Beyond institutional lock-in: How to accelerate the transition towards a circular economy in Europe.

Beyond institutional lock-in:

How to accelerate the transition

towards a circular economy in Europe.

Interdisciplinary Extension of the Bachelor Thesis

Honours Programme - Future Planet Studies 2015

Student: Noah Pierau

Number: 10349804

First supervisor: B. Tulleners

Second supervisor: J. Buis

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Introduction

The concept of a circular economy has received increasing attention of policy makers all over the globe. In a circular economy waste is seen as a resource, ideally there is no end of life scenario needed. The concept is best understood by looking into natural systems that function optimally because they are designed to sustain material flows and to keep the residual waste close to zero (DG Environment, 2014). Several countries are promoting the circular economy, most notably Denmark, the Netherlands, the UK and Sweden, who are already legislating reuse and recycling (Braw, 2014). In the European Union (EU) the circular economy has recently emerged on the decision agenda, as shown in my thesis at Political Science.

Based on the empirical analysis of my Bachelor thesis I concluded that the adoption of MEMO/12/989 in 2012 was a turning point. It stated that "In a world with growing pressures on resources and the environment, the EU has no choice but to go for the transition to a resource efficient and ultimately regenerative circular economy". The vision that guides the most recent Environment Action Programme of the EU confirms that policy makers pay serious attention to the transition towards a circular economy: "In 2050, we live well, within the planet’s ecological limits. Our prosperity and healthy environment stem from an innovative, circular economy where nothing is wasted" (European Parliament & Council, 2013). Finally, the enactment of COM(2014) 398 final - Towards a circular economy: A zero waste programme for Europe - firmly established the circular economy on the agenda of the EU.

The major recommendation that resulted from my thesis is to conduct research on how the transition towards a circular economy could be accelerated by policy makers. My thesis has mainly analysed EU agenda setting processes, but it also found that the European public has a positive attitude towards the circular economy. Furthermore, it was demonstrated that both the environment and the economy would profit from a transition towards a circular economy. Many others have stressed the importance of such a transition, most prominently the Ellen MacArthur Foundation and organisations such as Circle Economy and Institut d'Économie Circulaire. Even private actors such as Philips, Renault, and Unilever are backing the circular economy. Recently the European Commission launched a public consultation in order to gather input for a new, more ambitious circular economy proposal (European Commission, 2015).

This interdisciplinary extension of my thesis can be seen as an advisory report to the Commission and will provide insights into how the transition towards a circular economy can be accelerated. Most policy makers, analysts, or consultants only look at existing instruments and policies to facilitate this transition. These existing methods either rely on market or government regulation. However, it may be clear that we need to look beyond the 'old' and 'usual' if we are to transform our current linear economy into a well functioning, sustainable circular economy. The interdisciplinary field 'transition theory' has produced valuable insights into how to understand

2 and influence long-term and complex systemic transitions (Geels & Schot, 2010). This advisory report will investigate the potential of transition theory to contribute to the acceleration of the circular transition in Europe.

The report will be short but concise. First, it will review the premises and assumptions of transition theory and explain why this applies to case of the circular economy. This section will be based on the book of Grin, Rotmans and Schot (2010). Second, this report will demonstrate that strategic niche management is an excellent approach to facilitate the transition towards a circular economy and accelerate its implementation. Finally, it will explore the opportunities within the existing context of the EU to use this novel management approach. The conclusion summarise the findings and present the implications of this advisory report.

Transition theory and the circular economy

This first chapter will address the main premises and assumptions of transition theory. This is done by reviewing two aspects: characteristics of transitions and the multilevel perspective. As stated in the introduction, transition theory addresses the question how to understand and influence long term and complex socio-technical transitions. A transition is defined as a gradual, continuous process of change where the structural character of a society transforms (Rotmans, Kemp & Van Asselt, 2001). The term socio-technical system is often used to make explicit that societies include technical as well as human aspects. In their chapter, Geels and Schot (2010) explain that transitions have five characteristics. Each of these characteristics will be reviewed in order to demonstrate that the case of the circular economy can be studied with the transition theory framework. At the end of this chapter the multilevel perspective - a key concept - will be reviewed and adapted to the case of the circular transition in the EU.

The first characteristic of transitions is that they involve the development of technical innovations as well as their use in societal application domains (Geels & Schot, 2010). This use includes the adoption and selection by consumers (integration into user practices) and broader process of societal embedding (regulations, markets and infrastructure). Second, transitions are multi-actor processes which entail interactions between a diverse set of societal groups (Geels & Schot, 2010). Third, transitions are typified as radical shifts. The term radical refers to the scope of change, not its speed (Geels &Schot, 2010). Transitions may occur through either disruptive change or incremental change. Fourth, transitions are long term processes (40-50 years) in which fast breakthroughs of 5-10 years may occur (Geels & Schot, 2010). Innovation journeys through which new socio-technical systems emerge usually take 20-30 years. The fifth and last characteristic of a transition described by Geels and Schot (2010) is that they are macroscopic, they thus transcend the individual or organisational level.

3 Based on the empirical analysis of my thesis it can be argued that all these characteristics apply to case of the circular economy. As for the first characteristic, COM(2014) 398 final states that the transition towards a circular economy implies "new modes of consumer behaviour (...) and innovation not only in technologies, but also in organisation, society, finance methods and policies". This directly relates to the definition of Geels and Schot (2010). The next characteristic also applies to the case of the circular economy. From the analysis of the policy stream it became clear that the policy community around the circular economy consists of a diverse set of public and private actors (Pierau, 2015). Furthermore, since circular policies overlap multiple policy areas, it can be concluded the circular economy is supported by a large group of entrepreneurs with different backgrounds (Pierau, 2015). This all adds to the involvement of multiple societal groups. The third characteristic is present as well. Our current society is based on a linear model and a ‘take-make-consume and dispose’ pattern of growth (European Commission, 2014). The shift towards a circular model, which includes reusing, repairing, refurbishing and recycling existing materials and products but also smarter eco-design to prevent waste in the first place, can definitely be typified as a radical shift.

The fourth characteristic states that a transition is a long term process (40-50 years) in which fast breakthroughs may occur. Innovation journeys, through which new socio-technical systems emerge, usually take 20-30 years (Geels & Schot, 2010). The history of the circular economy dates back to the late 1970s (Ellen MacArthur Foundation, 2013). This means that its development has taken 35-40 years up to now. Within this period, the years 2010-2015 marked a breakthrough, since this is when the circular economy emerged on the agenda (Pierau, 2015). If we add an implementation period of 10-15 years to the development period, the transition path towards a circular economy fits well into the time-scale of the fourth characteristic. In this case the innovation journey marks the last part of the transition, since we are still inventing technologies and infrastructures to reuse and recycle existing products and materials. The fifth and last characteristic of a transition is that they are macroscopic. It may be clear that a circular economy transcends the individual or organisational level, for it requires "changes throughout value chains, from product design to new business and market models" (European Commission, 2014). The transition towards a circular economy can thus be analysed with transition theory, since it corresponds to the five characteristics defined by Geels and Schot (2010).

The multilevel perspective

An important concept within transition theory is the multilevel perspective (MLP). This concept captures several processes of a transition. It was developed by integrating elements of science and technology studies, evolutionary economics, and sociology. A visualisation of the original MLP is given below in figure 1. This section will briefly explain the basic features of the MLP. It

4 should be noted that it is beyond the scope of this paper to conduct an in-depth review of the MLP. Interested readers can consult Geels and Schot (2010) and Geels (2011) who provide a detailed explanation of the MLP, its processes and its theoretical background. The final part of this section will study two relevant additions, which is necessary to fit the MLP around the case of the circular transition in the EU.

As visualised in figure 1 the MLP identifies three different levels. The landscape refers to the broader socio-technical environment in which the transition takes place. Exogenous trends occur on this level. The regime refers to the level of dominant actors and to established practices, rules, and technologies that prevail in a system. The niches level provides space for radical innovation and experimentation. This level is less subject to influences of regulation and facilitates interaction between actors, which may support innovation (Geels, 2002). The three levels have their own logic and differ in their scales of structure (organisation and size) and time. The relationship between the levels can be seen as a nested hierarchy, regimes are embedded within landscapes and niches within regimes (Geels & Schot, 2010). The alignment between levels has evolutionary characteristics: although the niches may produce radical novelties (due to their variety), there is some degree of 'natural selection' since the diffusion of these novelties depends on the regime and the landscape in which it is embedded.

Figure 1: Visualisation of the multilevel perspective. Adopted from Geels (2002).

Two recent additions to the MLP will be reviewed here. First of all the extension made by Raven, Schot and Berkhout (2012). In their paper they propose a second generation, multi-scalar MLP that incorporates a spatial scale. As stated, the original MLP has three levels that may vary along two scales: a temporal and a structural scale. The spatial scale of socio-technical systems is not explicitly conceptualised. In the context of globalisation and regionalisation this may lead to

5 simplistic or incorrect assumptions and empirical analysis (Raven, Schot & Berkhout, 2012). This is especially true for the circular transition in the EU. Their spatial scale is a relative scale rather than an absolute, territorial scale. Actors are theorised as being connected, creating and reconfiguring networks and power within the networks, which causes knowledge, resources, technologies and innovations to flow (Raven, Schot & Berkhout, 2012). In this view space is socially defined, reproduced, and redefined. Transitions thus not necessarily occur within a territorially bounded space (a specific EU member state). Although some economic geographers have emphasized the importance of proximity and co-location for learning, knowledge creation and innovation, others stress relative forms of proximity (Raven, Schot & Berkhout, 2012). In their paper, Raven Schot and Berkhout specifically mention cognitive proximity, organisational proximity, social proximity, and institutional proximity. The extension to the MLP is summarised in figure 2, which also shows the original scales.

Figure 2: The multi-scalar MLP. Adopted from Raven, Schot and Berkhout (2012).

The second addition is proposed by Papachristos, Sofianos and Adamides (2013). Their paper focuses on the interactions between socio-technical systems during transitions. The paper describes and classifies system interactions by reviewing and analysing a number of cases. Their classifications are especially useful during the analysis of a multi system case study. As stated in the previous section, the circular transition in the EU involves multiple policy areas. The notion of system interactions, visualised in figure 3, may be useful in this case as well.

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Transitions and strategic niche management

There are two specific governance approaches resulting from transition theory that are worth investigating: transition management (TM) and strategic niche management (SNM). Although TM may sound like the most logical approach in the case of a circular transition in the EU, this paper argues that TM is too ambitious for this case. In order to understand this argument the scope of this approach is briefly explained. TM is a multilevel mode of governance which aims to shape transitions using visions, transition experiments and processes of learning and adaptation (Kemp, Loorbach, & Rotmans, 2007). Figure 4 visualises the TM cycle, although in reality there is no fixed sequence of these steps (Loorbach, 2010).

Figure 4: Transition management cycle. Adopted from Loorbach (2010).

The activities of TM are aimed at influencing, organising and coordinating different types of governance activities (strategic, tactical, operational and reflexive), in a way that they will be more aligned and will reinforce each other (Rotmans & Loorbach, 2010). TM thus encompasses the whole transition process, which makes it an ambitious governance approach. As stated in the previous chapter, circular economy policies have developed over a period of 35-40 years, and are now ready to be implemented. Currently we are in the innovation journey through which a new socio-technical system will eventually emerge. Since the EU has a relatively limited amount of resources (both financial and jurisdictional) it is more rational to focus on this particular aspect of the transition. Because TM includes strategic envisioning and developing coalitions and agendas, it may be considered too ambitious for the EU to govern only the innovation journey of the circular transition. According to Geels and Schot (2010) this aspect of a transition requires a practical and hands-on approach, which is why SNM may be more suitable.

7 Strategic niche management (SNM) is a governance approach that is concerned with niches and accelerating sustainability transitions. There are a few core assumption of SNM that should be explicated. First, it is assumed that sustainable innovation journeys can be facilitated by creating niches (Geels & Schot, 2010). This is a bottom up process in which novelties emerge in niches, after which they conquer the market and eventually replace and transform the regime (Schot & Geels, 2008). This process if visualised in figure 5. SNM does not suggest that public institutions can create niches in a top-down way, instead they are assumed to emerge through collective enactment (Geels & Schot, 2010). Furthermore, SNM assumes that niches are governed by steering from within which can be enacted by a range of actors (Geels & Schot, 2010). Last but not least, SNM assumes that transitions can be modulated towards a specific direction by adapting internal niche processes and by stimulating external interactions.

Figure 5: From niches to a regime shift. Adopted from Schot and Geels (2008).

Central in SNM are three internal niche processes: articulating expectations and visions, networks dynamics, and learning processes (Schot & Geels, 2008). These internal processes are considered important for the development of a niche and may mutually interact with each other (Geels & Schot, 2010; Grin, 2010). The articulation of expectations and visions is crucial because it provides a direction to learning processes, attracts external attention and legitimates niche protection and nurturing (Schot & Geels, 2008). Network dynamics are also important, because building a social network creates constituency behind new technologies, facilitates interaction between stakeholders and provides opportunities to share resources (money, people, expertise) (Schot & Geels, 2008). Last but not least, learning processes at multiple dimensions are essential for niche development since they facilitate knowledge creation and enable changes in cognitive frames and assumptions (Schot & Geels, 2008). It is beyond the scope of this paper to elaborate more on these internal niche processes, but interested readers are encouraged to consult Schot and Geels (2008) and Geels and Schot (2010).

More recent SNM research focuses on external interactions between niches and their broader environment (Geels & Schot, 2010). This is where the concept of a global niche level

8 comes in. Niche development is considered to happen at two level simultaneously: at the local and the global level (Schot & Geels, 2008; Geels & Schot, 2010). Niches often arise from regional projects or practices. As described by the MLP, local niches provide spaces for experiments and radical innovation. However, if niches are to develop towards a market niche, they will need higher degrees of proximity (Raven, Schot & Berkhout, 2012). This can be achieved on the global level by comparison, coordination, and aggregation of rules and practises (Geels & Schot, 2010). Apart from these niche interactions there is also niche-regime interaction. As described by the MLP, diffusion of innovation and broader regime changes only occurs if the niche practices are picked up by a regime. In this process, politics plays a potentially powerful role by defining the landscape, supporting or destabilising regimes, and protecting or exposing niches (Meadowcroft, 2011). Interactions between niches and the broader environment thus require explicit attention if a transition is to be modulated towards a specific direction.

SNM could be an appropriate governance approach to accelerate the transition towards a circular economy in the EU. It was argued that this transition is in its innovation journey phase, since we are still developing new technologies and infrastructures to reuse and recycle existing products and materials. The creation and stimulation of niches will most likely accelerate this process. It should be stressed that the SNM policies cannot be created in a top down manner, just like TM this approach requires reflexive governance (Grin, 2010). Over the years many SNM case studies have been conducted, which has generated a lot of policy advice (Geels & Schot, 2010). Although this has not resulted into a magic formula for successful niche management, it helps to identify several key dilemmas, as summarised in table 1.

Type of dilemma X Y

Expectations and visions

Be flexible, engage in iterative visioning exercises; adjust visions to circumstances and take advantage of windows of opportunity.

Be persistent, stick to the vision; persist when situations get tough, complex and ambiguous.

Learning

Create a variety of actors and

practices to facilitate broad learning.

Too much variety costs resources; prevents knowledge accumulation; creates uncertainty; delays choices.

Learning

Upscaling through bricolage strategy and incremental learning.

Disadvantages: (1) slow; (2) small victories are not encouraging.

Upscaling through big leap strategy. Disadvantages: (1) risks of failure; (2) misalignment with selection environment.

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Network

Work with incumbent actors, who have many resources, competence and ‘mass’. Try to change their agenda, visions if needed.

Work with outsiders, who think ‘out of the box’ and have new ideas. Incumbents have too many vested interests and will try to hinder or encapsulate radical innovations.

Protection

Protection is needed to enable nurturing of niche experiments, projects, and innovations.

Do not protect too long and too much. This might lead to limited exposure to 'natural selection'.

Niche-regime interaction

Wait for ‘cracks’ in the regime, and then vigorously promote niche innovations. Until such windows of opportunity arise, niches should be nurtured to facilitate stabilisation.

Use niche experiences to influence perceptions of regime actors and aim to actively create cracks in the regime by frequent interaction.

Table 1: Policy dilemmas of strategic niche management. Inspired by Geels and Schot (2010).

Based on these dilemmas it can be concluded that there is no silver-bullet approach for SNM, a conclusion which is confirmed by other SNM research. Moreover, Geels and Schot (2010) argue that SNM should be seen as a useful addition to existing methods to stimulate societal change. This suggests that SNM can be used next to market or government centred methods to stimulate the circular transition in the EU. Market incentives, recycling targets or technological policies could work complementary in combination with SNM. A final remark should be made here. Although SNM could both stimulate both innovation and the direction of a transition, these policy objectives should not get twisted. Transition policies have the ambition to create changes that are beneficial for society at large, whereas most innovation policies seek to strengthen the economic positions of firms and thereby contribute to economic growth (Alkemade, Hekkert & Negro, 2011). This difference should be carefully taken into account by policy makers if they are considering to adopt policies inspired by SNM.

Empirical analysis: opportunities in the EU

This chapter will explore whether there are opportunities for SNM in the context of EU. There are some questions that immediately arise: who will draft and propose the SNM policies? How will these policies be adopted? Who shall be responsible for their implementation? The answers provided in this chapter are not definite, but pave the way for further research.

10 Within the context of the EU, the most prominent actor in the policy area of the circular economy is the Directorate-General (DG) for the Environment of the Commission (Pierau, 2015). The objective of this DG is to protect, preserve and improve the environment for present and future generations. It proposes policies and makes sure that member states correctly apply EU environmental law. Another key actor in this policy area is the DG Internal Market, Industry, Entrepreneurship and SMEs (European Commission, 2015). Several actors outside the EU also influence circular policies, most notably the Ellen MacArthur Foundation and the United Nations Environment Programme (UNEP). When considering the current phase of the circular transition in the EU (innovation journey), it can be concluded that the European Institute of Innovation and Technology (EIT) also plays an important role.

Based on this list of possible key actors who may propose SNM policies, it is argued that the EIT has the most favourable position to turn these proposals into reality. This argument is twofold. First, the other actors are either paralysed by lengthy institutional procedures or they are not formally part of the EU sphere (UNEP and the Foundation). In both cases it is very hard to push SNM proposals on the agenda. Although the DGs are proposing a new circular economy strategy later this year, the Ordinary Legislative Procedure of the EU does not allow for rapid decision making. Considered that these policies are meant to accelerate the circular transition this is certainly not the preferred path. The second reason why the EIT has the most favourable position is because its policies are already in line with SNM. The remainder of the chapter will elaborate on the potential of the EIT to implement SNM policies based on the EIT Strategic Innovation Agenda (DECISION No 1312/2013/EU).

The EIT was created in 2008 as a formal body of the EU to increase European sustainable growth and competitiveness, to reinforce the innovation capacity of the EU member states, and to create the entrepreneurs of tomorrow and prepare for the next innovative breakthroughs. It aims to achieve its mission by integrating actors from higher education, research, and business into Knowledge and Innovation Communities (KICs). Unlike most traditional institutes the EIT is not concentrated in one campus, instead it operates through the KICs. Currently there are five different KICs: the Climate-KIC addressing climate change mitigation and adaptation, EIT Digital addressing ICT, KIC InnoEnergy addressing sustainable energy, EIT Health addressing healthy living and active ageing, and EIT Raw Materials addressing sustainable exploration, extraction, processing, recycling and substitution of materials. Each of the KICs operate through a number of hubs called co-location centres, in total nineteen across Europe. The EIT also has a Regional Innovation Scheme, to increase the innovation capacity in areas and regions of Europe that not directly benefit from the KICs. This report hypothesises that the co-location centres of the KICs could function as local niches to stimulate the circular transition in the EU. Three explorative interviews have been conducted to test this hypothesis.

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Explorative fieldwork

To explore whether the co-location centres of the KICs could function as niches to facilitate the transition towards a circular economy, three company directors have been interviewed. Because businesses are an active part of the co-location centres, it was assumed that they could give an accurate image of the situation in the field. The interviews were semi-structured and aimed to discover whether the co-location centres have the same internal processes as niches. Questions were loosely structured around the three internal niche processes (articulation of expectations and visions, building of social networks, and learning processes). Interviewees were promised anonymity in the final report to stimulate honest answers. The companies were selected based on their potential contribution to the circular economy and on their participation in the Dutch co-location centre of the Climate-KIC.

http://www.climate-kic.org/start-ups/3r-waste-management/ http://www.climate-kic.org/start-ups/bio2chp/

http://www.climate-kic.org/start-ups/pectcof-b-v/

From the interviews it can be concluded that this particular co-location centre indeed displays internal processes similar to those of niches. Articulation of expectations and visions, social networking opportunities, and learning processes were all reported to exist within the Dutch co-location centre. Further research could investigate the degree of intensity of these processes and compare this to well functioning niches. It is also required to investigate multiple co-location centres, from different KICs as well. An unexpected result of the interviews was the determination and the motivation of the directors to contribute to a sustainable transition. This trend was earlier discovered by Loorbach and Wijsman (2013). Although these are interesting insights, it should be noted that the findings are not robust. Due to their explorative character these interviews cannot be classified as valid, more in-depth research is needed.

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Conclusion

As demonstrated in my Bachelor thesis at Political Science, the transition towards a circular economy has recently emerged on the decision agenda of the European Union (EU). In order to investigate how the circular transition can be accelerated, this advisory report moved beyond the 'usual' policies that either rely on market or government regulation and investigated the potential of transition theory and its governance approaches.

Based on a review of the main premises and assumptions of transition theory it was concluded that the case of the circular transition neatly fits into the predefined characteristics of a transition. It is thus rational to use the framework of transition theory to analyse the transition towards a circular economy in the EU. The conducted literature review has demonstrated that the circular transition in Europe is currently in a process called the 'innovation journey', which means that a new socio-technological system with an emphasis on reuse, recycling, refurbishing, and remanufacturing is currently emerging. Strategic niche management (SNM) was selected as the most suitable governance approach to accelerate this process.

The third part of this advisory report has explored the opportunities within the existing context of the EU to use this novel management approach. Based on an actor analysis of the EU policy area around the circular economy, the European Institute of Innovation and Technology (EIT) has been found as most suitable to implement SNM policies. Due to its use of Knowledge and Innovation Communities (KICs), the policies of the EIT are already in line with SNM. The conducted explorative interviews have shown that the co-location centres of the KICs display internal processes that are similar to those niches. If these emerging niches are nurtured - by carefully selecting the right SNM policies - these co-location centres could very well contribute to the acceleration of a circular transition in Europe.

Implications and recommendations

Based on the literature review of this report, the EU institutions are encouraged to investigate the opportunities of strategic niche management in more detail. Conducted empirical research suggests that the EIT is the most suitable actor to accelerate the transition towards a circular economy, although more in-depth research is needed to validate these findings. The conclusions of this report show that it is possible to move beyond existing methods and institutional lock-in to accelerate the transition towards a circular economy.

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