4 ways the circular economy can help heavy industry reduce emissions

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This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Christoph Willing, Senior Engagement Manager, McKinsey, Hamburg office


  • The majority of industry emissions comes from 4 material groups: Steel, cement, aluminum, chemicals.
  • Global demand for the 4 focus materials is expected to increase – exacerbating the emission challenge.
  • Getting to a 1.5°C pathway requires significant emissions reduction in all 4 material groups.
  • There is still a large potential to improve circular material flows for all focus materials.
  • Individual companies face several challenges when implementing circular economy solutions.

The world must reach net-zero emissions by 2050 to avoid the worst effects of climate change. This is no easy feat, but one clear solution could lie in industry emissions.

Globally, industry emissions are responsible for 27% of our CO2 emissions, second only to the power sector. Four materials are responsible for up to 60% of these industry emissions – steel, cement, chemicals and aluminum – reaching a total of 7.1 Gt CO2 per year. https://www.youtube.com/embed/channel/UClQPDUvu87Y3NOGmsT-4JSQ%20?enablejsapi=1&wmode=transparent

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Given that demand for these materials is expected to increase over the coming years under a ‘business as usual’ scenario, successfully decarbonizing these materials is critical to solving the climate crisis. In this effort, the circular economy can play a key role.

Source: McKinsey, International Aluminium Institute, IEA
Image: McKinsey, International Aluminium Institute, IEA

sustainability

What is the World Economic Forum doing about the circular economy?

The World Economic Forum has created a series of initiatives to promote circularity.

1. Scale360° Playbook was designed to build lasting ecosystems for the circular economy and help solutions scale.

Its unique hub-based approach – launched this September – is designed to prioritize circular innovation while fostering communities that allow innovators from around the world to share ideas and solutions. Emerging innovators from around the world can connect and work together ideas and solutions through the UpLink, the Forum’s open innovation platform.

Discover how the Scale360° Playbook can drive circular innovation in your community.

Connect to Learn More →

2. A new Circular Cars Initiative (CCI) embodies an ambition for a more circular automotive industry. It represents a coalition of more than 60 automakers, suppliers, research institutions, NGOs and international organizations committed to realizing this near-term ambition.

CCI has recently released a new series of circularity “roadmaps”, developed in collaboration with the World Economic Forum, the World Business Council for Sustainable Development (WBCSD), McKinsey & Co. and Accenture Strategy. These reports explain the specifics of this new circular transition.

Connect to Learn More

3. The World Economic Forum’s Accelerating Digital Traceability for Sustainable Production initiative brings together manufacturers, suppliers, consumers and regulators to jointly establish solutions and provide a supporting ecosystem to increase supply chain visibility and accelerate sustainability and circularity across manufacturing and production sectors.

Connect to Learn More →

Opportunity

Even for steel and aluminum – which are in principle infinitely recyclable – around 15% to 25% of materials are not collected for recycling at their end of life. Additionally, only 8% of concrete is collected for recycling with most discarded as construction or demolition waste. Furthermore, closed loop recycling is still rare in all materials as significant downcycling reduces their value.

Image: McKinsey, International Aluminium Institute, IEA


Demand for these materials is focused on just five industries: construction/infrastructure; transportation; consumer goods; machinery; and packaging. In fact, these industries account for more than 90% of the consumption of global steel, aluminum, cement and chemicals. It is therefore crucial to involve them in implementing and scaling circular economy solutions for hard-to-abate materials

Four materials – steel, cement, chemicals and aluminum – are responsible for up to 60% of global industry emissions

McKinsey, International Aluminium Institute, IEA
Image: McKinsey, International Aluminium Institute, IEA

Solutions and challenges

Four major levers will enable emissions reduction from circular economy approaches when it comes to these materials and heavy industry overall. Understanding these strategies – and what will make them successful – can help focus efforts and speed global efforts to mitigating the effects of climate change. These levers include:
1. Increasing product utilization. Maximizing the use cycles of products or their components or increasing the intensity of use to reduce the amount of new products needed.

2. Replacing materials or products. Considering circular alternatives can help preserve resources and the availability of materials while creating a more circular, resilient system.

3. Reducing material per product. Rethinking how materials are used can optimize product design and make production more efficient.

4. Recycling material for new products. Such an approach can protect virgin material while promoting the trade and circulation of recyclables.

Of course, these strategies are not simple to deploy. While circularity has gained momentum in recent years, many solutions are not yet implemented at scale. Additionally, individual companies looking to put circular solutions in place face a range of challenges, including a lack of access to materials and even a lack of capability. Complexity is its own challenge as many circular solutions involve a range of players along the value chain, often with companies and stakeholders that have limited interaction with one another.

Collaboration

To scale such approaches, industry collaborations will be key. For the four focus materials, this means bringing together material producers with large industrial users of these materials (namely from the built environment/infrastructure, transportation, consumer goods, packaging, and machinery/mechanical engineering sectors). Platforms that bring these actors together, that provide guidance, can help leaders bridge capability gaps and develop new processes.

Policy makers also play in important role. These leaders have a range of tools at their disposal to support the implementation and scaling of circular solutions. These tools can include financial incentives, market regulation or even public procurement targets.

In addition to industry collaborations, technological innovations can scale change. Technology can ensure that solutions can be implemented on a wide scale and are not held back thanks to prohibitive investment or a lack of cost competitiveness. Through these collaborations between innovators, industry leaders and policy makers, leaders will develop new standards and new processes that will make circularity a reality.

To this end, a new joint initiative – “Circular Economy for Net-Zero Industry Transition” – was launched to raise the decarbonization ambition for harder-to-abate materials (steel, cement, chemicals, and aluminum) towards a 1.5 degree pathway through catalyzing scalable circular economy solutions. The initiative – launched by the World Economic Forum and the Mission Possible Partnership – will mobilize a core group of champion companies who will commit to a joint declaration of intent regarding the importance of the circular economy in their decarbonization strategy.

Following these declarations of intent, the initiative will bring together industry champions from both the supply and demand sides with other relevant stakeholders arounddefined focus topics in dedicated Action Tracks. In facilitated workshops, stakeholders will develop strategies for scaling circular solutions and then jointly commit to collaborate on their implementation.

The outcomes of these Action Tracks will be showcased at high-level events, such as the World Circular Economy Forum (WCEF) and COP26, to recognize the work of industry champions and inspire further action.

This initiative is supported by the Dutch Ministry for the Environment and the Japanese Ministry of Economy, Trade, and Industry. Other collaborators include top global organizations such as: PACE, Circle Economy, the African Development Bank, the Organisation for Economic Co-operation and Development (OECD), the International Resource Panel (IRP) and Chatham House. McKinsey & Company serves as a knowledge partner.

Such an initiative demonstrates the potential for action and innovation. Industry has for centuries transformed how we live and harness the earth’s resources. Fighting climate change will require a new and massive transformation, and one that no single company can make possible alone. A system-wide change will require a system-wide search for solutions.

Companies, governments, and policymakers as well as other organizations active in the circular economy are invited to join and sign the initiative’s pledge. Click here to learn more.

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