Circular Markets for industrial value creation "Made in Europe"

DEMAND | PRODUCT POLICY | CIRCULAR ECONOMY

Circular markets for industrial value creation "Made in Europe“

Claims of the BDI Initiative Circular Economy for the 2024 European election

7 May 2024

1. Realignment of the framework conditions for circular value creation

Since 2014, the further development of the circular economy has been a political priority of the European Union (EU). Under the first Circular Economy Action Plan of 2015, numerous EU waste directives were amended (including the Waste Framework Directive, the Packaging and Packaging Waste Directive, the Landfill Directive and the Waste Electrical and Electronic Equipment Directive) Furthermore, the development of functioning markets for plastics from the circular economy was politically prioritised for the first time (including the Directive on Single-Use Plastics, industrial pledges for the use of recycled plastics).

With the EU's Green Deal from 2019 to 2024, circular value creation was politically upgraded once again. Since then, the aim has been to focus on the importance of circular value creation as an elementary contribution to the secure supply of raw materials for industry, to create the conditions for building more resilient value creation networks, to increase innovative strength in Europe and to reduce CO2 emissions.

The second Circular Economy Action Plan of 2020 focused on the requirements for products. With the adoption of an Ecodesign Regulation with a broad scope of application and as a framework for circular products, a Battery Regulation, a Packaging Regulation, a Construction Products Regulation, a Regulation on the supply of critical raw materials to the EU (Critical Raw Materials Act), a Directive on claims for the repair of certain products, a Directive on product-related environmental claims (Green Claims), which is still in the legislative process, and a legislative process for an End-of-Life Vehicles Regulation, the framework conditions for production, products and circular economy raw materials in the European internal market will change fundamentally in the coming years. At the same time, the rules for cross-border waste

shipments have been revised through an amendment to the Waste Shipment Regulation, the Waste Framework Directive has been adapted to incorporate the EU textile strategy, among other things, and the circular economy has been included as a fundamental topic in the directive for corporate sustainability reporting. Among other things, this will also play a key role in the implementation of the EU taxonomy, which aims to significantly improve the financing conditions for companies that operate sustainably, i.e. also "circularly".

The change in many regulative areas towards an integrated approach to circular value creation in cycles, including the shift from a waste-centered to a holistic raw material and productoriented perspective, is the right path to take. The change from nationally implemented directives to directly effective regulations is essential for the creation of European markets with a level playing field in many areas.

After more than ten years of intensive work on changes to the regulatory framework, the focus will be on the years 2024 to 2029:

▪ to enable companies to realise circular strategies as business models on the European internal market,

▪ to organise the adopted framework regulations in such a way that requirements are developed in a participatory and transparent manner and are plannable, implementable and measurable for companies,

▪ to provide the desired product and material cycles with a coherent legal framework that, on the one hand, provides consistent definitions and specifications and, on the other hand, defines the interfaces between product, waste and material legislation in such a way that cycles are enabled and not prevented,

▪ to shape the European model of a holistic circular economy within the framework of international trade and climate protection policy and to strengthen the competitiveness of European companies.

2. Fields of action

2.1 Harmonised requirements for circular products

In future, product design will also be based on criteria such as durability, reusability, reparability, recyclability and the use of raw materials from the circular economy, particularly as part of the implementation of the EU Ecodesign Regulation. The fulfilment of such criteria should then also determine whether products can be placed on the European single market. They will therefore apply to products manufactured in the EU as well as imported products. The planned requirements are to be created in the coming years through the development of a large number of delegated and implementing acts, as well as through the development of standards. It is of central importance for companies that these criteria are developed in a comprehensible, reliable, realisable, transparent and product-specific manner. Only in this way will it be possible to initiate market-driven competition for the best circular production processes, products and services and create investment security. It is also imperative to find the right balance between a sensible framework and degrees of freedom for companies so that their creativity and innovative strength can unfold throughout the entire value creation cycle.

2.2 Functioning markets for raw materials in the circular economy

In addition to the use of domestic and imported primary raw materials, the utilisation of circular economy raw materials should be improved in general and across all materials. It must be taken into account that the available potential of raw materials managed in cycles is determined by the quantity of usable primary raw materials on the market. In the EU, it will be important to trigger and secure investments in new and comprehensive collection, sorting and recycling structures in line with the waste hierarchy (mechanical, chemical and thermal) and at the same time to further develop the existing infrastructure. The potential, targets and measures for increasing the utilisation of circular economy raw materials must continue to be considered on a material-specific basis. Instruments that are legally enshrined to promote the use of circular economy raw materials ("push" and "pull" measures) must be weighed up in advance, at least with regard to the criteria "impact on quantity - availability and demand" (1), "ensuring the quality required on the market" (2) and "expected price development" (3). This is the only way to ensure the intended steering effect in each case.

An overarching impact assessment must be carried out for instruments that are to be applied in different legal acts and that affect identical material flows and therefore have an impact on the same overall market. Overall, it will be important to increase acceptance of the use of circular economy raw materials, improve the data situation and measurability for better monitoring of material flows, establish risk-based handling of the substances contained in materials in the cycle and significantly improve both quantity and quality on the markets for circular raw materials. A suitably practical and efficiently designed digital product passport (see also section 2.4) can make a decisive contribution to this.

2.3 Circular economy as a prerequisite for more climate protection

The establishment of a circular economy offers the opportunity to make an important contribution to climate protection. Extending the useful life of products and materials and using byproducts and raw materials that are recycled is already helping to reduce greenhouse gas emissions. The same applies to raw materials from biomass and, in the future, to the use of other alternative raw materials such as CO2. Circular value creation measures are effective at various stages of processing, production, distribution, utilisation and recycling processes. For example, reuse, repair and recycling each have an effect on reducing greenhouse gas emissions at different points in the value creation cycle. However, there is still no standardised international understanding of how such measures and effects can be systematically integrated into the carbon footprints of countries and companies. In addition, significant quantities of municipal waste are still being landfilled without proper treatment in many EU member states that were not previously utilised for material or energy purposes. This means that there is still great potential for saving greenhouse gas emissions by treating waste in accordance with the waste hierarchy and reducing methane emissions. By ending the landfilling of organic waste, more raw materials can be recovered for the cycle and, by utilising the energy content of waste that can no longer be recycled, a building block can be added to the local energy supply.

2.4 Circular value creation in the digital transformation

The digital permeation of production, products and services is taking place worldwide. The positive combination of digital technologies and the use of data with the further development of the circular economy is therefore inevitable if Europe as an industrial location is to survive in global competition. Digitalisation must not be seen as a parallel development and addition

to the circular economy, but as an integral part of it in all phases of the value chain. This means that, alongside decarbonisation, the second major transformation task - digitalisation - is also closely linked to the circular economy.

There are still many "blind spots" in the European industry:

▪ What happens to a product over its entire life cycle?

▪ What is the composition of material and waste streams?

▪ Which actors outside the vertical integration are potential trading partners under the new way of doing business?

▪ How many companies - especially SMEs - still need support in digitising their productrelated data?

▪ How has the digital infrastructure at public authorities to change to ensure improved enforcement?

These are fundamental questions for which digital technologies provide solutions:

• Digital twins that make waste streams measurable and controllable, thus creating new possibilities for sorting and recycling.

• Trading platforms and AI-supported databases that bring together supply and demand for circular economy products, product components and raw materials.

• Digital Product Passports (DPP), which make data for circular value creation transparent and interoperable and enable networking of the players involved in the cycle (companies, authorities, consumers).

As part of the Green Deal, the foundations for the creation of DPPs were laid in numerous circular economy policy acts. The anchoring of the DPP in the Ecodesign Regulation provides the framework for this. On this basis, a technical infrastructure for DPPs will first be developed and then product or material-specific requirements for the decentralised storage of information on circular properties (reusability, reparability, recyclability, etc.) will be drawn up. Work on this has already begun in the context of European standardisation (for the technical infrastructure) and the development of content requirements (e.g. for batteries in accordance with the Battery Regulation). In the coming years, it will be important to establish cross-

industry compatible infrastructures for data exchange and to aggregate targeted information at material and product level that is also compatible with Industry 4.0 applications. In addition to general regulatory requirements for data transparency, incentives should also be created to develop new and data-driven business models in the EU. Data cycles should always be established in such a way that they can be used for sustainable value creation, while protecting companies in sensitive areas and enabling horizontal, i.e. cross-industry and company size-independent integration.

2.5 Governance and stakeholder involvement for good regulation

The new framework legislation for circular value creation primarily addresses product characteristics and therefore indirectly also production. The need to define standardised technical criteria for product groups and products in the future, compliance with which will then determine whether they can be placed on the European single market, is taking center stage. This is accompanied by the realisation that a common understanding and definitions are required for circular markets, including for the calculation of recyclability and the measurability of recycled content, the balancing of effects for climate protection, digital architecture and data transferfor digital product passports or thereporting of key figures onthe circular performance of companies.

In order to define these market-determining rules, the framework legislation provides for the creation of a large number of delegated and implementing acts. In addition, standardisation mandates at EU level are to be used for market harmonisation. In view of their great importance for the success of circular value creation, scarce human resources and the required technical expertise,mastering these tasks seemscrucial. From 2024 to 2029, the involvement of the affected stakeholders in shaping the market conditions for circular production, products and services via transparent and lean processes will determine whether the EU's goals associated with the transformation to a circular economy can be realised. Legislation and standardisation must be interlinked in such a way that legal certainty is created for companies and at the same time sufficient space is guaranteed for the emergence and design of new markets.

Imprint

Federation of German Industries (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu

T: +49 30 2028-0

Lobby registration number: R000534

EU Transparency Register: 1771817758-48

Editor Dr Claas Oehlmann

Managing Director Initiative Circular Economy

T: +49 30 2028-1606

c.oehlmann@ice.bdi.eu

BDI document number: D1919