Cover story№ 2 September 2017

The industrial model of providing services instead of goods dates back to the 1970s. Several expert groups worked on the concept independently. The Swiss industrial analyst Walter Stahel, who is considered one of the founders of this new approach, led one of these teams. Today, this concept is widely known as the closed circle or loop economy.

Cradle to cradle

As Stahel has discussed in interviews, the idea appeared when scientists first started having the debate around waste. This discussion gave rise to the term ‘cradle to grave’, which emphasised taking raw materials, with the resulting product eventually ending up in a landfill. As a reaction, Stahel started using the term ‘cradle to cradle’. He believed that any product, and any waste produced during its manufacturing, should be recycled. The principle follows nature’s example, where nothing goes to waste, such as dead plants becoming fertilisers.

In practice, this means that the manufacturer needs to consider waste reduction and how best to make use of waste during the entire life cycle of any product. Shifting to this mindset comes at a price, but Stahel has always believed the costs are justified. When he gave presentations about the closed circle economy, he would often conclude with a slide that said ‘You don’t have to do any of this. Survival is not mandatory’.

According to the ‘Towards a Circular Economy’ report by the Ellen MacArthur Foundation, the global economic benefits of transitioning to a circular economy can amount to hundreds of billions of dollars annually.

This is the net cost that can be avoided if there are more industries based on circular principles.

Janez Potočnik

European Commissioner for the Environment

Today, Europe is one of the main driving forces behind promoting the green agenda. In 2015, the European Commission adopted an action plan for the transition to a closed circle economy as the basis for the EU’s sustainable development strategy. To stimulate the process, the EU allocates grants for research and development, and companies that adopt closed circle economic principles are made priorities for public procurement contracts, and provided with tax breaks. On the opposite side, waste disposal charges are increasing.

This year, the World Business Council for Sustainable Development presented the CEO Guide to the Circular Economy. The report suggests that companies use renewable energy and biological or recyclable materials; extract useful resources from materials, reuse their by-products and waste; increase the life cycle of goods through innovation and design; encourage consumers to adopt shared ownership; and invite customers to purchase access to their goods, instead of the goods themselves. These kinds of solutions have been implemented already. A few years ago, Phillips moved away from selling lighting products to providing lighting services. Customers pay for maintenance of the system, while the company retains ownership of the lamps. This approach helps Phillips save on the production of new lighting products.

The document also sheds light on such useful technologies as the Industry 4.0 toolkit, increasing digitalisation (including the Internet of Things and big data) that supports effective manufacturing. In addition, digital technologies help shape the shared economy (like car sharing). This approach is finding more and more supporters. In a recent PwC study, 81% of respondents familiar with the idea of the shared economy agreed that it is ‘cheaper to share goods than own them,’ and 57% even stated that ‘access to goods is the new ownership’.

Flying over Paris

However, in this green future, what should we do with invisible waste? In other words, how do we deal with gas emissions and air pollution?   

In 2015, the world was celebrating the signing of the Paris Agreement; today, its workability, like the Kyoto Protocol before it, is under question.

Back in 1975, economist William Nordhaus predicted that if the average global temperature ever rose by 2°C compared to1861 levels, at the start of the second industrial revolution (considered to be around the time of the development of the Bessemer process, while the peak was during the popularisation of stream production), this would have dangerous consequences. This would include rising sea levels, resulting in vast flooding, reducing the area of land available for agriculture, the expansion of forest fires in one part of the Earth and the increase in precipitation in another. We are already halfway towards the threshold of 2°C: the global temperature has risen by over a degree.

These calculations formed the basis for the United Nations Framework Convention on Climate Change, officially adopted in 1992. In 1997, the Kyoto Protocol was signed, under which developed countries and those with transition economies stated their intention to reduce or stabilise the greenhouse effect, which was listed as one of the main elements of human impact on the climate. The Kyoto Protocol was not exactly a practical tool, as some developing countries, including such large producers of carbon dioxide like China and India, did not commit to reducing their emissions. Additionally, the USA signed, but did not ratify the protocol, and Canada subsequently withdrew.

In July 2017, part of the western ice shelf known as Larsen C, the largest in Antarctica, separated and formed one of the largest icebergs in history. Its area spans 5,800 km2 (for comparison, Moscow is 2,500 km2). Scientists immediately called this iceberg a clear indication of global warming, the causes of which are one of the most controversial items on the green agenda.

Some scientists are of the opinion that climate change is a natural process, unimpacted by human activities. Russian Arctic researchers presented this theory in 2014, following many years of observation.

However, most Western scientists support the idea of human impact on climate change, as a result of harmful atmospheric emissions. This is backed up by the Russian Federal Service for Hydrometeorology and Environmental Monitoring's assessment report on climate change, released three years ago. According to the report, ‘Across significant parts of Russia, human influence has been found to cause changes in seasonal and diurnal extreme temperatures, which are generally consistent with observations of global warming’.

Partially due to the fact that there is yet no consensus on the issues of climate change, global initiatives to reduce emissions are still poorly implemented.


The new round of long-term climate negotiations ended in 2015 with the adoption of the Paris Agreement, which was signed by 195 countries (virtually the entire world). At the Paris conference, many political leaders, including Barack Obama (USA), Angela Merkel (Germany), Vladimir Putin (Russia), and Xi Jinping (China) publicly stated their support for the Agreement.

However, the 45th President of the USA, Donald Trump, who replaced Barack Obama in the White House, commented that the USA would be pulling out of the Agreement. He stated that ‘the Paris Climate Accord is simply the latest example of Washington entering into an agreement that disadvantages the United States to the exclusive benefit of other countries, leaving American workers -- who I love -- and taxpayers to absorb the cost in terms of lost jobs, lower wages, shuttered factories, and vastly diminished economic production.’

Thus, the White House (the second largest gas polluter after China) de facto refused to adhere to its obligations to reduce carbon dioxide emissions (previously this was a 26-28% reduction from the 2005 level.)

Back in 1975, economist William Nordhaus predicted that if the average global temperature ever rose by 2°C compared to1861 levels, at the start of the second industrial revolution (considered to be around the time of the development of the Bessemer process, while the peak was during the popularisation of stream production), this would have dangerous consequences. This would include rising sea levels, resulting in vast flooding, reducing the area of land available for agriculture, the expansion of forest fires in one part of the Earth and the increase in precipitation in another. We are already halfway towards the threshold of 2°C: the global temperature has risen by over a degree.

These calculations formed the basis for the United Nations Framework Convention on Climate Change, officially adopted in 1992. In 1997, the Kyoto Protocol was signed, under which developed countries and those with transition economies stated their intention to reduce or stabilise the greenhouse effect, which was listed as one of the main elements of human impact on the climate. The Kyoto Protocol was not exactly a practical tool, as some developing countries, including such large producers of carbon dioxide like China and India, did not commit to reducing their emissions. Additionally, the USA signed, but did not ratify the protocol, and Canada subsequently withdrew.

The new round of long-term climate negotiations ended in 2015 with the adoption of the Paris Agreement, which was signed by 195 countries (virtually the entire world). At the Paris conference, many political leaders, including Barack Obama (USA), Angela Merkel (Germany), Vladimir Putin (Russia), and Xi Jinping (China) publicly stated their support for the Agreement.

 

However, the 45th President of the USA, Donald Trump, who replaced Barack Obama in the White House, commented that the USA would be pulling out of the Agreement. He stated that ‘the Paris Climate Accord is simply the latest example of Washington entering into an agreement that disadvantages the United States to the exclusive benefit of other countries, leaving American workers – who I love – and taxpayers to absorb the cost in terms of lost jobs, lower wages, shuttered factories, and vastly diminished economic production.’

Thus, the White House (the second largest gas polluter after China) de facto refused to adhere to its obligations to reduce carbon dioxide emissions (previously this was a 26-28% reduction from the 2005 level.)

Useful experience

Russia has its own approach to the climate change issue. Despite the fact that the Paris Agreement has not yet been ratified, it may be assumed that Russia will adhere to it, as President Vladimir Putin has spoken about this openly. Russia's stated goal is to reduce emissions by 2030 by 25% from their level at 1990.

Technically, this goal has already been achieved, so Russia now only needs to prevent emissions increasing, by developing its industry and through introducing the best available environmentally-friendly technologies. This is in line with the governmental industry policy. In addition, in the energy sector, Russia, like China, focuses on low-carbon generation, which concerns not only nuclear and hydro power, but also alternative energy sources.

Digital technologies are contributing to the so-called ‘sharing economy’, such as car sharing.

The issue here regards what is to come. ‘The Paris Agreement is not a “paper tiger”... Its commitments are voluntary in nature, but they will also be mandatorily tightened every five years. And if today our 2030 target of 70% of emissions from the 1990 level is entirely within reach of our economy, as it does not require strict limitations on industrial emissions, what will happen if the bar is significantly raised every five years?’ commented Sergey Roginko, Head of the Centre for Ecology and Development of the Institute of Europe of the Russian Academy of Sciences.

But even if we ignore the principles of the Paris Agreement, the government is serious about implementing its green agenda. ‘Leading global economists are emphasising environmental risks, which are among the three most important challenges facing the modern world. The response to these issues has been the recognition of 'green growth' as the main direction for global development,’ stated Sergey Nevsky, Minister of Natural Resources and Environment of Russia at the Nevsky International Ecological Congress-2017. According to him, Russia is involved in these global processes and is in the process of transitioning fully towards a circular economy.

 

The most obvious consequence of President Trump's decision to withdraw from the Paris Agreement, alongside the blow to the image of the Agreement itself, is a reduction in financing for the UN's climate programmes. The USA had pledged to contribute $3 billion to the fund, more than any other country. Half of this amount has already been allocated, but Trump refused to pay the remaining $1.5 billion. His decision endangered the future of about 25% of international climate funds, according to Alexey Kokorin Head of the Climate and Energy Programme, Alexey Kokorin.

By presidential decree, 2017 is the Year of the Environment in Russia. This initiative aims to solve a wide variety of issues. According to the Russian Federal State Statistics Service, over the past decade the amount of waste in the country has increased by half, to 5.4 billion tonnes in 2016. According to the Ministry of Natural Resources, the atmosphere is polluted by over 30 million tonnes of emissions per year. Naturally, this damages the country, and not only in an environmental sense.

‘The deterioration of the environment and the economic factors associated with it, without taking into account the damage to human health, constitute an annual economic loss of 4-6% of GDP,’ states the Russian 2025 Environmental Safety Strategy (Strategy 2025), approved in April this year. At the same time, in 2016, Russia recorded a GDP decline of 0.2%, which means that the timing for solving environmental issues is right for a country in need of additional growth opportunities. In addition, Russia already has experience in implementing some elements of a circular economy.

The USSR did not worry about emissions too much, which resulted in a huge ‘backlog of emissions’. This was partially offset by the decline in industrial production in the 1990s, and by the period of modernisation in the 2000s. This explains why it will not be too difficult for Russia to fulfil its obligations to reduce emissions to their 1990 level. On the other hand, the USSR used a standardisation policy, which ensured products' quality and durability. In addition, food was packaged in paper or glass containers, which were then collected for processing at dedicated collection points. Scrap metal was also processed. Unfortunately, many of these practices have remained in the past. The reason for this, in part, is the transition to a market economy: while competing with each other, manufacturers try to offer consumers more and more ‘unique’ products at any cost, and often this perceived uniqueness is created through packaging. Despite this, it is possible to revive standardisation as a tool to help with the transition to a circular economy.

Landfills and rubbish are the biggest environmental problems in Russia. As the recent joint survey of the WWF and the Levada Centre shows, most residents in 70 regions of Russia agree. They named waste utilisation as the main focus of conservation. Traditionally, the Russian people view solving environmental issues as the government’s responsibility. About 13% of respondents believe that the population should participate in solving Russia's environmental issues. 42% of the respondents are ready to invest their money into waste disposal and the destruction of rubbish dumps, while 35.5% would invest in expanding urban green spaces, and 32.1% in combatting air and water pollution.

To direct business and society towards new environmental habits, legal norms are being revised. Sergey Donskoy has identified changes in waste legislation that should expand manufacturers' responsibilities. According to the minister, this approach assists in sorting the collection of industrial waste, which in three years will help to increase the volume of processing of the most liquid waste by half. In addition, the Ministry of Natural Resources and Environment intends to incentivise manufacturers who use biodegradable materials in packaging with both tax benefits and reduced fees for environmental impact.

Valuable material

Another incentive for Russia’s transition to a circular economy, Sergey Donskoy believes, is the environmental modernisation of companies as part of the implementation of the law on the use of the best available technology. This also applies to the mining and steel industry with opportunities for greener upgrades. Due to the fact that the main technological equipment at NLMK has been repaired, the gross emissions from the company’s blast furnaces have decreased by over 200 times, while production capacity has increased by 36%.

As part of the Year of the Environment, large Russian companies intend to implement 64 upgrades. One of the biggest projects will be the third hot briquetted iron production facility (HBI-3 Plant) at Lebedinsky GOK (part of Metalloinvest). A few decades ago, HBI was seen as ‘non-standard’ by the industry, but since then things have radically changed. Now, the consumption of HBI in Russia and the world is steadily growing, and demand remains stable even in times of economic crisis.

Scrap metal recycling must develop, but this alone is insufficient to shut down the current demand for metals.

There are many reasons for this. The use of briquettes produces high-quality steel, while minimising the environmental impact of production. At the same time, HBI improves production efficiency. According to Midrex, every 10% of hot briquetted iron in the charge reduces fuel consumption by 8%. HBI, in contrast to traditional raw materials, such as scrap, contains significantly fewer impurities. In addition, briquettes increase raw material security, because scrap reserves suitable for the smelting of high-quality steel are steadily declining.

At the same time, HBI production itself is more environmentally friendly than pig iron: it removes the need to use coke and chemical production and agglomeration. HBI-3 Plant at Lebedinsky GOK was commissioned on July 14 this year. It has a design capacity of 1.8 million tonnes per year, making the plant one of the largest in the world. When HBI-3 Plant’s production reaches its maximum level, Metalloinvest will be able to produce at least 4.5 million tonnes of HBI per year. Even before its launch, a significant part of Metalloinvest’s annual output was contracted to domestic clients. Among them are large consumers such as the Magnitogorsk Iron and Steel Works (MMK), TMK and ChelPipe Group. Thus, HBI-3 Plant will have a wide-ranging effect, which will increase the environmental compliance of the Russian mining and steel industry.

Vladimir Putin, President of the Russian Federation, at the launch of HBI-3 Plant at Lebedinsky GOK (part of Metalloinvest).

As part of the commissioning of the new plant at Lebedinsky GOK, the enterprise’s older technologies, including beneficiation and pellet plants, have also been upgraded. Lebedinsky GOK has introduced fine screening technology for concentrate production, which has resulted in a new product range – high-quality concentrate with an iron content of over 70%, and high-basic pellets with an iron content of 65.8%. The modernised pellet plants have increased their efficiency and production volumes of iron ore pellets.

These projects represent individual solutions to a bigger problem. But we must not forget that the previous economic system began in 1861 with the renovation of individual factories. It took a few more decades for this new technology to become mainstream. The new industrial reality requires a rethink of our economic principles. But these efforts will pay off both in terms of economic development, and the future of mankind, which directly depends on the state of our environment.

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