Japan must Lead the World in Circular Economy Initiatives and Rule Making, in Partnership with EU

Consulting Fellow, RIETI

On June 15, 2023, the EU-Japan Centre for Industrial Cooperation hosted a webinar titled "Circular Economy and Resource Efficiency (CEREP): The growth-oriented strategy of resource-autonomous circular economy”

Circular economy is actually a concept with a long history in Japan. As far back as 1999, the then Ministry of International Trade and Industry (MITI) announced the Circular Economy Vision (revised in 2020), and in 2001 the Basic Act on Establishing a Sound Material-Cycle Society was enacted. However, in recent years, the efforts in the EU have attracted much attention and become a topic of discussion, and in response, discussions and efforts are once again underway in the related public and private sectors in Japan. In March 2023, METI formulated a document titled "Growth-Oriented, Resource-Autonomous Circular Economy Strategy.”
(in Japanese)

A Communiqué Annex titled Circular Economy and Resource Efficiency Principles (CEREP) was also adopted at the G7 Minister’s Meeting on Climate, Energy and Environment in April 2023.
Circular Economy and Resource Efficiency Principles (CEREP) (meti.go.jp)

In this conference, policy makers from both Japan and the EU, as well as those from the private sector, gathered to introduce their respective positions and confirmed their commitment to further promoting and enhancing their efforts. The future direction of policy cooperation between Japan and the EU was also discussed, making the webinar a meaningful event befitting the Japan-EU Green Alliance.

The key points of the initial presentations from each speaker are as follows:

Director Ciobanu-Dordea of the European Commission explained the EU's efforts, mainly in line with the Circular Economy Action Plan 2.0, which was announced in March 2020.
The EU's new Circular Economy Action Plan is out! | European Circular Economy Stakeholder Platform (europa.eu)

The Circular Economy has been part of the Green Deal since 2019, with a history of initiatives since the 2010s, The features of these efforts are twofold: 1) sector-specific regulatory changes are underway (proposed regulations for batteries, packaging, automobiles, etc.), and 2) the main characteristics of the manufacturing industry are sustainability, circularity, and resource efficiency (Eco-design proposals for sustainable products are being made such as ESPR (the Regulation on Ecodesign for Sustainable Products)). Expectations for Japan as a like-minded partner in these efforts were strongly expressed.

Director Tanaka of METI introduced the results of efforts centered on the 3Rs (reduce, reuse, recycle) since the Circular Economy Vision in 1999 and the Basic Act on Establishing a Sound Material-Cycle Society in 2021, such as final disposal of waste: from 109 million metric tons in 1990 to 13 million metric tons in 2019, which are results that exceed those in Europe. In addition, he noted the need to shift from a focus on quantity to a focus on quality in the future and indicated that efforts should be made to reduce CO2 emissions through circular economy initiatives, to achieve economic security related to critical mineral resources, and to address regulatory compliance and standardization, finance, and start-up support. Furthermore, cooperation was suggested between Japan and the EU in aspects of the necessary efforts such as standardization of circularity design and data compatibility for the circular economy.

Director Bauer of the Policy Hub introduced the efforts of Policy Hub which is an organization that promotes circular economy initiatives in the textile sector, and pointed out that future challenges include ensuring traceability, taking into account diverse businesses including SMEs, and future enforcement of legislation (e.g., to avoid free riding) to promote circular economy in the textile sector.

President Amanuma of airCloset, Inc. introduced the company's unique business (clothing rental subscription), mentioned the importance of Information & Communications Technology (ICT) in its business model, and expressed the company's future ambition to grow through overseas expansion and business domain expansion as a circular fashion company.

After listening to the discussion, my takeaways are as follows:

First, both the EU and Japan are aligned in terms of their interest in establishing a circular economy.
The issues behind the goal of a circular economy are the climate crisis, resource constraints, and the economic security risks (supply chain resilience) that have recently been brought to light, which are common to both the EU and Japan. The EU has a strong awareness of supply chain resilience, especially as seen in the Batteries Regulation that will soon be adopted by the EU Parliament. In other words, in order to secure the supply of batteries essential for the Green Transition, the regulation seeks to address the risk of dependence on China by requiring the recovery and recycling of critical raw materials such as nickel, cobalt, and lithium, and the use of recycled materials. In contrast, in Japan, there is a strong awareness of recycling as contributing to decarbonization. Director Tanaka introduced data comparing virgin and recycled materials, such as 66% lower carbon intensity for aluminum and 79% lower carbon intensity for steel products. In any case, a common understanding of the issues is an important foundation for future international and Japan-EU cooperation.

Second, we should highlight the contrasting aspects of circular economy efforts by Japan and Europe.
Japan has one of the highest levels of achievement of the 3Rs in the world, thanks to the actual efforts of public and private sector parties based on the legal system since the 1990s. In addition, unique new business models have been established, such as airClose, Inc. However, such advanced Japanese practices are not well known around the world.
In contrast, the EU in recent years seems to have a head start on Japan in terms of conceptualizing the circular economy and its ability to penetrate the global market. As explained above by the EU, the EU is rapidly institutionalizing laws for each sector as part of its circular economy strategy, and is making every effort to make these laws known to the outside world. In particular, the recent Russian invasion of Ukraine since February 2022 has solidified the policy of breaking away from dependence on Russian energy, and the issue has led to a growing awareness of the problem of dependence on China for critical raw materials such as solar panels and batteries, which are necessary for advancing the green transition. And the awareness of circularity as a response to this has been expressed both inside and outside the EU.
Japan should greatly strengthen its efforts to explain its high performance to the outside world (e.g., Japan's Containers and Packaging Recycling Law has been in effect since 1997, while a similar regulation proposal by the EU was just made in November 2022).

Third, it has been recognized that the use of ICT is important for upgrading actual efforts in the circular economy, and the EU has begun to take the lead in this area, where there is significant potential for effective Japan-EU cooperation.
A distinctive EU initiative is the Digital Product Passport (DPP). This is an initiative to improve environmental performance and promote regulatory compliance by digitally attaching product information (environmental impact, recyclability, and substances of concern) to products throughout their life cycles. Data architecture mechanisms are about to be institutionalized sequentially for each product. The EU is considering further expanding these mechanisms internationally.
Japan has a wealth of experience with the 3Rs and has accumulated data on their related programs. Based on the same concept as in the EU, a system to effectively utilize these data and other resources should be introduced in Japan, and as Director Tanaka pointed out, the system should be compatible with the EU and other countries, with the aim of spreading Japan's high-performance technologies and systems throughout the world. Recently, METI has launched an initiative called the Ouranos Ecosystem, which aims for data collaboration among companies and industries similar to Europe's Gaia-X.
Japan’s Initiatives for Interoperable Data Infrastructures Officially Named “Ouranos Ecosystem” (meti.go.jp)
This should be leveraged to spread the circular economy model globally through systemic initiatives that will be interoperable under the Japan-EU Partnership.

It is often said that Japan wins in technology and loses in business. In projects and initiatives of a social and environmental nature, such as the circular economy, we must avoid situations where we win in the initiatives and lose in the rule making. For this reason, the partnership between the EU and Japan is indispensable.

(The comments of each speaker in the text are based on the author's understanding.)

June 27, 2023
>> Original text in Japanese

August 7, 2023