Circular economy in the Automotive industry – part one

The circular economy provides a comprehensive solution by reimagining and restructuring the entire life cycle of automobiles. This approach emphasises the importance of extending product lifespan through durable design, reuse, and remanufacturing, as well as material recycling to reduce waste. While the use of Battery Electric Vehicles (BEVs) represents a significant step forward in reducing direct emissions from the transportation sector, it only addresses a small portion of its environmental impact.The production, use, and disposal of vehicles encompass a broader range of carbon and resource footprints that BEVs alone cannot mitigate. Despite ongoing efforts to promote a circular economy in the automotive sector in the European Union, China, and the United States, such initiatives are largely siloed. Recognising the need to bridge knowledge gaps between these regions, the Circular Cars Initiative (CCI) has meticulously crafted seven insightful analyses, funded by the ClimateWorks Foundation and in collaboration with Systemiq, with a particular emphasis on batteries and steel. These investigations not only examine the current landscape, but also plot the course of public policy interventions in these geographies.

The series of insight papers aims to provide actionable recommendations for global policymakers seeking to improve the circularity of the automotive industry. Automotive circularity is not just an environmental imperative but a strategic evolution. The insights reflect a deep understanding that the future of mobility lies in balancing innovation and sustainability in the European Union, China, and the United States. These regions are driving the change, each with their own strategies, challenges, and milestones, creating a rich tapestry of global efforts towards a circular automotive future.

The European Union sheds light on the circular economy

A number of forward-thinking policies distinguish the European Union's approach to implementing circularity in the automotive sector. At the heart of this strategy are the Digital Vehicle Passport and Digital Battery Passport, which represent the EU's commitment to transparency and accountability. These digital tools are poised to transform the automotive life cycle, providing a detailed view of a vehicle's environmental footprint from cradle to grave.
The EU's battery recycling mandates demonstrate a proactive approach to the emerging issue of EV battery disposal. By advocating for increased use of recycled materials and establishing stringent targets, the EU not only reduces waste but also propels the automotive industry towards innovative sustainable design and production methodologies. The EU also uses economic incentives, such as the Carbon Border Adjustment Mechanism, to reduce carbon leakage by levying fees on carbon-intensive imports, encouraging investments in near-zero-emission steel production. This comprehensive approach reflected the EU's overarching vision of a sustainable automotive ecosystem.
 

China, battery recycling and green innovation 

China's narrative on automotive circularity is one of balancing industrial ambition and environmental responsibility. The country's pioneering efforts to establish a strong battery recycling framework demonstrate a commitment to addressing the environmental consequences of the EV revolution. China has made progress in battery recycling and transparency, establishing a traceability system and developing a digital battery passport to facilitate trade and comply with EU data transparency regulations. It has implemented comprehensive vehicle design and recycling requirements for end-of-life vehicles (ELV), with the goal of increasing the quantity and quality of materials used in vehicle components while also improving recycling process transparency. Furthermore, progress towards reducing emissions from steel production is being made, with plans to include the steel industry in the national emissions trading scheme. It has also set up a substantial fund to support the green transition of its steel industry, demonstrating its commitment to environmental sustainability in automotive manufacturing.
 

United States policy shifts to a circular path

Traditionally, the United States has lagged behind the European Union and China in developing circular economy policies for the automotive industry. However, recent legislative actions, such as the Inflation Reduction Act, demonstrate a growing emphasis on domestic battery recycling. The act includes provisions for EV tax credits that require domestic production and recycling, but it does not set targets for steel recycling from ELVs. ELV recycling is currently governed by environmental protection regulations, but there are no formal steel recycling requirements. The United States, as a global leader in remanufacturing production, consumption, and exports, has been largely market-driven. However, the government has encouraged the growth of this industry through demand-side public procurement policies. 
 

A roadmap for policymakers

To reset the automotive industry on a path to circularity globally, policymakers must move beyond the status quo and recognise that current policies fall short in this changing context. The CCI's policy recommendations in the seven insight papers highlight this inadequacy while also charting a course for meaningful transition. To this end, the analysis yields five strategic recommendations that urge policymakers to:

1. Scale the digital battery and vehicle passports. Encourage global adoption of digital life cycle tracking for vehicles and batteries to promote circularity, with a focus on comprehensive coverage and adherence to international standards.
2. Close the loop on battery materials. Advocate for policies that promote battery recycled content and the development of new recycling technologies such as direct recycling, whether through R&D funding or public-private partnerships. The strategic use of subsidies is proposed to boost recycling economics.
3. Determine a path to closed-loop automotive steel. Currently, there is less emphasis on steel recycling policies. To promote closed-loop automotive steel recycling, policymakers should work to increase the supply of high-quality scrap, such as by establishing recovery quality targets for steel recycling and providing financial support for the advancement of recycling technologies and infrastructure.
4. Offer incentives for delivering ELVs to authorised treatment facilities. Offer incentives or penalties to ensure that ELVs are processed responsibly. Better defined border controls, ideally aligned with potential importing countries, would also help reduce illicit trade and vehicle leakage to suboptimal treatment destinations.
5. Make battery and vehicle component reuse, repair, and remanufacturing a priority. In all three geographies, there is insufficient support for lifetime optimisation. It is suggested that batteries be tested for suitability for reuse, repurposing, or remanufacturing before being recycled. Support for other vehicle components could be improved by establishing common definitions and standards, such as quality benchmarks and transparency requirements, in addition to economic incentives.

Adopting these recommendations will not only accelerate the transition to automotive circularity, but will also lay the groundwork for long-term growth and innovation in the industry, aligning with global environmental and economic goals.