Building a more circular Australia The opportunity of transitioning to a circular economy March 2021 www.pwc.com.au As the world emerges from the COVID-19 pandemic we face the challenge of finding our ‘next normal’. This is both a significant challenge and great opportunity. “ With this restart, a window of hope and opportunity opens… an opportunity for nations to green their recovery packages and shape the 21st century economy in ways that are clean, green, healthy, safe and more resilient – UN Climate Chief PwC’s modelling indicates that Australia could generate $1,860 billion in direct economic benefits over twenty years and save 165 million tonnes of CO2 per year by 2040. This report explores the opportunity for Australia to adopt the concept of a circular economy, establishing a robust and holistic framework for sustainable growth. About us A team of more than 8,000 people in Australia, working together to build trust in society and solve important problems. PricewaterhouseCoopers (Australia) or PwC Australia is one of Australia's leading professional services firms, bringing the power of our global network of firms to help Australian businesses, not-for-profit organisations and governments. We’re a network of firms in 158 countries with more than 250,000 people who are committed to delivering quality in assurance, advisory and tax services. At PwC Australia our purpose is to build trust in society and solve important problems. Find out more and tell us what matters to you by visiting us at www.pwc.com. Contents Foreword 4 Part 1: What is a circular economy, and why now? 5 1.1 Introduction 6 1.2 What’s the problem? 8 Part 2: Why go circular? The economic perspective 10 2.1 Summary of results 11 2.2 Built environment 14 2.3 Mobility 19 2.4 Community 23 2.5 Industry 27 Part 3: A way forward - going circular 29 3.1 Embracing the challenge 30 3.2 The road to circular infrastructure 32 PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 3 Foreword We are in a time of enormous challenge and how we respond will have a great impact on the future of our economy, our society and the planet as a whole. Australia has experienced rapid economic development and population growth. This has placed pressure on our cities, infrastructure, services and resources that are all based on the prevalent linear economic model of 'take, make, use, waste’. Australia is depleting its resources at an accelerated rate, whilst generating unprecedented waste and emissions, to the detriment of the region not just environmentally, but socially and economically. There is a growing realisation that climate risk represents financial, environmental and social risk, and that transition towards a lower carbon, more circular economic models represents a historic opportunity. As Australia emerges from the COVID-19 pandemic we face the challenge of finding our ‘next normal’. This is both a significant challenge and great opportunity. Indeed, as the United Nations has implored, this is a chance to ‘Build Back Better’. To address this, Australia has started to explore sustainable solutions, such as alternative sources of energy, curbing excessive consumption, implementing greater efficiency in the built environment, and expanding on existing recycling efforts. However, reversing the current pattern of development requires a truly holistic approach. In this report, we explore the opportunity for Australia to adopt the concept of a circular economy, establishing a robust and holistic framework for sustainable growth. This involves creating closed-loop material cycles across the production and consumption value chain, and treating waste as a leakage of value to be avoided rather than dismissed. PwC has defined a framework for circular economic infrastructure, governed by three principles: optimising the consumption of finite resources, maximising product utilisation, and recovering by-products and waste. Given the expansion of urban areas and forecasted growth of our cities, it is only logical that the journey towards circularity should focus on the built environment, transport and housing. The potential environmental and economic benefit of adopting a circular economy model for Australia has been quantified in this report. Our modelling suggests that Australia could generate $1,860 billion in direct economic benefits over twenty years and save 165 million tonnes of CO2 per year by 2040. The nations and companies that make early progress towards lower carbon, more circular economic models will be the ones to capture the value articulated in this report from the shift in mainstream capital flows towards a growing emphasis on environmental and social impacts. PwC has a clear ambition to play a role in this paradigm shift and is uniquely placed to help catalyse and orchestrate the construction of a more ‘circular’ economy in Australia - that decouples economic activity from the consumption of finite resources, to create an abundant future, without waste. PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 4 Part 1 What is a circular economy, and why now? 1.1 Introduction Reflecting today’s global economic system, Australia has delivered its Australia has taken its growth on a linear model of production that became dominant after the place among the world's introduction of mass production during the industrial revolution. In most developed countries terms of economic growth this has been a story of success and and it now faces the prosperity. resulting challenges – a However, the transition over the last 200 years to a one-way return to a rapidly growing production model – a linear economy – has caused a strain on population post COVID-19 finite resources and introduced significant quantities of waste. concentrated in cities and The linear economy model involves extracting natural resources to a heavy reliance on finite make products that are used for a limited period of time, before being discarded as waste – as shown in Figure 1. Within the same period, natural resources. the planet's ecosystems have begun to show signs of strain. Figure 1: Linear economy model Source Make Use Waste Since the end of the 1940s, technological and social innovation has boosted living standards, which increased consumption, required a greater supply of consumer goods and increased waste. Population growth is leading to increased amounts of waste and emissions. Risks of serious environmental, health, and economic problems are only beginning to emerge. The linear economy model’s dependence on finite resources has also led to their near depletion and to rising and less predictable commodity prices. Companies and economies that rely on scarce natural resources are becoming more exposed to price volatility and are pressured to find alternatives that are both economical and sustainable. The linear economy model is becoming increasingly unsustainable and there is a need for an alternative economy model that is sustainable. In contrast, the circular economy has emerged as a more sustainable alternative, and has attracted interest and support from governments over the last two decades, and a growing number of businesses. PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 6 A circular economy is an alternative economic A circular economy model represents a model that derives its inspiration from nature’s significant opportunity, as well as a challenge. ecological cycle – creating a closed loop of material In a circular economy, every resource moves and energy cycles where all materials operate through in such a way that it becomes food for within a closed system. another process, and in so doing, unlocks vast A truly circular economy is driven by renewable amounts of previously lost or inaccessible value, to flows, rather than finite stocks – with two types of create lasting abundance - for people, economies material flows: and the planet as a whole. A move towards this economy now can help organisations address their 1. organic material, designed to re-enter and most immediate needs in new ways that unlock regenerate the environment safely (such as capital and labour to build competitive advantage, compost) create new profit pools and drive innovation. This 2. materials, designed to circulate for as long as enables organisation to grow their competitive edge possible through repair and reuse, without and be fit for long term and sustainable success. entering the environment for disposal (such as Across an entire economy, this move creates an metals, paper and plastic). abundance of jobs, systemic resilience and The circular economy concept involves various resource security. stakeholders including but not limited to The circular economy is often depicted as a series manufacturers, distributors, consumers, and of loops, each representing a different way of governments, and can be applied across all managing products that are no longer required by industries. Making the transition to a circular their owners (because they are damaged, defective, economy means changing the way we source, or simply unwanted). The loops represent a design, manufacture, distribute, use, and discard hierarchy. The closer to the centre the loop is, the materials. less waste and environmental pollution created and the more economic value retained in the product or materials. Figure 2 Circular economy concept 1. Recycling 2. Remanufacturing Recovering materials from end-of-life Disassembling products at the products for use as raw materials in component level rather than into another process, excluding separate materials, replacing broken incineration to generate energy. This or out-dated parts to make a new can lead to recovered materials of product for sale or lease. This avoids the same quality, lower quality a new product having to be (down-cycling) or higher quality manufactured. (upcycling). 4. Maintenance 3. Reuse Extending the life of a product with its first owner, either via repair or Selling or donating a product in its refurbishment service, or by making original form, or with little change, it easier for users to repair it which avoids a new product having to themselves. This delays the be manufactured. May also include purchase of a replacement product. redistribution of unwanted food. 5. Redesign Developing products that use fewer materials or have a smaller environment footprint that are designed to be more durable, or to be offered as a service through a leasing or take-back model. Also includes adaptations to make products easier to maintain, reuse, remanufacture or disassemble and recycle at end-of-life. Source: PwC UK, Going Circular: Our 10 Year Journey Aims to tackle the most material impacts, based on lifecycle analysis. PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 7 1.2 What’s the problem? The problems generated through the linear economy model have The growth generated impacted the planet, the environment, natural resources, industry and through the linear economy the economy – with impacts seen in the following ways. model allowed most of the The planet world to access goods and services that have Since the 1970s, humankind has effectively been running an ecological deficit in terms of its impact on the environment. This improved our lives. means that the global annual demand for resources has exceeded This has, however, come what the Earth can regenerate each year. at the cost of depleting natural resources and environmental damage impacting our planet. 1.7 planets to produce global output and absorb waste. Source: PwC analysis based on Global Footprint Network Today the global economy uses This trend is estimated to grow exponentially. If these developments are allowed to continue, the environmental damage caused may become irreversible, or even reach ‘tipping points’ where self-reinforcing feedback loops produce above-proportionate effects. The environment The most fundamental problem caused by the linear economy model is accelerating environmental degradation resulting from economic activity. Multiple other measures point to large-scale environmental damage, showing alarming rates of biodiversity loss, deforestation, land degradation, depletion of stocks of finite resources, disruption of the Earth’s freshwater cycle, chemical pollution and climate change, to name just a few examples. Waste and pollution are the main factors leading to this environmental degradation. PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 8 Improving Australia’s domestic resource As an example, Australia generates recovery capacity and sustainable consumption is critical to avoiding environmental degradation. Every year millions of tonnes of materials are lost to landfill, such as plastics, paper, glass, metals, textiles, masonry, food and other organic materials. These are all potential sources of 74 million tonnes of waste per annum significant value and resources that are going to waste. Source: PwC analysis based on Global Footprint Network and National Waste Report 2020 Natural resources Consuming more resources than the Earth can provide will inevitably lead to shortages of some resources. With half of the global population now middle class or wealthier, the pressure on our planet’s resources and ecosystems will be even greater in the future. 90.9% Of all raw materials do not find their way back into the economy Source: Global Circularity Industry and the economy Price volatility can be associated with three types of scarcity: physical scarcity such as the availability and depletion of stocks; economic scarcity referring to supply and demand; and geographical scarcity referring to who controls the availability of resources. The three types of scarcity are interlinked and all drive the volatility of prices – impacting on businesses and the economy in different ways. 180% Percentage increase in commodities prices since January 2000 Linear economy models are dependent on abundant resources feeding them, and the Source: Australian Bureau of Statistics negative impacts arising from waste, environmental degradation and scarcity have been borne by the environment and society as a whole. PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 9 Part 2 Why go circular? The economic perspective 2.1 Summary of results Circular potential Concepts of sustainability are not new to policy or business decisions across Australia. In fact, many of the opportunities quantified and explored in the following pages already have government targets or expected take ups without further action – such as government goals for halving food waste, or the expected increase in electric vehicle (EV) ownership. However, they still lack a holistic approach for increasing circularity in line with the three principles of the circular economy. This section aims to show the quantum of the potential benefits of fully embracing circularity in a coordinated way. Category of opportunities To demonstrate the size of the opportunity that going circular presents, we have examined the impact within four key components of a circular economy, as follows: • A built environment based on circular economy principles would optimise land utilisation, and integrate durable, mixed-use buildings designed in a modular way and constructed with recycled and biological materials. Spaces would consume less power and water, and would be highly-utilised thanks to sharing and multi-purposing. • A circular mobility system would be interconnected and shared, electrified, autonomous, and multi-modal. Public transport would make up a large proportion of citizens’ mode of travel while individualised mobility would be mostly provided as a service. • A circular community is one that is mindful of resource consumption, use and disposal. It is a community where consumers reduce consumption of energy, water and biomass, extend the life cycle of their assets as long as possible and practice active recycling. • Australian industry working in a circular manner. Businesses transform their business model to be circular, including designing and innovating new products and services. These categories are used to demonstrate the magnitude of the benefits that could come from embracing the opportunities within each category. PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 11 Identifying opportunities Quantifying impact Within these categories, this report does not aim to For the identified priority opportunities, we have capture every circular opportunity, but rather sized the potential for twenty years from 2021 to demonstrate the magnitude of the benefits that 2040 in terms of: could come from embracing the opportunities in • direct benefits (savings to households, industry each category. We have quantified only the high and governments and positive externalities) impact priority opportunities. • reduction of CO2 emissions. Prioritisation of initiatives based on: Direct benefits have been used to measure against • the potential impact in terms of wealth creation investment or costs of implementing policy changes and pollution reduction from a government perspective. This helps • barriers for implementation: understand the investment that could be made and still generate a positive cost benefit ratio in total - economic barriers relating to profitability, economic terms. and capital requirements All the benefits captured in this report are presented - technology barriers relating to lack of as an incremental above the business as usual that technology and infrastructure, for a circular economy could deliver. This recognises implementation that progress will be made in many of these areas - regulatory barriers relating to existing without policy or attitude change. This allows us to policy and regulations. demonstrate the true benefit of doing things For most of the categories of opportunities, differently, above and beyond what is already quantifying the high priority opportunities gives a happening. sense of the quantum of benefits. It is important to note that these forecasts are all The one exception to this is industry. This is for two made on a pre-COVID-19 basis, with any particular reasons. The first is that information on both the COVID-19 impacts called out qualitatively. impact and potential barriers is internal within Direct benefits businesses. This varies greatly based on the type of business and the industry in which they operate. Direct benefits presented by state and category are The second is that the largest opportunities in this shown below and explored in more detail across the category will come from innovations that are not yet following pages. known. The true potential is in industry redesigning what they produce and this will only happen at a large scale when the attitudes of circularity are embraced. Cumulative benefits to 2040 (billions $) Average benefit (2021-2040) as proportion of GSP NSW 648 3.48% VIC 285 2.08% QLD 705 6.54% SA 67 2.04% WA 109 1.36% TAS 20 2.05% NT 10 1.21% ACT 17 1.33% Australia 1860 3.25% PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 12 High priority opportunities Quantified benefits Modular construction $ material savings $773 billion 3D printing $ labour savings Built $ electricity savings Sharing space 20 year environment % faster time to market cumulative District cooling * CO2 reduction benefits High value recycling and reuse Intermodal Transport Systems $ accident reduction $111 billion $ congestion savings Electric Vehicles $ fuel savings Mobility 20 year % lives saved cumulative Autonomous Vehicles benefits * CO2 reduction Energy consumption and $175 billion purchasing attitudes $ electricity savings Community Sorting and recycling $ increased value of recycling 20 year * CO2 reduction cumulative Food waste reduction benefits Increased use of renewable $801 billion energy in production $ electricity savings Industry $ increased potential market 20 year New markets for value add * CO2 reduction cumulative product such as green steel benefits PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 13 2.2 Built environment A circular built environment could generate $773 billion in direct economic benefits over twenty years and save 3.6 million tonnes of CO2 per year in Australia by 2040 2.2 Built environment Built environment benefits Built environment opportunities Our analysis suggests that, if city planning, modes The following opportunities were identified for of construction and real estate management making our built environment more circular. The five implement the circular economy opportunities shown in bold are those that are deemed to be high below, this could generate direct benefits of priority and have associated benefits quantified: $85 billion in 2040, or an average of 1.31% of gross • Urban planning to optimise land utilisation domestic product (GDP) each year for the next 20 (e.g. use of brownfield sites) years. • Use of biological and non-toxic elements in A circular built environment optimises land architecture (i.e. sustainable building materials utilisation, and integrates durable, flexible, and with a biological origin can contribute to modular spaces. It is designed to facilitate closed designing smarter buildings) loops of water, nutrients, materials, and energy, and is constructed through sourcing bio-based and • Industrialised production of modules recycled materials. (i.e. modular production off-site for rapid assembly on-site) However, the National Waste Database shows that construction and demolition created over • 3D printing of building modules 23 megatonnes of ‘core waste’ in 2018-19.1 This is • Equipment/materials sharing platform roughly the same amount as all other commercial (i.e. supply and demand of equipment/materials and industrial core waste combined. Additionally, can be aligned) what is already built is not used as efficiently as it could be if it was managed under circular principles. • Sharing of building space (e.g. multi-use building) Embracing circular opportunities in the built environment is not just about how we design and • Increased teleworking to reduce need for office build for the future, but also retrofitting and floor space encouraging better use in the environment we • Building and infrastructure for effective energy, already have. Incorporating circular opportunities in nutrient and material cycle (e.g. district the built environment during the construction and cooling, insulation, solar water heating throughout the asset life of buildings allows for systems, building management systems) optimal usage of construction materials, reduced utilisation of finite resources, and substantial • Selective demolition/refurbishing of existing reductions in waste. buildings The current COVID-19 situation has demonstrated • High-value recycling and re-use of how fundamentally our assumption about the built construction modules (i.e. deconstruct vs. environment can change with regards to demolish) and material (e.g. steel) teleworking (which is an example of circular use in • Looping of organic construction material to the built environment, but has not been quantified in biosphere this report). 1. Australian Government (2020) National Waste Report 2020 PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 15 Modular construction Wider adoption of modular construction is an example of circularity in the built environment. Modular construction and prefabricated buildings Benefits in 2040 Cumulative benefits involve off-site production and then on-site (millions $) to 2040 (millions $) assembly of building units. This technique increases NSW 8358 68,176 construction process speed, enhances quality and consistency of output, and reduces material VIC 5566 45,401 wastage. QLD 6925 56,486 Modular construction reduces on-site material and SA 1208 9857 labor costs and allows for faster delivery. During the construction phase alone, the usage of modules WA 3346 27,294 can bring savings of up to 15% in material costs TAS 276 2250 and close to 75% in labour costs.2 This in return for a slight increase in capital and operating NT 479 3908 expenditure compared to conventional construction 559 4563 ACT methods. Australia 26,717 217,935 Modular and prefabricated buildings are not new concepts, however wider adoption of the opportunity could bring about significant savings and economic benefits. The challenge is to increase the adoption of modular construction across the infrastructure and built environment sector. 3D printing of modules Benefits in 2040 Cumulative benefits (millions $) to 2040 (millions $) 3D printing technology allows for printing and assembly of houses and building spaces in a reduced timeframe. It involves only a fraction of the 1791 14,609 NSW typical associated costs and construction material 1148 9361 and can cut down on transport requirements. VIC With increased adoption, 3D printing in the 1618 13,197 QLD Australian construction sector can save labour and material costs. The technology allows for 264 2155 SA construction at a fraction of the cost and reduces material consumption significantly. While 3D printing 763 6223 WA adds ~12% in associated capital and operating expenditures, it results in ~20% material savings 59 480 TAS and ~32% labour savings.3 96 780 NT 126 1029 ACT 5864 47,834 Australia 2. Strategy& (2019) Putting GCC Cities in the Loop 3. Ellen MacArthur Foundation (2015) Delivering the Circular Economy: Toolkit for policymakers PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 16 Sharing and multipurpose use of space District cooling Embracing circular opportunities in the built Energy efficiency in operations of the built environment is not just about how we design and environment offers many circular opportunities. build for the future, but also retrofitting and These include use of high performance insulation, encouraging better use in the environment we optimisation of natural light, use of solar water already have. heating, design to ensure energy and water efficiency coupled with use of renewable sources of Sharing and multi-purposing of spaces is key to energy. maximising the use of the buildings we already have, and also reduces the need for new building District cooling is one opportunity that offers great construction. potential to increase energy efficiency where cooling can consume significant energy. This has Multi-purposing applies mainly to commercial already been adopted in the Australian context. spaces through co-working (offices shared by Brisbane was the first city to adopt a district cooling workers from multiple organisations). It can also network, with energy savings ranging between 10% apply to residential spaces being used as an to 30% for individual buildings as well as C02 alternative to traditional hospitality spaces. Digital emissions reductions of up to 24,000.4 applications can also facilitate the sharing of spaces and allow versatile utilisation throughout asset lifetime. Benefits in 2040 Cumulative benefits It is acknowledged that while COVID-19 may have (millions $) to 2040 (millions $) accelerated the adoption of some circular ideas in the built environment (such as teleworking), it may NSW 458 3697 slow others, like sharing. Public health measures VIC 423 3422 are likely to reduce this opportunity in the short term and influence longer term attitudes. However, we do QLD 289 2347 not believe this eliminates the potential of sharing SA 102 832 (although processes and policies may look different). In the medium term, as organisation WA 187 1468 realise their built environment requirements have TAS 20 174 been disrupted by COVID-19, the potential for sharing with a smaller footprint may increase. NT 11 84 ACT 32 252 Benefits in 2040 Cumulative benefits Australia 1521 12,276 (millions $) to 2040 (millions $) 4. Brisbane City Council (2017) Clean and Green Strategy 2017-2030 NSW 360 3,776 VIC 289 3,032 QLD 219 2,302 SA 43 455 WA 86 907 TAS 12 123 NT 5 56 ACT 19 203 Australia 1,034 10,855 PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 17 High value recycling and reuse of modules Benefits in 2040 Cumulative benefits (millions $) to 2040 (millions $) As mentioned, construction and demolition currently produces the same amount of core waste as all NSW 17,672 170,642 other industry sectors combined. Approximately VIC 12,911 124,674 65% of that is currently recovered.5 There is scope to reduce waste through reuse, and to increase the QLD 10,050 97,049 recycling rate of that waste that is produced. SA 3109 30,021 At the point of end-of-use, disassembly should be favored ahead of demolition. The resulting WA 4228 40,825 high-value recycling reduces waste, and captures TAS 992 9580 value that would otherwise be destroyed. This process can save up to 30% of material costs, while NT 317 3061 increasing associated labour costs by only ACT 818 7894 approximately 5%.6 Australia 50,097 483,747 Recycling of construction modules also reduces the demand for virgin, non-renewable resources, and the energy needed to extract and process them. 5. Australian Government (2020) National Waste Report 2020 6. Ellen MacArthur Foundation (2015) Delivering the Circular Economy: Toolkit for policymakers PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 18 2.3 Mobility A circular transport system could generate $111 billion in direct economic benefits over twenty years and save 144 million tonnes of CO2 per year in Australia by 2040 2.3 Mobility Mobility benefits Mobility opportunities Our analysis suggests that a more circular mobility The following opportunities were identified for system could generate direct benefits of $13 billion making our mobility system more circular. The first in 2040, or an average of 0.19% of GDP each year three, shown in bold, are those that are deemed to for the next 20 years. These benefits span be high priority and have associated benefits economic, social, and environmental value by quantified: reducing congestion, traffic accidents, and fuel • increased use of personal electric vehicles consumption, along with the costs associated with them. It can also achieve a substantial reduction in • increase adoption of connected and CO2 emissions, by up to 144 million tonnes in 2040 autonomous cars (compared to business as usual projections). • increased use of intermodal transportation A circular mobility system provides interconnected systems, through a system-level integration of and ubiquitous public transportation solutions. It all transport modes, combined with last mile provides safe, clean, and energy-efficient connectivity alternatives to the traditional petrol-based cars, and • use of clean and renewable energy sources promotes ride sharing. across all transport modes A circular mobility system requires technology • increased usage of shared personal and transit improvements, public infrastructure investments transportation systems and a shift in community attitudes. However, this is a lower area of potential benefits because of the • increased car repair and used parts sale amount of attention that this area receives by policy • predictive transport asset maintenance through markers, making the business as usual case smart asset management systems for cars and already ambitious in efficiency and benefits. public transport modes. PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 20 Autonomous vehicles Electric vehicles Autonomous driving is becoming increasingly closer Electric vehicles (EVs), including battery-powered, to a reality in our personal transport systems. The hydrogen-powered and plug-in hybrid vehicles, are technology is being advanced by both traditional expected to grow rapidly in Australia, as they are automotive industry and technology giants. worldwide. With increased adoption, autonomous vehicles EVs can reduce pollution and car-associated fuel could improve the mobility system through consumption, and as part of a city system, electric reduction in congestion by 50% by closing space vehicles can support renewable energy production. between cars and reducing accidents by 90% EVs are also safer, due to their lower speed, lack of through avoiding human error.7 combustion risk, and the integration of basic automation features that help to prevent accidents. These benefits will come with increase purchase costs of vehicles, but will still result in net direct Additionally, operations and maintenance costs of benefits in the long term, as prices of the vehicles EVs are lower than those of petrol and diesel come down through advancements and production vehicles (as electricity is cheaper than fuel and EVs scale, as shown below. require less maintenance as they have fewer moving parts). These benefits are expected to be the furthest away of those examined in this report, with mass As with autonomous vehicles, these benefits do production not expected to start until 10 to 15 years initially come with an increased purchase price for from now. Therefore the benefits are generally only electric vehicles. However, these prices are already realised in the last few years of those examined. falling rapidly thanks to continuing reductions in Governments can start now in creating the right battery prices. conditions for their adoption. Benefits in 2040 Cumulative benefits Benefits in 2040 Cumulative benefits (millions $) to 2040 (millions $) (millions $) to 2040 (millions $) NSW 232 491 NSW 3087 27,254 VIC 166 341 VIC 3122 27,144 QLD 129 267 QLD 2312 20,222 SA 39 79 SA 688 6247 WA 75 155 WA 1240 10724 TAS 7 13 TAS 217 2,013 NT 6 13 NT 75 659 ACT 5 10 ACT 150 1304 Australia 659 1,3710 Australia 10,892 95,567 7. Swinburne University of Technology (2017) “Self-driving cars could dramatically reduce the road toll,” Swinburne University of Technology, Sep. 26, 2017 PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 21 Intermodal public transport Benefits in 2040 Cumulative benefits (millions $) to 2040 (millions $) A connected, multi-modal transportation system with sufficient capacity, speed and comfort provides NSW 782 7,013 the fundamental basis for a circular mobility system. This system relies on the availability of public VIC 367 3,305 transport and on a digital interface to manage the provision of a transport related services and let QLD 193 1,691 people shift between personal, shared, and public transportation in an optimised mobility system. SA 66 602 This expands customer travel choice and supports greater efficiency in how our transport services are WA 125 1,106 provided leading to increased use of public transport systems. TAS 5 44 This can reduce travel in personal vehicles with NT 10 83 associated emissions and accident risk and reduce overall congestion. Intermodal commuting is often used to combine the strengths of various ACT 8 72 transportation options, and reduce dependence on the car. Australia 1555 13,916 PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 22 2.4 Community Circular communities could generate $175 billion in direct economic benefits over twenty years and save 16.7 million tonnes of CO2 per year in Australia by 2040 2.4 Community Community benefits Community opportunities Our analysis suggests that circular behaviours The following opportunities were identified for adopted in our community could generate direct realising circular benefits in our community. The first benefits of $15 billion in 2040, or an average of three, shown in bold, are those that are deemed to 0.29% of GDP each year for the next 20 years. be high priority and have associated benefits quantified: Circular strategies at the household level will generate multiple benefits. It minimises the usage • Improving energy consumption attitudes of finite resources; reduces costs associated with (e.g. turning off AC when not in use, unplugging excessive consumption of electricity and purchase appliances when not in use, sourcing of food; extracts greater value from recycled waste; low-energy consumption fittings) and substantially reduces CO2 emissions. • Sorting and recycling of materials (e.g. water, More than the other categories examined, creating organic, plastic, glass, paper, metal) a circular community, one that is mindful of • Reducing avoidable food waste resource consumption, use, and disposal is most dependent on individual attitudes, rather than broad • Sourcing products made of bio-based, investments or policies. Governments can recycled material influence, but not guarantee, these attitudes • Increased focus on household appliance repair through the provision of information, setting incentives through policy and reducing costs of • Sharing of durable assets (e.g. lawnmower, these behaviour through supportive recycling tools) infrastructure. • Extending water use cycle (e.g. using grey water for greening and landscaping) PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 24 Community energy attitudes Benefits in 2040 Cumulative benefits (millions $) to 2040 (millions $) Adopting efficient energy consumption behaviours is essential to reducing associated energy wastage. NSW 2187 21,405 These include turning off the lights in vacant rooms, adjusting the air-conditioning thermostat, and VIC 3029 29,094 unplugging appliances that are not in use, coupled with adoption of proven technologies (such as light QLD 1089 10,557 sensors and home automation) and conscious selection of energy efficient fittings and appliances. SA 578 5840 Fittings that consume little energy, such as LED WA 637 6091 lights, can bring savings of up to 70% to 90% in electricity consumption and associated CO2 TAS 119 1224 savings.8 Similarly, water-efficient fittings can reduce water consumption by more than 60% for NT 53 513 showers and faucets.9 ACT 61 591 Awareness on efficient energy consumption behaviours coupled with adoption of proven Australia 7754 75,315 technologies are necessary to reduce the associated energy wasted. 8. International Energy Agency (2020) Lighting, IEA, Paris https://www.iea.org/reports/lighting 9. Australian Government (2020) Your Home - Reducing Water Demand PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 25 Food waste Efficient recycling Preventing the generation of organic waste Recycling rates of household waste current vary represents another significant opportunity. state to state. Not only is there potential to increase Reducing avoidable food waste reduces the energy these rates, but also ways to more efficient capture and resources required to produce food that is the true value of recyclable materials if they are never consumed, reduces the emissions from sorted and treated effectively. transporting that food and then reduces the A transition towards increased recycling of materials requirement to process that waste. can achieve significant value and reduce landfilling The savings could be achieved by a number of practices. consumer and retail activities such as right-sizing the shopping basket and buying per unit, better awareness on optimal food preservation practices, optimised ordering and pricing at retail stores, and smart packaging for incrementing shelf-life. In addition to the value associated with the wasted food, reduced food waste leads to significant greenhouse gas savings at all stages of the cycle (less transport, less cold storage, less landfill). Australia already has high goals for reduction of avoidable food waste. Australia has set a goal to halve its food waste by 2030, aligning with the UN's Sustainable Development Goal 12.3. Benefits in 2040 Cumulative benefits Benefits in 2040 Cumulative benefits (millions $) to 2040 (millions $) (millions $) to 2040 (millions $) NSW 1258 18,033 NSW 897 8002 VIC 1716 24,104 VIC 420 3626 QLD 1469 20,814 QLD 242 2104 SA 490 7287 SA 119 1070 WA 649 9050 WA 139 1191 TAS 199 3038 TAS 19 172 NT 29 413 NT 2 18 ACT 26 364 ACT 38 330 Australia 5836 83,102 Australia 1876 16,513 10. Australian Government (2017) National Food Waste Strategy PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 26 2.5 Industry Industry benefits Manufacturing use of renewables Our limited analysis of potential benefits from Grattan Institute research shows the potential circular industry suggests direct benefits of $801 savings if Australia’s manufacturing industry used billion in 2040. renewables to replace their coal and gas energy use.11 Circular industry adopts conscious policies in the way they work, in the energy they consume and they waste they produce. But circular industry also provides the next wave of innovation to promote a Benefits in 2040 Cumulative benefits future circular economy. Circular organisations will (millions $) to 2040 (millions $) design the products and services that will we NSW 232 491 require to keep advancing in a circular journey. Industry opportunities VIC 166 341 As discussed above, the identification of circular QLD 129 267 opportunities will depend on the innovation and attitudes of the organisations in industry. Therefore, SA 39 79 we have included just two known opportunities in our analysis, anticipating that there will be many WA 75 155 more to be identified in the future: TAS 7 13 • the manufacturing industry switching to renewable energy sources over coal and gas NT 6 13 • production of green steel in Australia replacing some iron ore exports for manufacturing ACT 5 10 overseas. Australia 659 1,369 11. Grattan Institute (2020) Start with steel: A practical plan to support carbon workers and cut emissions PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 27 Green steel Benefits in 2040 Cumulative benefits (millions $) to 2040 (millions $) ‘Green steel’ or steel that is produced using renewables and efficient practices presents a large NSW 21,485 294,349 opportunity for Australia. VIC 0 0 The direct benefit estimate below shows the export opportunity of green steel, netted from the resulting QLD 34,377 470,959 reduction in exports of iron ore. SA 0 0 WA 0 0 TAS 0 0 NT 0 0 ACT 0 0 Australia 55,862 765,308 PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 28 Part 3 A way forward - going circular 3.1 Embracing the challenge The challenge is to now reinvent our economy to grow our standard of To set in motion the living without depleting natural resources and harming the natural transition to a circular environment. economy and reap the In order to address this challenge, at a high-level, there are three potential benefits, an ways to drive change: integrated and 1. stopping certain activities, or the use of certain products, and comprehensive national finding substitutes or new technological solutions framework is required to 2. where technological solutions or substitutes do not exist, or are ensure government and not sufficient, efficiency improvements should lead to industry contribute toward decoupling of resource use and economic growth a solution. 3. where neither stopping certain activities or generating efficiency improvements is enough, processes would need to go fully circular by closing all loops and eliminating all negative externalities in order to avoid an ecological collapse. Australia has already started on this journey, protecting the environment by banning certain activities and in some cases decoupling them from economic growth. Concepts of sustainability are not new to policy or business decisions across Australia. For instance all levels of government have committed to reduce, reuse and recycle the goods and products we no longer need, and set dedicated targets to reduce waste by 2030. However, we still lack a holistic approach for incentivising circularity in Australia. Figure 3 illustrates the key pillars required to facilitate Australia’s transition towards a more circular economy. Figure 3 Benefits from the development of a circular economy 3 4 5 6 Regulatory Fiscal Private-sector Public framework framework outreach and procurement public and asset awareness management 2 Institutional framework 1 National policies and plans PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 30 In order for the benefits articulated in this report, Higher prices will also create incentives for government and industry should focus on four collection and re-use, which creates markets for actions to drive change. second hand materials. Unfortunately, the majority of markets operate with market failures resulting in 1. A national circular economy framework negative externalities for society as a whole. Despite circular economy principles underpinning Taxes or levies on polluting activities are one way the national waste policy, the focus of that policy is for governments to make companies assume the waste, and not a plan targeted to the end-to-end external costs of their production activities. In nature of transitioning to a circular economy. To addition to this, incentives that create positive compliment waste and energy policy, governments externalities could be explored, for example should integrate their efforts in a comprehensive innovative ideas that reduce the negative impact on national framework that will ensure all relevant the environment could be subsidised. stakeholders contribute toward a solution. A dedicated and comprehensive circular economy 3. Creating markets for second-hand strategy is a crucial step in the transition toward a products and materials circular economy. As part of this strategy, For a circular economy model to work, markets for policymakers at all levels should agree and define second-hand products and materials must exist. A priority initiatives to spearhead the transition. At the challenge today is that not all second-hand national level, this includes achieving resource materials are price competitive. The price of virgin efficiency and increasing the use of renewable input materials may be too low and the markets for inputs into product design. Similar frameworks can recycled materials may be too small. A potential be seen in France, the Netherlands, and Scotland, solution, could be through industry driving change among other countries. through looking for new ways of turning waste into new input materials. 2. Developing market dynamics and incentives for change By incentivising the types of economic activity that help nature’s ecosystems rather than deplete them, Private sector investment has rapidly shifted national and supra-national legislation has the mainstream investment towards power to protect the environment and accelerate sustainability-focused companies in recent years. the transition to a circular economy. This shift in the market is born out of the growing understanding that climate risk presents investment 4. Focus on infrastructure and the built risk, but also a historic investment opportunity. environment The nations and companies that are the early Australia’s cities contain 68% of the national movers towards lower carbon, more circular population, with this expected to reach 74% by economic models will be the ones to capture the 2066.12 In addition, Australia is entering a decade of value from these new and growing markets. This unprecedented levels of investment in infrastructure includes the rapid growth of the ESG (Environment, and city-shaping projects. This is demonstrated by Social and Governance) investment sector. the Australian Government’s $110 billion However, as discussed in Part 1 of this report investments in transport infrastructure across market failures exists and in the presence of a Australia over the next 10 years. market failure, free markets will not produce efficient The unprecedented levels of investments in or socially optimal outcomes. This is why infrastructure in Australia, presents a significant governments also need to step in to regulate opportunity for government and industry to activities that otherwise lead to excessive negative implement the circular economic principles and externalities. strategies into infrastructure. The following page Resource scarcity is a problem that cannot be presents PwC’s Circular Infrastructure Framework, solved by the free market. In a free market exploring the strategies to deliver circular cities and economy scarcity will lead to higher prices for raw infrastructure in Australia. material and energy inputs, which in turn will force companies to improve their resource efficiency and innovate. 12. ABS (2018) Projected population, Australia, 2017–2066 PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 31 3.2 The road to circular infrastructure PwC’s Circular Infrastructure Framework 3 principles and 10 corresponding strategies Principles Circular strategies Infrastructure lifecycle Prioritise 1. Circular Replace construction materials with renewable, renewable sourcing bio-based, or recycled materials 1 Raw material inputs 2. Sustainable Design infrastructure and buildings for disassembly extraction design 2 3. Resource Optimise usage of raw materials to minimise waste in efficiency the construction process (e.g. opting for prefabricated Design components or modular construction) Maximise 4. Product as a Provide a service in areas that were traditionally sold as 3 product use service products (i.e. a developer pays a periodic fee for the use of a product rather than purchasing the product 9 outright, for example modular facades) Construction 10 5. Sharing/ Sharing or multi-purposing of assets (sharing of virtualising commercial and residential space through co-working and co-living) 8 6. Usage Increase the performance and efficiency of product to Retail optimisation/ maximise its life span 4 maintenance 7 7. Reuse/ Purchase and sell second-hand materials distribution Utilisation 5 Recover 8. Refurbishing/ Remanufacture or refurbish existing buildings/ by-products remanufacture components for new usage, rather than down-cycling 6 and waste 9. Recycling from Down-cycling waste or by-products from construction to manufacturing be used for another product Value leakage / waste 10. Recycling Recycle discarded materials after demolition/ from deconstruction consumption The anticipated pipeline of infrastructure in Australia expected to be deliver over the next decade presents a significant opportunity for government and industry to rapidly implement circular economic principles and strategies into the built environment. This is crucial as the construction and demolition sector in Australia currently accounts for 31% (23 metric tonnes) of the waste in Australia.13 This is partly due to the nature of sector, but also because of the conventional design and construction methods currently adopted leading to significant waste. As illustrated in this report, there are significant benefits generated by government and industry transitioning toward a circular economy. The framework above presents a pathway to a more circular infrastructure and built environment in Australia. Incorporating circular opportunities throughout the asset life of infrastructure and the built environment creates value for the economy, provides opportunities for industry to create new revenue streams, products and services, and better outcomes for our environment. 13. Australian Government (2020) National Waste Report 2020 PwC Australia | Building Australia back better | The opportunity of transitioning to a circular economy 32 Contacts For more information Jeremy Thorpe Dr Lucas Carmody Chief Economist Associate Director +61 (2) 8266 4611 +61 (2) 6271 3269 jeremy.thorpe@pwc.com lucas.carmody@pwc.com PwC commits to net zero by 2030 PwC announced a science-based commitment to achieve net zero greenhouse gas (GHG) emissions by 2030. Our net zero ambition will require us to reduce our total GHG emissions by 50% in absolute terms over the next decade. We’ll achieve this by driving energy efficiency improvements in our offices and reducing the GHG emissions associated with our business travel. PwC’s commitment to net zero builds on our 2018 environment ambition to drive efficiencies, go 100% renewable, and offset 100% air travel emissions from FY19 and residual energy use by FY22. It is also an extension of our commitment to be carbon neutral, which we have continued since 2008. We recognise that healthy environmental ecosystems are of great importance to First Nations populations globally and acknowledge Aboriginal and Torres Strait Islander peoples' profound spiritual connection to land. To find out more visit www.pwc.com.au www.pwc.com.au © 2021 PricewaterhouseCoopers. All rights reserved. PwC refers to the Australia member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 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