While the growth in electric cars is happening faster than we thought, truly meeting climate goals will take riding the momentum of another big transition — one to the circular economy. Leaning into these parallel shifts could spark a revolution in how cars are made and used.
A circular economy is an economic system that aims to eliminate waste throughout an entire value chain — including throughout manufacturing, production and use. Its value comes in preserving raw materials and eradicating waste altogether. By contrast, our current “linear economy” transforms raw materials into products that are made, used and disposed of, finding value in producing and selling as many goods as possible.
Embracing the circular economy has become even more critical since COVID-19 has hit economies hard, putting pressure on consumers and manufacturers and driving home the need to be watchful of resources. In fact, one recent survey of supply chain professionals found that 51 percent expect the focus on circular economy strategies to increase over the next two years. Those surveyed from large companies (with revenues of more than $25 billion or more) had more optimism for this growth in the circular economy than mid-size organizations, perhaps signaling the opportunity for organizations with both resources and appetite for risk.
Transitioning away from the “linear economy” means systems-wide changes, including decarbonizing production and designing products for recyclability at “end of life.” For the automobile industry, it means achieving transformation at the scale of Henry Ford’s legendary assembly line, or Toyota’s famous “Just In Time” production system, one that timed manufacturing to dealer orders to minimize parts inventory.
Through what might be called a ‘green industry’ agenda, the global economy can maintain standards of living and offer mobility means to serve the expected doubling of the global passenger demand by 2050.
Since its inception, the automotive industry has led both process revolutions and technological innovation. As the industry adopts the technologies of tomorrow, it is poised once again to create a template for the global economy to reference and follow.
The Circular Cars Initiative (CCI) embodies this ambition for the auto industry. It represents a coalition of more than 60 automakers, suppliers, research institutions, NGOs and international organizations committed to realizing this near-term ambition. A new series of circularity “roadmaps,” developed in collaboration with the World Economic Forum, the World Business Council for Sustainable Development (WBCSD), McKinsey & Co. and Accenture Strategy, explain the specifics of this transition.
The CCI, and its 60 partners, developed three framework reports to help industry and regulators better understand this new, more sustainable future.
The first report, by the World Economic Forum with inputs from WBCSD and Systemiq, is titled “The Road Ahead: A policy research agenda for automotive circularity.” This work questions how current regulatory frameworks can support high circularity. The report makes an appeal for faster vehicle electrification, low carbon technology adoption, end-of-life management subsidies and incentives to support the industry transformation.
The second report, “Raising Ambitions: A new roadmap for the circular automotive economy,” is led by Accenture Strategy and proposes a comprehensive and future-looking framework for increasing both materials and use-phase efficiency in the automobile sector. This report, which will be published later in January, will examine innovative approaches to emerging business models for enabling high-quality recycling and second-life battery use.
The final roadmap, “Forging Ahead: A materials roadmap for the ‘zero-carbon car,'” also will publish this month and was developed in partnership with McKinsey & Co. The report is a detailed outlook on the costs and technology investments required to decarbonize automotive materials. This appeal to the industry to develop new technologies will help produce low carbon materials and forge the partnerships necessary to launch them at scale.
Collectively, these roadmaps lay the groundwork for what might be called a “green industry” agenda. At scale, this new model for industrialization can meet the climate imperative, the challenge to deliver goods and services and also dramatically reduce resources consumed and waste/emissions produced in the process.
Through this model, according to research by Accenture, the global economy can maintain standards of living and offer mobility means to serve the expected doubling of the global passenger demand by 2050. It also can reduce related natural resource consumption by up to 80 percent and carbon emissions per passenger by 75 percent.
CCI offers a platform to exchange and collectively investigate the technology and business models innovations that will help to make circularity the norm, faster. The platform draws the next frontier for the automotive industry and gathers its progressive leaders to find how carbon neutrality will make economic sense. New innovative business models around Mobility-as-a-Service (MaaS) and data availability along the use phase will increase a lifecycle view and bring circularity into the mainstream.
Industry leaders are already investing in such a future. One example comes from CCI member company Renault. This fall, Renault announced the creation of the RE-Factory as it will convert its oldest assembly plant in Flins, near Paris, into a new industrial unit focused entirely on the circular economy, aiming to provide 3,000 jobs and a negative carbon footprint by 2030.
A circular future is not guaranteed for the auto industry. It depends on the rise of 3 simultaneous trends.
In the future, a significant share of private cars could be turned into autonomous taxis, where owners could rent their vehicles out during the day when they aren’t in use. Such a model would create a fleet of autonomous vehicles that potentially could provide the same number of passenger miles with 90 percent fewer cars. Each car would see an increase in use which could clear a path for closed-loop recycling programs (where vehicle components and materials are remanufactured, reused and recycled at the end of life). Automakers who invest in circular innovation can trim costs and complexity from the manufacturing process and increasingly see financial returns.
To be sure, a circular future is not guaranteed for the auto industry. It depends on the rise of three simultaneous trends: high vehicle use models (such as ride hailing, car sharing and MaaS); the conversion of the distribution and maintenance network into collection, re-manufacturing and recycling centers; and the adoption of modular designs and low carbon circular materials during vehicle design.
Still, companies that embrace this future will create more value more quickly. The cost associated with the sourcing of materials and parts will reduce drastically and are expected to largely cover the necessary investments in technology and business models that allow to close the loop. At the same time, the brands that will adopt this approach may be able to provide cheaper and more accessible means of transport to many and offer financially accessible jobs in the gig economy. Finally, the companies adopting this model will have better visibility to carbon neutrality, supporting compliance and reducing their impact on biodiversity.
With investments in the technologies that support MaaS models and low carbon approaches, collaboration and support to convert the existing network and a gradual move to modular designs and production methods, the automotive industry could align its purpose to a 1.5 degrees Celsius scenario in the coming decade.
Op-Ed: Xi is positioning China as the world's indispensable economy — and Biden's greatest challenge – CNBC
It’s now Biden’s America, but whose world will it be?
Expect China’s President Xi Jinping to answer that question unequivocally on Monday with his keynote at the World Economic Forum’s first global virtual meeting. It will leave little doubt that managing relations with China will be both President Joe Biden’s most immediate and most defining foreign policy challenge.
It’s hard to imagine more dramatic timing for Xi’s “special address,” coming in the wake of Biden’s inaugural, Trump’s second impeachment and the Capitol insurrection that prompted it.
Whatever words Xi chooses, his message will be clear: this is China’s historic moment. With modifications for global listeners, it will echo the theme he delivered a few days ago to a gathering of provincial and ministerial level officials at the Communist party school.
“The world is undergoing profound changes unseen in a century,” Xi said, kicking off a celebration-strewn hundredth anniversary year of the Chinese Communist Party’s creation. He declared that the “time and situation” had turned in China’s favor. “This is where our determination and confidence are coming from.”
In a relieved Washington this week, all eyes were on President Biden. He sounded his determination to heal and unify the United States, and he announced his audacious move to unleash the U.S. economy with a $1.9 trillion Covid relief package, and infrastructure spending bills to follow. Internationally, Biden’s focus will be on rallying democratic partners and allies to counter China’s authoritarian gambits.
Yet 2021 may instead be more the year of Xi Jinping than of Joe Biden. The Chinese leader is leveraging the centennial of his Communist Party and China’s emergence as the first major economy to return to growth after Covid-19 to strengthen his individual authority, to tighten the party’s unrivalled control, and to accelerate China’s rise and increased global influence through new investment and trade deals.
At the same time, Xi is laying the ground work for the 20th Party Congress in the second half of 2022, which could formally seal his long-term tenure as China’s paramount leader. Along the way, he has been crushing dissent and rivals, reigning in the country’s biggest private businesses starting with Jack Ma, and deploying digital and surveillance methods to assert control in a manner that he hopes will be more enduring, efficient, productive and less violent than that of Mao Tse-tung.
The world won’t like all of what it sees, but Chinese officials are drawing the comparison of their economic resilience and political stability in 2020 with the dramatic dysfunctions of American democracy and the reality that the pathogen China unleashed has been far less effectively managed, and thus far more damaging, in the United States.
China drove home that narrative through this week’s announcement that the country achieved 2.3% GDP growth in 2020, far outperforming an expected U.S. decline of 3.6 %, a European Union downturn of 7.4% and a global economic pullback of 4.3%. For the first time ever, China passed the United States as Europe’s leading trading partner through the first eleven months of last year.
Most challenging for President Biden is that China has taken a series of pre-emptive steps through trade and investment deals that will complicate his efforts to reinvigorate Asian and European alliances and partnerships. These will be difficult to counter due to his Democratic Party’s reluctance to negotiate new trade arrangements and the detritus of President Trump’s punitive tariffs and sanctions.
Shortly after Biden’s election in November, China signed the Regional Comprehensive Economic Partnership (RCEP) with 14 other Asia countries. Then in December, Beijing offered surprise concessions to break a negotiating deadlock and close an investment agreement with the European Union shortly before Biden’s inauguration.
To ensure the significance of the deal wasn’t missed, Chinese Foreign Minister Wang Yi at a lunch for EU ambassadors praised this demonstration of Europe’s “strategic autonomy.”
President Xi even has expressed interest in joining the higher value Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade liberalization pact among Canada and ten Asian-Pacific Countries that the United Kingdom is applying to join. The U.S. continues to suffer from Trump’s withdrawal from negotiations that created that agreement during the first days of his presidency.
Xi’s underlying message: the U.S. may once have been what former Secretary of State Madeleine Albright called “the indispensable nation,” but China now has become “the indispensable economy.”
President Biden’s opportunity is that Xi may overplay his hand internationally through bullying and at home through an over-concentration of power. His crackdown on private business will render his economy less productive. And history is littered with examples that excessive authoritarianism is ultimately unsustainable.
The Biden administration approach to the China challenge seems to be one of urgent patience, leading with the reinvigoration of the U.S. economy and the prioritization of alliances and partnerships.
For deeper insights, it’s worth reading the impressive recent body of work by Kurt Campbell, who President Biden has brought into the White House as his right hand on China and Asia matters. Campbell sees the need to rise to the China challenge as “a rare area susceptible to bipartisan consensus” that can be leveraged to steer a path away from U.S. decline.
With co-author Rush Doshi in Foreign Affairs, Campbell wrote in December: “Meeting this challenge requires the kinds of reinvestments in American competitiveness and innovation that are also critical to domestic renewal and working class prosperity. Policy makers should link these two agendas, not to amplify American anxieties but to make clear that accomplishing the country’s most important domestic tasks will also have salutary effects abroad.”
As Biden’s presidency enters its first 100 days, he can’t take his eyes off President Xi’s efforts to leverage the anniversary of the first 100 years of the Communist Party’s power. Biden faces a wide array of international challenges, but this contest will be the one that will define his place in history—and whether democracy or authoritarianism will be the ascendant system for the future.
Frederick Kempe is a best-selling author, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Twitter @FredKempe and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.
For more insight from CNBC contributors, follow @CNBCopinion on Twitter.
Vaccine delays in poorer nations threaten rich world’s economy – Financial Times
Advanced economies face a significant hit to their economic recovery from the coronavirus pandemic unless they help developing countries speed up their vaccination programmes, according to a report that will be published by the World Health Organization on Monday.
If the rollout of vaccines in developing countries continues on its current trajectory, advanced economies face output losses of up to $2.4tn — 3.5 per cent of their annual gross domestic product before the pandemic — because of disruptions to global trade and supply chains, the study said.
“The longer we wait to provide vaccines, tests, and treatments to all countries, the faster the virus will take hold, the potential for more variants will emerge, the greater the chance today’s vaccines could become ineffective, and the harder it will be for all countries to recover,” said Tedros Adhanom Ghebreyesus, director-general of the WHO. “No one is safe until everyone is safe.”
The research illustrates the interconnected nature of the global economic recovery and means that even if the world’s leading nations succeed in vaccinating their vulnerable populations promptly, they still face significant economic vulnerabilities from the pandemic.
“Emerging and developing economies are linked to advanced economies through exports and imports, and not just of finished goods,” said Sebnem Kalemli-Ozcan of the University of Maryland, lead author of the report.
“If those countries don’t get the vaccine or get it late, they are not going to recover, they are not going to supply the intermediate goods needed by advanced economies and they won’t have the same level of demand for advanced economy exports.”
Overall a delay in bringing the pandemic under control in emerging economies would wipe about $4.4tn off the world’s output this year, or about 5.7 per cent of annual global output before the pandemic, according to the research, which was commissioned by the International Chamber of Commerce and has been seen by the Financial Times. More than half the impact would fall on high-income countries, the study found.
The WHO has warned of a global “catastrophic moral failure” as poorer countries fall behind richer ones in accessing vaccines.
The Covax facility — which was set up last year by the WHO, Gavi and the Coalition for Epidemic Preparedness Innovations to ensure equitable distribution of vaccines — has struggled to mobilise support from rich nations and faces a $27bn funding shortfall.
The finance ministers of Norway and South Africa have called on fellow ministers of the G20, the OECD and Covax member countries to meet on January 29 to discuss plugging the funding gap.
That would deliver a return on investment of more than 166 times by avoiding the forecast loss of output, the ICC study said.
The research looked at trade links and supply chains for 65 countries and 35 business sectors and estimated the impact on trade and economic output in various vaccination scenarios, based on whether workers in each sector need to operate in proximity to one another.
Under the most extreme scenario, in which rich countries receive vaccines this year but emerging and developing countries do not, the hit to global output would be $9.2tn.
The base-case scenario, causing a $4.4tn loss of output, assumes that advanced economies vaccinate their vulnerable populations by the end of April and that emerging and developing economies reach the same point early next year.
Ms Kalemli-Ozcan warned there were some risks which that estimate did not cover, including the possibility that it would take longer than a year to reach vulnerable populations in poor countries, and that the virus could mutate and continue to spread in advanced economies even if they reached critical levels of inoculation.
World's Economic Recovery Gets Delayed by Slow Vaccine Rollouts – BNN
(Bloomberg) — The world economy is facing a tougher start to 2021 than expected as coronavirus infections surge and it takes time to roll out vaccinations.
While global growth is still on course to rebound from the recession of last year, it may take longer to ignite and not be as healthy as previously forecast. The World Bank already this month trimmed its prediction to 4% in 2021 and the International Monetary Fund will this week update its own outlook.
Double-dip recessions are now expected in Japan, the euro area and U.K. as restrictions to curb the virus’s spread are enforced. Record cases in the U.S. are dragging on retail spending and hiring, prompting President Joe Biden’s new administration to seek an extra $1.9 trillion worth of fiscal stimulus.
Only China has managed a V-shaped recovery after containing the disease early, but even there consumers remain wary with Beijing partly locked down.
High frequency indicators tracked by Bloomberg Economics point to a troubling start to the year with advanced economies beginning on a weak note and emerging economies diverging.
“That’s a reflection of the hard reality that, ahead of widespread distribution of the vaccine, a return to normality is an unlikely prospect,” said Tom Orlik, chief economist at Bloomberg Economics.
It’s a stark outlook facing policy makers after $12 trillion worth of fiscal support and trillions in central bank money printing failed to cement a recovery. Those from the Federal Reserve meet this week.
Even as the economic outlook has darkened as the weeks of 2021 ticked by, financial markets have continued to rally on optimism government stimulus and the vaccine roll out will drive a recovery. Global stocks hit an all-time high last week.
The unevenness is likely to feature in remarks by global leaders including Chinese President Xi Jinping, his French counterpart Emmanuel Macron and German Chancellor Angela Merkel and others who will speak at an online event the World Economic Forum is holding from Jan. 25 to Jan. 29 instead of its usual meeting in the Swiss ski resort of Davos.
The U.S., Britain and European Union are delivering vaccines, setting up a scenario where some parts of the world reach herd immunity while others lag, hurting poorer economies.
“While there is light at the end of the tunnel, there is still a long and difficult road ahead before we are out,” said Erik Nielsen, group chief economist at Unicredit SpA. “So long as the pandemic terrorizes part of the world, normality will not be restored anywhere.”
The optimistic outlook rests on authorities getting the vaccine out on a material scale by mid-year and neutering the threat of more transmissible variants of the virus. The ongoing provision of easy monetary policy and hope that governments won’t pull back their support prematurely as some did after the financial crisis should also assist.
Lockdowns and other restrictions on movement also appear to be having less of a detrimental economic impact this time than last year as consumers and business have found ways to adapt. And China’s lead in the global recovery shows what’s possible once the virus is controlled.
“The first quarter will be worse than we had thought,” said Shaun Roache, Asia Pacific chief economist at S&P Global Ratings in Singapore. “But we see a delayed, not derailed recovery.”
©2021 Bloomberg L.P.
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