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Environmental Modeling

A global circular economy scenario in a multi-regional input-output framework Kirsten Svenja Wiebe, Marek Harsdorff, Guillermo Montt, Moana S. Simas, and Richard Wood Environ. Sci. Technol., Just Accepted Manuscript • DOI: 10.1021/acs.est.9b01208 • Publication Date (Web): 03 May 2019 Downloaded from http://pubs.acs.org on May 6, 2019

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A global circular economy scenario in a multi-

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regional input-output framework

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Kirsten S. Wiebe1,2*†, Marek Harsdorff3, Guillermo Montt3, Moana S. Simas1 and

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Richard Wood1

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1

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7491 Trondheim, Norway

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SINTEF Industri, 7034 Trondheim, Norway

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International Labor Office, 1202 Geneva, Switzerland

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Industrial Ecology Programme, Norwegian University of Science and Technology,

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KEYWORDS

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Waste input-output; circular economy; secondary metal production; multi-regional input-

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output analysis; socio-economic impacts


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ABSTRACT

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In a resource-constrained world of an estimated 10 billion people in 2050 with the same

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material aspirations of today’s high-income nations there is no question: The future

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economy will need to be circular. From a policy perspective, the question is whether

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averting catastrophic environmental impacts through an accelerated transition to a global

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circular economy can also deliver sustained growth and jobs. The adoption of circular

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economy measures will have a range of effects both on domestic and foreign supply-

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chains. Multi-regional input-output (MRIO) analysis models the interdependencies

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between industries, within and between countries, as well as between intermediate and

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final goods producers and consumers. It provides a useful toolbox for assessing social,

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environment and economy-wide impacts of the adoption of the circular economy. We

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project the MRIO database EXIOBASE to 2030 based on the exogenously given

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parameters of the IEA Energy Technology Perspective’s 6-degree scenario. We compare

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this business-as-usual (BAU) scenario and an alternative circular economy scenario. The


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circular economy scenario considers more recycling, reducing (material efficiency

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increase), repair and reuse, in relation to the BAU scenario. The adoption of circular

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economy measures has diverse impacts on the economy and environmental pressures.

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Global material extraction is reduced by about 10% compared to the baseline, while the

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impact on employment is small, but positive. In particular, the shift from resource

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extracting sectors to the service sector will provide more opportunities for high skilled and

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for female workers.

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Introduction

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Assuming that the ever-increasing world population would rely on similar systems of

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production and services – housing, mobility, food, energy and water supply – as compared

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to today, up to 180 billion tonnes of materials will be required, almost three times today’s

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amounts

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importantly if there are large enough sinks that exist for associated waste disposal without

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catastrophic impact on human wellbeing 2.

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It is unclear if those quantities of materials are available and even more


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The circular economy is an attempt to break the dependency of the fulfillment of services for

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human needs with the reliance on material extraction. Moving away from the current linear mode

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of production (synthetically referred as an “extract-produce-use-discard” model), the circular

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economy promotes the design of durable goods that can be easily repaired, with components that

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can be reused, remanufactured and recycled. The circular economy relies more on the service

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sector and the rental of goods when compared to the ownership of goods in a linear economy 3. At

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the same time and in addition to the environmental debate, interest in the employment effects of a

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circular economy has led the policy debate notably in the EU. It is taking place among broader

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concerns about the future of work and unemployment, total factor productivity and wage

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stagnation. The circular economy is framed as a means to weave together opportunities related to

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employment and wage stabilization, innovation as well as productivity together with

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environmental objectives 4. The European Commission Strategy and Action Plan cite the need to

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foster growth and employment creation and to do so in a way that meets environmental constraints,

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through resource efficiency, innovation, and capturing the value of wastes as secondary raw

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materials. The European Parliament provided estimates of up to 3 million new jobs by 20305. In

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China the concept of ecological civilization, to which the circular economy is a key element, has

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been promoted as the long-term vision of increased productivity, wellbeing and sustainable

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development6,7. However, the employment gains are disputed and how many jobs will emerge in

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the EU, China and other countries embarking on the circular economy remains unclear.

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When products are recycled, repaired, or reused, employment is generated and when

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waste from one process is used as an input into others, efficiency and productivity gains


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are achieved (Porter Hypothesis) 8. The circular economy keeps products, components

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and materials at a high level of utility and value through maximising product’s life,

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promoting reuse, refurbishment and remanufacture and the recyclability of inputs and

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components 3.The concept of a circular economy is easily understood in the context of

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China. As the world’s largest manufacturer and processor of natural resources, China

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sees some of the worst effects of unchecked resource extraction, waste and pollution

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while struggling to achieve its growth targets. First proposed by scholars in China in 1998,

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a circular economy strategy - which featured prominently in the 12th and 13th Five-Year

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Plans - was adopted in 2002 by the central government as a new form of development

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that eases the conflict between rapid economic growth and the limited quantities of raw

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materials and energy 9. In 2009 China's Circular Economy Promotion Law came into

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force to mandate the resource utilization rate and resource recovery in production,

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circulation, and consumption. China's policies toward the circular economy became more

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comprehensive over time, led by different government agencies and use of different policy

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instruments. Today, the government and subsidy led policy approach, however, starts to

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show limitations in terms of capturing the whole production life cycle and use of market‐based


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policy design10. Japan’s law11, passed already in 2000, treats materials as circular goods

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and covers products’ entire lifespans. Manufacturers are legally required to run

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disassembly plants and recover materials, turning product disposal into an asset as

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companies have an incentive to reuse materials. Today, for example, across Japan 98%

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of metals are recovered

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developed through the 15‐year National Eco‐Industrial Park Program. Extending in scope and size

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and involving around 600 firms, in its third phase which ends in 2019, a national network that

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integrates industrial complexes and urban areas should be established13.

12.

In South Korea, a circular economy approach was initially

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The circular economy has also been adopted at the level of individual firms. Renault,

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the French automaker, ensures that 85% of a new vehicle is recyclable when it reaches

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end of life and that 36% of that new vehicle’s mass is made from recyclable materials 14.

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The same is true for other enterprises, like Xerox, which instead of selling printers is now

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selling the printing service, offering clients the latest technology while still owning the

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printers. In owning the machines, Xerox is able to design future models based on

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components currently in use 15.

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Given the international linkages across industries and material flows 16,17, international

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consumption patterns affect local production patterns and material use. Indeed, the


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adoption of circular economy principles in Europe could result in employment effects not

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only domestically, but also affect labor markets in other regions.

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Simply put, the circular economy is likely to reduce the extraction of primary materials,

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reformulate the waste management sector, and strengthen the recycling of goods and the

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service sector

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changes affecting a large variety of economic sectors and actors. An account of the

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impact of the adoption of the circular economy ought to take into account not only the

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effects on the industries directly affected, but also those linked – upstream and

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downstream, within and between countries – to these industries. Multi-regional input-

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output (MRIO) analysis provides a useful toolbox for assessing these economy-wide

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changes. In comparison to other material flow accounting approaches19, MRIO analysis

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has the advantage of tracking the transformation of products at each step along the supply

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chain, and thus capturing material flows across increasingly fragmented international

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supply chains. In addition, MRIO data is consistent with the System of National Accounts,

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and thus makes it relatively easy to capture impacts on employment and value creation.

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As a negative, MRIO data is often reported at more aggregate product groups than most

18.

The transition to a circular economy encompasses economy-wide


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material flow data, and thus are susceptible to aggregation errors20. A number of input-

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output (IO) approaches have been used to study circular economy research: they can be

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grouped into four groups. First, those that simply look at resource efficiency (i.e. material

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footprints), implicitly but not explicitly including secondary production (i.e. the distinction

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between goods produced with virgin raw material versus those produced with recycled

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material or scrap)

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economy

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treatment is provided by the Waste Input-Output model of Nakamura and Kondo 27. Their

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framework has been used extensively in the Japanese case

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studies look specifically at the material content of production, synonymous with how

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materials are tracked through the economy in the Waste Input-Output model

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studies can better link into understanding potentials for re-use, and have been postulated

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as a more pragmatic way to implement either consumer or trade policy to tackle embodied

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emissions. A number of these studies have taken a scenario based perspective 32,33,34. A

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fourth group of studies using IO to understand the circular economy have focused on the

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value creation aspects of the circular economy – with the advantage of IO approaches

24–26.

16,21–23.

Second, those that have looked at waste flows through the

The best example of an IO framework used to track waste and waste

28,29.

A third group of IO

30,31.

Such


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being the integration of value added and employment alongside material and energy in a

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single framework 35.

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However compared to the use of IO frameworks for studying environmental issues, the

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application of IO in circular economy research is relatively rare due to the high industry

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aggregation. This might be due to the limited availability of mining and processing of raw

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materials data and waste and waste treatment accounts in official statistics, especially at

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the global level 36. The recent work on the EXIOBASE database has gone someway into

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solving this issue. Starting in the CREEA research project (www.creea.eu), and continued

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in the DESIRE project (www.fp7desire.eu), a physical layering approach was introduced

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in EXIOBASE to estimate mass balances across physical inputs and outputs in dry matter

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terms. A part of this work involved the specific estimation of processes for handling waste

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and secondary products distinguished by material type.

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In this work, we build on the EXIOBASE dataset, utilizing the explicit handling of

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secondary production to model in a scenario context three broad policy initiatives. Taking

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a comparative scenario-based approach until 2030, we estimate the material,

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employment and value creation impacts of the policy initiatives. With this work we aim to


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show the direct and indirect effects of the technological change that comes about with a

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more circular economy, but we refrain for now to show the induced effects in the economy.

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148 149

Material and methods In contrast to previous studies

34,37–39

that pay specific attention to the details of future

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metal demand based on specific low-carbon technologies/technology scenarios, this

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paper focusses on the economy-wide effects of a general group of circular economy

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measures and the implications these have for material extraction and employment around

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the globe. This section shortly introduces the multi-regional input-output framework

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EXIOBASE, which underlies the analysis, summarizes the methodology used for

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extrapolating the system into the future, and describes the implementation of the circular

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economy scenario.

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Using EXIOBASE to model production from secondary materials

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For the MRIO EXIOBASE

40,

physical data in line with the framework provided by the

System of integrated Environmental-Economic Accounting (SEEA) in order to ensure


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international consistency have been used in the compilation of the waste industries in the

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supply-and-use tables

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primary and secondary production (under the assumption that they produce an equivalent

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end product from different inputs). This results in the differentiation between primary

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production and secondary production for thirteen sectors: wood material, pulp, paper,

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plastic, glass, steel, precious metals, aluminum, lead zinc and tin, copper, other non-

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ferrous metals, bottles, and construction material (see the list in Section 1 of the

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Supplementary Information and details on data and construction process in 40,41 ). In the

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monetary supply-and-use framework, the corresponding waste products are treated as a

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service of handling of the waste product, and have a zero value as it is assumed the price

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of the waste material is zero. However, the corresponding industries differentiate the

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production of materials both from original resources and from recycled materials. In the

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EXIOBASE construction, life-cycle inventory data was used to disaggregate the inputs

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into the primary vs the secondary industry (for example, the energy use into primary or

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secondary aluminum production). This was done at the coefficient level for the 13 sectors

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identified above, using generic (not country specific) life-cycle inventory data. The most

41.

The physical data is used to estimate the relative share of


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important coefficients are different in the database between the two forms of production,

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and at least include energy inputs and the main material content inputs; see 42 for a proper

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description of the data used in this part of the disaggregation in EXIOBASE. Estimates of

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market share of primary versus secondary production are taken from available statistics

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42.

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processed material is equivalent. In essence, the set-up is very similar to the original

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waste IO model 27, with specific processes set-up to handle the treatment of waste, with

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their own input coefficient and emissions. One contrast is the implementation in a supply-

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and-use framework, which allows for a more formal specification of allocation between

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waste products and industries. The physical layering of EXIOBASE imposes a mass

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balance on the physical inputs and outputs at the product and industry level. Total mass

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of all relevant flows in the economy are estimated, in dry matter units. The physical inputs

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into the economic supply-chains and the emissions and other physical wastes from the

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economy is derived directly from the physical mass balances and complements the

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monetary IO data as environmental extensions. This allows for the estimation of

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emissions and other waste in physical terms, and, if desired, the supply-chain modelling

It is assumed that the output of the primary and secondary production in terms of


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in mixed units. In this work, we use the monetary layer of the EXIOBASE dataset for the

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supply-chain modelling, which ensures all supply-chain data is kept in line with statistical

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data provided in country specific supply-and-use tables. This also ensures the modelling

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of monetary balances that have a large impact on value added and labor indicators.

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EXIOBASE provides data for 44 countries and 5 rest of the world regions. It covers a

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range of environmental extensions, has 200 unique product groups and 163 industries.

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For full details, see Stadler et al.

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different stages of developmental, we present results at the regional level. Each region is

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built upon data from individual countries and the rest of the region as a whole. The number

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of individual countries modelled within each region differs, with higher individual country

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detail for Europe (30), major economies in Asia and the Pacific (9), the Americas (4) and

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Africa (1), and only regional-level data available for the Middle East. We use indicators

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from EXIOBASE for material requirements 44, employment per gender and skill levels (6

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types of labor, male and female in high, medium and low skilled work)

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creation (simply value added by sector). Material data includes all biogenic and non-

43.

To facilitate comparison of results from regions at

45

and value


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biogenic extractions from nature to the economy, whereas employment is measured in

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persons-year equivalents.

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Projecting EXIOBASE to 2030

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To analyze the direct and indirect impacts that a transition to a more circular economy

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might have on the economy and the environment, we use the business-as-usual (BAU)

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scenario from Wiebe et al. 46 and implement an alternative circular economy scenario up

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to 2030. The BAU scenario is based on the International Energy Agency’s Energy

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Technology Perspectives (IEA ETP) 6-degree scenario47. The IEA scenario was chosen

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as BAU because of its no-policy-change projection of world GDP up to 2030 at country

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and sector level which has no direct relation to the circular economy scenario. As such it

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can be seen as an independent no-policy-change scenario of the world economy, while

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still foreseeing major ongoing changes in the energy industry. The MRIO EXIOBASE is

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extrapolated into the future based on the exogenously given parameters of the IEA ETP

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scenario is shortly summarized in the Supporting Information and explained in detail in

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the Supplementary Information of Wiebe et al. 46.


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Overall, the approach taken here is a typical IO scenario analysis, with all its virtues

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and drawbacks as for example described by Duchin 36.

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“What-if” scenario specifications

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The BAU scenario is compared to a scenario which adopts three key aspects of the

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circular economy: i) recycling, ii) reduction in material consumption (i.e. higher material

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efficiency) and iii) repair, reuse and service. This scenario design touches three of the

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four tenets of the circular economy (the fourth being product design). All three have

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important sectoral implications in the extraction, manufacture and waste management

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sectors. The scenarios are built on the major provisions of the Chinese, Japanese and

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European circular economy legislation highlighted above, and the approaches used by

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Scott et al. 48 to model increases in material productivity in the UK economy and identified

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by Aguilar-Hernandez et al. 49. There are clearly many more complex scenarios that could

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be modelled, and further research should aim for a more comprehensive assessment of

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different options compared to the two stylized extremes we present here.


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The alternative scenario changes different parts of the supply-and-use tables, as

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summarized in Table 1 and described in more detail below. Figure 1 gives an overview

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on the parts changed in the table related to the three key aspects of the circular economy.

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Figure 1. Changes in the SUT system for the three key aspects of the circular economy.

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The schematic representation of the SUT is adapted from reference 46. Copyright 2018

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Authors.

b(m ,i ) decrease by 1% p.a. b(r&d ,i ) increases

B use coefficients

market shares d(i ,p ) o f industry i fo r pro ducing pro duct p d(i1 ,p ) decreases to 0.35 d(i2 ,p ) increases to 0.65 d(i1 ,p ) + d(i2 ,p ) = 1 i1primary industry i2 seco ndary industry

242

Value Added

i) Recycling

Industries

b(r&d,.)

GFCF

GOVE

Industries b(m,.)

Products

Use o f material pro ducts m in pro ductio n o f industry i decrease, R&D increases acco rdingly

HOUS

Products

ii) Resource efficiency

Final demand iii) Repair, reuse & share Reductio n in final demand fo r machinery pro ducts Replacing purchases (e.g. mo to r vehcicles) by repair and renting services

d(i1,p) d(i2,p)

D market_share coefficients TAX WAGE NOS

Notation: HOUS = Houshold final consumption expenditures, GOVE = Government final consumption expenditures, GFCF = Gross fixed capital formation, VA=Value added, GDP = Gross domestic product, POPU = Population, TAX = Taxes and subsidies, WAGE = Compensation of employees, NOS = Net operating surplus

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Rather than considering waste generation, as e.g. in the supply-and-use approach to

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waste modelling in Lenzen and Reynolds 24, here we take advantage of the supply-and-

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use framework using the fact that one product, e.g. steel, can be produced by different

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industries: the industry that uses the primary resources and the industry that uses the

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recycled material. For the scenario, we exogenously choose the level of production of

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metals and other materials from recycled products relative to the production from primary

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resources such as metal ores, rather than using e.g. the rectangular choice-of-technology

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(RCOT) model 50. The RCOT model would endogenously determine the speed of the shift

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toward secondary material industry. As we aim to estimate the indirect supply chain

253

effects of a strong increase in recycling activities, we chose to set the level of the desired

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outcome of circular economy policies exogenously.

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The scenario is applied to the 43 countries and 5 rest of the world regions in EXIOBASE

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and implemented in relation to the BAU scenario. We have not fully endogenized capital

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investments in the model, but assume that past investment patterns are sufficient to

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provide adequate capacity for waste treatment. A drawback of this approach is that

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investment patterns do not differ between the BAU and the alternative scenario (apart


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from for the energy sector as defined by the IEA), as detailed information of the

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differences in the investment structure between the technologies is not available for

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implementation in an IO framework. Nonetheless, the modelling approach is general

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enough to incorporate more details in this respect once data becomes available, so it

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becomes possible to improve the current approach of a the comparative static analysis

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to a more dynamic model 36. A further assumption is that the products produced from the

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complementary technologies (that have as inputs primary or secondary materials) are

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equivalent and, thus, perfect substitutes. The entire system is constructed and projected

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in constant prices. We show report price differences between the scenario due to more

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efficient use of material inputs, but do not model subsequent price effects (e.g. that may

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lead to changing demand). The goal of this research is not to forecast trends in the world

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economy; rather, we are interested in the differences in physical and socio-economic

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outcomes (nature inputs and employment outcomes) when certain technological and

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structural changes in the economy occur. We apply standard input-output analysis using

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the exogenously determined changes in final demand and the multiplier matrix based on

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the Leontief demand model51,52. As such, we are analyzing direct and indirect effects, but


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do not model induced effects

For determining the impacts on employment and

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material extraction, the usual input multiplier matrix is multiplied with the respective

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stressors, i.e. employed persons (in thousands) per unit of output or materials (in tons)

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per unit of output.

280

We compare the consumption- and production-based material and employment

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implications of the adoption of circular economy principles to understand how

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consumption-based decisions in one region affect environmental and socio-economic

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outcomes in another.

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Table 1. Business-as-usual (BAU) and circular economy scenario specifications

BAU – IEA ETP 6 degree scenario

Circular economy scenario Recycling

Reducing

Repair,

reuse

and service Investment

Renewable energy

Assumption that

Savings from

Reduction of

(Gross Fixed

technologies

production

material

final demand by

Capital

capacity grows

efficiency

1% per year for

Formation)

commensurate to

allocated to R&D

all machinery

Input coefficients

Machinery and

recycling levels

products.

of technology

equipment, electrical

and becomes

Reallocation to

production

machinery and

available

services such that motor

apparatus Input coefficients

Relative changes of

Change in market

Annual decrease

vehicle savings

of technology use

electricity use

shares from

of 1% in the use

are allocated to

Market shares of

Shares of electricity

primary to

coefficients of

repair services

materials

types and

secondary

both primary and

and other

production

development of energy

material

secondary

savings to retail

efficiency according to

producing

materials

trade and

IEA ETP 6-degree

industries (linear

renting

scenario

to a cap of 65%)

services.

286 287

Recycling: The recycling component of the scenario is based on the circular economy

288

principle that waste is a resource. Elements in waste can be reprocessed to replace inputs

289

from primary industries. Paper, metals, plastics and glass are routinely separated and

290

recycled. In their Circular Economy Strategy, the EU has set the target of recycling 65%

291

of municipal waste by 2030. Translating this target directly into the supply-and-use


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framework is unfortunately not possible. This is due to the limitation In EXIOBASE,

293

growth in recycling can be reflected by the replacement of intermediate goods from

294

extractive industries (e.g. manufacture of basic iron and steel or manufacture of glass and

295

glass products) to recycling and industries (e.g. reprocessing of secondary steel into new

296

steel or reprocessing of secondary glass into new glass). We assume the price of the

297

products produced from recycled materials to be the same as the one of products

298

produced from raw materials. The final output of the industries is assumed to be the same

299

(for example steel produced from iron ore or from scrap is the same steel). The difference

300

lies in how the production is distributed between the primary and secondary industries.

301

Eleven primary industries in EXIOBASE can be replaced by recycling, as shown in Figure

302

1. By changing the market shares in the supply matrix from the manufacture from raw

303

materials to the reprocessing of materials, we assume that the products are produced

304

more and more by the industries that use waste materials (secondary industry) rather

305

than by the industries that use the primary materials (primary industry). We linearly

306

increase the market shares of the secondary industries in every country from their current

307

share (displayed in Figure 1) to 65% in 2030, if the current share is not already higher.


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This number has been chosen mirror the current situation, where the primary industries

309

have an average median of about 65%. This will reduce the demand for primary material

310

extraction.

311 312

Figure 2. Distribution of different market shares of primary and secondary industries

313

across countries, 2014

314 315


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Figure 2 displays the cross-country distribution of the market shares for the eleven

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selected industries in 2014. The boxplots show the distribution of the market shares of

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the primary and secondary industries across countries. The median is the red line in the

319

middle, e.g. the median market share for primary wood is about 75%, i.e. in half of the

320

countries the market share of primary wood in total wood products is higher than 78%.

321

The blue box contains 50% of the observations, 25% below and 25% above the median.

322

That means that for half the countries, the market share of primary wood is between 60%

323

and 85%. The black lines indicate the spread of the lowest/highest 25% and the red

324

crosses are outliers. From these it is obvious that there are some materials with very high

325

recycling rates in some countries, such as pulp, plastic, steel and aluminum. For other

326

materials however, less than half the countries are having any secondary material

327

production, such as precious metals, lead, zinc and tin, copper, other non-ferrous metal

328

and construction materials.

329

In summary, the alternative scenario assumes a linear growth in the secondary

330

industries (recycling, reprocessing) reaching a market share of 65% in 2030 in all

331

countries. This growth is accompanied by equivalent decreases in the primary


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manufacture of these goods, which, in turn, reduces the demand for the corresponding

333

material extraction. That means, that only 35% of the respective processed material is

334

produced from raw materials, 65% is produced based on recycled material. The scenario

335

does not take into account the reprocessing of other forms of waste (e.g. organic waste)

336

as other inputs (e.g. compost).

337

Reducing material inputs: A second element of the circular economy relates to a higher

338

durability of goods. The durability of goods can involve more materials used per good, but

339

lower material use overall. In the case of beer, the use of reusable bottles may bring about

340

20% cost reductions. Though each individual bottle would require a 34% increase in glass

341

used, the fact that each bottle is reused up to 30 times reduces the overall material used.

342

The same applies to garments that require more resistant fibers, but fewer overall as they

343

last longer

344

higher material efficiency. The scenario thus assumes that material efficiency gains in the

345

circular economy scenario grow faster than in the BAU scenario, by assuming a 1%

346

annual growth. This additional growth could have important consequences. For example,

347

buildings in the European Union accounts for 42% of final energy consumption, about

53

(McKinsey, 2013). In this sense, durability is equivalent to pointing to a


24


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348

35% of greenhouse gas emissions and more than 50% of all extracted material, and thus

349

the use of better construction materials and use of these buildings could lead to reductions

350

in the EU’s energy and material demand. 54. In EXIOBASE, this is modelled by decreasing

351

the use coefficients of primary and secondary materials in the manufacturing industries.

352

The savings from lower material use are reallocated to R&D. This modelling is not exact,

353

meaning that there could be a time lag between the R&D investments and material

354

efficiency improvements. This lack of endogenous dynamics is a drawback of the current

355

approach and will need to be improved. Theoretical models for this exist, see e.g. 52,55,56,

356

but empirical implementation is challenging and is still lacking.

357

Through inter-industry relations in the IO framework, a lower use of materials in the

358

manufacturing industries translates to lower intermediate demand for materials from the

359

primary and secondary material processing industries. This in turn lowers the demand for

360

products from the material extraction industries, which leads to lower material extraction

361

from nature.

362

Repair, reuse and share: The circular economy emphasizes the repair and reusability

363

of goods. Goods are repaired and reused at a higher frequency, not discarded and


25

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364

replaced. The circular economy also emphasizes use in terms of a service industry in

365

opposition to use in terms of ownership. The circular economy thus embraces the sharing

366

economy 57. For example, for Europe McKinsey calculates the feasibility to grow resource

367

productivity by up to 3 percent annually looking at the systems for three human needs

368

(mobility, food, and built environment). This would generate a primary resource and non-

369

resource and externality benefit to a total of around €1.8 trillion versus today. This would

370

translate into an increase in gross domestic product of as much as 7 percentage points

371

relative to the current development scenario, with additional positive impacts on

372

employment

373

capacity in emerging and developing countries, per year, we shift 1% of final demand for

374

all machinery products to repair and reuse in EXIOBASE. The fall in the final demand for

375

motor vehicles is compensated by a corresponding increase in repair services (repair).

376

The fall in the final demand for all other machinery are compensated by an increase in

377

retail trade and renting service (reuse and share). Implementing these changes

378

exogenously into the model, i.e. using expert knowledge for scenario specification, has a

379

long history in IO analysis 36,59.

58.

To be on the conservative side and to account for lower implementation


26


380

Page 28 of 56

Results

381

The adoption of the circular economy leads to a significantly lower global material

382

extraction when compared to the BAU scenario. Global results range from a decrease of

383

about 27% in metal extraction, 8% in fossil fuel extraction and use, 8% in forestry

384

products, to about 7% in non-metallic minerals. These changes result from the increased

385

demand for re-processed products as opposed to those stemming from primary extraction

386

in addition to the obvious effect of increased material efficiency, which reduces material

387

use. These results are in line with feasibility assessments from McKinsey and studies by

388

the International Resource Panel

389

falling the most in the Americas and not changing at all for certain industries in Europe.

390

As compared to McKinsey’s European assessment, this is not surprising when taking a

391

global perspective. In the EU, over the last two decades, manufacturing shifted to Asia

392

with much lower material efficiency in producing countries but significantly increasing

393

material efficiency in EU importing countries 2.

58.

Results differ by region, with material extraction

394

Given the linkages between material extraction with other industries and the sectoral

395

distribution across regions, the adoption of the circular economy has diverse impacts on


27

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396

employment and environmental pressures. Worldwide, about 10% less material is

397

extracted, while slightly more people are employed (marked with an × in Figure 3). In the

398

circular economy scenario, practically all countries/regions have a predicted material

399

extraction lower than 100% of the BAU scenario (with the exception of some small

400

European countries). In most countries, the adoption of the circular economy promotes

401

employment, as the majority of observations lie above the employment predicted by the

402

BAU scenario (100%). All points in the top-left panel of Figure 3 are considered

403

sustainable outcomes of the circular economy scenario: employment increases, while

404

less materials are used. The top-right quadrant of the Figure indicates employment and

405

material use increases, which is interpreted as “sustainable socio-economic outcomes”,

406

while a reduction in both indictors reflects “sustainable environmental outcomes” (lower-

407

left quadrant). A reduction in employment and an increase in material use would reflect

408

unsustainable outcomes (lower-right quadrant).

409

Figure 3 also decomposes findings according to the materials used in production

410

(territorial material use, solid markers) or those embedded in consumption (material

411

footprint, outlined markers). The production perspective indicates what happens within


28


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412

the country due to changes in the production, e.g. the direct and indirect domestic impacts

413

on employment of the increasing share of the recycling industries. The consumption

414

perspective shows the change in the outcomes induced through the countries’ final

415

demand domestically and internationally. For a further illustration of the difference in

416

production and consumption-based measures of material use, see e.g. 16,44.

417

Consumption based impacts affect multiple countries through international trade, while

418

sustainable production patters are mainly determined through domestic action. Hence,

419

even if the domestic technology is improved significantly, through the consumption of a

420

mix of products produced with domestic and foreign technologies, the sustainability of

421

consumption may not increase as much. But also the opposite is true: even if there is no

422

technological change domestically, the country’s consumption may become more

423

sustainable through the import of goods produced abroad adopting circular economy

424

principles.

425 426

Figure 3. Comparing relative effects of consumption- and production-based outcomes to

427

the baseline in 2030: Each country/region is represented by two markers in this figure,


29

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428

the solid, which represents the differences between the scenarios in material extraction

429

and employment from the production side and the outlined marker, which shows the

430

differences from the consumption perspective, i.e. how much material and labor is

431

embodied in the final consumption of that country. The different world regions are

432

highlighted in different shapes/colors, even though no significant differences between the

433

world regions is observed.

Employment

110.0 %

Sustainable socio-economic and environmental outcomes

100.0 %

90.0 %

Unsustainable outcomes

Sustainable environmental outcomes 75%

434

Sustainable socioeconomic outcomes

Material extraction

Africa/Middle East Cons Europe Cons Americas Prod

Asia/Pacific Cons Africa/Middle East Prod Europe Prod

100%

× World total

Americas Cons Asia/Pacific Prod

435 436

While Figure 3 shows that employment outcomes are similar or slightly higher in the

437

circular economy when compared to the BAU scenario, Figure 4 outlines how this general


30


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438

average masks important reallocation across industry sectors. Value added shifts from

439

the capital intense industries mining and manufacturing to more labor-intensive service

440

industries. In line with that, employment is expected to decline in mining and

441

manufacturing, and these sectoral employment losses will be compensated by growth in

442

the renewables and service sectors. As shown in Section 2 of the Supplementary

443

Information, the employment intensity of the secondary industries is not necessarily

444

higher than that of the primary industries. That means that the positive effects on

445

employment are mostly indirect effects through the upstream value chain and the

446

increase in the demand for repair and renting services. On average, the aggregate

447

demand for employment by skill level and gender will not change substantially. However,

448

the circular economy will shift the demand from mining and manufacturing to service and

449

renewables with slightly higher skill levels. While there are possible negative outcomes

450

for low-skilled workers, the shift to a circular economy could contribute to higher labor

451

force participation of women and accelerate the demand for skills upgrading in the

452

workforce. This follows the increased demand in services and goods and services from

453

the waste management and renewable energy industries (Figure 5). For both material


31

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454

and socio-economic indicators, industries in the waste management sector (see Section

455

1 in the Supplementary Information for a list of these industries) have a positive effect on

456

the overall change. This is due to the increased the market shares of industries re-

457

processing secondary materials. The small positive impacts on material extraction due to

458

demand for production from these secondary industries is more than offset by significant

459

reductions in material extraction for the primary material processing industries.

460

Figure 4. Sectoral contribution to total difference between scenarios – Value added and

461

employment

100% 80% 60%

Construction

40%

Services

20%

Manufacturing

0%

Waste

-20%

High-skilled female

High-skilled male

Medium-skilled female

Medium-skilled male

462

Low-skilled female

Fossil & nuclear

Low-skilled male

-80% Total Employment

Renewables Capital

-60% Wage

Utilities

Total Value added

-40%

Mining Agriculture Total change in %

463


32


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464

Figure 5. Sectoral contribution to total difference between scenarios – Material extraction

465

due to final demand for products

Fossil Fuels

Metals

Non-metallic minerals

Forestry products

0

Construction Services Manufacturing Waste Utilities Renewables Fossil & nuclear Mining Agriculture Total change in %

0 0 0 -1 -1 -1

466

-1

467 468

Figure 5 shows that the material implication of these changes. Adopting a circular

469

economy results in lower demand for fossil fuels, metals, non-metallic minerals and

470

forestry products. The reduced economic activity in utilities, production of fossil fuel-based

471

electricity and mining in the circular economy scenario, vis à vis the business-as-usual

472

scenario, results in a substantially lower material footprint worldwide. Almost all of the

473

decrease in material use stems from increased resource efficiency, while the positive

474

employment impact is dominated by increased repair, reuse and share, see Figure 6.


33

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475


Figure 6. Contribution of the three key aspects of the circular economy to the results

5%

uc ts pr od

er al s in

Fo re st ry

m

il f ue ls ss

M et al s

-m et al l ic

-15%

No n

-10%

Fo

Em pl

oy

-5%

m en t

0%

-20%

iii) Repair, reuse & share ii) Resource efficiency i) Recycling

-25% -30% -35%

476

-40%

477 478

Given the economic linkages across borders, consumption of goods in one region

479

impacts the production of goods, and the material extraction, in other regions

16,60.

480

Considering this perspective is important because the development in one region in the

481

world can increase pressures in other regions depending on the scarcity of resources 61.

482

For all world regions, both production and consumption of materials are lower in the

483

circular economy than in the BAU scenario.

484


34


485

Page 36 of 56

Figure 7. Reduction in trade in embedded materials

b) Metals

a) Fossil fuels

486 c) Non-metallic

d) Forestry products

minerals

487 488 489

Figure 7 maps62 the material flows between regions, as they are produced (P) in one

490

region (left) and consumed (C) in another region (right). The red parts mark the reduction

491

in material flows that results from the adoption of the circular economy. That is, the size

492

of the grey parts display the flows in the circular economy scenario, while the total (grey

493

+ red) indicates the material flows in the baseline scenario. Some parts of the lower

494

material extraction is due to consumption abroad as noted by the red share of the flows

495

between the different regions in Figure 7. Most of the reduction, however, is due to


35

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496

decreased intra-regional use, i.e. the red flows between production P (on the left) and

497

consumption C (on the right) of the same region.

498

The top-left panel in Figure 7 shows that a large share of the fossil fuel materials

499

extracted in the Americas can be traced to the consumption of these materials embodied

500

in goods and services consumed in Asia, and, to a lower extent, Europe and Africa and

501

the Middle East. In the scenario of the circular economy, the reductions in fossil fuel

502

demand result in a decline of extraction in the Americas, but also in lower fossil fuel

503

induced by the consumption of Asia and the Pacific and Europe. For the Middle East and

504

Africa, most of the reduction in fossil fuel production however stems from reduced

505

demand in the other regions, not from reduced demand within the Middle East and Africa.

506

For all other materials, the adoption of the circular economy in Europe and Asia has an

507

important impact in the material extraction of Africa and the Middle East as well. The

508

reduction in global metal extraction is dominated by the reduced intra-regional flows in

509

Asia and the Pacific (reducing both consumption and production by almost 40%), while

510

the reduction in global extraction of forestry products is dominated by the reduction in

511

intra-regional flows in the Americas. A large part of Africa’s forestry products is embodied


36


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512

in Asian consumption. Europe has consistently higher consumption of embodied

513

materials than extraction of materials, but overall the smallest share in the world,

514

especially regarding metals, where consumption is expected to be cut by more than 20%

515

compared to the BAU scenario.

516

Discussion

517

Increasing rates of recycling, reducing material inputs, and promoting repair, re-use and

518

sharing are three principle strategies to achieve increased rates of resource efficiency

519

whilst not negatively affecting economic development or employment. In this work, we

520

model these three strategies at the global level to give a first insight into some of the

521

indirect global supply-chain co-benefits (or costs) of these strategies. Whilst many policy

522

and behavioral barriers must be overcome to realize the potential benefits of circular

523

economy measures, our analysis provides an insight into the potential effects that these

524

measures will have, considering the indirect reliance on materials, value added and

525

employment. The use of a global multi-regional input-output model allows us to give


37

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526

insight into the potential direct and indirect impacts on global trade flows and spillover

527

effects compared to the situation we have today.

528

Overall, we find that there is a small positive effect on employment, no significant effect

529

on value added other than a shift from capital intensive to labor intensive industries, and

530

a strong decrease in material extraction. The latter is, what the scenario was built to

531

achieve, while the two former results reflect the direct and indirect economic effects

532

through changes in global supply chains. The positive effect on employment must be

533

analyzed in detail, as the number of employees needed in both manufacturing and mining

534

industries is expected to decrease. This is strongest for the employment of low- and

535

medium-skilled male workers. The number of employees needed in the service sector is

536

expected to strongly increase, with the highest increase in demand for jobs that are

537

currently occupied by medium- and high-skilled female workers. These results clearly

538

show that a retraining of workers is necessary to supply the labor market with a skilled

539

workforce that is ready to take on the challenges of a circular economy. This is particularly

540

important for the workforce in Asian economies, where a large number of low-skilled job

541

in manufacturing is located.


38


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542

From the theoretical perspective, the approach is on the simpler side of input-output

543

based scenario analysis, but according to our knowledge this is among the first high-

544

resolution MRIO-based scenario calculations. There are two main aspects that we would

545

highlight in advancing the research agenda. Firstly, the increased resolution of input-

546

output databases, and the increased data quality on tracking material flows through the

547

economy will allow for more refined and precise estimates, especially around the actual

548

potential for the circular economy measures. Further development of Waste Input-Output

549

approaches (globally), the further integration of technological detail from life-cycle

550

inventory work to input-output models, and expanded coverage of life-cycle inventory

551

work (especially related to non-material inputs and regional detail) are clear areas of data

552

work. Furthermore, one key component of understanding the potential success of the

553

measures is to have a better understanding of stocks, as is common in material-flow

554

analysis research (e.g.

555

done here), a next step for future research is endogenizing the potential, through the use

556

of dynamic input-output methods. These consider induced effects in the economy by

557

endogenizing technological change and required investment

63,64).

Rather than parametrizing the success of measures (as is

50,55,56,65–67.

This will give


39

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558

additional insights into the temporal dynamics, the links between possible secondary

559

production, the capital and investments required for the production, and the material

560

stocks becoming available for re-use. Detailed data on consumption of fixed capital (CFC)

561

for MRIO systems has recently become available and first analyses show the importance

562

of capital for the accounting of CO2 emissions

563

even more important. As a way forward, we envision the estimation of a capital

564

requirement matrix from the CFC and related data.

68–70

. For materials, including capital is

565

The second aspect of this research that we would like to highlight, resolves around the

566

better understanding of economic development in the global south, where a significant

567

share of material extraction occurs. Our study (and the underlying MRIO database of

568

EXIOBASE) has only basic coverage of both economic structure in the global south, and

569

the development pathways that they are expected to follow. Given the employment effects

570

in the global south, its rapid development, and the generally increased quantities of

571

materials embodied in trade from the regions, having a better understanding of

572

technology, industrial structure, and development pathways in these regions may have a

573

strong impact on understanding the dynamics of global supply-demand relationships. In


40


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574

particular, further statistical work in these regions will enhance the opportunity for global

575

models such as EXIOBASE to provide more accurate representation.

576

The circular economy is an attempt to achieve both economic and employment growth

577

whilst minimizing resource use. Whether this can be realized remains to be seen, but here

578

we attempt to model some of the macro-economic impacts of policy measures relevant

579

for the circular economy. The model is a forward-looking what-if scenario analysis and

580

we consider three different aspects of a circular economy: higher recycling, more efficient

581

use of materials, and repair and sharing of final goods. We model and analyze the

582

structural changes in the both final and intermediate demand that are necessary to

583

achieve a more circular economy.

584

Utilizing the what-if scenarios, our results show that the adoption of the circular

585

economy can lead to a significantly lower global material extraction compared to a

586

baseline. Global results range from a decrease of about 27% in metal extraction, 8% in

587

fossil fuel extraction and use, 8% in forestry products, to about 7% in non-metallic

588

minerals. At the same time, we see a small increase in employment, as demand causes

589

a shift in the need for employment from resource extracting sectors to the service sector.


41

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590

In particular, this will provide more opportunities for high skilled and for female

591

employment, while demanding specific attention to alleviate negative impacts from

592

reduced demand for low skilled workers.

593 594

ASSOCIATED CONTENT

595

Supporting Information.

596

The supporting information SI_CEinMRIO.pdf contains

597

1. List of waste industries in EXIOBASE

598

2. Information on how to project EXIOBASE to 2030

599

3. A figure of compensation of employees shares

600

4. A description of price changes based on the Leontief price model

601 602

AUTHOR INFORMATION

603

Corresponding Author

604

* corresponding author: [email protected]


42


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605

Present Addresses

606

†SINTEF Industri, Department of Sustainable Energy Technologies.

607

Author Contributions

608

The manuscript was written through contributions of all authors. All authors have given

609

approval to the final version of the manuscript. KSW implemented the model, designed

610

by all authors.

611

Funding Sources

612

The initial scenario analysis that served as a starting point for this paper was co-funded

613

by the ILO Research Department and has been published in the ILO’s World

614

Employment and Social Outlook 2018: Greening with jobs.

615

ACKNOWLEDGMENT

616

We thank our colleagues at NTNU and ILO for their valuable comments, as well as the

617

participants at the IO Workshop in Bremen in 2018. Furthermore, we thank Faye Duchin

618

for her valuable input into the modelling process.


43

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619 620

ABBREVIATIONS

621

BAU, business-as-usual (scenario); C, Cons, Consumer; IEA ETP, International Energy

622

Agency’s Energy Technology Perspectives (publication); IO, input-output; MRIO, multi-

623

regional input-output; P, Prod, Producer; R&D, research and development.

624

625

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626

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