A world with little or no waste – it’s not just a nice idea for the distant future, it’s a means of improving the environment, public health and even profit margins today.
Companies across many industries are moving towards the idea of a circular economy as an alternative to the traditional linear model of make, use, dispose. In many regions around the world, governments are stepping up with support in the form of guidance and legislation.
The European Commission (EC), for example, is pushing legislation that would encourage the recycling or reuse of “most if not all products and materials” through repairing, refurbishing and recycling. The savings could be substantial. For instance, the EC estimates that if 95% of mobile phones were collected for re-use, savings on material costs of more than €1bn per year could be generated. Imagine what the savings could be for cars.
“The automotive industry depends on different raw materials to produce vehicles. Much of the supply of materials goes to car manufacturing. An increase in demand will lead to increases in prices, which can potentially increase the costs to car manufacturers,” explained Khaled Soufani of Cambridge Judge Business School. “The circular economy concept emphasises the need for firms in the automotive value chain, and other value chains, to come up with disruptive technology and business models that are based on longevity, renewability, reuse, repair, upgrade, refurbishment, servitisation and capacity sharing.”
The circular economy covers a complex and wide range of initiatives ensuring we work to make the best use of the valuable resources that go into our vehicles – Adrian Tautscher, Jaguar Land Rover
It is already playing out in a variety of ways, and Soufani points specifically to the concept of ‘reverse logistics’ as it relates to reusing materials. “There are also other issues relating to the industry exploring ways to use less energy and apply more innovative ways of reusing, remanufacturing, and reconditioning,” he added, suggesting that more research is needed in this area.
A handful of OEMs, including Jaguar Land Rover, have been investigating the potential for reuse and remanufacturing. “The circular economy covers a complex and wide range of initiatives ensuring we work to make the best use of the valuable resources that go into our vehicles. This includes technological innovation – such as recycling, remanufacturing, autonomous vehicles and ownership models that consider the future mobility needs of our customers,” suggested Adrian Tautscher, Sustainable Aluminium Strategies, Jaguar Land Rover.
From OEMs to suppliers
JLR’s REALCAR (REcycled ALuminium CAR) and the REALCAR2 projects have identified huge opportunities around the circular economy and resource efficiency. The OEM worked with Novelis and Innovate UK on this closed loop value chain project, creating new materials and production systems to introduce closed-loop aluminium into Jaguar Land Rover cars. The work resulted in the development of a recycled aluminium-based alloy for use in vehicles and the implementation of an innovative closed-loop aluminium recycling process. JLR claims that the closed-loop enabled it to reclaim more than 50,000 tonnes of aluminium scrap back into the production process during 2015 and 2016. This prevented emissions of more than 500,000 tonnes of CO2 equivalent.
“REALCAR has delivered a technical and supply chain solution that allows aluminium scrap generated in manufacturing processes to be recycled in a much more efficient way,” explained Tautscher. “REALCAR applies ‘circular economy’ principles by ensuring that high quality automotive grade material is reclaimed and put back into the same high quality product. This transparent and traceable process adds value and keeps a tight logistical loop for the material where it is needed, in the UK and Europe.”
Material suppliers are also making headway on this front. ArcelorMittal’s head of R&D, Greg Ludkovsky, has spoken about sustainability as a catalyst for change. Amongst other things, the supplier is using waste created during the steelmaking process to make agricultural fertiliser, and the waste gases created during steelmaking have been used to create bioethanol for aeroplanes. “Sustainability, and specifically the role that steel is playing in the circular economy, are resulting in the creation of new business models and pan-industry collaborations that are potential game-changers,” Ludkovksy commented.
Speaking to Megatrends, a spokesman for the steel supplier added: “Our innovation is helping our automotive customers to reduce their carbon footprint. Add to this the fact that steel is inherently recyclable without any loss of quality, so it is a perfect material for the circular economy.”
The shared economy
Another good fit with the circular economy is alternative ownership models. The shift towards a shared economy, with concepts such as car-sharing and ride-sharing, attack the problem from a very different angle. “The shared economy is about the shared use of an asset that is not fully used by its owner. The sharing economy model contributes to extending the time usage of an asset or a product, so the economic objective is the maximisation of the usage of the asset,” explained Soufani. “When this is applied to the automotive sector it is understood that cars are parked over 90% of the time, and thus a sharing model might increase utilisation and hence contribute to the circular economy. But there could be some challenges and again more research is required in this area.”
Headwinds and potential
A number of headwinds currently prevent automotive material recycling from reaching its full potential. As Soufani pointed out, the whole concept of the circular economy “is relatively new in the minds of consumers and producers. There is a need for greater awareness and more information and education about the need to explore this model in the different industries. When consumers and producers are more informed about the benefits of this system probably more would decide to learn about it and possibly consider the application.”
Our innovation is helping our automotive customers to reduce their carbon footprint. Add to this the fact that steel is inherently recyclable without any loss of quality, so it is a perfect material for the circular economy – ArcelorMittal
JLR’s Tautscher called for greater financial support. As he told Megatrends: “The solutions are complex but attainable; industry expertise needs to be supported with funding to innovate materials and recycling technologies. The steps to achieving this are equally complex.” These steps could include optimising current and future materials to allow increased recycling rates. He also flagged potential in advanced waste separation technology that is applied to end-of-life, post consumer and industrial waste streams to liberate a purer material source for recycling. There could also be potential in full supply chain engagement – from raw material producers to end users to the recycling industry, as Tautscher cautions that “automotive companies will not be able to deliver in isolation.”
All of these developments promise financial payback at some point for the companies involved. A report by Cambridge Judge Business School concluded that “full adoption of the circular strategy not only conserves resources, but can also raise businesses’ net profit margins and earnings dramatically over the long run.” As Soufani elaborated: “Reusing some of the used materials in the process of producing new products might reduce direct material costs, which is included in the cost of sales, and consequently would impact profit margins.” He cautioned that further research could uncover that different industries see different results.
JLR anticipates a return on its investment. “Fortune favours the brave, and ambitious thinking to break beyond existing established ways of working, as part of a long-term strategy, will yield financial benefits,” asserted Tautscher. “Specifically for recycling, maintaining material quality and purity helps ensure material properties are retained; this maximises the market value of the material. The challenge is delivering the technology alongside the associated business model to make it economically viable. A long-term strategic approach helps, because the financial benefit can take time to build as ideas go from small scale to fully industrialised, with scale and volume.”
This article appeared in the Q1 2017 issue of Automotive Megatrends Magazine. Follow this link to download the full issue.