Japan and the EU Need to Work Together to Present a Circular Economy Model to the World

History of the Circular Economy

Efforts toward a circular economy (CE) are underway in both Japan and the EU.
CE is not just about recycling; it is an economic system that aims to strengthen industrial competitiveness and economic growth through the efficient and circular use of resources at all stages of the supply chain and value chain, based on designing products with reuse in mind from the product design stage.
In Japan, the Circular Economy Vision was formulated in 1999, which was followed by the Basic Act for Establishing a Sound Material-Cycle Society in 2000 and a series of other recycling laws, regulations, and systems.
In the EU, the first Circular Economy Action Plan was established in 2015, followed by the formulation of a new Circular Economy Action Plan in March 2020 that is part of the European Green Deal, and four policy packages have been released since 2022. These measures are advancing recycling across product sectors in the EU and strengthening efforts to design sustainable products.
In response to the EU’s actions, Japan also revised its Circular Economy Vision in 2020 and the formulated a growth-oriented resource-autonomous economy strategy in March 2023, advancing its efforts towards CE.

Presentation Summary

The key points of the presentation by Mr. Aurel Ciobanu-Dordea, Director, Circular Economy, Directorate-General for Environment, European Commission, are as follows:

• The new features of the EU's Circular Economy Action Plan 2.0 are: 1) a life cycle approach starting from the product design stage, 2) targeting material flows that have an impact on consumption and disposal (plastics, textiles and electrical products), and 3) unified rules (from directives to regulations) for the EU single market.
• Recent regulatory developments include: 1) battery rules, 2) packaging regulations, 3) waste transportation regulations, 4) Ecodesign for Sustainable Products Regulations (ESPR), 5) regulations to enhance circularity in the automotive sector (under consideration), and 6) extended producer responsibility regulations for textiles (under consideration).
• The main focuses of the next EU policies will be: 1) the Competitiveness Compass and Clean Industry Deal, 2) the expansion of the ESPR into textiles, Digital Product Passports (DPP), tires, and intermediate materials such as steel and aluminum, 3) the establishment of new circular economy legislation (regarding supply, demand, and market economy), 4) revisions to the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH) regulation (chemicals), and 5) strengthening regulations on per- and polyfluoroalkyl substances (PFAS).

The key points of the presentation by Mr. Shogo Tanaka, Director, Resource Efficiency and Circular Economy Division, GX Policy Group, METI, are as follows:

• The Growth-Oriented Resource-Autonomous Circular Economy Strategy will address the challenges of: (1) resource constraints and risks, (2) environmental constraints and risks, and (3) growth opportunities.
• In order to create a circular economy market, the following types of initiatives will be implemented: 1) initiatives at the design and production stages (visualizing circularity, certifying and labeling of circular design), 2) initiatives in the service sector (sharing, subscription, and regulatory review), and 3) initiatives at the collection and recycling stages (transformation from waste industries to resource-supply industries, technical and financial support), and 4) formation of a digital platform for information sharing (digitizing product information).
• Formation of the Circular Partners Network for industry-academia-government collaboration (currently has over 500 members).
• Based on the GX Economic Transition Bonds, the government aims to realize 2 trillion Japanese yen in public and private investment over 10 years in the circular economy sector, with an initial plan of providing 30 billion Japanese yen in support over the next three years in the fields of automobiles and batteries, electrical and electronic products, and plastics.
• Consider amending the current 3R-oriented (reduce, reuse and recycle) laws and regulations toward circular economy-focused laws and regulations that are oriented toward collaboration between the arterial and venous industries.
• Regarding digital platforms, following the battery tracking system in the Ouranos Ecosystem, a Chemical and Circular Management Platform (CMP) is under development.
• Policies aimed at improving resource productivity in the future include considering mandatory or incentive-based use of recycled materials.

Key points of the presentation by Mr. Noriyuki Mita, Vice President, Chief Sustainability Officer, Mitsubishi Chemical Group Corporation, are as follows:

• The chemical industry aims to contribute to strengthening the competitiveness of industries and regions through circular economy initiatives across all value chain.
• Examples of initiatives by the Mitsubishi Chemical Group Corporation include the use of bioplastics, Carbon Capture and Utilization (CCU), reducing the environmental impact during the manufacturing and usage stages, and plastic recycling.
• Plastic recycling methods include mechanical (material recycling), monomerization as chemical recycling, and pyrolysis (gasification, liquefaction) as chemical recycling. Each method has its advantages and disadvantages in terms of collection difficulty, recycled product quality, and energy consumption.
• The company’s largest chemical recycling plant in Japan is scheduled to open in 2025.
• Alliances have been formed with Refinverse and ENEOS, which are supply chain companies in the chemical recycling (pyrolysis) field.
• The challenges for the industry include: 1) market creation, 2) research and development (R&D), and commercialization, 3) access to waste, 4) closed or open business models, 5) data management for traceability, 6) supply chain and product complexity, and 7) cross-border movement of circular materials. Each of these requires a balanced solution.

Key points of the presentation by Ms. Kristiina Veitola, Director Corporate Affairs, Circular Economy and Packaging Policy, Tetra Pak, are as follows:

• For circularity and recycling, 1) invest approximately 100 million euros annually in sustainable packaging solutions over the next 5–10 years, 2) invest approximately 120 million euros in local collection and recycling ecosystems to increase recycling rates over the next three years, and 3) lead industrial cooperation in the collection and recycling of cardboard boxes.
• The challenges include: 1) policies should strengthen and incentivize economic models and cross-sectoral ecosystem thinking; 2) Circularity by Design should be the basis for all policies; 3) packaging should be recognized as an essential part of the food system; and 4) circular economy and food safety should be developed in tandem.

The exchange in the Q&A session is as follows:

Q1. Regarding target indicators

Ciobanu-Dordea:
Eurostat has been measuring the circular material use rate (note: the ratio of recycled resource materials to the total resource materials input into the material flow) by aggregating the data for each country, but the figure has been stagnant in recent years (note: 11.5% in 2022). (note: the EU has set a goal of doubling this figure between 2020 and 2030). Since this target is abstract and difficult to implement, in the new Circular Economy Law to be enacted in 2026, the EU is considering setting a target that is neither EU-wide nor country-specific, based on an impact assessment of target indicators such as recycled material usage rate and product lifecycle lengthening.

Tanaka:
It is important to reduce inflows throughout Japan and reduce the outflow to final disposal and incineration, as well as proper and long-term use of products, and in this sense we are looking at resource productivity (resource usage/GDP) and these flows as indicators. All of these are improving, but it is difficult to set goals. Ultimately, the circular economy policy should aim for a world in which virtually no exhaustible resources are used. In order to achieve this goal, it is necessary to set micro-level indicators in a way that is easy for companies to understand. To that end, Japan should participate in discussions among (international) private-sector organizations and standardization organizations, and to set globally applicable, comparable indicators and targets.

Q2. What policy interventions are needed to address the rising costs of recycled products and materials?

Tanaka:
Incentives are needed both upstream and downstream. Financial support for capital investment and R&D for this purpose has been provided. However, it remains insufficient. The cost increases when collecting waste which is initially widely dispersed, so we may need to add funds within existing budgets, or utilize price differential support (subsidies to cover the cost difference when utilizing recycled materials that are more costly than existing materials) for cutting-edge recycling methods such as chemical recycling. If these measures prove insufficient, it may be necessary to seek financial resources in the form of extended producer responsibility (EPR), where the polluter covers costs, to reduce a certain amount of the cost. It is necessary to blend these measures rather than just utilizing one of them.
We have included small and medium-sized enterprises from various sectors, including construction, IT, and retail, in the Circular Partners Network, to ensure that the burden is shallow but widely shared. This way, instead of burdening a specific group, the public will be included the price burden and waste collection, and retailers and logistics companies will contribute to collection and delivery to recycling companies, reducing the overall costs through contributions of effort instead of finances.

Ciobanu-Dordea:
The first thing that is important to make the circular economy economically viable is abundance of supply. Currently, recycled steel and aluminum are circulating relatively well in the marketplace, but plastics present challenges. Producers say their waste is collected but not used. Therefore, it is important to create demand for recycled materials. To achieve this, we are considering legally requiring the use of recycled materials in electrical equipment and textiles to create demand.
Secondly, pricing and economic incentives. Based on the principle of extended producer responsibility, a system should be considered whereby producers are obliged to pay a higher fee for products that use more virgin materials and a lower fee for products that use more recycled materials, depending on the product category. This would reverse the situation where virgin materials are cheap and recycled materials are expensive.
Third, predictability of regulations. We are currently considering a new circular economy law, and hope to present a proposal to the European Commission early in 2025. The law would require producers to use recycled materials and would ensure regulatory predictability by maintaining the same regulations for 10 years, encouraging producers to respond appropriately.
Fourth, industrial policy. Within the next two years, we plan to develop support measures for the recycling industry, especially in the high-priority sectors like plastics and textiles. This may include utilizing public procurement incentives to encourage the necessary investment.

In response, Mr. Mita and Mr. Veitola unanimously commented that predictability of regulations is extremely important for private investment decisions.

Below I would like to state my takeaways and impressions after listening to the above discussion.

Takeaways and Commentary

First, there is no definitive set of indicators or target values for the goals of circular economy: it still being explored. In the EU, the recycle material use rate based on material flows has been used as a target, but it appears that this will change as a policy direction in the future.
Typical indicators and guidelines include those from ISO and WBCSD.
(ISO―Circular Economy
Circular Economy―World Business Council for Sustainable Development)
As we progress, it is expected that indicators will be developed that reflect the actual conditions in each country or region, and that these indicators will be interoperable and comparable on an international basis.

Secondly, for realizing a circular economy, especially in terms of ensuring its economic efficiency, both hard and soft approaches are being explored, including regulatory mandates (e.g., recycled material usage ratio), incentives (e.g., price differential support), and partnerships/voluntary activities.

Although the EU tends to favor a regulatory approach, while Japan has a strong tendency to favor a voluntary approach, it is expected that mutual dialogues such as the one featured here will result in the discovery of the best practices and best mix of policies based on the actual conditions of each country or region. In the EU, alongside regulations, there is a public-private collaboration approach called the Ecodesign Forum, and in Japan, legal obligations are being considered in addition to the Circular Partners Network initiative (the EU has taken the lead in the regulatory approach of emissions trading (ETS) in climate change, and now Japan is also considering the GX-ETS).

Third, in terms of Japan-EU relations, we need to engage in dialogue, cooperation, and friendly competition toward the common goal of a circular economy, while demonstrating the process and results to the world.
Unlike the area of climate change, this is an area in which Japan has a leading position, and Japanese leadership is important. The EU is also showing strong interest in Japan's policy and industrial initiatives in this area.
The EU’s policy and regulations are often seen as setting global standards; a phenomenon known as the "Brussels Effect." In the field of circular economy, a similar “Tokyo Effect” may emerge thanks to initiatives originating in Japan, or a joint approach of the “Brussels effect” and the “Tokyo effect.”

(Presentation materials and video recordings of the seminar can be accessed by becoming a supporting member of the EU-Japan Centre for Industrial Cooperation.
EUJC Supporting Membership Program | EU-Japan (in Japanese))

Note: The content of each speaker's presentation and remarks as they appear in this text are based on the author's understanding.

December 25, 2024
>> Original text in Japanese