Transition to a circular bioeconomy requires getting prices right

More recently, a new model of production is gaining traction in the scientific and business community: a “circular bioeconomy” that reduces and recycles waste, transitions away from fossil fuels to renewable bio-based alternatives, and regenerates natural systems. This approach is critical for feeding and fueling the world’s growing population in environmentally sustainable ways.

But it’s a complicated concept, and significant questions remain: How should waste reduction be implemented? How far should we go in being “circular,” considering its costs and benefits? And how can a circular bioeconomy system get buy-in from farmers, industry, and consumers in a market economy?

A new paper by noted agricultural economists and scientists argues that the concept of a circular bioeconomy needs to expand beyond its technical focus on reducing waste and incorporate a values-based economic lens. The authors emphasize the need for the right policies, incentives, and market signals to persuade consumers and producers to make environmentally sound decisions — and to help ensure that the system is equitable.

“Zero waste is an appealing goal, but we also need to consider the economic consequences of achieving this goal — the cost, who bears it, and how we get people to implement it. This requires us to not just focus on the environmental benefits of reducing waste and fossil fuel use, but to think about what level of waste is acceptable considering economic and equity goals as well as how we make the transition by inducing consumers and producers to make the right choices,” said lead author Madhu Khanna, ACES Distinguished Professor in Environmental Economics and Alvin H. Baum Family Chair & Director of the Institute for Sustainability, Energy, and Environment (iSEE) at the University of Illinois Urbana-Champaign.

Charting the path to a circular bioeconomy will require creative ideas from researchers in multiple disciplines, including social scientists, to understand human behavior and design the right kinds of incentives, Khanna said.

The paper, published in Communications Earth and Environment was co-authored with David Zilberman, University of California, Berkeley; Gal Hochman, University of Illinois Urbana-Champaign; and Bruno Basso, Michigan State University.

A circular bioeconomy provides a framework for reducing waste and improving sustainability throughout the economy, Khanna said. It aims to not only reduce environmental contamination associated with agricultural production, but also transform the energy sector, plastics manufacturing, and other industries by using agricultural waste as a resource that can help reduce dependence on fossil fuels and decarbonize the economy.

The authors incorporated those concepts into an economic framework to help determine the optimal level of circularity in a market economy. They recommend five critical pathways to enable the transition:

• Technological advances through investment in research and development, to lower the cost of climate-smart and clean energy innovations.
• Regulatory incentives that put a price on waste and environmental damage, such as a carbon tax, and institutional changes like crop insurance programs that lower the risk of adopting sustainable practices for farmers.
• Robust markets for circular products.
• Public education and awareness about the ecosystem benefits of a circular bioeconomy.
• Equity considerations for displaced workers and consumers vulnerable to high prices.

Researchers have made great strides developing individual technologies that contribute to a circular bioeconomy in food and agriculture — such as precision farming and digital agricultural technologies that can increase the efficiency with which chemicals are utilized for crop production, and advances in synthetic biology to convert plants and waste materials into biofuels and biochemicals, replacing petroleum-based, carbon dioxide-emitting energy sources.

But many of these technologies are expensive. More investment is needed to scale them and make them commercially competitive and affordable for farmers and consumers, the authors said.

One underlying question in designing eco-friendly policies is how to create the right incentives for people to adopt sustainable technology — and how to put a value on the most effective approaches. The challenge with agricultural pollution, for example, is that it’s difficult to measure and pinpoint the source of runoff or other contaminants. New tools like a “digital twin” — a computer replica of a field — can help calculate the environmental impact of agricultural management practices, such as adding nitrogen to the soil. Those kinds of advances can lead to targeted policies that reward farmers for results, rather than providing costly uniform payments for participation in conservation programs,

The overall solution will require action by the public and private sector, according to the authors. Many corporations are already adopting sustainable practices, and many consumers are willing to pay a higher price for organic foods and sustainably sourced products. Still, those efforts fall far short of what is needed to curb climate change or reduce pollutants that cause hypoxia in the Gulf of Mexico. New government incentives, and changes in the way pollution is regulated, are necessary, Khanna said.

Educating consumers can change their preferences and willingness to pay for climate-smart commodities, creating market demand and political support. “If consumers don’t demand enough of it, and aren’t willing to pay, the producer is not going to produce it,” Khanna said.

The move to circular bioeconomy must be accompanied by social programs that shield vulnerable low-income consumers from higher prices in the short term, and provide new training for workers who may lose jobs as the fossil fuel industry declines, the authors said.

The next step will be to develop more interdisciplinary research programs where economists work with engineers and scientists to apply this framework to specific industries or supply chains, to determine what a transition to a circular bioeconomy would look like for that sector. “We are excited that we are establishing a new Center in iSEE to catalyze that kind of research,” Khanna said, referring to the new Levenick Center for a Climate-Smart Circular Bioeconomy at Illinois.

The transition to a circular bioeconomy will require a long-term policy commitment, consistent policies, and investments that could take a decade or more to pay off, Khanna said.

“We are significantly falling short of meeting both our U.S. and global targets for carbon emissions reduction. Additionally, other environmental issues such as water quality degradation and biodiversity loss are worsening. It is crucial to recognize that these environmental problems are interconnected, ranging from air and water pollution to plastic waste,” Khanna said. “These issues all stem from the same source: our current methods of production and consumption. Instead of addressing these problems individually, transitioning to a circular bioeconomy offers a holistic solution.”