As published in our report Completing the Picture, moving to renewable energyrenewable energyEnergy derived from resources that are not depleted on timescales relevant to the economy, i.e. not geological timescales. can only address 55% of global greenhouse gas emissions. To meet the goals of the Paris Agreement on climate change, we need to rethink the way we make, use, and dispose of products and materials. We need a circular economycircular economyA systems solution framework that tackles global challenges like climate change, biodiversity loss, waste, and pollution. It is based on three principles, driven by design: eliminate waste and pollution, circulate products and materials (at their highest value), and regenerate nature..
However, the way greenhouse gas emissions are currently reported can disincentivise companies from shifting to circular business models or adopting circular practices. This needs to change because the circular economy transition is not only needed to address emissions, but other global challenges too, such as biodiversity loss, pollution, and resource scarcity.
The Greenhouse Gas Protocol, the world’s most widely used emissions accounting framework, is undergoing revisions. At the Ellen MacArthur Foundation, we want to make sure that emissions accounting for circular activities is accurate and fair, so we have worked with companies in our Network to capture the challenges faced by businesses leading the circular economy transition.
We found that current methodologies can lead to inaccurate or incomplete emissions calculations, or unfairly favour linear over circular activities. For example:
Switching from linear to circular models of revenue generation – the emissions attributable to the multiple use phases and more complex value chains associated with circular solutions, such as reusereuseThe repeated use of a product or component for its intended purpose without significant modification., repairrepairOperation by which a faulty or broken product or component is returned back to a usable state to fulfil its intended use., and remanufacturing, are not reflected accurately in inventories.
Improving durability and enabling upgradability – the requirement for advance reporting of anticipated use-phase emissions in year of sale means that
companies making their products more durable are penalised because in the year of sale they have to report greater scope 3 use-phase emissions for the elongated lifetime.
the emissions impact of future upgrades cannot be captured once they are introduced.
Re-use - attributing production emissions only to the first user means that accounting is not incentivising reuse over disposal.
Selecting end-of-use management – companies are able to exclude emissions from energy-generating incineration and from recycling, reuse and repair so there is no way to capture the difference in emissions of each option.
Assessing investment portfolios – investors are not required to report the Scope 3 emissions of their portfolio companies, although Scope 3 is where their biggest climate impact lies. Their investment decisions will miss the potential emissions impact from shifts from linear to circular activity and business models within portfolio value chains.
Not all emissions reductions are equal. It is possible to reduce CO2e emissions while wasting finite materialsfinite materialsMaterials that are non-renewable on timescales relevant to the economy, i.e. not geological timescales., degrading nature, and polluting land and water, but it is also possible to reduce emissions through activities that keep materials in circulation and regenerate nature. If the emissions reduction potential of circular economy solutions is not fairly and accurately accounted for, they are less likely to feature as prominent corporate solutions.
What’s next:
In early 2025, we will publish an insight paper describing these challenges.
We are using these insights to help inform the forthcoming revisions to the Greenhouse Gas Protocol. The review is an opportunity for the standards and guidance to better support companies to account for their emissions as they shift from linear to circular approaches to value creation. Given the wide reach of the Greenhouse Gas Protocol, these revisions would contribute to normalising the use of circular economy solutions.
We encourage all users of emissions data to support the Greenhouse Gas Protocol with these revisions.
