Between international tensions and increasingly difficult to find raw materials, the circular economy becomes a pillar of European industrial security
Trade wars, energy crisis, increasingly fragile global supply chains. Not exactly an idyllic scenario. Yet, paradoxically, this fragmenting world would not be an obstacle to the European circular economy, but one of its main drivers.
We talk about it with Giuliano Maddalena, director of SAFE, a hub that brings together consortia operating in the recovery and recycling sector, and for twenty years he has observed from the inside the transformations of a sector that sometimes struggles to be fully understood, even by those who finance it. The more unreliable the global supply system becomes, the more Europe is forced to look at its own homeland. And looking at home, in today’s industrial vocabulary, means knowing how to transform waste into a resource. It means reducing that dependence on non-European raw materials which the European Commission estimates could fall by 15-20 percent by 2030 thanks to the growth of the circular economy.
You argue that geopolitical conflicts and tensions are paradoxically accelerating the circular economy. How does this mechanism work in detail?
The dynamics are quite simple. The global economic system is based on a network of highly interdependent production chains. When war and trade conflicts undermine interdependence, governments turn to strategic autonomy. Europe is vulnerable because it depends on third countries both for energy and for key raw materials needed by industry. Recycling is a solution because, by recovering the waste generated by Member States, it can reduce dependence on imports of virgin materials from outside Europe. In summary, the more turbulent the international situation, the more unreliable non-European supplies become. And to the extent that this unreliability grows, public and industrial policies in favor of the Circular Economy become more decisive. The European Commission estimates that by 2030 the growth of the Circular Economy will reduce the Union’s dependence on imported raw materials by 15–20%.
Let’s talk about the “traceability avalanche” that according to you will sweep away opaque operators: which regulatory tools do you rely on? And with what realistic times?
The tools are many and intervene on different fronts. The digital passport, by European standard, will soon be imposed on a wide range of products, which will also be tracked in the end-of-life phases. The new community rules also concern the due diligence of companies on the end of life of products, the punishment of greenwashing and the organisational, financial and supervisory responsibility of producers regarding the recovery of post-consumer waste. There is also an impressive crackdown in customs controls on waste flows, also thanks to the establishment of international coordination bodies. The sanctions applied to environmental irregularities are increasingly extensive and severe. And I could go on and on. In recent years the regulatory and control framework has completely changed. Many key requirements are not yet operational, but will soon be. Faced with this firepower, I believe it is unlikely that opaque operators can resist more than 5 years. Some of them may stay afloat, but only if they start respecting the rules.
How do you distinguish a genuine circular business model from one built “on the table to ride the wave”? Are there concrete warning signs that an investor should be aware of?
Also in this case the regulatory evolution helps us. Company reporting, even when it is not mandatory, obeys increasingly precise rules. Today an attentive and not reckless investor has many more tools to judge the credibility of a company’s promises. Precaution is necessary especially with those start-ups that present themselves in a bombastic way, declaring that they can achieve epochal results by virtue of some ingenious idea. Start-ups, in general, offer a very valuable contribution to innovation; but in some cases they are mere money-grabbing machines, which have no real business models and suddenly disappear. The indicators used in investment rounds to evaluate the growth prospects of a business are not always sufficient to understand reality, and moreover they are easy to rig. To make safe investments you need to have some notion of the operating and market context.
She warns that the circular supply chains that are the most commercially competitive today are not necessarily the ones that will survive. Can you give concrete examples of supply chains that you consider solid and others that you consider to be at risk of a bubble?
Today in the circular sector, companies that operate illegally are commercially very competitive, and often more competitive than those who work well. Their competitiveness derives from the systematic avoidance of the costs necessary to respect the rules and guarantee decent standards at an environmental, social and worker safety level. Having lower costs, they can beat honest competitors by charging more attractive prices. But, as I just explained, these businesses have no future. Then there are companies that distort the market and are at risk of a bubble because their competitiveness is inflated by constant capital injections and is not based on economically sound models.
As a manager of end-of-life supply chains, do you already see a change in the quality or quantity of materials entering the system? Are secondary raw materials really becoming more strategic in contracts with manufacturers?
Giving a generalized answer would be dishonest. Recycling is as vast as the industrial economy is vast. There are materials that are more difficult and expensive to recycle, which struggle to achieve the performance of virgin materials, and other materials where the opposite is true. Materials such as steel, iron, aluminium, lead and paper are already close to their maximum recovery potential. Plastic, for its part, does not thrive as a secondary material due to Chinese competition. Lithium and rare earths, despite having a high market demand, do not yet have a proportionate recycling capacity in Europe. The decisive booster will come from the upcoming European obligations on recycled content in new products; This will result in a surge in demand for secondary materials, which will increase the scale and technological development of recovery chains that are not yet mature.
The European governance that you describe proceeds “in forced stages”. From your operational observatory, is the regulatory speed consistent with the industrial speed, or is the risk that companies are unable to keep up?
When the so-called “Timmermans Doctrine” inspired the ecological transition in Europe, the industries actually couldn’t keep up. It was a physiological problem: too many overlapping and intersecting changes, imposed with poor planning. Fortunately, the new European legislature has increased dialogue with the production sectors and is carrying forward the reform with greater attention to the operational and market dimension. Now we talk less about ecologism and more about strategic autonomy: but beyond political communication, the direction has remained the same. What has changed is the method. The ecological transition today has a greater chance of success because the regulatory requirements have a higher degree of feasibility. There are those who think that, in the dynamics of the reform, the public institution is the driving force and the industry does everything possible to slow down. This reading is wrong. European industry, for a number of reasons, has fully embraced the circular vision. In some sectors, such as textiles, public policy is struggling to keep up with the circular drive of industry.
