Circular economy solutions play a key role in controlling a climate crisis as they create climate benefits, i.e., greenhouse gas emission reductions by reducing the production of virgin raw materials and the amount of waste. But a question arises related to the climate benefits of the circular economy: how they should be divided, i.e., allocated between different actors? Who should get the climate benefits for themselves?

OpenCO2net Oy has an ongoing research project, “Climate benefits of the circular economy and related business opportunities”, funded by the European Union NextGenerationEU funding from Business Finland. As part of the project, a master’s thesis has now been completed, which considers allocating the climate benefits allowed by circular economy solutions to different actors in the supply chain. This blog introduces some of the main findings of the master’s thesis.

In allocating the climate impacts of a circular economy, it is important to take into account that the climate burdens and benefits are distributed equitably and truthfully for different actors. In addition, the allocation must be solid throughout the supply chain to avoid double counting. However, allocating climate benefits can be complicated for circular economy-related processes, such as recycling or using secondary materials.

Life cycle assessment standards as the basis of calculation

Life cycle assessment (LCA) is an essential method to examine the climate impacts of circular economy solutions. ISO 14040 and ISO 14044 standards guide LCA. ISO 14044 defines the general allocation procedure for dividing impacts between different products.

Since ISO standards are ambiguous, there is quite a miscellaneous collection of different allocation methods in the literature. In addition, the same methods are known by other names, and similar methods have different versions. There is no single correct way to divide the climate benefits of recycling since an unequivocal solution to the allocation problem has not been found. It is likely that one allocation method could not, or even needs, to solve all situations where allocation is necessary. This is due to the many different purposes of LCA. Get familiar with the three most common and straightforward ways to allocate the climate impacts of recycling below.

Three ways to divide the climate impacts of recycling

A closed-loop allocation method is particularly suitable for closed-loop recycling situations, where the properties of the recycled material remain corresponding to the virgin material. In this case, the climate burdens and benefits are allocated to the producer of recycled material. Closed-loop allocation encourages designing recyclable materials and recycling but not utilising recycled material (Ekvall et al. 2020).

A recycled content allocation method allocates the climate burdens and benefits of recycling to the user of recycled material. This method favours using recycled materials but does not encourage the design and production of recyclable materials (Ekvall et al. 2020).

A 50/50 allocation method allocates the climate burdens and benefits of recycling evenly between the producer of recyclable material and the user of recycled material, as the name of the method suggests. From the circular economy perspective, this method is useful because it favours both actors of recycling.

The possibilities of allocation

The allocation, just like the circular economy, is not limited only to recycling. In addition to recycling, allocation can also consider the primary material production and the impacts of final disposal. Furthermore, part of the allocation methods takes into account the quality of the material and the decreasing of quality through recycling. Some allocation methods also cover the economic value of the material.

For example, the European Commission has developed the 50/50-allocation-based method, which could replace all other allocation methods: Circular Footprint Formula (CFF). The method aims to consider all aspects and applies to all situations. However, the CFF method, as it is known today, is too complicated for many companies. The simpler methods are easier to adopt and, therefore, more commonly used.

The allocation of climate benefits must be transparent since there is a lack of unambiguous allocation procedure. Even though selecting the most advantageous allocation method can seem tempting, the company may find it more rewarding to address the climate benefits of provided by their circular economy solution to the customer as it can create a competitive advantage.

If you are interested in reading more about the allocation of climate benefits of circular economy solutions, you can read the master’s thesis of Peppi Savikko. As part of our research project, we are currently developing a calculation method for the climate benefits of the circular economy. If you want to discuss it with us, please contact us.