Leveraging blockchain to empower circular economy
Initial learnings from our ongoing projects.
Developing a circular economy features prominently in the German Ministry for Environment’s new digital agenda. It stipulates the use of new technologies, such as blockchain, to increase the efficiency and efficacy of recycling and effectively follow the life cycle of products and raw materials.
But don’t circular models already exist?
Probably the most common example in Germany is the Flaschenpfand, or bottle deposit: For most bottled and canned drinks you buy you must pay a deposit of between 8 and 25 cents a piece. Upon returning them to a supermarket, the deposit is paid out and the bottles are either recycled or, if made from glass, cleaned and reused.
In Germany, the system has been in place since Coca Cola started charging Pfand in 1929 and works well, despite an estimated 180 million euros worth of bottles being thrown in the trash every year. The reason could be that the financial incentives are not big enough; and indeed there are organizations pushing for increasing the deposit.
This is the crucial point of any approach to circularity: is there a convincing reason for individuals to participate? And what better incentive is there than saving money?
In other sectors, the stakes are somewhat larger, as we’ve seen in the year or so that we’ve worked with Volkswagen. A car battery, for example, consists mostly of lead and acid, components which make its correct handling and recycling imperative. Therefore, a deposit of €7,50 applies. This value is fairly priced, as between 93% and 99% of starter batteries’ components are recycled. A higher deposit is therefore a higher security that those materials are being re-used. An elaborate regulatory framework makes sure that all parties involved in the collection, transporting, and recycling of car batteries undergo regular audits and report on the amounts of batteries they are handling.
Both examples, bottles and car batteries, have worked well for years and even decades, powered both by financial incentives and governmental requirements. As one scrap car collector we spoke to put it, “nobody’s going to bury a battery in the forest” — because there is money to be made with it.
So, how can these success stories be expanded and transferred to other materials and sectors using blockchain tools?
Taking Circularity a Step further
Blockchain — an infrastructure to create immutable records of transactions, without relying on a central, data-owning authority — allows companies to trace materials and collect data along value chains. Here, traceability is not about following the path of every single battery or beer bottle. Tracing the value chains will allow companies to leverage the data for optimizing processes in numerous ways:
Blockchain technology can prove that recycling practices are sustainable.
You would assume that recycling is always sustainable, but that’s not a given. A study by the UN Environment Program found the top five recycled metals to be lead, gold, silver, aluminum, and tin. Lead itself is poisonous, the recycling of the others can involve chemicals and processes that, if not handled appropriately, can seriously harm workers, adjacent communities, or the surrounding environment. Just as with mining, there are a lot of aspects to be considered to make recycling sustainable.
Blockchain tools can create an immutable record of recyclers’ practices, technologies, and corporate policies. Downstream buyers of the recycled materials can then decide whether the recorded practices are up to their expectations, or they would like further information.
Along with other sustainability metrics, blockchain infrastructure can collect trusted data to determine the carbon footprint of a product from the materials onwards.
Studies point out that it is between two and ten times more energy efficient to recycle metal instead of using primary materials — and that around 7% of world energy consumption is dedicated to metal extraction.
Recycled aluminum alone requires 90% less energy than the primary material.
So, if the aim is to account for all the carbon that goes into a product, it is in every company’s best interest to include the recycling process — the carbon footprint will be significantly lower than when relying on primary sources. Currently, companies might know their own, but calculating the entire supply chain’s carbon footprint remains a challenge.
Here, blockchain can reliably provide the infrastructure to collect and communicate relevant carbon emissions data along the supply chain.
Blockchain technology can be used to promote circular material streams, encourage the use of recycled materials over primary ones, and optimize the supply cycle.
Having collected and immutably stored all the relevant data, procurement and sustainability departments have the ability to fully understand and compare different material streams along different criteria and deliberately decide to go for the recycling loops.
Tracking supply chains and supply circles with blockchain allows for a thorough comparison of the environmental and social impacts of a raw material, as well as accounting for the carbon footprint along the value chain. Companies can then make better, data-driven decisions based on that information.
We are facing mounting challenges around climate change and resource scarcity. So enhancing and expanding the existing approaches to circularity — including adequate incentives — is essential moving forward.
Blockchain is a key enabler for the next generation of the circular economy, by giving companies and individuals the opportunity to fully understand and optimize their supply cycles.
Ultimately, if the vision is to promote recycled materials over primary ones, it is vital to be able to compare different streams for their social and environmental impact, including their carbon footprint. Blockchain technology can go to great lengths to provide an infrastructure to securely share and store such information. This helps every company to become more aware of their impact and ultimately conduct their business as sustainably as possible.
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