Europe’s move towards a circular economy is fragile unless markets for secondary raw materials are improved, according to the European Federation of Waste Management and Environmental Services (FEAD).
Writing in an opinion piece on the FEAD website, its president and Suez UK chief executive David Palmer-Jones (pictured) warned how the difficulty of current market conditions was putting businesses at risk as the global cost of some recyclates barely covers the up-front cost of collection and processing.
In addition, acute price volatility and intense competition from lower-priced virgin material was “exposing the fragility of our transition to a circular economy”.
He added: “First, raw material prices are influenced by a different set of factors to those for secondary raw materials (SRM).
“SRM prices are set according to the cost and efficiency of waste collection and processing, mediated by market demand.
“For plastics, the current drop in oil prices has lowered the price of virgin plastics to below that for recovered plastics. According to the latest “Commodity Markets Outlook” for April 2015, published by the World Bank, for metals a market surplus of virgin material coupled with weakening demand from China has also depressed prices, making secondary metals uncompetitive.
“Unsurprisingly, in these circumstances businesses are opting for virgin material in preference to SRMs when procuring their raw materials. Recyclers and re-processors have been unable to compete, putting the entire SRM value chain for some materials at risk.
“Because the business cycles of virgin and SRM production are so different, the damage to our sector and to the circular flow of SRM cannot readily be rectified.
“The second vulnerability relates to the first, in that price volatility is especially pronounced in the SRM market, making it difficult to operate a stable business.
“Price volatility can cause instability between the input and output price to the extent that operators can even face negative net margins.
“Recyclers are unable to deploy strategies to catch the commodity market at the right price point, such as stockpiling SRM or reducing plant output by restricting the flow of collected waste into the processing facility. The high standing costs of waste collection and processing means that these activities must continue unabated irrespective of the state of the SRM market.
“The third vulnerability relates to Europe’s dependence on the export market to place the SRM it produces. The lack of demand-side measures has resulted in soft markets in the EU for our recycled streams.”
To solve this issue, FEAD has proposed he following measures:
- In order to reduce dependency on virgin raw materials and increase the circulation of SRM, the EU’s reindustrialisation strategy should boost markets for SRM within the EU.
- The Ecodesign Directive should go beyond energy efficiency and include measures for material resource efficiency, including recyclability requirements for selected products such as electronics.
- Eco-labelling rules on products should be amended to make it easier for consumers to choose recycled and resource efficient products.
- The Commission should encourage collaboration between all actors in the value chain, fund innovative substitution technologies and reward first-movers through market instruments such as a lower rate of VAT on second-hand goods and products with recycled content, to promote waste prevention and re-use.
- The Commission should clear the barriers impeding the wider adoption of Green Public Procurement practices, a potentially powerful market driver. Public procurement should be by open competition and should be awarded to the offer which delivers the most sustainable outcome.
- The Commission should ensure that extended producer responsibility schemes operate in a transparent way, to incentivise manufacturers to design their products in a recyclable and non-hazardous way and to ensure fair and equal access to materials and resources.