[Special Feature: Toward a Circular Economy and Society] Eiji Hosoda: Challenges for Realizing a Circular Economy in the SDGs Era

Currently, faced with various problems in the economy, society, and the natural environment, conventional capitalism is being forced to undergo a review. When I was a student, it might have been possible to frame the discussion as capitalism versus socialism, but today such a question no longer holds much meaning. If that is the case, we must seriously explore the direction of a new capitalist economy, or a new economy for the near future, from a different perspective. In doing so, the concept of the circular economy serves as a hint. Here, I would like to identify the problems of the conventional economy from the viewpoints of resources and the environment, and clarify that the concept of a circular economy will be a vital element in showing the direction for constructing a new economy.

The American philosopher and poet George Santayana is said to have remarked, "Those who cannot remember the past are condemned to repeat it." In this article, too, I would like to briefly touch upon the history of waste and recycling toward the construction of a new economy. The history of waste and recycling goes back to the time when humanity first began to enjoy the benefits of civilization, but that would be far too circuitous. Therefore, I will limit myself to events in the post-war period that are directly relevant to this article.

The period of high economic growth (approx. 1955–1970) was the catalyst for Japan, which had been reduced to ashes in the Pacific War, to join the ranks of the so-called developed nations. Economic recovery from a situation where more than a quarter of capital stock had been lost excited the Japanese people and stimulated their desire for consumption. Goods themselves were added value, and it was an era when items represented by terms such as the "Three Sacred Treasures" (black-and-white TV, electric washing machine, electric refrigerator) and the "3Cs" (car, air conditioner, color TV) sold explosively.

As consumption increased, the amount of waste increased accordingly. The era of high economic growth was also an era of high growth in waste. It was around this time that phrases like "waste is a barometer of wealth" appeared. Looking back now, it is surprising, but throwing things away was even considered a virtue.

It was obvious that such an economy would soon become unsustainable. The problem manifested toward the end of the high economic growth period in the form of the "Garbage War." In 1971, amid the movement against the construction of a cleaning factory in Takaido, Suginami Ward, the then Governor of Tokyo, Ryokichi Minobe, issued a "Declaration of Garbage War." This issue eventually reached the point where Koto Ward, where the final disposal site (landfill) was located, blocked the entry of garbage from Suginami Ward. Construction of the Suginami cleaning factory began in 1978, and the problem saw a temporary resolution, but similar issues were occurring all over Japan.

"We produce garbage, but we don't want a processing facility built near our homes." This is, so to speak, human nature, and one cannot entirely deny that feeling. However, it is also a fact that it is impossible to live without waste treatment facilities. How to solve this problem is the key to building a circular economy, and a hint lies in the slogan: "Separated, it's a resource; mixed, it's garbage." At the time, every municipality was struggling with the garbage problem. It was an especially urgent issue for municipalities without final disposal sites.

What emerged then was the idea of recycling the remnants of daily life through separation, under the slogan "Separated, it's a resource; mixed, it's garbage." By doing so, both the volume of incineration and the volume of landfill could be reduced. This was an idea that led to the 3Rs (Reduce, Reuse, Recycle) that would later spread. However, there was also a view that refuse and kitchen waste were not hygienic unless incinerated, so the construction of cleaning factories (incineration facilities) continued. The fact that the incineration rate for municipal solid waste (household waste and some waste from businesses) is at a world-leading level of 80% can be said to be a result of the waste management policies of that time. While the high incineration rate helped solve the garbage problem, it has become one of the obstacles to creating a circular economy. I will discuss this later.

With the promotion of recycling through the separation of remnants and the development of incineration facilities overlapping, the garbage problem of the high economic growth period subsided. However, the problem reappeared in a different form during the Heisei boom, namely the bubble era (approx. 1986–1991). Intoxicated by the rise in asset prices decoupled from the real economy, the Japanese people began to walk the path of diversifying consumption. The problem was that containers for alcohol, fruit juices, and soft drinks, and even food packaging, became diversified.

In the past, there were standardized containers such as the 1.8-liter bottle and 720ml bottle for sake, and large, medium, and small bottles for beer, which could be easily reused. Even cola bottles used to be used repeatedly. However, during the bubble era, a movement arose to differentiate consumption by diversifying containers and packaging, which made reuse and recycling difficult. This is because separation takes time and effort, and if the lots are small, it is not profitable to reuse or recycle them. Consequently, used containers and packaging simply became garbage.

In addition, the disposal of automobiles and home appliances became a problem. When automobiles and home appliances reached the end of their useful lives, there was no system—or an insufficient one—to process and recycle them efficiently. As a result, improper processing and illegal dumping became rampant. If producers simply make products and have no obligation or responsibility for processing and recycling once they are used, proper processing and recycling are unlikely. This also applies to containers and packaging. Therefore, the concept of Extended Producer Responsibility (EPR) was conceived, suggesting that the relevant producer should bear a certain level of responsibility for the processing and recycling of products after use. In fact, recycling laws for individual products embodying EPR were established and implemented one after another. Thanks to these efforts, the garbage problem that originated in the bubble era also showed signs of subsiding.

Why, then, is the "circular economy" becoming a global trend now? Why is it that we cannot simply say "the 3Rs are enough"? Before explaining that, I must first describe what a circular economy is. Although there are slight differences in definitions depending on the theorist, it can generally be summarized as follows: A circular economy is an economy that improves the added value per unit of resource by suppressing the input of resources into the economic system as much as possible and increasing the degree of resource-saving and circular use within the economic system, while also suppressing the discharge of remnants into the natural system as much as possible. What is noteworthy is that the concept of "economy" has entered the picture—something that was not present in concepts represented by "Separated, it's a resource; mixed, it's garbage" or the "3Rs." Some might think this is obvious since the term circular economy is used, but that is not necessarily the case.

Let me explain. Increasing the added value per unit of input resource means fundamentally changing the economic system. Of course, a capitalist economy based on market principles also possesses mechanisms to improve resource efficiency. However, the driving force for realizing a sustainable economic society as presented by the SDGs is not found in conventional capitalist economies. This is because, contrary to the assumptions of market fundamentalists, the market economy does not guarantee resource use that realizes the wealth of future generations. Furthermore, even in terms of the wealth of the current generation, the market economy is deficient in terms of the fair use of resources when considering equity. If that is the case, when trying to depict a new sustainable economic society, an economy that realizes a high level of circular resource use—namely, a circular economy—becomes an indispensable concept.

The concept of a circular economy spread globally largely due to the presentation of the EU's "Circular Economy Package" in 2015. Reading the EU documents, one can clearly see a win-win stance between the economy and the environment/resources. The circular economy is perceived as an essential element for ensuring the sustainability of the economic society. While one cannot deny the impression that this is a bit optimistic, the general view is that we have no choice but to proceed in this direction, and various countries have begun searching for paths toward a circular economy.

Therefore, the key points of a circular economy can be summarized as follows. First, when products, parts, and materials have been used, they should be processed according to the Waste Hierarchy: (1) Prevention, (2) Reuse, (3) Recycling, (4) Incineration/Energy Recovery, and (5) Proper Disposal. Prevention means making products in a way that they do not become waste, or are less likely to do so, from the design and production stages; one method to ensure this is the aforementioned EPR. Furthermore, by imposing EPR on producers, incentives are also provided to create products that are easy to reuse and recycle.

Next is to optimize and streamline the logistics involved in the separate collection and transportation of used products, parts, and materials—namely, reverse logistics. Proper separation is the key to realizing efficient reuse and recycling. The idea of "Separated, it's a resource; mixed, it's garbage" mentioned earlier also takes on great significance by being progressively utilized within the reverse logistics system. In other words, separation fulfills its original role only when it is incorporated into an efficient reverse logistics system. Since used products, parts, and materials are generated sparsely, it is an urgent task to collect information using ICT, AI, etc., and build an efficient and systematic logistics system.

To achieve the above, a major point in creating a circular economy is to develop institutional infrastructure to compensate for market failures while effectively utilizing market mechanisms. Here, institutional infrastructure refers to a system of norms that combines hard law (legal norms such as ordinary laws and ordinances where enforcement power is guaranteed by the state or local governments) and soft law (non-legal norms that do not have guaranteed enforcement power but restrict the actions of subjects in a certain direction). The author believes that this soft law will play a major role in the construction of a circular economy in the future.

As described above, the foundation of a circular economy is built through the development of recycling laws for individual products to promote the circular use of resources, the fulfillment of producer responsibility through EPR, the thorough implementation of the waste hierarchy, and the optimization and streamlining of reverse logistics through the use of ICT and AI. As explained earlier, the synchronization of the market and institutional infrastructure is indispensable for creating a circular economy. To ensure that both future generations and people living today equally enjoy the benefits of a rich environment and resources, economic reform in this direction is necessary. However, this alone is not enough.

What is missing? It is that the elements of circular economy construction discussed so far are only about the production or supply side. In other words, I have not mentioned demand based on consumers' willingness to pay, or, in more macroeconomic terms, effective demand. As is well known, an economy is established by the balancing of supply and demand. A circular economy that does not consider demand is nothing more than a pie in the sky. Especially when thinking about the macroeconomy, one cannot consider employment or growth without the concept of effective demand.

Surprisingly, however, as far as the author knows, the documents published by the EU lack this perspective. They claim that if the production structure is converted to a resource-circulating type, employment will increase and the economic growth rate will rise higher than before. It should be impossible to make such a claim without an increase in effective demand. Certainly, such a claim might be possible if one relies on the classical concept that "supply creates its own demand," but the economy does not work that way. In fact, although the EU's unemployment rate is on an improving trend, the youth unemployment rate remains high.

At the same time as converting the production or supply structure to a resource-circulating type, it is necessary to convert the demand structure to a resource-circulating type. In fact, this is no easy task, and it shows that the path to a circular economy is only possible by passing through a "narrow gate."

Let's look at it somewhat economically. For a circular economy to be realized, consumers must first show a willingness to pay for low-environmental-impact, resource-circulating goods. Demand is not created where there is no willingness to pay. However, this is a micro-level story. Even if demand is born in one place, if it diminishes other demand, it does not lead to an increase in effective demand at the macro level. In other words, unless the increase in willingness to pay for low-environmental-impact, resource-circulating goods at the micro level leads to an increase in effective demand at the macro level, making the economy circular will not necessarily increase employment or the growth rate.

However, there is no need to be pessimistic. This is because we are now seeing signs of consumption styles changing from material to non-material things. As material goods such as consumer durables spread to every household, consumer preferences are shifting toward non-material things.

Furthermore, PaaS (Product as a Service), which sells services and functions carried by products rather than the products themselves, and MaaS (Mobility as a Service), which sells mobility rather than the vehicles themselves, are particularly popular among young people, and business styles are changing accordingly. Also, looking at internet news, popular items such as clothing are those with a story—that is, non-material things that cannot be held in one's hand.

While it may take time for these changes in consumption styles to manifest as macro demand, now that SDGs education is being conducted from primary and secondary education, there is a full possibility that it will eventually become a major trend. I am aware that there is no small amount of criticism regarding the SDGs, but few people would deny the 17 goals themselves. As long as diverse actors try to realize a sustainable economic society in diverse ways, it should be impossible to deny linking the SDGs goals to one's own actions. There is a full possibility that SDGs education will contribute to creating demand for low-environmental-impact, resource-circulating products and services.

Moreover, even if new demand does not fit into market valuation and does not lead to an increase in GDP, it should lead to people's spiritual wealth. In the present day, where things are macroeconomically sufficient, should we not consider that what will truly make people happy from now on is spiritual wealth?

Finally, I would like to discuss the possibility of achieving both a circular economy and carbon neutrality (balancing greenhouse gas emissions and removals). It goes without saying that some kind of energy source is required even for reuse and recycling. It is also necessary to understand that incinerating anything other than bio-derived materials will result in the emission of carbon dioxide.

Regarding the former, thorough streamlining and decarbonization of the reverse logistics system are necessary. Initially, it will be necessary to create a roadmap for the hybridization of logistics, followed by a transition to electric vehicles, hydrogen, and so on. Of course, regarding the conversion of energy sources for reuse and recycling, a path must be prepared starting with low-carbonization and then decarbonization.

The problem is the incineration of waste. As mentioned at the beginning, Japan has relied on incineration for the treatment of garbage (municipal solid waste). This is one reason why the recycling rate is low compared to EU countries. Since incineration always emits carbon dioxide, incinerating plastics derived from crude oil will not result in carbon neutrality. Furthermore, considering the possibility that the mindset that incineration is sufficient has hindered the promotion of reuse and recycling in Japan, it is necessary to break away from the idea of incineration-centrism for waste. This is difficult for municipalities that have relied on incineration for waste treatment, but it is an unavoidable choice. It is impossible and meaningless to eliminate incineration all at once. What is required now is the creation of a specific roadmap for the phased-out of incineration over time and the promotion of circular resource use.