recyclers, and demolition companies keen to drive the transition could also engage in the following: - Design, deliver, and/or fund industry- wide training programmes, focused on players from architects to sub- contractors working on the ground. - Support and advise the European Commission and/or governments on relevant incentives, urban planning, and potential legal issues. - Create and update an open built- environment material database to centralise standardised data on durable 122 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDYTHE BALBO FIRE GROUPSTYRELSER, DENMARK
Fire Styrelser is an office hub for four The project is also interesting because Danish government agencies that it is a Private–Public Partnership (PPP) will house: the Transport Authority, that requires the contractors (and their Banedanmark, the Energy Authority, architects) not only to compete on the and the Danish Road Directorate. The design, functionality, and price of the building is located on Kalvebod Brygge project, but also on the operation and in the centre of Copenhagen.334 maintenance costs over a 30-year period. The costs of operation and maintenance The vision for Fire Styrelser is to create a over a 30-year period for such a project flexible and future-proof office building are approximately 50% of the value of the with an inspiring and healthy environment. contract with the client. Consequently, The workplace framework allows for this kind of competition forces the movement, social interaction, and competing contractors to focus on the sharing of knowledge. It aims to create Life Cycle Costs (LCC) of the project a working environment with great visual and not just on the construction costs. experiences, where individual users can Such an approach will always result work more or less privately, according to in better and more robust buildings their needs, and have influence on the of higher quality, and, as such, more indoor climate. The project is among the sustainable. This provides optimal largest and most complex headquarters flexibility for unimpeded rebuilding and built in Denmark and lends itself to a case reprogramming. By allowing the wall study, as the principles developed for elements to contribute to the stability such a complicated building would of the structure, it is possible to create a be easy to use for smaller and less building with a minimal number of inner complicated buildings. bearings. From an overall economic perspective, the façade solution is also optimal in terms of construction and operation. The window frames are a combination of: wood, which is a renewable material; aluminium, which is maintenance-free; and an intermediate composite profile, which efficiently insulates and prevents condensation. ACHIEVING ‘GROWTH WITHIN’ | 123
CLOSING FIRE STYRELSER, DENMARK BUILDING 9 LOOPS
Increasing building materials recycling of building materials deployed to and reuse, as opposed to landfilling construction sites are wasted due to the waste generated by construction unnecessarily high volumes of materials and demolition (C&D) activities being sourced in the first place.337 This requires an investment of up to situation is generally being driven by €2 billion between now and 2025 the high cost of labour compared to to scale up the number of C&D the cost of material, therefore meaning waste recovery plants. This could the procurement process is optimised lead to societal cost savings of to keep the labour productive. up to €15 billion due to reduced material cost and waste, including Turning building C&D waste into a decreased greenhouse gas emissions. high-value resource is one of the To accelerate this shift, the public main ways to accelerate the shift sector could work with industry to towards a circular built environment. standardise quality requirements, and The EU Waste Directive338 stipulates so boost the general confidence of that Member States should take all the main players of the construction the necessary measures designed to sector in non-virgin materials. achieve a minimum of 70% recycling rate of non-hazardous and demolition Relevance of waste by 2020. According to the investment theme European Commission, while nine countries already fulfil the directive’s target or are close to achieving it, The EU currently generates eight countries report recycling rates approximately 3 billion tonnes of below 20%.339 However, some caution waste each year.335 Of this, around is needed in interpreting this data, as one-third (i.e. 1 billion tonnes) comes many Member States have different from the construction and demolition definitions for, and ways of measuring, of buildings. Although it is undeniable waste recycling. Indeed, most of what that waste management has improved is accounted as recycling is actually in recent years, the European economy backfilling (using waste materials is losing a significant amount of to strengthen a new structure’s potential in secondary raw materials, foundation), which is a low-value way such as wood, glass, plastics, and to recycle. In order to further shift metals; for example, on average towards waste reduction, the European 38%336 of demolition material went to Commission has introduced a new landfill in 2012. Already a substantial protocol on C&D waste management waste volume is created throughout on the 9 November, 2016. the construction process, 20–25% 124 | ACHIEVING ‘GROWTH WITHIN’
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Yet, there are a variety of ways to shift coming from recycled content, and towards reuse of materials such as up to 60% of steel and concrete bricks, cement, wood or glass in new products342 – that closing the loop buildings. Examples exist of companies at scale is not only viable, but also currently reusing materials, such as beneficial for society and for Danish company Gamle Mursten, which the economy. has patented a cleaning technology that ensures building waste materials Recent developments can be recycled more easily. Old bricks are cleaned, sorted manually, after The timing is ripe for such a shift which these are stacked by robots; towards recycling and reuse, as new next, they are sold to new building technology developments have projects where clients want to minimise improved the economics of the environmental impact. Untreated wood recycling process. These improvements can be repurposed as it maintains have enabled the C&D recycler its material features, especially the to increase its recycling rates by older wood used in many buildings separating non-recyclable granular being demolished currently. Multiple materials from recyclable granular projects have shown the potential for materials in aggregates, such as mixed concrete recycling over the last years; concrete (80% aggregate),343 instead for example, Danish Lendager Up (part of mixing them or using them of Lendager Group) is investing in for backfilling.344 innovative building materials such as upcycled concrete.340 In fact, shifts towards higher looping of building materials are happening Indeed, recycling and reusing building in other pockets of the recycling and materials could have a positive reusing of C&D waste sector. A good economic case for companies. example of how to achieve maximum Currently, companies often have to recycling potential is within the pay a gate fee to send their waste to gypsum market. Gypsum is a mineral landfill, which can be costly, e.g. in the used for plasterboard that maintains UK fees can be as high as £80–100 its materials quality and therefore per tonne.341 In addition to fees, there could be 100% recycled. However, of are transportation costs to move the the 2.4 million tonnes per annum of waste to the landfill site. However, if estimated total waste generated that companies manage to source sufficient is recycled, only between 5–7% comes volume of materials that can be from production and construction recycled and reused to the standards waste and below 1% from demolition required by construction companies, waste.345 In order to push these this could turn what is currently a cost recycling rates up, in 2010 the gypsum into an income stream. industry developed, with the European Commission, the green public It is clear from examples such as procurement criteria for wall panels, Balfour Beatty – who managed to close which effectively requires a minimum the loop on building materials, with up share of recycled gypsum to be used to 25% of total new building materials in public buildings. The gypsum to ACHIEVING ‘GROWTH WITHIN’ | 125
gypsum (GtoG) project, which is a translucent walls are made from platform run by demolition, recycling, discarded racing sails, and a floor is and gypsum manufacturing companies made of upcycled concrete. In fact, is pushing this increase further through versus the conventional alternative, research and pilot projects. The the wall panels were 10% lower cost, Danish company Gypsum Recycling the concrete up to 60% lower cost, International (GRI), which is active and the sail frames 35% lower cost.349 in northwest Europe, has developed innovative, moveable gypsum recycling With so much innovation taking place, facilities that allow it to even remove there are obvious opportunities for gypsum from landfill. This is probably investors to add value, reap rewards, one of the reasons why 80% of and accelerate the shift to circularity Denmark’s gypsum is now recycled,346 in this space. which is the highest rate in the world. Investment There are also a number of non-EU opportunities identified examples of recent innovations in the C&D recycling space. For example, The main investment opportunity in the Japanese Taisei Corporation has this sector is the deployment of capital created a new demolition crane that into innovative recycling businesses attaches to a building and demolishes and facilities for building materials. The it floor by floor, from the roof to the examples provided above show that foundations. This inside out demolition innovations are already happening at crane increases the recycling rate of a low level, but to escalate the growth the building materials, captures and in C&D material recycling and reusing reuses kinetic energy, saves fuel, and would require further investment. As achieves a 90% dust reduction during building materials consist of many demolition.347 In China, a 3D printing different waste streams, each with its construction company, WinSun, is also own characteristics and specifications using a mixture of dry cement and on how to recycle or reuse, different construction waste to build its investment opportunities will 3D printed full-sized apartments. likely emerge. WinSun is currently opening 100 recycling facilities in China to Concurrently, there are investment transform waste into cost-efficient opportunities in the development of ink348 for future buildings. (digital) material tracking systems based on material standards. At the Additionally, an example of using moment, recycling companies have to recycled building materials to construct source their own materials, but if there new buildings has emerged recently in is sufficient growth in the market then Denmark. The Lendager Group has led this could open new matchmaking-style the construction of the Copenhagen services, bringing together suitable Towers II using upcycled materials; materials and appropriate facilities. acoustic ceiling panels are made from PET plastic bottles, 90m high wall panels are made from waste wood, 126 | ACHIEVING ‘GROWTH WITHIN’
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Current barriers Netherlands where only virgin concrete to investments is directly certified, whereas recycled concrete has to be certified based on an integrated test of its capabilities, Some materials, such as wood or which increases the cost.353 A lack gypsum, have relatively low technical of legislative harmonisation among barriers to their recyclability, whereas Member States is certainly preventing others, for example concrete, are the scaling up of the recycled materials considered to be more challenging. market and the use of required Therefore, the investment opportunities associated machinery. Each European in facilities treating these varying country has different minimum quality streams will throw up different barriers. standards for insulation, varying waste For example, these could be: the and recycling regulations or product availability of volume of waste (e.g. in requirements, which makes the re- the UK, plasterboard is estimated to collection of materials more difficult. represent 1% of demolition waste, while concrete is 59%350) or the technological Finally, construction companies development needed to treat the themselves can be the barrier, as they specific waste stream. often are wedded to their current habits and resistant to change, as well There are three other key barriers to as sometimes being reluctant to use scaling up the looping of building non-virgin materials. This is partly due materials. The first being the lack to the stigmatisation that inconsistent of industry standards for recycled and confusing recycling legislation materials. Illustrative of this problem has created, as well as the lack of is StoneCycling, a Dutch company standardised recycling processes. It is that creates bricks from ceramic, also partly due to a fragmented value glass, and other insulation material. chain, with different incentives for the However, StoneCycling has found that architects, engineers, constructors, construction companies are reluctant to and demolition companies. This means purchase its bricks, as these companies there is no transparent approach to have to assume end-responsibility for circular products and practices, such the building’s quality and because as reconstruction rather than there are no official certifications or demolition, which prevents them standards for recycled bricks, they are from being implemented. hesitant in case there are any issues further down the line.351 Interventions to scale up Secondly, legislation prevents the main investments construction players from using non- virgin inputs and some associated The main risk reductions that would machinery. For example, using recycled enable investment and growth in this concrete could increase reporting sector are: changes in the legislation and permitting requirements, as it that currently prevents non-virgin is classified as waste.352 An example materials from being certified as well as of this problem in action is in the securing sufficient market size for the ACHIEVING ‘GROWTH WITHIN’ | 127
recycled materials by creating could further research the development a platform or collaborative network of technologies for recycling specific of demolition, recycling, and waste streams. In order to further grow construction companies. the market for recycled materials, industrial collaborations could be • European Commission: The established (similar to GtoG, see Case European Commission could redefine Study below) that set standards and its recycling targets to encourage certifications for recycled material high-value recycling rather than flows. The private sector could also allowing the continuation of low-value work with the public sector to alleviate recycling, such as backfilling. Although regulatory barriers. Specifically, the the EU has set high recycling rate larger construction, demolition, and targets of 70% by 2020, the definition recycling companies could lead of recycling is very broad, leading to the way, as they provide or buy the many Member States meeting this volumes needed to make a step- target even though the majority of their change in setting these standards. C&D waste is being used for backfilling rather than high-value reuse. It could Additionally, digital platforms could also provide funding for technological be developed to create markets for innovations in specific waste stream used building materials. Creating recycling techniques. Meanwhile, a transparency on the availability of harmonisation of material standards specific materials, volumes, and could open a cross-border market over quality would greatly lessen the risk time if growth takes off. of sourcing sufficient materials for recycling companies. Early examples • National, regional, and local of such platforms already exist, such governments: A focus for national as Globechain – an app that shares governments could be to remove available ready-for-use items from legislative barriers impeding the construction and demolition sectors use of recycled materials where (among other items). Growing these possible. Additionally, national or platforms at commercial scale and local governments could play a role targeting them at recycling and in facilitating collaborative schemes construction companies would further between the relevant value chain enhance building materials looping. players who could push the building materials looping agenda. Finally, public procurement that requires the use of recycled building materials could also be considered as an effective way to incentivise looping.
• Private sector: As shown by GRI, specific waste streams can be recycled profitably by deploying technological innovations. So, private sector players 128 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDYTHE BALBO GtoGGROUP
The gypsum-to-gypsum (GtoG) project is a level of gypsum waste recycling and consequently good example of value chain collaboration reduce potential risks to the environment due in order to increase recycling rates in the to bad management of gypsum waste, which construction and demolition waste stream was driven by analysing the procedures of three of gypsum (a material used to make leading gypsum recyclers.359 plasterboard). The platform involved key stakeholders along the value chain: demolition The second phase of the project was to implement companies,354 recycling companies,355 and the new standards and procedures, and compare production companies. 356 them to the business-as-usual procedures. The results demonstrated that the implementation The ultimate objective of the project was to of proper deconstruction practices could save transform the European gypsum demolition money for each player in the value chain and waste market and to achieve at least 30% would also maximise the availability of suitable reincorporation of recycled gypsum in the gypsum-based waste for recycling. manufacturing process. This would result in a closure of the loop on gypsum waste Finally, the platform executed five pilot recycling, increasing recycling rates from the projects across Belgium, France, the UK, and current status of on average below 7%, ranging Germany, with the aim of implementing its between zero in Spain, Greece or Poland, up to identified deconstruction techniques, recycling 19% in the Benelux, UK, and France.357 processes, and reusing of recycled gypsum in the manufacturing process. Through these projects, The initial objective was to set up standardised it was shown that in two out of its five schemes, procedures for the industry. The procedures the 30% recycling rates were met, while the cost started by implementing an audit prior to the of the newly produced gypsum from recycled deconstruction of the buildings. The audit materials was on a par with gypsum coming from includes the composition of the building, the primary sources, given current market conditions. identification of the different waste streams, In addition, potential bottlenecks for future scaling transport costs, and risks (i.e. the possibility of gypsum production were highlighted and a of hazardous waste). The next step was to transition cost assessment was provided. implement new deconstruction techniques during demolition, by providing the demolition The project started in January 2013 and lasted companies with the best practices.358 The until January 2016, with a total budget of document describes the most common types €3.4 million to fund research, of which €1.7 million that may be encountered on a deconstruction came from the European Commission’s Life+ project, waste acceptance criteria of recyclers, programme. The project was coordinated by as well as best practices and techniques Eurogypsum (the European association of for each gypsum type. The third procedure plaster and plasterboard manufacturers). to be standardised was in regard to Waste Acceptance Criteria (WAC), to increase the ACHIEVING ‘GROWTH WITHIN’ | 129
DEVELOPING CIRCULAR GtoG 10 CITIES
To really escalate the shift to locally while using the heat generated the next-wave circular economy through a Combined Heat and Power and underpin the value of all the system (CHP). Additionally, on the opportunities addressed throughout one hand municipalities will need to this report, it is vital that circular plan for the impact of circular systems principles are incorporated into through the opening up of urban spaces urban planning in a holistic way. In due to reduced need for transport order to fully reap the benefits of infrastructure, while on the other hand circular cities, it will not be sufficient prevent continued urban sprawl due to to shift to circular transport, food lower household costs. or buildings sectors individually; additional investments will be Indeed, if no clear plans exist for how needed to make all resource flows to manage the potential space that circular such as water or local energy could become available due to reduced generation. Additionally, investments buildings and transport infrastructure will be needed to handle freed up needs, a risk exists that these new public spaces while preventing spaces will be used for suboptimal continued urban sprawl. For a purposes. They could be used as relatively small total investment of additional green areas or to construct €10 billion across the EU between fully circular infrastructure or buildings. now and 2025, the total benefit could The decommissioning of old, inefficient be as great as €160 billion, mainly in infrastructure could occur earlier in the reduced government operating costs planning cycle in order to accelerate the for urban development as well as shift to circularity. transport costs. Additionally, if a shift towards circular Relevance of the systems leads to lower household investment theme costs, this could result in an unwanted rebound effect that might lead to a continuation of urban sprawl; basically, Although the other themes capture if household costs fall by as much as investments in circular mobility, food, 30–35%, demand for floor space could and buildings systems, implementing increase by as much as 30%.360 The these will leave some of the benefits continuation of urban sprawl (currently of fully circular cities untapped. Water around 1,000km2 per annum across the usage can shift towards more efficient EU), could lead to negative effects such processes through a closed-looped as increased commuting time, additional system or power can be generated 130 | ACHIEVING ‘GROWTH WITHIN’
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greenhouse gas emissions, reduced in northern Europe, as it has longer dark air quality, accelerated soil erosion, periods throughout the year), thereby and loss of arable land.361 maximising the savings.
As such, there is a clear need to Recent developments incorporate circular principles holistically into urban planning. This Urban developments based on implies not only planning for the shift circularity principles have emerged to circular mobility, food and buildings over the last few years, either systems, and for decommissioning of deploying specific design elements or infrastructure or buildings because technologies, or focused on districts of individual sector shifts towards rather than whole cities. circularity (i.e. resulting from developments outlined in this report), Some city governments have focused but also identifying additional areas on specific elements of design or where circular principles can be applied. technologies in order to reduce This includes planning elements such as emissions, save on energy or decrease circular street design (e.g. pedestrian- waste. Barcelona provides a good only streets, permeable pavements) example, as it is taking the lead on waste and water management systems the implementation of new forms of (e.g. closed grey water systems or waste urbanisation. The city is reclaiming collection systems that allow for the land from roads to expand pedestrian complete looping of different waste zones, increase urban forestry, and streams) or urban greening.362 reopen covered rivers as part of its superblock rollout. These developments Implementing circularity into urban incentivise the concentration of urban planning could require additional areas and reduce greenhouse gas upfront cost compared to the linear transport emissions while providing alternative. Although this cost is more attractive liveable urban areas. typically offset by annual operating Another example is the rollout of savings, the benefits do not necessarily energy-efficient street lighting by third- fall to the same stakeholder as the one party operators. Many street lighting providing the investment. For example, systems across Europe are outdated deploying energy-efficient lighting and therefore highly inefficient, generally requires higher investments resulting in street lighting representing versus alternatives, but could lead to up to 50% of the total power annual savings of 30–50%.363 A study consumption in some municipalities. by McKinsey&Company carried out in Shifting to efficient street lighting 2015 shows that the average payback could provide substantial energy time of these additional costs ranges savings.365 Therefore, the business from three to five years,364 assuming case to switch is highly positive. In the optimal design elements and order to reap these economic benefits, technologies used are chosen (e.g. multiple municipalities across the UK savings for street lighting will be higher and Germany have been setting up ACHIEVING ‘GROWTH WITHIN’ | 131
Public–Private Partnerships (PPPs) Investment mainly with energy service companies opportunities identified (ESCOs). These ESCOs have taken on the construction, operation, and There are multiple investment maintenance risk over a multi-year opportunities within the circular city period, against a return on their capital theme, as all the technologies and deployed that is sufficiently attractive design options described above for them to accept this risk. require some form of investment. There is an estimated total investment In other cases, specific circular districts potential over and above standard are being developed, such as in urban investments of up to 10 billion Hammarby Sjöstad, near Stockholm’s € between now and 2025. However, the city centre. This project aims to develop specific conditions in each city will a district that will incorporate integrated influence which of these options could systems, such as a sustainable be deployed and at what scale, leading energy supply, and water and waste to total investment need varying management cycles. It will encompass across cities. 11,000 apartments and accommodate approximately 35,000 residents.366 Generally, for most of these capital Elsewhere, Amsterdam has stated its investment opportunities in the circular ambition to become one of the first economy to provide sufficient return, a European circular capital cities. In revenue stream will need to be coupled order to achieve that goal, the city is directly to the investment. For example, trying to reduce food and phosphate investments in more efficient (closed) dependency and close loops in waste, water systems would need to be linked electricity, and heat systems with to the savings in the cost of clean innovative measures. 367 water usage. Likewise, the investment in decentralised combined heat and Although the described examples are power systems would need to be linked moving in the right direction, they are to the associated reduced cost of using typically not yet taking a complete city the energy. In many cases, this would perspective on circular developments; require developing specific new project either only specific design elements structures, as often the owner/investor are deployed or circular districts are and operator of these projects are not being developed as standalone projects. the same entity, but the model of using Other ambitious initiatives touched PPPs to set up energy-efficient street on in this report target many different lighting projects offers a way to systems (urban farming, construction achieve this. looping, etc), but if a holistic approach is lacking, then they will fail to connect the dots and unleash the integral benefits associated with urban built environment. 132 | ACHIEVING ‘GROWTH WITHIN’
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Current barriers to provide investors with clarity about to investments their expected returns.
Finally, a lack of knowledge of the Without a clear commitment from city potential alongside a paucity of funding and local governments to drive the models further hampers rollout. City transition towards fully circular urban governments typically do not have developments, it could be difficult for significant project development and capital to be deployed at the scale financing experience in general or for needed. Lack of a clear vision and plan circular projects specifically. Executing of what this transition would look like, the required urban planning across including where return-generating multiple and varied stakeholders, such as investment opportunities may arise, city departments, residents, and investors could deter investors from funding makes the project development difficult circular investment projects at the speed to achieve. Concurrently, it is vital that the and scale required. Individual projects costs and benefits of circular investment could still receive funding, but this projects and setting-up structures are will likely not be enough to transition assessed properly and linked through towards a fully circular city. innovative contractual structures, so that they can attract the necessary private Secondly, the agent issue between funding. This requires specific expertise investor/owner and operator needs that many city governments lack.368 to be overcome. This issue is well understood in the buildings’ energy- efficiency space, where a large part of Interventions to the buildings’ stock area is leased out scale up investments and therefore the energy savings benefit the tenants but not the homeowner. As To establish and scale up the circular such, the homeowner has no incentive urban built environment in the EU would to invest in energy efficiency, even require a strong commitment across though the economic benefits of doing European, national, and municipal so are highly positive from a societal institutions, including the provision cost perspective. In the case of circular of clear transition plans. Additionally, urban developments, these agents are the public sector could work with the different entities depending on the private sector to develop projects that investment opportunity, which makes are investable by linking income streams it even more difficult to scale. For directly to the investor, while providing example, energy savings in buildings financial support where needed. benefit the occupiers, water savings could benefit national governments in • European Commission: The European the case of subsidised water, reduction Commission could provide infrastructure in waste benefits the municipality, while funding to support the rollout of circular lower pollution reduction benefits urban urban infrastructure. This could be residents overall. Also, the benefits are done through existing vehicles, such not always easy to capture; especially if as the European Fund for Strategic benefits are environmental or societal, Investments (EFSI) which has been rather than financial, it could be difficult directing limited funding towards circular urban developments, or structural funds. ACHIEVING ‘GROWTH WITHIN’ | 133
Additionally, the European Commission required infrastructure, governments can could support best-practice knowledge set up specific project teams to build sharing across EU cities, specifically up the required technical and financial collaborating over ideas on how to capabilities, or they can work with third- make circular city investment projects party experts and finance institutions. financeable. This could be put into These could become centres of excellence practice either by linking up cities directly in delivering innovative financing or providing knowledge and expertise structures taking into account whole from infrastructure-funding projects life economics, while also identifying where EU funding institutions new investment opportunities to further were involved. speed up the transition. Maintaining and building out knowledge on how to deliver • National, regional, and local and operate investment projects will be governments: The public sector across key to achieving the overall shift towards governments could have a leading role in a circular economy. Lastly, building out supporting and incentivising the transition networks of these centres of knowledge from linear to circular cities. The systemic across cities, regions, and countries nature of the transition towards circular would further speed up the rollout of new cities is complex as it requires rolling urban planning practices and associated out multiple circular design elements infrastructure investments. and technologies simultaneously, while planning for the impact of circular • Private sector: Despite the leading business models (e.g. the reduction in role of the public sector, the private demand for building space or cars). sector will be a key contributor in the Therefore, the relevant urban planning transition to circular cities. In addition to institutions would need to provide a clear providing the capital required through roadmap on how to transition urban well-structured investment (mainly centres towards fully circular cities. In infrastructure) projects, the private sector addition, incentives and support towards would need to provide the operator specific project investment would be skills to run the circular infrastructure required in order for these to become throughout its lifetime. Therefore, financeable. Multiple examples exist of investors with knowledge in infrastructure PPPs that deliver energy-efficient street project structuring could provide their lighting through setting up of joint expertise to work with the public sector ESCOs,369 showing how the public sector to develop scaleable investment projects. can provide incentives for the private Additionally, private sector players could sector to deploy capital. In addition to investigate how to set themselves up PPPs, national or local governments to become owners/operators of these could also de-risk investments through projects in order to receive the income direct investing, i.e. owning and operating linked to the investment. To further investment projects until the investment support governments in rolling out has been fully recovered, after which circular urban developments, private they could sell them on to private players with relevant experience could owners/operators. share their knowledge and expertise with city governments in the area of In order to overcome the agent issues infrastructure project development and lack of experience in financing the and investments. 134 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDY BARCELONA
Barcelona’s superblocks: an example of comparison to the average minimum city the implementation of partial circular speed limit of 50km per hour). Curbside urban planning to facilitate the urban parking is replaced by underground built environment. parking with priority spaces for residents.
Barcelona is a complex and compact The concept could be scaled to up to Mediterranean city where public spaces 120 possible intersections. The grid are meeting points for its citizens. In a structure of Barcelona facilitates the city with those characteristics, having a implementation of superblocks, but sustainable environment is crucial for the superblock designers insist that cities citizens and the millions of tourists who do not need a simple grid structure to visit the city every year. In 2014, Barcelona implement this kind of plan.370 In order and its 35 surrounding municipalities to offset the reduced accessibility by consistently failed to meet the EU’s air car, an additional 300km of cycle lanes quality targets. Moreover, studies were will be built as well as increased bus showing that air pollution in the region travel capacity. was causing 3,500 premature deaths per annum. To mitigate this, the city The results of this initiative can be developed an urban mobility plan to inferred from similar initiatives that have reduce pollution. The most innovative part been tested in other parts of Spain. In of that plan was the creation of superilles Basque Country, the small city of Vitoria (translated as ‘superblocks’). These are has implemented superblocks since 2008. an urban design concept intended to In the main superblock at the city centre, minimise the presence of cars in city pedestrian space increased from 45% centres. Superblocks are road traffic free of the total surface area to 74%.371 There spaces in the middle of the city, larger was a 42% reduction in nitrogen oxide than a block but smaller than a district. emissions and a 38% reduction in particle pollution in that area.372 Superblocks consist in aggregate nine city blocks and close off the inside of These superblock initiatives incentivise the block to through traffic. Therefore, the implementation of pneumatic waste any vehicle trying to get from one part collection systems and facilitate the of town to the next must drive around implantation of urban forestry, making the perimeter. Inside the superblock, the cities more sustainable and circular. speed limit is kept to 10km per hour (in ACHIEVING ‘GROWTH WITHIN’ | 135
BARCELONA
FIGURE 25 ROAD HIERARCHY IN A SUPERBLOCK MODEL CURRENT HIERARCHY
Basic network 50km/h
Sole right displacement. Highest aim: Pedestrian
400 METRES
SUPERBLOCK
Local network 10km/h
Exercise of all rights that the city offers. Highest aim: Citizen
Passing vehicles do not go through
400 METRES 136 | ACHIEVING ‘GROWTH WITHIN’
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CASE STUDYTHE BALBO SURREY,GROUP UK
Smart lighting in Surrey, UK: an Surrey’s local authority the ability to dim example of making circular urban the street lights by 50% in residential infrastructure investable. roads and 20% on main roads between the hours of 10pm and 5.30am. This Surrey is a county located in the reduced energy consumption and, in turn, southeast of England. With a population decreased overall energy bills for the of 1.1 million people, it is one of England’s county.374 In addition, broken and faulty most densely populated areas. Over lights can be automatically reported via recent years, the county of Surrey has a remote control system, so enabling a carried out a series of projects and quicker and more efficient reparation of policies in order to optimise its street street lights. This ensures the provision lighting and make it more efficient, of consistent and reliable lighting saving energy, cutting costs, and for residents. reducing greenhouse gas emissions derived from street lighting. Liability and benefits for the street lights has been transferred from the authority to The main objective of this project was Skanska for the duration of the contract. to increase the energy efficiency and The PPP led by Skanska received a durability of Surrey’s lighting assets construction and operations contract over the long term. The key component worth a total of £83 million over a 25- consisted of the renovation and year period.375 This project will lead to upgrading of Surrey’s street lights. The environmental savings of 60,000 tonnes project was carried out by a consortium of carbon and 150 million kilowatt hours between Skanska Plc and John Laing of electricity over the 25-year contract, Group Plc. Both companies invested with a potential saving of £12 million £4.6 million each to replace 69,000 and to the taxpayer during the life of the refurbish 19,000 street lights over the contract.376 Other measures have been period from 2010 to 2015.373 Skanska approved in 2016 to underpin the smart installed white lights to replace the lighting project. In October 2016, Surrey orange glow street lamps across the County Council approved an energy- county. The new lights communicate via efficiency bid that switches off more low power, very high frequency (VHF) than 40,000 street lights overnight in to local nodes and via mobile phone residential areas, reducing energy costs technology to a central hub/computer. and environmental impact. This measure Individual lighting columns are remotely could help the council to save around accessed from a control centre, giving £210,000 per annum.377 ACHIEVING ‘GROWTH WITHIN’ | 137
APPENDIX – ANALYTICAL SURREY, UK METHODOLOGY Investment theme modest intervention to do so (‘next- identification wave circular economy investments’), and which ones will take at least five to ten years to take off (‘CE transition The investment themes have been accelerated’). identified based on the analytical work in the 2015 Growth Within report. This assessment was tested by experts, Taking this work as a starting point, including the project’s steering a detailed overview of all changes committee, in order to arrive at a final required within each of the three list of key changes in the next-wave systems (mobility, food, and built circular economy investments. These environment) was created. Based on were subsequently formulated in terms this, a mapping process was carried of investments required and mapped out to determine which of these into main themes. Through this process, changes are already happening and the ten themes in the report were are likely to grow sufficiently fast established. Figure 26 below shows the (‘current developments’), which are example of this mapping method for the not yet taking off but will require mobility system:
FIGURE 26 MOBILITY - IDENTIFIED INVESTMENT THEMES Investment feasibility NEXT-WAVE CIRCULAR ECONOMY CURRENT DEVELOPMENTS CIRCULAR ECONOMY TRANSITION ACCELERATED
TRENDS System-level integration Pilot projects integrating Integrate clean urban Creation of an urban mobility IDENTIFIED of transport modes electric vehicles (EV) transport modes: public system fully open to all IN GROWTH with public transport transport, electric shared existing car sharing businesses, WITHIN cars, shared bicycles, including provision of access to and others infrastructure across the EU
Large urban mobility infra- structure upgrades across the EU
Sharing Continued investment in car sharing companies
Circular car design New car design and production Electrification Car manufacturers continue to and production facilities, fully integrating all invest in EV development facilities for EVs design requirements for circular produced for sharing economy transition while also optimising Autonomous driving Continued investments to for either autonomous EU open automotive materials advance R&D to design driving or high-value database to enable assessing autonomous cars; commercial lightweight materials properties and likely conditions production facilities limited of parts/material before 2020
Materials evolution & Investments into upgrading/new Remanufacturing Recycling/ remanufacturing remanufacturing recycling production facilities ramp-up to close the capacity ramp-up empowered by loop for car parts blockchain of Internet of Things Investments in remanufacturing tracking system and digital facilities post-2020 market places for materials
Source: SYSTEMIQ. 138 | ACHIEVING ‘GROWTH WITHIN’
APPENDIX
Determining the barriers and solutions example, the rollout of shared electric to each of the investment themes was vehicles was used to calculate investments achieved by interviewing 50+ experts in the shared vehicle fleet. Often, additional across the ten themes, with some experts assumptions had to be made to get to being interviewed multiple times, as well an investment driver that could be used as through desktop research. This resulted for this purpose. This is in evidence in in detailed descriptions of each theme. the Growth Within analyses which only provided the number of shared vehicles, Investment sizing whereas for this research the number of new car models was needed to assess The main quantitative analysis carried investment in new car model R&D, as these out for this project was to size the investments are typically made for a new total investment potential until 2025 model. Therefore, an assumption had to be in the EU across the ten identified made about the average number of cars investment themes across the ‘current produced per car model, which then led to developments’ and ‘next-wave circular a quantification of new car models. economy’ scenarios. The basis for this In addition to the investment drivers, an analysis was the analytical work done investment metric had to be identified for for the Growth Within report. This work each opportunity. This was arrived at based identified one scenario that follows on a combination of desktop research and current developments as assumed across expert interviews. For example, the cost of all potential circular levers as well as one a new electric vehicle for sharing had to be that would lead the EU towards a fully determined in order to multiply it by the circular economy by 2050, with detailed number of cars for sharing to arrive at a quantification of the penetration rates of final investment number. all the changes required across the three systems during the intermediate years. In order to establish what investment As the Growth Within report looked at a opportunities were included in each theme relatively long time horizon until 2050, in and, therefore, what was inside and outside specific cases the short term penetration of the analytical scope, a clear overview rates until 2025 were refined for individual was created for each theme separately. opportunities. Specifically, the penetration Based on the sources and data found for rates for the ‘current developments’ those opportunities included in the scope, scenario were reduced for those levers decisions were made whether these had to that were considered to not to take off in be each calculated separately or whether a significant way over the next years in groupings of opportunities could be used that scenario. For example, investments to calculate the investment size. in car part remanufacturing facilities or production of new protein sources were The two figures below provide detailed information on what investment drivers considered to be <€1 billion and therefore not included in the ‘current developments’ were used based on the Growth Within investments until 2025. work and what additional investment metric was used to arrive at an investment The resulting penetration rates were total, and how the investment scope was subsequently used as the main drivers defined for each investment theme: for investments for this research. For ACHIEVING ‘GROWTH WITHIN’ | 139
FIGURE 27 Methodology for assessing size of investment opportunity in next-wave circular economy opportunities
Investment driver based Assumption Assumption Source on Growth Within by 2025 Investment metric by 2025 of investment metric
• New electric vehicles 1.6 mln • Cost of new EV for €25,000 • Growth Within MOBILITY Integrating (EV) in shared fleet sharing mobility systems • New EV charging 1.0 mln • Cost of new EV €11,600 • Autolib charging stations charging station station costs • Number of cities 50 cities • (Digital) infrastructure €0.2 bn • Similar investments, adopting multi-model investment per city London, Stockholm, transport Copenhagen, last 5 years • Increase in public 100 bn km • Investment per €0.07 • EU transport transport passenger km1 passenger kilometre booklet 2014
Designing and • Number of circular car 10 models • Development cost for €2.5 bn • Expert interviews producing models developed complete new circular circular cars car model • Production capacity 0.5 mln • Investment per car € 22,000 • Nissan Leaf and in number of cars per production per annum Tesla Gigafactory annum for new investments circular cars
Remanufacturing • Growth in EU €10 bn • Investment growth 10x • Re-manufacturing car parts remanufacturing versus market growth Goods Overview of market size versus the US, US international today2 trade commission 20123
FOOD Deploying • Area of land in 30 mln • Conversion cost €600 • Expert interviews regenerative hectare converted to per hectare agricultural regenerative practices practices • Area of land in hectare 7 mln • Equipment cost €100 • EC DG internal policies using precision per hectare precision farming agriculture study 2013
Closing nutrient • Tonnes of waste 45 mln • Investment in AD plants €240 • Green Investment loops processed through per tonne of waste Bank AD report, 2015 anaerobic digestion • Investment in new €230 • Expert interviews and biorefining bio-refining plants per tonne of waste
Farming through • Area of fruit and 11 mln • Investment in new €3,750 • Aerofarms indoor urban vegetables production indoor urban farms per • Gotham Greens farms from indoor urban square meter of fruit • Macrothink vertical farms (square metre) and vegetable farm economic production analysis
Developing next- • Tonnes of next-wave 1.5 mln • Investment per tonne €1,500 • Expert interviews wave protein protein sources of protein (using • Innovafeed sources production insect-based as a proxy)
BUILT Designing and • New circular buildings 0.8 mln • Investment per €17,000 • Laing O’ Rourke and ENVIRONMENT producing circular production capacity building production L&G modular building buildings (no. buildings p.a.) capacity plants • Development cost per €300 • Eurostat new building • Number of new circular 4 mln • Investment per building €23,000 • Fraunhofer Institute buildings produced to make energy positive for Buildings
Closing buildings • Tonnes of additional 20 mln • Investment per tonne €80 • Material recycling loops building material of recycling capacity plant investment re-used examples and research by Technical University of Lisbon on C&D plants3
Developing • Number of cities 30 cities • Additional cost per €650 mln • The state of the city circular cities adopting green average city transitioning climate finance, CCFLA, urban planning to green urban planning 2015. (low end of range used)
1 Assumed to represent investments in public transport upgrades across all modes, as well as shift to cleaner modes such as electric buses. 2 Estimated based on data external from ‘Growth Within’. 3 Triangulated with individual case examples, most notable GE train remanufacturing plant investment and C&D recycling plant investment in Dane County, WI, US. Source: SYSTEMIQ. 140 | ACHIEVING ‘GROWTH WITHIN’
APPENDIX
FIGURE 28 NEXT-WAVE CE INVESTMENT OPPORTUNITY SIZING SCOPING
WHAT INVESTMENTS ARE ASSUMED TO BE INCLUDED? WHAT INVESTMENTS ARE NOT INCLUDED?
MOBILITY Integrating mobility • Shared (electric) vehicles for modal integration, systems including parking and charging infrastructure • Public transport infrastructure upgrades and shift to clean public transport modes • Transport optimisation hardware, software; consumer app and payment system
Designing and • End-to-end R&D for new car models, including material • Production facilities outside producing circular cars tracking system of the EU • Production facilities investments (for components production and assembly ) for zero-emission cars made of durable material and suitable for disassembl
Remanufacturing • Remanufacturing facilities for all possible car parts • Infrastructure for car part car parts disassembly, collection, and transport
FOOD Deploying regenerative • New equipment and machinery required for transition • Land purchase agricultural practices to regenerative practices • Precision agricultural equipment
Closing nutrient loops • New anaerobic digestion and biorefinery infrastructure • Organic waste separation, collection and transportation infrastructure • Anaerobic digestion and biorefinery R&D
Farming through • Building to house indoor farms • Produce transportation indoor urban farms • Cost to set up new high-tech vertical indoor farms • Technology providers
Developing next-wave • R&D for new technology protein sources • New protein production facilities from insects, bacteria, seaweed micro-algea and vegetables
BUILT Designing and producing • R&D for new design, including material tracking systems • Rolling out material tracking system ENVIRONMENT circular buildings • New production facilities for modular, pre-fab residential buildings using durable, renewable materials • Additional cost to construct energy-positive buildings
Closing buildings loops • Building materials recycling/remanufacturing facilities • Building deconstruction for main building materials (wood, concrete, metal, glass) • Waste material collection and transportation
Developing circular cities • Additional cost to create green district;, e.g. grey water systems, energy-efficient lighting, combined heat and power
Not included across all opportunities are (consumer) awareness and capacity/skill building programs; marketing costs; operations and maintenance capex; supply chain investments linked to direct investment opportunity Source: SYSTEMIQ. ACHIEVING ‘GROWTH WITHIN’ | 141
REFERENCES
1 A detailed description of what a circular economy in Europe looks like 30 Luc De Baere and Bruno Mattheeuws, Anaerobic Digestion of the and what the associated benefits are can be found inGrowth Within: Organic Fraction of Municipal Solid Waste in Europe: status, experience a circular economy vision for a competitive Europe, published 2015 and prospects, 2013, http://www.ows.be/wp-content/uploads/2013/02/ by SUN, the Ellen MacArthur Foundation and McKinsey’s Center for Anaerobic-digestion-of-the-organic-fraction-of-MSW-in-Europe; Business and the Environment (“Growth Within, 2015”) feedstocks consist of organic waste but also of non-waste, such as WHAT INVESTMENTS ARE NOT INCLUDED? grown crops 2 Notably Growth Within, 2015 31 Luc De Baere and Bruno Mattheeuws, Anaerobic Digestion of the 3 Most notably, circular economy will contribute to achieving SDG 2. Organic Fraction of Municipal Solid Waste in Europe: status, experience good health and well-being, 7. affordable and clean energy, 8. Decent and prospects, 2013, http://www.ows.be/wp-content/uploads/2013/02/ work and economic growth, 9. Industry, innovation and infrastructure, Anaerobic-digestion-of-the-organic-fraction-of-MSW-in-Europe; 11. Sustainable cities and infrastructure and 12. Responsible consumption feedstocks consist of organic waste but also of non-waste, such as and production grown crops
4 Using investments in machinery and equipment as defined in Eurostat 32 aerofarms.com, ‘AeroFarms Completes $20 Million Investment to as a proxy for industrial investments Meet the Increasing Demand for Locally Grown Produce’, 15 December 2015, http://aerofarms.com/2015/12/15/aerofarms-completes-20-million- investment-to-meet-the-increasing-demand-for-locally-grown-produce/ 5 As laid out in “Growth Within”, 2015
33 Interview with AeroFarms CEO 6 Scott Jacobs and Truman Semans, ‘EXECUTIVE PERSPECTIVE: Thematic Investing Challenges Modern Portfolio Theory’, 24 October 2016, http://sustainability.thomsonreuters.com/2016/10/24/executive- 34 Sum of investment potential for individual opportunities deviates perspective-thematic-investing-challenges-modern-portfolio-theory/ due to rounding
7 Based on research done by Moody’s, 2016 35 For further examples and technical explanation of opportunities, see: David Cheshire, Building revolutions, applying the Circular Economy to the Built Environment, 2016 8 See for example: https://www.theguardian.com/business/2014/ mar/04/lack-of-investment-stifling-global-economy 36 Ibid, Growth Within, 2015 9 Eurostat/ ECB, 2016 37 McKinsey&Company, ‘Building the cities of the future with green districts’, May 2015, http://www.mckinsey.com/business-functions/ 10 McKinsey&Company, Diminishing returns: why investors may need sustainability-and-resource-productivity/our-insights/building-the- to lower their sights, April 2016, http://www.mckinsey.com/industries/ cities-of-the-future-with-green-districts private-equity-and-principal-investors/our-insights/why-investors-may- need-to-lower-their-sights 38 European PPP Expertise Centre (EPEC), ‘Energy Efficient Street Lighting’ factsheet, http://www.eib.org/epec/ee/documents/factsheet- 11 Based on data from EU listed companies from comparable industries street-lighting.pdf provided by Prof. Damodaran, NYU Stern, 2016
39 TEEB/Trucost, Natural Capital at Risk – The Top 100 Externalities in 12 Eurostat, 2016 Business, 2013 13 European Automobile Manufacturers’ Association (ACEA) 2014 40 Carbon Disclosure Project (CDP), Embedding a Carbon Price into Business Strategy, September 2016, https://b8f65cb373b1b7b15feb- 14 Crunch database, 2016, https://www.crunchbase.com/#/home/index c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/ reports/documents/000/001/132/original/CDP_Carbon_Price_2016_ 15 EEF – The Manufacturers’ Organisation, 2014 Report.pdf?1474269757
16 Volterra, SLM partners, 2016 41 Eurostat, 2016
17 For example, longer lifetime cars have higher value to car sharing 42 Ernst & Young, Benchmarking European Power and Utility Asset companies as they can depreciate the cars at a lower rate and require Impairments: testing times ahead, 2015, http://www.ey.com/Publication/ replacement capex at a later point in time, while also having longer vwLUAssets/EY-benchmarking-european-power-and-utility-asset- payback time requirements than consumers impairments-2015/$FILE/EY-benchmarking-european-power-and- utility-asset-impairments-2015.pdf 18 For example, the market for organic food grew by 8% in 2014, Research Institute of Organic Agriculture (FiBL) and the Agricultural 43 The EU Innovation Deals are an example of how the European Market Information Company (AMI) in association with IFOAM EU, 2015 Commission approaches the legislative changes required towards a circular economy; https://ec.europa.eu/research/innovation-deals/index. 19 2025 was chosen as the target year as this typically represents the cfm maximum investment horizon for investors 44 An example of a private sector-led initiative is the New Plastics 20 Sum of investment potential for individual opportunities deviates Economy: http://newplasticseconomy.org/ due to rounding 45 See box for Desso example; chapter on regenerative agriculture on 21 Ibid, Growth Within, 2015 Balbo Group example
22 Rupert Neate, ‘Ford to build “high volume” of driverless cars for 46 Quartzproject.org ride-sharing services’, The Guardian, 16 August 2016, https://www. theguardian.com/technology/2016/aug/16/ford-self-driving-cars-ride- 47 In addition to the European Commission’s CE package, Member Source: SYSTEMIQ. sharing-uber-lyft States are also picking up the agenda such as the Finnish government creating a roadmap to a circular economy 23 Currently these are the typical car sharing companies but this can also be done for example by OEMs directly 48 Total estimated saving potential by 2030; identified investments set the EU on a pathway to achieving those savings 24 European Remanufacturing Network, Remanufacturing Market Study, November 2015 49 Ibid, Growth Within, 2015
25 For example, France has started to mandate garages to have 50 Ibid, Growth Within, 2015 remanufactured components in stock 51 Ibid, Growth Within, 2015 26 Sum of investment potential for individual opportunities deviates due to rounding 52 McKinsey&Company, Automotive Revolution – Perspective Towards 2030, January 2016, https://www.mckinsey.de/files/automotive_ 27 Eurostat COFOG and SBS, 2016 revolution_perspective_towards_2030.pdf
28 Regenerative agricultural practices can be broadly defined as the 53 Goldman Sachs, ‘Millenials’, http://www.goldmansachs.com/our- combination of as many practices as possible among permaculture, thinking/pages/millennials/ organic, no till, holistic grazing, and key line land preparation 54 Uber.com, ‘Moving Public Transit’, https://developer.uber.com/ 29 Assuming organic certification. Source: Volterra, http://www. solutions/transit volterra.bio 55 Uber.com, ‘Uber and TripGo to help more Aussies access public transport’, September 2016, https://newsroom.uber.com/australia/uber- and-tripgo-to-help-more-aussies-access-public-transport/ 142 | ACHIEVING ‘GROWTH WITHIN’
REFERENCES
56 Xerox.com, ‘Los Angeles Commuters to Usher in New Era of Daily 79 Hydro, ‘Recycling of Aluminium’, updated 21 January 2013, http:// Trip Planning’, 27 January 2016, https://www.news.xerox.com/news/ www.hydro.com/en/About-aluminium/Aluminium-life-cycle/Recycling/ City-of-LA-introduces-new-Xerox-Go-LA-app 80 For example, Audi announced that it will increase the amount of its 57 Smart Cities and Communities, ‘Finland launches first complete R&D budget spent on electric vehicles to around 30% of the total by multimodal transport app’, https://eu-smartcities.eu/content/finland- 2017 launches-whim-app-new-all-inclusive-mobility-service 81 Such as the Engineering and Physical Sciences Research Council 58 For example, transport infrastructure typically owned by public (EPSRC) project, ‘Robotic disassembly technology as a key enabler of bodies can instead be owned by private bodies in some countries autonomous remanufacturing’, http://gow.epsrc.ac.uk/NGBOViewGrant. aspx?GrantRef=EP/N018524/1 59 Korey Clark, ‘Carsharing Getting Relatively Easy Regulatory Ride’, 30 November 2015, https://www.lexisnexis.com/lexis-practice-advisor/ 82 Ibid, Supporting Excellence in UK Remanufacturing, 2014. The the-journal/b/lpa/archive/2015/11/30/carsharing-getting-relatively- Knowledge Transfer Network (KTN) and partner organisations convened easy-regulatory-ride.aspx a stakeholder workshop at Coventry University on 23 October 2014. The consortium brings together KTN, the High Speed Sustainable 60 Citymapper: https://citymapper.com Manufacturing Institute (HSSMI), The Carbon Trust, the Centre for Remanufacturing and Reuse (CRR), the Centre for Process Innovation (CPI), Coventry University, the University of Strathclyde, Birmingham 61 Steve Hoare, ‘Finland launches first complete multimodal transport University, and University College London app’, 13 June 2016, http://cities-today.com/finland-launches-first- nationwide-maas-solution/ 83 For example, laser-cladding technology is being used to weld metal particles back onto components to address wear and tear, and bring 62 Other shareholders are Hietanen, InMob Holdings of Cyprus, these back to ‘as new’ specifications and tolerances. Ibid,Supporting Neocard, Korsisaari, GoSwift, MaaS Australia, Goodsign, IQ Payments, Excellence in UK Remanufacturing, 2014 and Delta Capital Force
84 Service-based models tend to lead to better relationships with 63 BMW i3 is a range extender rather than a pure battery electric customers and a more skilled and adaptable workforce. Sources: David vehicle (BEV) so has tailpipe emissions. As such, there is further Parker, Kate Riley, Seigo Robinson, Harry Symington, Jane Tewson optimisation possible by shifting to BEV (Oakdene Hollins), Kim Jansson (VTT), Shyaam Ramkumar (Circle Economy), David Peck (TU Delft), Katie Deegan (Oakdene Hollins), 64 The only exceptions to free parking are car parks and parking David Parker (Oakdene Hollins), European Remanufacturing Network, zones reserved for special use (e.g. private parking, disabled parking, Remanufacturing Market Study, For Horizon 2020, grant agreement No no-parking zones or taxi parking); https://dk.drive-now.com/en/#!/ 645984 November 2015, p51 carsharing/copenhagen 85 Expert interviews 65 When there is less than 30km battery capacity 86 Ibid, Supporting Excellence in UK Remanufacturing, 2014 66 Following its launch in Munich in June 2011, DriveNow has constantly expanded its mobility services in Europe and now has more 87 Expert interviews than 600,000 customers. In addition to its five German locations (Berlin, Hamburg, Munich, Düsseldorf, and Cologne), DriveNow services are also available in London, Vienna, Copenhagen, Stockholm, and 88 Horizon 2020: https://ec.europa.eu/programmes/ Brussels horizon2020/
67 See section on remanufacturing investment theme 89 This would allow designers, manufacturers and remanufacturers to get an overview of materials’ performance but also durability and easiness to loop 68 Renault is known to be focusing part of its R&D on materials for greater durability, such as high-quality and thinner steel, aluminium chassis and powertrain parts, magnesium body panels, in addition to 90 Used more often and with more passengers or freight on board serial production solutions like plastic fenders; Ibid, Growth Within, 2015 91 Whole-life costing refers to the total cost of ownership over the life 69 European Automobile Manufacturers’ Association (ACEA), of an asset. Also commonly referred to as ‘cradle to grave’ or ‘womb 2015 to tomb’ costs. Costs considered include the financial cost which is relatively simple to calculate, but also the environmental and societal costs which are more difficult to quantify and assign numerical values 70 Ibid, Automotive Revolution, 2016 to. Typical areas of expenditure that are included in calculating the whole-life cost include planning, design, construction and acquisition, 71 David Parker, Kate Riley, Seigo Robinson, Harry Symington, Jane operations, maintenance, renewal and rehabilitation, depreciation and Tewson (Oakdene Hollins), Kim Jansson (VTT), Shyaam Ramkumar cost of finance, and replacement or disposal (Circle Economy), David Peck (TU Delft), Katie Deegan (Oakdene Hollins), David Parker (Oakdene Hollins), and the European 92 Ibid, Supporting Excellence in UK Remanufacturing, 2014 Remanufacturing Network, Remanufacturing Market Study, (for Horizon 2020, grant agreement No.645984), November 2015, p51, http://gospi. fr/IMG/pdf/remanufacturing_study_market.pdf 93 Rupert Neate, ‘Ford to build “high volume” of driverless cars for ride-sharing services’ in The Guardian, 16 August 2016, https://www. theguardian.com/technology/2016/aug/16/ford-self-driving-cars-ride- 72 Knowledge Transfer Network (KTN), the High Speed Sustainable sharing-uber-lyft Manufacturing Institute (HSSMI), The Carbon Trust, and the Centre of Excellence for Remanufacturing (CRR), 2014, Supporting Excellence in UK Remanufacturing: Stakeholder dialogue on opportunities and 94 Crunchbase, 2016 challenges, https://connect.innovateuk.org/documents/22449725/0/ Stakeholder%20dialogue%20report 95 Tesla is aiming for 2018, however many players only see this happening from 2021 73 The Manufacturer, ‘Innovation: making the most of it’, 18 July 2016, http://www.themanufacturer.com/articles/innovation-making-the-most- 96 Expert interviews of-it/ 97 This definition was adopted by the EU CE package. Centre for 74 Legislation requires that batteries are recycled at the end of life, Remanufacturing & Reuse, An Introduction to Remanufacturing, 2007, which can come at a cost p3, http://www.remanufacturing.org.uk/pdf/story/1p76.pdf
75 Ibid, ‘Innovation: making the most of it’, 2016 98 Zero Waste Scotland, Circular Economy Evidence Building Programme: Remanufacturing Study, Summary report, March 76 Planned obsolescence is a policy of planning or designing a product 2015, http://www.zerowastescotland.org.uk/sites/default/files/ with an artificially limited useful life, so it will become obsolete (that is, Remanufacturing%20Study%20-%20Summary%20Report%20-%20 unfashionable or no longer functional) after a certain period of time. March%202015.pdf The rationale behind the strategy is to generate long-term sales volume by reducing the time between repeat purchase 99 Expert interviews
77 Expert interviews 100 Ibid, Remanufacturing Study, 2015, p62
78 This is not always true, for example carbon fibre is currently not 101 Detailed below with the Renault’s remanufacturing plant at Choisy suitable for looping. Innovations are also focusing on lightweight le Roi case example thermoplastic polyamides, which can perform similarly to carbon fibre but are easier to loop. Circle Economy and ABN Amro, On the Road 102 The aftermarket in the automotive sector covers all repair, to the Circular Car, August 2016, http://www.circle-economy.com/ maintenance, and servicing activities for the EU network of vehicles on wp-content/uploads/2016/08/abn-amro-the-circular-car-report-EN- the road. Ibid, Remanufacturing Study, 2015, p62 20160803-light.pdf?submission=55343603 ACHIEVING ‘GROWTH WITHIN’ | 143
103 The labour, energy, and manufacturing processes giving its shape 126 This is because emphasis is placed on achieving recycling targets to the parts instead of remanufacturing or reuse. The targets are also based on the amount of material recovered in weight, rather than the amount 104 The Society of Motor Manufacturers and Traders, 2016 UK of value recovered per product. The restriction of the export of waste Automotive Sustainability Report, 2016, p20, https://www.smmt.co.uk/ products under the EU waste shipment regulation is also a barrier. reports/sustainability/ Because end-of-life products fall into the category of waste, it is not possible to get access to cores from overseas for remanufacturing. Ibid, Supporting Excellence in UK Remanufacturing, 2014 105 European Remanufacturing Network, ‘Remanufacturing Market Study’, February 2016, https://www.remanufacturing.eu/wp-content/ uploads/2016/01/study.pdf 127 Ibid, Remanufacturing Study, 2015, p51
106 All-Party Parliamentary Sustainable Resource Group, 128 For example, there is an explicit mention of remanufacturing Remanufacturing: Towards a Resource Efficient Economy, March 2014, in the second round of Innovate UK’s manufacturing and materials http://www.policyconnect.org.uk/apsrg/sites/site_apsrg/files/apsrg_-_ competition; https://www.gov.uk/government/publications/funding- remanufacturing_report.pdf competition-manufacturing-and-materials-round-2/competition-brief- manufacturing-and-materials-round-2 107 Ibid, Remanufacturing: Towards a Resource Efficient Economy, 2014 129 Whole-life costing refers to the total cost of ownership over the life of an asset. Also commonly referred to as ‘cradle to grave’ or ‘womb 108 Ibid, Remanufacturing Study, 2015, p5 to tomb’ costs. Costs considered include the financial cost which is relatively simple to calculate, but also the environmental and societal 109 Ibid, Supporting Excellence in UK Remanufacturing, 2014 costs which are more difficult to quantify and assign numerical values to. Typical areas of expenditure that are included in calculating the 110 Ibid, Growth Within, 2015, p14 whole-life cost include, planning, design, construction and acquisition, operations, maintenance, renewal and rehabilitation, depreciation and 111 Ibid, Supporting Excellence in UK Remanufacturing, 2014 cost of finance, and replacement or disposal
112 Ibid, Supporting Excellence in UK Remanufacturing, 2014 130 ‘There is growth potential in the automotive component market, particularly with respect to interventions from public procurers. For 113 Base case scenario is defined in the ‘Remanufacturing Market example, the US Senate passed the Federal Vehicle Repair Cost Savings Study’ by a 3% per annum growth in automotive remanufacturing. Ibid, Act in October 2015 which requires all federal agencies to consider Remanufacturing Study, 2015 using remanufactured parts when maintaining the federal vehicle fleet. Ibid, Remanufacturing: Towards a Resource Efficient Economy, 2014, p62 114 Ibid, Remanufacturing Study, 2015 131 Ibid, Remanufacturing: Towards a Resource Efficient 115 The accelerated scenario is defined in the ‘Remanufacturing Market Economy, 2014 Study’ by an increase in automotive manufacturing sales attributable to remanufacturing of 50% by 2030” 132 Ibid, Supporting Excellence in UK Remanufacturing, 2014 116 Remanufacturing presents a huge financial and environmental opportunity for the UK. Estimates suggest that the value of 133 Pankaj Arora, Jaguar Land Rover, Remanufacturing Research remanufacturing in the UK is £2.4 billion (1), with the potential to Project for Jaguar Land Rover, Executive Summary, https://connect. increase to £5.6 billion (2) alongside the creation of thousands of innovateuk.org/documents/22449725/0/Remanufacturing%20 skilled jobs. Further, the remanufacturing of products results in reduced Research%20Project%20for%20Jaguar%20Landrover%20-%20 greenhouse gas emissions, material use, and water consumption executive%20summary?version=1.0 when compared to the manufacture of new products. (1): D. Parker, ‘Remanufacturing in the UK: A snapshot of the UK remanufacturing 134 Ibid, Supporting Excellence in UK Remanufacturing, 2014 industry in 2009’, 2010; Oakdene Hollins for the Centre for Remanufacturing and Reuse and the Resource Recovery Forum, (2): 135 Ibid, Supporting Excellence in UK Remanufacturing, 2014 Lavery et al. ‘The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Remanufacturing’, 2013, p75–96, 136 Ibid, Supporting Excellence in UK Remanufacturing, 2014 https://groenomstilling.erhvervsstyrelsen.dk/sites/default/files/media/ remanufacturing_market_study_report_europeanmarketstudy_ 137 Ibid, Supporting Excellence in UK Remanufacturing, 2014 ern_2016.pdf
138 Boursorama, ‘The Requirement for Garages to Offer Used 117 Expert interviews Parts’, 16 February 2016, http://www.boursorama.com/actualites/l- obligation-pour-les-garagistes-de-proposer-des-pieces-d-occasion- 118 Frost & Sullivan, SMMT, The Importance of the UK Aftermarket to a671dbeac840d2d683662f9fc61d0e5b the UK Economy, 2016, http://www.smmt.co.uk/wp-content/uploads/ sites/2/The-Importance-of-the-UK-Aftermarket.pdf 139 BSI: http://www.bsigroup.com/en-GB/about-bsi/
119 Expert interviews 140 Ibid, Supporting Excellence in UK Remanufacturing, 2014 120 The Society of Manufacturing Engineers (SME) is experiencing 141 Ibid, Supporting Excellence in UK Remanufacturing, 2014 an increasing global interest for using its battery management systems to build battery storage for photovoltaic systems. Currently, battery systems based on new batteries are still too expensive to be 142 Ibid, Remanufacturing: Towards a Resource Efficient Economy, 2014 economically feasible. The key is to set up a supply chain where the system cost can be significantly reduced through remanufacturing of 143 Whole-life costing refers to the total cost of ownership over the life batteries from electric vehicles. Indeed, in electric vehicles the battery of an asset. Also commonly referred to as ‘cradle to grave’ or ‘womb is considered depleted when the capacity is reduced to 80%, because to tomb’ costs. Costs considered include the financial cost which is achievable range per charge then becomes too short. But the battery relatively simple to calculate, but also the environmental and societal can easily continue to be used in other applications until capacity is costs which are more difficult to quantify and assign numerical values 50%, for example, which could extend life from five to ten years or to. Typical areas of expenditure that are included in calculating the more. Ellen McArthur Foundation, ‘Lithium Balance A/S’, https://www. whole-life cost include, planning, design, construction and acquisition, ellenmacarthurfoundation.org/ce100/directory/lithium-balance-a-s operations, maintenance, renewal and rehabilitation, depreciation and cost of finance, and replacement or disposal 121 For an example, see speech from Ernest & Young’s Global Automotive Leader Michael Hanley at the ReMaTec Amsterdam, 2013 or 144 Expert interviews online interviews with partners from US-based PE firm ‘Owner Resource Group’, a firm which focuses mainly on remanufacturing 145 Conseil Européen de Remanufacture: www.remancouncil.eu
122 Expert interviews. The number and complexity of car parts and 146 Ibid, Supporting Excellence in UK Remanufacturing, 2014 components make potential lower availability/quality versus forecasts more difficult to manage than for aircrafts for example 147 Only when no chemicals are used
123 Expert interviews 148 In addition, the agricultural sector is exposed to climate change and consumer trends in the EU that are shifting towards healthy, 124 Versus only 1% in the automotive sector. Ibid, ‘Remanufacturing traceable food. Lastly, there is a risk to producers that in the future Market Study’, 2015 the cost of negative external impacts caused by agriculture, such as emissions and waste, will be allocated to the sector directly 125 DLL, ‘New whitepaper from DLL on how to complement new equipment sales with pre-owned assets’, 23 June 2015, https://www. 149 Ibid, Growth Within, 2015 dllgroup.com/en/press/latest/new-whitepaper-from-dll 144 | ACHIEVING ‘GROWTH WITHIN’
REFERENCES
150 Such as cereals, oilseeds, and sugar. Ibid, Growth Within, 2015 and shrub plantings on the farm or ranch that improve habitat value or access by humans and wildlife, or that provide woody plant products 151 Ibid, Growth Within, 2015 in addition to agricultural crops or forage. Agroforestry is distinguished from traditional forestry by having the additional aspect of a closely associated agricultural or forage crop.’ Source: USDA 152 Ibid, Growth Within, 2015
171 One way to achieve this is by setting up think tanks to develop 153 40% of irrigation water actually reaches the plants. Ibid, Growth innovative technologies and tools to be leveraged across the EU (for Within, 2015 example, robotics) involving farmers and experts from research and innovation institutes 154 Ibid, Growth Within, 2015 172 EU Press Release: ‘Circular economy: New Regulation to boost the 155 Nitrogen fixation flows, through fertilisers and phosphorus, into the use of organic and waste-based fertilisers’, 17 March 2016, http://europa. ocean have exceeded the safe operating limits of the planet by a factor eu/rapid/press-release_IP-16-827_en.htm of two. Today, more nitrogen is fixed synthetically in fertilisers than fixed naturally in all the terrestrial ecosystems combined, and phosphorus 173 For example, further leveraging the Common Agricultural Policy flows have tripled compared to pre-industrial levels, despite the fact (CAP) could involve the following: that phosphorus is on the EU’s critical raw materials list. Ibid, Growth Within, 2015 - Adopt a precise definition of regenerative practices at the EU level, including the description of first-step practices and second- 156 Compared to the 1950s, tomatoes provide 55% less potassium, step practices; cucumbers 78% less iron, and salad 63% less vitamin B2. Ibid, Growth Within, 2015 - Define which CAP pillar applies for each first-step and second- step regenerative practice; 157 For example, fish accumulate plastics and toxic pollutants by eating small fragments of debris floating in the ocean and by absorbing heavy metal contamination and other pollutants. Ibid, Growth Within, 2015 - Define the criteria to be used for the allocation of each subsidy. These criteria could be a combination of Key Performance Indicators (KPIs), that would be measured to assess whethe 158 Paul McMahon, SLM Partners, The Investment Case for Ecological obligation of results is met, and of agricultural practices, that Farming, January 2016, http://slmpartners.com/wp-content/ would be observed to assess whether obligation of means is met. uploads/2016/01/SLM-Partners-Investment-case-for-ecological- A relevant KPI could be soil organic carbon stock, as it is easily farming.pdf measurable and a key attribute in assessing soil health, generally correlating positively with crop yield (Bennett et al., 2010), and 159 Leontino Balbo interacts with chemical, physical, and biological soil properties, such as the storage of nutrients, water holding capacity, stability 160 http://ec.europa.eu/eurostat/statistics-explained/index.php/ of aggregates, and microbial activity. A systemic approach based Organic_farming_statistics; http://www.sciencedirect.com/science/ on various indicators covering physical, chemical, and biological article/pii/S209563391530016 soil properties could also be relevant. In all cases, attention must be paid to create systems that do not require excessive 161 After a transition period, the starting point is a conventional modern administration and control; monoculture (fruit/vegetable/cash crops) - To fulfil the CAP’s obligation to provide guidance on supported 162 In case organically certified practices, partnerships could be set up with cooperative/not- for-profit training bodies deploying capability-building and awareness programs delivered by farmers for farmers; 163 Alley cropping means that cereals, pulses, and oilseeds are grown in rotation, and that rows of trees are planted on the same land. By mixing annual and perennial plants, a regenerative ecosystem is created. 174 For example, public capital is mobilised under the framework of The root systems work at different levels in the soil and improve water the Lima–Paris Action Agenda, which is a joint undertaking of the and nutrient retention: ‘Agroforestry systems are defined as land use Peruvian and French Conference of Parties (COP) Presidencies, the systems in which trees are grown in combination with agriculture on the Executive Office of the Secretary-General of the United Nations and the same land.’ (EU: Article 23 of the New Rural Development Regulation, United Nations Framework Convention on Climate Change (UNFCCC) 1305/201). ‘Agroforestry is the intentional growing of trees and shrubs Secretariat in combination with crops or forage. Agroforestry also includes tree and shrub plantings on the farm or ranch that improve habitat value or 175 Examples in the UK poultry sector show how the retail industry can access by humans and wildlife, or that provide woody plant products ban practices due to benefits to its customers. See for example: https:// in addition to agricultural crops or forage. Agroforestry is distinguished corporate.marksandspencer.com/documents/reports-results-and- from traditional forestry by having the additional aspect of a closely publications/casestudy.pdf associated agricultural or forage crop.’ Source: US Department of Agriculture (USDA) 176 For example, highly predictive decision support tools, such as Cibo’s dashboards, could provide retailers with accurate estimates of 164 Ibid, The Investment Case for Ecological Farming, 2016 the benefits they could achieve if the farms provisioning their suppliers were implementing regenerative practices. These decisions support 165 Volterra Ecosystems also intends to include in management tools could be implemented very swiftly, as they rely primarily on plans (depending on each area’s possibilities): mushroom production, satellite imagery. Driving a collaborative effort to shift their extended regulated hunting, beekeeping, eco-tourism and education (local farm supply chain to regenerative practices could be beneficial to retailers visits), regional products and farm shops, and other activities. Volterra in many ways. Increased profit could be achieved (driven by increased Ecosystems: http://www.volterra.bio yield and improved resource-efficiency) while the risk of lower returns in the transition period could be mitigated through coordinated rollout waves. Not to mention that environmental benefits and improvement in 166 Initiatives implemented by Volterra Ecosystems in Spain; by Luis food quality could lead to price premiums, greater market shares, and Ballesteros (Spain) within the LIFE Crops for Better Soil project (organic increased customer loyalty. Data on regenerative agriculture sourcing chick peas and durum wheat in 70 hectares of rain-fed land with crop could be made publicly available to increase product reach and rotation and soil decompaction); by Jack de Lozzo (Le Chalet, France) customer loyalty even further. for agroforestry systems; by Natuurboeren (the Netherlands) grazing systems, organic meat, and dairy; by Natuurakkers (the Netherlands) cereals, legumes, and vegetables 177 For example, by setting up partnerships with global clients guaranteeing price premiums 167 Holistic-planned grazing for beef cattle and sheep; no-till cropping with diverse cover crops and mob grazing; low input pasture-based 178 Glanbia Connect, ‘Glanbia launch new 100m euro MilkFlex Fund’, dairy; certified organic agriculture; and agroforestry. Ibid,The March 2016, https://www.glanbiaconnect.com/news/milkflex-fund Investment Case for Ecological Farming, 2016, p18 179 Interview with Leontino Balbo, Down to Earth, 28 June 2012, 168 For example, for shifts to holistic-planned grazing http://downtoearth.danone.com/2012/06/28/leontino-balbo-i-want- sustainability-to-be-a-way-of-life-for-the-future-of-mankind/ and David Baker, Wired, ‘Post-organic: Leontino Balbo Junior’s green farming 169 ‘The traditional silvopasture systems in Spain and Portugal are future’, 14 August 2013, http://www.wired.co.uk/article/post-organic hardly profitable nowadays; they depend on EU subsidies to overcome the losses. If the land and the animals are managed through smart planning of the grazing, and regeneration of soils and permanent plants 180 Ibid, Interview with Leontino Balbo in Down to Earth, 2012 is monitored, we think these ecosystems can become profitable without EU subsidies.’ Source: Volterra Ecosystems 181 The indicators can be accessed at . Ibid, Interview with Leontino Balbo in Down to Earth, 2012 170 ‘Agroforestry systems are defined as land use systems in which trees are grown in combination with agriculture on the same land.’ 182 Ibid, ‘Post-organic’, Wired, 2013 Source: EU: Article 23 of the New Rural Development Regulation 1305/201. ‘Agroforestry is the intentional growing of trees and shrubs 183 Ibid, Interview with Leontino Balbo in Down to Earth, 2012 in combination with crops or forage. Agroforestry also includes tree 184 Eurostat Statistics Explained, ‘Municipal Waste Statistics’, March ACHIEVING ‘GROWTH WITHIN’ | 145
2016, http://ec.europa.eu/eurostat/statistics-explained/index.php/ 212 Greener Roots Farm: http://greenerroots.com/ Municipal_waste_statistics 213 Grard Wynn, ‘LED costs to halve as efficiency doubles by 2020 185 Ibid, Growth Within, 2015 – US Dept of Energy’, Climate Home, 20 March 2014, http://www. climatechangenews.com/2014/03/20/led-costs-to-halve-as-efficiency- 186 Luc De Baere and Bruno Mattheeuws, Anaerobic Digestion of the doubles-by-2020-us-dept-of-energy/ Organic Fraction of Municipal Solid Waste in Europe, February 2013, http://www.ows.be/wp-content/uploads/2013/02/Anaerobic-digestion- 214 AgFunder Investing report, 2016 of-the-organic-fraction-of-MSW-in-Europe.pdf 215 Louisa Burwood-Taylor, ‘Circular Economy and True Sustainability: 187 Ibid, Anaerobic Digestion of the Organic Fraction of Municipal the Next Phase for Vertical Farming’, AgFunderNews.com, 21 April 2016, Solid Waste in Europe, 2013 https://agfundernews.com/circular-economy-and-true-sustainability- the-next-phase-for-vertical-farming5738.html 188 European Commission, Solar Photovoltaic Electricity Generation, 2014, https://setis.ec.europa.eu/system/files/Technology_Information_ 216 Lorraine Chow, Inside the Nation’s Largest Organic Vertical Farm, Sheet_Solar_Photovoltaic.pdf EcoWatch.com, 19 October 2015, excerpt at: http://farmedhere.com/ inside-the-nations-largest-organic-vertical-farm/ 189 Ibid, Growth Within, 2015 217 Startengine.com, Green Sense Farms LLC, https://www.startengine. 190 Anaerobic digestion growth used as a proxy for overall capacity com/startup/green-sense-farms-llc treatment growth 218 Leanna Garfield ‘Elon Musk’s brother is building vertical 191 ADBA, Anaerobic Digestion Market Report, July 2016 farms in shipping containers’, BusinessInsiderUK, 23 August 2016, http://uk.businessinsider.com/kimbal-musk-vertical-farms- shipping-containers-2016-8 192 See for example, Ellen MacArthur Foundation, Delivering the Circular Economy: A toolkit for a policymakers, 2015, https://www. ellenmacarthurfoundation.org/assets/downloads/publications/ 219 Euan McKirdy, ‘The only way is up: Vertical farming in Kyoto’, CNN, EllenMacArthurFoundation_PolicymakerToolkit.pdf 19 September 2016, http://edition.cnn.com/2015/12/09/foodanddrink/ kyoto-vertical-farm-spread/ 193 For example, Toronto’s aerobic digestion plants with total capacity close to 150,000 tonnes per annum or the Finnish city Lahti’s 220 Urban Agriculture.com, ‘Urban Agriculture 26: Green Sense Farms’, 44,000-tonne per annum biogas plant 18 October 2016, http://www.microbe.tv/urbanag/ua26/
194 For example, see the Danish Business Authority bio-refining pilot 221 David Thorpe, ‘How China Leads the World in Indoor Farming’, SustainableCitiesCollective, http://www.sustainablecitiescollective.com/ david-thorpe/409606/chinas-indoor-farming-research-feed-cities- Anaerobic Digestion and Bioresources Association (ADBA), 195 leads-world ‘ADBA unveils cost competitiveness task force’ 14 April 2016, http:// adbioresources.org/news/adba-unveils-cost-competitiveness-task-force 222 IESingapore, ‘Sky Urban: Sky farms take root all over the world’, http://www.iesingapore.gov.sg/SgGoesGlobal/SkyUrban 196 EU directives 1069/2009 C3 (revised by the 294/2013) and 999/2001 (revised by the 56/2013) 223 Lorraine Chow, World’s First Hydraulic-Driven Vertical Farm, Produces 1 Ton of Vegetables Every Other Day, EcoWatch.com, 11 197 For example, in France, the Environment Code governs captive wild September 2015, http://www.ecowatch.com/worlds-first-hydraulic- fauna farming by requiring an authorization request for opening a unit driven-vertical-farm-produces-1-ton-of-vegetabl-1882095600.html and a certificate of competence, as well as the laws on ICPE with the sections 2150 and 2221. 224 Verticalcity.org, ‘Dickson Despommier – The Advantages of Vertical Farms’, 22 January 2016, https://verticalcity.org/podcast/03-dickson- 198 Michele Giavini, CIC (Consorzio Italiano Compostatori), Italian despommier Composting and Biogas Association, ‘High quality recycling of bio- waste: key elements of a successful implementation and the case study of Milan’, January 2016 225 Boy de Nijs, Belgium: Urban Crops opens largest automated plant factory in Europe, Hortidaily.com, 26 February 2016, http://www. hortidaily.com/article/24546/Belgium-Urban-Crops-opens-largest- 199 Dustin Benton, Green Alliance, Circular Economy Scotland, automated-plant-factory-in-Europe January 2015, http://www.green-alliance.org.uk/resources/Circular%20 economy%20Scotland.pdf 226 Leanna Garfield, This grocery store has a mini produce farm in its aisles, BusinessInsiderUK, 19 April 2016, http://uk.businessinsider. 200 Crunchbase, 2016 com/infarm-creates-a-mini-lettuce-farm-for-grocery-stores-2016- 4?r=US&IR=T 201 The Fund for Green Business Development under the Danish Business Authority has financed the main part of the SUBLEEM pilot 227 Association for Vertical Farming’s Amsterdam Summit, 2016 project; source: www.teknologisk.dk/subleem
228 Eurostat, 2015 202 Saponin Innovation Centre Europe and the Copenhagen University
229 Research Institute of Organic Agriculture (FiBL) and 203 United Nations Population Fund, ‘Urbanization’, http://www.unfpa. the Agricultural Market Information Company (AMI) in association org/urbanization with IFOAM EU, 2015 204 McKinsey&Company, ‘Pursuing the global opportunity in food 230 AgFunder Investing Report, 2015, https://agfunder.com/research/ and agribusiness’, July 2015, http://www.mckinsey.com/industries/ agtech-investing-report-2015 chemicals/our-insights/pursuing-the-global-opportunity-in-food-and- agribusiness 231 marketsandmarkets.com, ‘Vertical Farming Market by Functional Device (Lighting, Hydroponic Component, Climate Control, and 205 Dickson Despommier, ‘The Vertical Essay’ in The Vertical Farm: Sensors), Growth Mechanism (Aeroponics, Hydroponics, and Others) feeding the world in the 21st century, 2011, http://www.verticalfarm. and by Geography – Global Forecast to 2020, markets and markets’, com/?page_id=36 January 2016, http://www.marketsandmarkets.com/Market-Reports/ vertical-farming-market-221795343.html 206 Ibid, ‘Pursuing the global opportunity in food and agribusiness’, 2015 232 The Urban Vertical Farming Project. The first vertical farm showdown: Why you need to know what’s happening in Singapore, 207 Greener Roots Farm: http://greenerroots.com/ 8 August 2014, https://urbanverticalfarmingproject.com/2014/08/08/ the-first-vertical-farm-showdown-why-you-need-to-know-whats- 208 GrowUp Urban Farms, ‘Aquaponics & Vertical Farming’, 2014, happening-in-singapore/2/ http://growup.org.uk/aquaponicsverticalfarming/ 233 Hiroki Koga, ‘How a Japanese “Vertical Farm” is Growing 209 Association for Vertical Farming: https://vertical-farming.net Strawberries using LED for the First Time’, AgFunderNews.com, 15 April 2016, https://agfundernews.com/how-a-japanese-vertical-farm-is- 210 WRAP, Food Futures: from business as usual to business unusual’, growing-strawberries-using-led-for-the-first-time5691.html http://www.wrap.org.uk/sites/files/wrap/Food_Futures_%20report_0. pdf 234 Eilene Zimmerman, ‘Growing Greens in the Spare Room as ‘Vertical Farm’ Start-Ups Flourish’, 29 June 2016, The New York Times, http:// 211 Ibid, The Vertical Farm, 2011, https://vertical-farming.net/wp- www.nytimes.com/2016/06/30/business/smallbusiness/growing-greens- content/uploads/2015/02/FoodSense_infographic_090615rev_AVF_ in-the-spare-room-as-vertical-farm-start-ups-flourish.html FNL.png 146 | ACHIEVING ‘GROWTH WITHIN’
REFERENCES
235 Ibid, ‘Growing Greens in the Spare Room as “Vertical Farm” Start- 258 For business models based on the use of agricultural bio-products/ Ups Flourish’, 2016 waste, not business models based on the use of organic waste
236 Horizon 2020 is already providing some funding for this 259 This is not clinically proven yet, just observed. A project is being driven by PROteINSECT, notably to determine the optimal design 237 C. J. Hughes, ‘In Newark, a Vertical Indoor Farm Helps of insect-based animal feed production systems utilising the results Anchor an Area’s Revival’, The New York Times, 7 April 2015, of a comprehensive life cycle analysis. PROteINSECT: http://www. http://www.nytimes.com/2015/04/08/realestate/commercial/ proteinsect.eu/ in-newark-a-vertical-indoor-farm-helps-anchor-an-areas-revival. html 260 This is not clinically proven yet, just observed. A project is being driven by PROteINSECT, notably to determine the optimal design 238 Growing Underground SW4: of insect-based animal feed production systems utilising the results of a comprehensive life cycle analysis. PROteINSECT: http://www. proteinsect.eu/ 239 AeroFarms: www.aerofarms.com
261 Pimentel and Pimentel (2003) calculated that for 1kg of high- 240 AeroFarms: www.aerofarms.com quality animal protein, livestock are fed about 6kg of plant protein. Feed-to-meat conversion rates (how much feed is needed to produce a 241 Spread: http://spread.co.jp/en/company/ 1kg increase in weight) vary widely depending on the class of the animal and the production practices used. Typically, 1kg of live animal weight 242 Justin McCurry, ‘Japanese firm to open world’s first in a US production system requires the following amount of feed: robot-run farm’, The Guardian, 2 February 2016, https://www. 2.5kg for chicken, 5kg for pork, and 10kg for beef (Smil, 2002). Insects theguardian.com/environment/2016/feb/01/japanese-firm-to- require far less feed. For example, the production of 1kg of live animal open-worlds-first-robot-run-farm weight of crickets requires as little as 1.7kg of feed (Collavo et al., 2005). When these figures are adjusted for edible weight (usually the entire 243 Spread’s new automation technology will not only produce more animal cannot be eaten), the advantage of eating insects becomes lettuce, it will also reduce labour costs by 50%, cut energy use by 30%, even greater (van Huis, 2013). Nakagaki and DeFoliart (1991) estimated and recycle 98% of water needed to grow the crops that up to 80% of a cricket is edible and digestible compared with 55% for chicken and pigs, and 40% for cattle. This means that crickets are 244 Complete proteins sources are defined as protein sources that twice as efficient in converting feed to meat as chicken, at least four provide a good balance of the amino acids matching the body’s needs. times more efficient than pigs, and 12 times more efficient than cattle. While animal proteins tend to contain a good balance of all the amino Food Agriculture Organization of the United Nations, ‘Environmental acids that we need, some plant proteins are low in certain amino acids Opportunities for Insect Rearing for Food and Feed’ in Edible Insects: Future Prospects for Food and Feed Security, 2013, http://www.fao.org/ docrep/018/i3253e/i3253e05.pdf 245 High concentration proteins sources, this excludes wheat, maize, barley, etc. ABAgri Associated British Agriculture, Alternative Proteins Market Study, 2013 262 Ibid, ‘Environmental Opportunities for Insect Rearing for Food and Feed’, 2013 246 Sarena Lin, president of Cargill’s global compound feed business 263 Olive pulp is typically not used to feed farmed animals directly as it is not digestible for them but can be used for insects. Brewery waste 247 Due to erosion, nutrient depletion, acidification, salinisation, is often not used to feed farmed animals directly because of the high compaction, and chemical pollution humidity (70%) that requires brewery waste to be either used on site (for sites where there are also farmed animals) or transported. But it can be 248 Food and Agriculture Organization of the United Nations, used for insects as insects can be grown in local units with high humidity ‘Agriculture’s greenhouse gas emissions on the rise’, 11 April 2014, before being transported to the centralised transformation unit http://www.fao.org/news/story/en/item/216137/icode/ 264 Ibid, ‘Environmental Opportunities for Insect Rearing for Food and 249 Ibid, Food Futures: From business as usual to business unusual Feed’ 2013
250 For example, fish accumulate plastics and toxic pollutants 265 Work on ruminants, such as lactating cows is underway with likely by eating small fragments of debris floating in the ocean and by potential at specific life stages absorbing heavy metal contamination and other pollutants; Ibid, Growth Within, 2015 266 It started licensing its nutrient-recycling technology worldwide in 2015. AgriProtein: http://www.agriprotein.com 251 Europe imports 70% of the proteins (16.3mt) that are consumed directly or indirectly via animal feed. ABAgri Associated British 267 Products were approved for sale in Europe for pet food and the Agriculture, Alternative Proteins Market Study, 2013 company is awaiting EU approval for insects in feed. Ibid, Food Futures: from business as usual to business unusual 252 Ibid, Food Futures: From business as usual to business unusual 268 Labiotech.eu, ‘Ynsect: what’s behind this Yellow Biotech 253 Ibid, Food Futures: From business as usual to business champion?’ 27 April 2015, http://labiotech.eu/ynsect-whats-behind-this- unusual, p.22 yellow-biotech-champion/
254 Lab-grown meat for direct human consumption was not included 269 Ibid, Food Futures: from business as usual to business unusual in the focus of the theme as it was considered to be less likely to be scaled in Europe in the next ten years due to the consumer acceptance 270 Ibid, Food Futures: from business as usual to business unusual barrier and because developments towards cost-effective mass production are less advanced. Insect-based food for direct human consumption was not included as it was considered to be less likely 271 Ibid, Food Futures: from business as usual to business unusual to be scaled in Europe in the next ten years due to the consumer acceptance barrier and legislative barriers that will likely require proven 272 As a set of players have developed the technologies required, pilots traceability across the human food supply chain, as well as the need for are being implemented to adjust for it to be available at scale at a cost- further research on potential health impacts. However, outside the EU, effective level (for the use of agricultural by-products) or are already companies such as Eat Grub and Entotech are already selling edible available at scale and cost effective (for the use of organic waste). insects. Insects could also be leveraged directly by farmers/households, for example feeding larvae with farm waste and then feeding them 273 For example, algae players still need to understand which species to farm animals (pigs and chicken). The world’s first desktop hive for to use, optimal growing conditions, and then to calculate costs, such edible insects for consumers is expected to be launched in 2016. Livin as light, water usage, pigmentation removal, and drying. Abagri.com farms.com: http://www.livinfarms.com/ ‘Acquisition signals entry into new generation proteins market’, https:// www.abagri.com/company/agrokorn 255 Valuable by-products from the production of next-wave protein sources have been identified, such as high-value molecules with 274 Ibid, ‘Acquisition signals entry into new generation proteins market’ antimicrobial properties for insects; clean water from food and beverage waste streams for bacteria; triglyceride oils and ingredients 275 However, this market is more limited for microalgae that can be used as the foundation for industrial products and fuels as well as foods. Ibid, Food Futures: from business 276 In addition, the competition for input resources could affect the as usual to business unusual new and established industries. Ibid, Food Futures: from business as usual to business unusual 256 Next-wave protein sources could be produced in Europe, which would reduce dependency on foreign high-protein sources and improve 277 Western attitudes towards entomophagy (the consumption of Europe’s commercial balance insects by humans) are typically negative – insects are perceived as unclean and vectors of disease. And similar attitudes may be found 257 This is partly due to the greater share of edible bodyweight, for towards lab-grown meat; a 2014 study found reactions of ‘disgust’ and example up to 80% of insects’ bodyweight is edible and digestible, ‘unnaturalness’ compared to 55% for chicken and 40% for cattle ACHIEVING ‘GROWTH WITHIN’ | 147
278 Recent studies have also shown positive attitudes towards insect 308 Sectional prefabricated buildings or houses that consist of multiple feed for animals; a majority of study respondents said that they would sections called modules. Modules are constructed at an off-site facility, eat meat (pig, poultry, fish) raised on insect feed. Ibid,Food Futures: then delivered to the intended site of use and assembled. from business as usual to business unusual 309 Ibid, Growth Within, 2015 279 Ibid, Food Futures: from business as usual to business unusual 310 Ibid, Growth Within, 2015 280 Ibid, Food Futures: from business as usual to business unusual 311 However, note that WinSun buildings are not designed for looping 281 Angela Booth, Head of Alternative Proteins AB Agri; Ibid, Food and are concrete shells to which windows, doors, and other elements Futures: from business as usual to business unusual must be added after 3D printing is completed; Designboom, ‘Chinese company 3D prints 10 recycled concrete houses in 24 hours’, 24 April 282 Ibid, Food Futures: from business as usual to business unusual 2014, http://www.designboom.com/technology/3d-printed-houses-in- 24-hours-04-24-2014/ 283 EU directives 1069/2009 C3 (revised by the 294/2013) and UE 999/2001 (revised by the 56/2013) 312 bioMASON: http://biomason.com
284 For example, in France the Environment Code governs captive wild 313 Accoya, ‘End of Life’, https://www.accoya.com/sustainability/end-of- fauna farming by requiring an authorisation request for opening a unit life/ C2C certification Material Reutilisation Score used to track progress and a certificate of competence, as well as the laws on ICPE with the sections 2150 and 2221 314 Acetylated MDF (Tricoya), contrary to regular MDF, may be perceived as a premium material. Reusing Accoya wood to manufacture 285 PROteINSECT: http://www.proteinsect.eu/ Tricoya also further increases the carbon sink effect. Ibid, Accoya,‘End of Life’ 286 Directorate General for Health and Food Safety, ‘European Commission draft law’; InnovaFeed: http://innovafeed.com 315 In the least-favoured scenario of composting, Accoya wood can be handled in the same way as untreated wood 287 Excluding food waste – due to lack of traceability – and animal co-products 316 ‘The BAMB project – involving 16 parties throughout Europe – is developing and integrating tools that will enable the shift to buildings functioning as banks of valuable materials. The main tools enabling the 288 As Switzerland is not in the EU shift are Materials Passports and Reversible Building Design – supported by new business models, policy propositions, and management and st 289 Food Ingredients 1 ,‘Dutch Retailer Jumbo Launches Edible decision-making models. During the course of the project these new Insects’, 31 October 2014, http://www.foodingredientsfirst.com/news/ approaches will be demonstrated and refined with input from six pilots. Dutch-Retailer-Jumbo-Launches-Edible-Insects.html The BAMB project started in September 2015 and will progress for three years as an innovation action within the EU-funded Horizon 2020 290 InnovaFeed: http://innovafeed.com programme’, http://www.bamb2020.eu/
291 Normal soya and other starches, and carbohydrates are also used 317 The Quartz Project: www.Quartzproject.org
292 Proportions may vary depending on farmed fish species 318 Ibid, ‘Circular Economy in the Built Environment’, 2016
293 Most farm-raised carnivorous fish are fed formulated feed pellets 319 David Cheshire, ‘Building in layers’ in Ibid, Building Revolutions, 2016 comprised of grain, fishmeal, and fish oil. Many marine scientists are concerned about the immense volumes of wild ocean fish that must 320 DIRTT: https://www.dirtt.net be caught to feed these farmed animals, a fact that also involves food safety issues for consumers (e.g. pollution can contaminate fish feed). 321 Ibid, Growth Within, 2015 More detailed analysis available at: http://www.pbs.org/emptyoceans/ fts/fishmeal/index.html. Harvested soybean area expansion would be 322 Beedeleem: http://www.beddeleem.be/en/beddeleem/historiek achieved through deforestation causing increase in CO2 emission, loss of unique habitat, and land erosion. 323 Contains no substances known or suspected to cause cancer, birth 294 This refers to the FIFO (Fish In Fish Out ratio) and is not defects, genetic damage or reproductive harm, Cradle to Cradle, http:// clinically proven yet, just observed and very likely driving the use of www.c2ccertified.org/products/scorecard/jb-4000 antibiotics to address health issues fish are having after eating plant proteins in proportions that are too large. A project is being driven by 324 Cradle to Cradle, http://www.c2ccertified.org/products/scorecard/ PROteINSECT, notably to determine the optimal design of insect-based jb-4000 Material Reutilization Score achieved ≥ 50. animal feed production systems using the results of a comprehensive life cycle analysis. PROteINSECT: http://www.proteinsect.eu/ 325 Expert interviews
295 The ratio of total weight of food needed to produce 1kg of protein 326 Ibid, Supporting Excellence in UK Remanufacturing, 2014
296 i.e. with smooth arrangements allowing for changes or upgrades in 327 For example, through energy efficiency or extra production, greater layout, size or functionality durability, modularity, and adaptability
297 For more details, see David Cheshire, Building Revolutions: 328 Ibid, Delivering the Circular Economy: A toolkit for Applying the Circular Economy to the Built Environment, RIBA a policymakers, 2015 Publishing, 2016 and Arup, ‘Circular Economy in the Built Environment’, September 2016, http://publications.arup.com/ 329 Ibid, Delivering the Circular Economy: A toolkit for publications/c/circular_economy_in_the_built_environment a policymakers, 2015
298 Danish Environmental Protection Agency, ‘Building a circular 330 bid, Delivering the Circular Economy: A toolkit for future’, 26 May 2016, https://issuu.com/3xnarchitects/docs/ a policymakers, 2015 buildingacircularfuture 331 And/or but not necessarily a relevant collaborative ownership 299 Ibid, ‘Circular Economy in the Built Environment’, 2016 structure. Expert interviews (Arup, David Cheshire).
300 http://www.park2020.com/en/innovation-platform/ 332 Metropolis, ‘Don’t Call It A Commute’, http://www.metropolismag. com/May-2015/Dont-Call-It-A-Commune/ 301 Ibid, Growth Within, 2015 333 Shannon Bouton, David Newome, and Jonathan Woetzel, ‘Building 302 Ibid, Growth Within, 2015 the cities of the future with green districts’ on McKinsey&Company website, May 2015, http://www.mckinsey.com/business-functions/ 303 Ibid, Growth Within, 2015 sustainability-and-resource-productivity/our-insights/building-the- cities-of-the-future-with-green-districts 304 Ibid, Growth Within, 2015 334 ‘Essentials: Building a Circular Future’, booklet published with 305 Ibid, Growth Within, 2015 support from the Danish Environmental Protection Agency, 2015, http://byg.di.dk/SiteCollectionDocuments/Arrangementer%20og%20 nyhedsdocs/Publikation%20om%20Cirkulær%20Økonomi.pdf 306 Ibid, Growth Within, 2015
335 European Commission 307 Ibid, ‘Building a circular future’, 2016 148 | ACHIEVING ‘GROWTH WITHIN’
REFERENCES
336 Peter Craven, ‘Why C&D recycling targets are an obstacle to 367 Gemeente Amsterdam, ‘Circular Economy’, https://www. growth’, 26 February 2015, http://www.recyclingwasteworld.co.uk/in- amsterdam.nl/bestuur-organisatie/organisatie/ruimte-economie/ruimte- depth-article/cd-recycling-targets-obstacle-to-growth/74145/ duurzaamheid/ruimte-duurzaamheid/making-amsterdam/circular- economy/ 337 Expert interviews 368 The State of Climate Finance, CCFLA, 2015 338 EU Directive (2008/98/EC) 369 Ibid, Energy Efficient Street Lighting, 2013 339 European Commission, ‘Ambitious waste targets and local and regional waste management’, June 2013, http://cor.europa.eu/en/ 370 Barcelona.cat, ‘Superilles’, http://ajuntament.barcelona.cat/ documentation/studies/documents/2013-waste-target-and-regional- superilles/es/presentacion waste-management/waste-target-and-regional-waste-management.pdf 371 Civitas 2020: http://civitas.eu 340 Lendager Group 372 Civitas 2020: http://civitas.eu 341 UK government 373 Skanska Plc press release, ‘Skanska Laing Consortium reaches 342 Dr Paul Toyne and Balfour Beatty, Circular Economy in the Financial Close for Surrey Street Lighting PFI’, 30 November 2009, Built Environment: A Balfour Beatty Perspective, 25 February 2016, http://www.skanska.co.uk/news—press/display-news/?nid=mkS1kRPG http://constructingexcellence.org.uk/wp-content/uploads/2016/04/ Constructing-Excellence-CE-workshop-Toyne-25022016.pdf 374 Surrey County Council: https://www.surreycc.gov.uk
343 European Aggregate Association: http://www.uepg.eu/ 375 Ibid, Skanska Plc press release
344 European Parliament, Understanding Waste Streams, July 376 Surrey County Council: https://www.surreycc.gov.uk 2015, http://www.europarl.europa.eu/EPRS/EPRS-Briefing-564398- Understanding-waste-streams-FINAL.pdf 377 Rebecca Shepherd, Get Surrey, ‘Surrey County Council approves plans to switch off 40,000 street lights at night to save funds’, 345 Gypsum to Gypsum: http://gypsumtogypsum.org/ 19 October 2016, http://www.getsurrey.co.uk/news/surrey-news/surrey- county-council-approves-plans-12044411 346 Eurogypsum: www.eurogypsum.org
347 Tasei corporation
348 Ibid, Growth Within, 2015
349 Interview with Anders Lendager
350 WRAP, Overview of Demolition Waste in the UK, http://www.wrap. org.uk/sites/files/wrap/CRWP-Demolition-Report-2009.pdf
351 Interview with Ward Massa, Co-Founder of StoneCycling
352 Cement Sustainability Initiative, ‘Recycling Concrete’, http:// wbcsdcement.org/index.php/en/key-issues/sustainability-with- concrete/concrete-recycling
353 Ibid, ‘Recycling Concrete’
354 Jaeger AUSBAU GmbH-Germany, Pinault and Gaspaix-France, Recovering SARL-France, Recycling assistance BVBA, Cantillon LtdUK, Occamat-France
355 New West Gypsum Recycling Benelux BVBA-Belgium, Gips Recycling Danmark A/S- Denmark
356 Placoplatre SA (Siant Gobain Group)-France, Siniat SA-France, Siniat Ltd-UK, Knauf Gips KG-Germany, NV Saint Gobain Construction Products Belgium SA (Gyproc)-Belgium
357 Eurogypsum members association, The European GtoG Project, http://www.eurogypsum.org/wp-content/ uploads/2015/04/201404-AFR_Material_Eurogypsum.pdf
358 Gypsum to Gypsum, European Handbook on Best Practices in Deconstruction Techniques, March 2015, http://ec.europa.eu/ environment/life/project/Projects/index.cfm?fuseaction=home. showFile&rep=file&fil=GtoG_Handbook_Best_Practices.pdf
359 Gypsum Recycling International, New West Gypsum, Siniat France
360 Ibid, Growth Within, 2015
361 Ibid, Growth Within, 2015
362 Reworked from Ibid, ‘Building the cities of the future with green districts’, McKinsey&Company, 2015
363 European PPP Expertise Centre, Energy Efficient Street Lighting, June 2013, http://www.eib.org/epec/ee/documents/factsheet-street- lighting.pdf
364 Ibid, ‘Building the cities of the future with green districts’, McKinsey&Company, 2015
365 Ibid, Energy Efficient Street Lighting, 2013
366 SymbioCity, ‘Making an entire sustainable urban district’, http:// www.symbiocity.org/en/approach/Cases-undersidor/Hammarby- Sjostad-three-in-one/