Tunnel vision on Green House Gas emissions isn’t sufficient to deliver on climate goals

THIS ARTICLE IS WRITTEN BY GIDION LONT([email protected]). He IS A CONSULTANT FOCUSSING ON ESG WITHIN THE BUSINESS CONSULTING SERVICES OF RSM NETHERLANDS.

The importance of ESG has been increasing for many years, with the aim of keeping a prosperous and safe planet where no one gets left behind. On the environmental side, the focus has been primarily on (CO2) emissions, fossil fuels and the energy transition. And rightly so, since 89% of global CO2 emissions are caused by fossil fuels and industry. Therefore, many countries globally including all European Union member states, the United States, China, Australia and Russia adopted national targets to reduce these emissions. However, even if all promised climate targets are achieved, the rise in temperature is still expected to hit 2.4-degrees this century. Many companies have developed similar objectives, but since they are not (legally) binding, it remains uncertain how many companies will reach their targets.

Although energy and emissions are undoubtedly crucial for reaching the Paris Agreement of limiting global warming to 1.5 degrees, this singular focus has its limitations. It results in a mindset of simply reducing things, like reducing fossil fuels and reducing energy usage. However, achieving the climate goals is an enormous challenge for which simply reducing certain activities is insufficient. It requires radical systemic changes to how business and society operates, produces and consumes. By considering more aspects involved in CO2 emission and its sources, companies are better able to reduce it. In this article, the importance of efficient resource usage and circular economy for achieving global sustainability objectives and long-term economic prosperity is argued.

Materials are crucial for achieving climate goals

The way resources are currently used in a take-make-waste model is connected to most environmental problems, including biodiversity loss and global warming. For example, due to large-scale plastic waste, microplastics can be found in food chains worldwide, have been found in human food and even in human blood. The 2022 Circularity Gap Report argues that over 70% of emissions are directly related to acquiring, handling and processing raw materials and producing tangible products. The way raw materials and waste are managed is therefore essential for reaching global sustainability goals, and since the global economy is currently only 8.6% circular, there is a lot to gain.

Recent events have emphasized the economic importance of resources and society’s dependence thereof. The Covid-19 epidemic and the war in Ukraine have exposed the sensitivity of supply chains and demonstrated global reliance on raw materials and components and dependency on other countries. The resulting shortages are raising major concerns about the availability and affordability of various products including food, minerals and energy. The price increase of commodities and energy are a root cause of the current stagnated economic growth and high inflation.

It is expected that pressure on the availability of raw materials will persist in the long term. For example, projections are that demand for lithium in the European Union will increase 18 times and cobalt 5 times by 2030, and demand for rare earth elements could increase 10-fold by 2050. Increasingly, countries will be forced to depend on other regions. For instance, the EU has identified 30 critical resources based on their economic importance and supply risk and depends on China for 66% of these critical raw materials. Recent events have demonstrated that dependence on other countries can cause significant risks.

In addition, the fact that some materials are simply running out is raising concerns. The global economy is expected to be facing shortages of various elements because they can no longer be found in (reachable places of) the earth’s crust. Various elements used in smartphones, microchips, LED lighting and solar panels are running out, such as Gallium, Arsenic, Silver, Yttrium and Tantalum.

Raw materials are crucial for economic stability

A logical result of materials shortages is increasing prices. Due to the lack of supply and high uncertainty in markets, prices of various resources including energy, metals and food have recently exploded. For example, the low availability of raw materials and the growing demand for batteries resulted in an increase in the price of lithium increase of almost 500% between 2021 and 2022. In addition, after staying under $ 20,000 per metric tonne since 2012, the Nickel price rose by 100%, and shortly spiked to $ 100,000 in March 2022.

“Raw materials usage should receive more attention, because it is connected to 70% of global emissions and make up 40% of the costs of a typical manufacturing company.”

The described developments have major economic effects because raw materials make up around 40% of the total costs for a manufacturing company under normal conditions. Furthermore, as raw materials shortages are expected to increase in the future, forecasts predict prices to continue rising in the future, along with price spikes during supply chain disturbances. Currently, a lot of resources are used inefficiently or wasted prematurely. For example, every year, there is a mountain of electronics of 57 million tonnes of which less than 20% is collected and recycled. Also, 1.5 times the necessary amount of food for the global population is produced, but because 30-40% is wasted, about 800 million people still live in hunger.

The circular economy is a model of production and consumption aimed at decoupling economic growth from resource use. At the core, it is based on the idea that all materials companies use are kept in a closed cycle as long as possible, if not forever. However, it requires a systemic change in the way companies produce and offer products to their clients. This can only be achieved by integrating the principles and strategies of the circular economy in all product stages, from design and production of products to consumption, disposal and reuse. Companies can benefit from this model by decreasing raw materials costs, retaining the value of the resources they use, and creating value from the same materials multiple times. Since this decreases the demand for raw materials and makes resource use more efficient, this would also lead to a significant reduction in Green House Gas emissions and less dependence on other companies or countries.

A circular economy is a prerequisite for the transition to a low carbon economy

The rising global population, growing demand from developing economies and the transition to a low-carbon economy require an enormous number of raw materials. To achieve sustainability targets and maintain economic prosperity, governments and companies must look beyond emissions. It is vital to look at the current economic system and expand the focus towards the effective use of resources. There is an abundance of signs that the current linear system of using and disposing of resources is reaching its limits. Therefore, a radically new system for producing and consuming products and using raw materials is essential. A circular economy can be such a new system that addresses the described challenges businesses are facing.