A Circular Economy Strategy for Scotland – Business and Regulatory Impact Assessment (BRIA)

Section 3: Costs, impacts and benefits

Quantified costs to businesses

Some costs associated with the introduction of interventions resulting from Strategy priorities may include additional enforcement costs for public bodies, administrative costs for businesses and infrastructure and operational costs of amending services or ensuring compliance across public and private sectors.

Given the high-level nature of the Strategy, while quantified costs are not currently available for all policies, previous impact assessments, such as that for the Circular Economy and Waste Route Map (CEWRM),^[19] have highlighted where potential costs might develop.

For example, the CEWRM BRIA provided some sense of typical costs and benefits based on previous DEFRA assessment of mandatory reporting options, with costs to businesses estimated at between £0.9m to £2.2m in ongoing costs and £0.6m to £1.7m in one-off costs.

The BRIA associated with Packaging Extended Producer Responsibility estimated costs to producers of £941m over 10 years (net present value, 2025-2034) including waste management, familiarisation and reporting costs.^[20] The summary of the costs and benefits attributable to Scotland and its businesses is based on a population share of the rest of the UK at 8.06%.

The polluter pays principle underpins circular economy policy and is one of the guiding principles on the environment set out under the UK Withdrawal from the European Union (Continuity) (Scotland) Act 2021 (‘Continuity Act’).^[21] This is the principle that those who cause pollution should bear the financial responsibility for any damage or remedial action required as a result. At a high-level, implementing the polluter pays principle may mean that there are some upfront costs as well as long-term cost savings as part of the required transition to more circular sustainable models of production and consumption. It also means that some actors may see higher or lower costs, for example as costs of managing waste and pollution are transferred from public bodies to producers. Consultation responses were sought to help highlight concerns around costs but specific potential costs which arise for the listed intervention types include:

• General costs of staff time within public bodies and other stakeholders for development of options, responding to consultations and engaging in stakeholder events.
• Changes to public and private IT systems and reporting mechanisms to provide required information: the scale of costs will be determined by the size and scale of change being proposed. For example, the anticipated system set up, service development and integration costs for a digital waste tracking system across the UK were estimated at £4.3m.^[22]
• Public and private staff training and familiarisation with policy requirements. This will be dependent on the specific intervention and the complexity of implementation within a sector or system.
• Private sector purchase and maintenance of equipment ranging from point-of-sale adjustments to reprocessing machinery. The costs associated here also scale with the size of the change.
• Enforcing authority staff time and systems. This will be dependent on the exact nature of the activity.
• Communications costs. This will be dependent on the intervention design and whether it can be built on other communications campaigns such as Let’s Do Net Zero.^[23]

Consultation responses highlighted additional potential costs and/or barriers including those associated with:

• Adopting new business models.
• Accessing new supply chains.
• Reduced competitiveness in international or domestic markets.
• Reduced material throughput for businesses and supply chains.
• Full associated costs of regulatory interventions (e.g. mandatory reporting).
• Unequal distribution of costs resulting from regulatory non-compliance.

The potential to reduce these costs via well-designed EPR schemes that reinvest and support the right business conditions (e.g. infrastructure) and offer more certainty and predictability was also raised. These issues can be explored more fully as and when specific actions resulting from the Strategy priorities are developed in future.

Other impacts

Reductions in waste and consumption of resources, alongside more effective and efficient waste management processes, will deliver benefits to business in terms of savings, greater resilience, and more stable supply chains. The transition should also support a shift in how we treat and manage materials, helping to create economic opportunities by valuing our materials: such as available markets for collected materials to maximise higher value return and keep them in use, and opportunities to drive greater investment in domestic reprocessing here in Scotland.

We recognise that support for businesses to embed circular economy behaviours, models and practices is vital to capitalise on these opportunities and the Strategy identifies this support as a priority for us.

Scottish firms’ international competitiveness

Taking a more circular approach can benefit businesses by strengthening environmental credentials, and aligning with forthcoming regulation at EU level could help gain access to markets, for example through product passport requirements.

There is a risk that the interventions resulting from priorities in the Strategy could potentially impact on the international competitiveness of businesses if they result in increased costs. Therefore, the Scottish Government will have an important role to play in creating an enabling environment by helping to ensure that sustainable choices are affordable and practical for businesses, and providing the certainty needed to build business and investor confidence. This will be done by working in partnership with businesses to understand the opportunities offered by these economic transformations, as well as potential barriers, including costs.

Benefits to business

There are likely to be economic benefits to businesses in terms of job creation, skills development and retraining as the Strategy aims to drives investment to meet circular economy priorities.

Research from PwC highlighted that adopting circular business practices in the construction, textiles, packaging and electronics industry alone could deliver an estimated 0.2-0.4% boost to UK productivity and 150 -170,000 new jobs.^[24] The Green Alliance suggest that a more circular economy could create 470,000 jobs and add £25bn to UK GDP by 2035.^[25]

A circular approach can also reduce material inputs (typically 40-60% of manufacturing business costs) by up to 44%, saving businesses money.^[26] It can increase the value from final goods by extending their lifetime and creating new opportunities, for example through repair, remanufacture and servicing opportunities.

The benefits of adopting circular economy approaches to manufacturing include higher quality products and lower production costs. Zero Waste Scotland estimate that Scottish manufacturers could benefit from potential growth of remanufacturing from its current value of £1.1bn to nearly £1.7bn with the addition of 5,700 new jobs.^[27]

The Strategy highlights ongoing support for businesses to adopt circular economy practices, and this will include highlighting potential commercial opportunities and cost savings. Improved data can also lead directly to costs savings and highlight new business opportunities.

For example, while there may be costs associated with reporting food waste, evidence suggests that investment in food waste reduction and monitoring food waste has potential benefits. Having a more efficient business model, reducing waste and reduced waste collection and disposal can all reduce costs, with some businesses reporting a 14-fold or greater return on investment.^[28] Action to reduce food waste was recognised in consultation responses as providing economic as well as social and environmental benefits.

More widely the Strategy’s aims to reduce material consumption, maximise reuse and recycling and extend product lifespans bring a number of potential benefits including:

• Increased economic opportunity to collect and reprocess material at scale, thereby creating markets for secondary materials and offsetting virgin material use. For example, it was estimated that 155 kilotonnes (kt) of WEEE is disposed of in household residual waste collections in the UK and in the Scottish waste composition analysis 14kt of electrical and electronic items were identified.^[29]
• Increased reuse of products and materials, and therefore reduced costs to businesses and consumers, through durability, consumer incentives, and repairability.
• It is anticipated that increased reuse of products and materials will benefit private and third sector organisations, as businesses seek to develop and leverage circular business models.^[30]
• Increased market confidence in alternative business models such as leasing, business to business reuse, subscription models or sharing libraries.
• Creation of jobs and expansion of employee and volunteer skills.
• Increased economic resilience as dependency on importing products and materials is reduced.

Consultation responses reiterated opportunities for job creation and the growth of specific sectors and markets, while also suggesting other potentially positive impacts and benefits:

• Innovation being encouraged.
• Wider social value being added.
• Opportunities to account for the economic benefit of better public health outcomes resulting from a Circular Economy.
• Opportunities for businesses to align to EU sustainability reporting frameworks and other regulatory regimes where relevant.

A full cost benefit analysis was said to be required to justify compliance costs for any associated benefits. These benefits can be explored more fully as and when actions resulting from the Strategy priorities are developed in future.

Small business impacts

A circular economy can benefit individual businesses by increasing efficiency, reducing costs, providing resilience to commodity price fluctuations, and responding to consumer demand. It strengthens communities by providing local employment opportunities, skills development and lower cost options to access the goods we need.

A number of consultation responses relating to the BRIA commented on a potentially disproportionate impact on small and medium enterprises and microbusinesses when pursuing circular economy policies and priorities – and calling for them to be supported in a variety of ways. Further impacts were highlighted with regarded to businesses based in rural or islands communities, such as costs associated to gaining access to circular solutions. Further discussion of islands impacts can be found in the associated Island Communities Impact Assessment for the Strategy.

The draft BRIA highlighted that there could be some potential costs to small businesses associated with any additional reporting requirements. Consultation responses highlighted potential costs and/or barriers associated to adopting new or innovative business models or processes, regulatory compliance, accessing public contracts, administrative burdens, accessing finance, access to skills, access to supply chains as well as reporting requirements. As such any wider potential negative impacts on small businesses will need to be considered further when more specific interventions are developed in the future. We will work in partnership with businesses to understand the opportunities offered by potential economic transformations, as well as any barriers to investment in the implementation of interventions resulting from the Strategy’s priorities in order to build in resilience for these businesses.

Potential solutions or support suggested by consultation respondents included amendments to procurement duties or frameworks to incentivise circular business development and ensuring regulatory changes are proportionate and practicable for smaller businesses – as well as measures to ensure information is accessible easily via databases or networks. This is to ensure that the benefits of circular solutions are not restricted to well-resourced larger businesses. More efficient and expedient planning and permitting processes were seen as a way to offer confidence and predictability to small businesses adopting circular business models – when investing in infrastructure or adapting existing facilities.

Another suggested mitigation was transition periods or phased implementation for smaller businesses to adapt to and implement new practices. Simplified reporting requirements, guidance/support services and targeted funding (via polluter pays principle) were also suggested. Accessible routes to finance via financial and banking sectors, a need to encourage lenders and investors and public finance instruments were all suggested as means to support small businesses. These potential solutions can be explored more fully as and when specific actions resulting from the Strategy priorities are developed in future.

Investment

Financial institutions are increasingly favouring low carbon and climate resilient companies, so interventions resulting from the Strategy may give Scottish businesses an advantage. Conversely, interventions relating to Strategy priorities could potentially make Scotland less attractive to investment due to potential implications on businesses through changes to policy, or uncertainty about future regulatory changes.

Work in partnership with businesses will be undertaken, to understand the opportunities offered by these economic transformations, as well as potential barriers to investment in the implementation of priorities.

Workforce and Fair Work

A more circular economy brings opportunities for innovation and job creation. There may be a positive impact on workforces through a just transition to a more circular economy which will create new high-value jobs across the economy. Our support for circular skills will help to equip people with the skills needed to access these jobs.

Work will continue to explore the impact of the Strategy on businesses and establish whether any of the interventions that will respond to the priorities set out could result in higher costs for businesses.

Climate change/ Circular Economy

Tackling climate change can help create enormous new opportunities for Scotland’s economy and communities. It can support new green and circular industries, businesses and jobs and help to tackle poverty and inequalities, by pursuing a just transition. There can also be many health and wellbeing benefits, from cleaner air, warm homes and safer streets to supporting active lifestyles and healthy, sustainable diets.

Scotland’s shift away from our linear ‘take, make, waste’ economy to a circular economy is key to improving our global environmental impact. As an example of the Strategy’s contribution to tackling climate change, consideration of a sector’s carbon impacts was included in the selection of priority sectors.

Competition Assessment

The competition assessment is designed to assess the potential impacts of preferred policy options on competition among producers, wholesalers, retailers and importers in the Scottish market.

The assessment will be undertaken for individual interventions or secondary legislation, where appropriate, as they are being developed in the future, following the Competition and Market Authority guidelines which outline how to determine any competition impact.^[31]

Consumer Duty

The associated Consumer Duty Impact Assessment is published separately.