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Blockchain can facilitate the transition to a circular economy — but scaling its use is a work in progress

Blockchain has been exciting circular economy experts for years with its promising function of material tracing. But the significant systems-level benefits it offers require a greater level of collaborative work

By Claire Murphy, Editor, Ellen MacArthur Foundation

Photo by Miltiadis Fragkidis on Unsplash

If you haven’t heard of blockchain, it’s possible you have been living in a cave for the past few years. The distributed ledger technology (DLT), which first emerged as a way of facilitating crypto-currencies, has been touted as the answer to everything from empowering refugees to curing cancer.

Its value lies in simplifying and improving the accuracy of a ubiquitous but often complex commercial function — the sharing and updating of transactional information between participants of a network. DLT provides a decentralised way of doing this that means no one player can control the entire system, transparency is guaranteed, and the days of filling in and exchanging spreadsheets are gone.

Blockchain is a type of DLT with a specific feature — the use of blocks of information that are linked together (yes, in a chain) with an encrypted ‘signature’ that prevents hacking.

A smart contracts function means it can be programmed to issue contracts or actions automatically when certain conditions are met — for example when a company records that it has used a remanufactured component in a product, this could be programmed to then allow it to be included in a particular supply chain. A blockchain platform can be public — open for any organisation to join — or private, often arranged for members of a particular supply chain.

It’s so potentially transformative to many aspects of business operations that Gartner predicts that the value of the revenue generated via blockchain will build to USD 3.1 trillion by 2030. It might be fashionable, but its success is not fleeting.

Photo by CHUTTERSNAP on Unsplash

What is blockchain’s value to the circular economy?

A circular economy offers the chance to solve problems like climate change, biodiversity loss, and pollution. It’s a fundamental system change that breaks the link between economic activity and the process of drawing from the finite bank of the earth’s resources, making systems more resilient and regenerative. A circular economy is based on three principles — eliminating waste and pollution, circulating products and materials at their highest value, and regenerating nature, all by design.

Blockchain is ideal to help in that circulation task, identifying and monitoring materials and components right through the supply chain so that they can be either reused, remanufactured, or (when that is no longer possible) recycled or composted. There is also some evidence that it can contribute to the regeneration of nature. Water and waste management company Suez uses blockchain to record all the stages involved in transferring sludge from waste water onto agricultural soils.

But its main function in the circular economy so far has been for monitoring non-biological materials. Linked to a GPS system or Internet of Things (IOT) sensors that track its movements and adaptations, a product can bring with it a trail of dynamically-updated information housed on a blockchain that allows each user in the chain to make informed decisions about the management of materials.

This can help manufacturers source components that a blockchain can record as recycled or remanufactured, helping companies to clearly quantify their reductions in the use of virgin materials. Coca-Cola uses blockchain to record and reward the work of informal waste collectors in Africa, aiding its ability to track and trace recycled materials right through the supply chain. For products that comprise a complex mix of materials and components this can be a significant aid.

The technology can also help the end-user make an informed decision about how best to repair or dispose of a product and/or its components. The detail in the stored data (accessed via QR, bar code, or RFID) allows all parties in the value chain of a product to effectively share responsibility for its material flows, enabling circular economy in practice.

For example, Electrolux is working with polymer producer Covestro to find better ways to recycle rigid PU foam from fridges, as part of the EU’s Circular Foam programme. The current physical process for this is complex; using blockchain (on Circularise’s platform) is allowing the manufacturer to store data about recommended ways of dismantling the fridge at end-of-life, in order to most effectively recover the foam.

Blockchain also offers the possibility of future-proofing the recoverability process. Information about materials can be stored even for components that are not currently viable for recovery, opening up the potential for reuse or recycling once methods are developed.

Some studies have indicated that the high degree of monitoring that blockchain delivers can indeed result in a greater level of materials circulation. A study of 290 manufacturing firms in the China-Pakistan Economic Corridor found that each 1% rise in the use of blockchain equated to a 0.341% increase in the use of remanufacturing and recycling.

Photo by Omar Flores on Unsplash

What’s the hold-up?

So far, so promising. But as even the blockchain evangelists will agree, fourteen years after it first burst onto the scene in the financial sector as the power behind cryptocurrencies, progress on using the technology within supply chains has thus far been limited to pilot projects. The goals of these projects have also mostly also been for marketing purposes — whether demonstrating a brand’s efforts to curb carbon emissions or to prove ethical sourcing. Explicit intentions of using blockchain to make supply chains fit for a circular economy have been few and far between.

The main reasons for this slow progress lies in the ambition inherent in its promise for the circular economy. The technology might hold exciting potential, but it also requires a level of collaborative culture that feels very different for many organisations that are used to issuing edicts to their supply chain in return for their business.

Phil Brown, vice president, business development and strategy, at tech provider Circularise, which runs on the Ethereum blockchain, observes that: “effective use of blockchain in the circular economy requires an entire network of players to be taking part, making some fundamental changes to many aspects of their operations, and that’s not simple to achieve.”

Partly this is because of hesitancy borne out of the lack of experience about how the platform can be used within businesses. Circularise’s solution to this has been to arrange workshops comprising people from a variety of different business functions, who can share their experiences of using blockchain for supply chain projects, think about wider applications and explore these with partners.

But the idea of open data, even given the gate-keeping function of blockchain that keeps some information private (i.e when hosted on a private network, or using proprietary tech like Circularise), is a concept that alienates some.

Clothing retailer C&A has been trialling the use of blockchain for the sourcing of sustainable materials. Senior manager, sustainable materials and circular products Martha Willis wonders if, in the fashion industry at least, some in the supply chain may prove resistant to the transparency required by a blockchain: “I don’t think the trust yet exists right along the supply chain — particularly at spinner and raw material supplier level — for all players to feel confident about giving out the data required. I suspect they fear the information would be used to push them down on price or question their practices.”

Adoption is on the horizon

But an acceleration in use of the technology may now be on the cards, at least in Europe, where policy changes may now mean that blockchain can help companies fulfil new legislative requirements.

The EU’s new digital product passport legislation asks for companies to create passports for certain products containing information to aid reuse and recycling. Although the EU hasn’t specified the use of blockchain, some, including Brown, believe that this tech has all the functions necessary for passports.

Earlier this year Telefonica Tech and Exxita Be Circular created the first European Green Passport for electronic equipment, incorporating both blockchain and artificial intelligence. The traceability of components, plus verifiable data on durability and repairability, means that devices can be given a financial value in the market for refurbished goods.

Translating enhanced data about materials provenance into product valuations is important. It’s helpful for manufacturers and end users to know what’s in the products they process or use, in order to make informed purchasing decisions that will make reused, remanufactured, and recycled components more frequent. But this is only one facet of the kind of changes necessary for a circular economy.

Facilitating this more effective system of reuse, remanufacturing, and recycling is a welcome first step, but the complete system change that is needed for a circular economy to work effectively can only happen when producers are financially incentivised to design out waste in the first place.

Photo by Tine Ivanič on Unsplash

Will blockchain at scale bring next-level circular economy wins?

Brown believes that although companies might experiment with blockchain for regulatory or voluntary certification reasons (as well as cost savings, and engagement with customers), the real potential is in the next stages of adoption. At this greater level of use is where different business models can be explored, with decisions based on the insights brought from analysis of data contained within the blockchain.

Once a business has used blockchain to close the loop on its supply chain (i.e to facilitate the maximum amount of circulation of products, components and materials) it will naturally find that reuse, remanufacturing, and refurbishment become prioritised within both its operations and that of its supply chain. This can then lead to new sources of revenue as the organisation realises innovative ways to capture previously wasted value.

Amplifying the circulation of materials in this way also facilitates a currency for these circulated parts, further increasing their use. Imaginethat when scanning a specific material to assess its history, a preferred buy-back option loads up, indicating that a material supplier will buy the material back at a specific value if the quality can be maintained.

The record of location, quality, ownership (and therefore responsibility) and even any payments for the transfer of the materials can also be facilitated on a blockchain (if set up with a monetary transaction). At each stage of a product’s life, it can provide the information needed to that actor to be able to maintain the highest value possible.

Ken Webster, visiting fellow at Cranfield University and former head of innovation at the Ellen MacArthur Foundation, is sceptical of some of the claims attached to blockchain. He notes that the technology platform itself is less important than the function which it serves — a more effective method of Materials Data Management (MDM).“In a circular economy we need to know where a material comes from,” Webster explains. “What is in it? What happens to it? You can’t really close the loop without knowing those things. Digital is now cheap as potato chips, so we are moving towards that position, but it needs formalising.”

Webster believes blockchain’s true value to the transition to a circular economy may ultimately be revealed if it can increase ‘total product liability’. This is an idea, first coined by Walter Stahel, that takes corporate responsibility for the materials put on the market up a level — actual or legal ownership/responsibility.

With full transparency of the trail of materials, components, or ingredients that comprise a finished product, businesses are then more likely to take action to minimise their impact — by redesigning products and systems to recover materials in as high a quality as possible. In this way, says Webster, blockchain’s impact could be beyond just the enabling of ‘better recycling’, turning a supply chain into a ‘chain of responsibility’ that prompts upstream innovation to eliminate waste.

Legislation unlocks the major blockchain benefits

The crucial lever to accelerate this process is government policy. If non-renewable resources are taxed at the point of usage, and a tech platform like blockchain enables this, we could start to see big shifts in the ways that companies design their business models and products. With financial incentives to eliminate waste and the materials that cause pollution, corporate strategies could become more aligned to facilitate a circular economy.

This is what can be achieved via Extended Producer Responsibility schemes, where companies pay a fee to cover the cost of end of life recovery. There is already some early research evidence that blockchain technology could help industries to manage the flow of data necessary to make these schemes work. Carbon fee and dividends (CF&D) are another way this transfer of responsibility could happen — charging manufacturers for the carbon that they put into the atmosphere.

If blockchain can be evolved so that it can enable these kind of systems, then it could be successful in enabling companies to be truly responsible for the materials that they choose for their products. Their design choices will then much more effectively close the supply chain loop on their operations and maximise the value flows held within them. Blockchain could then be the catalyst that takes us into the next stage of a circular economy.

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Ellen MacArthur Foundation

Ellen MacArthur Foundation

We work to build a framework for a circular economy that is restorative and regenerative by design. Follow @circulatenews for latest insights.