Executive Summary of the Socio-Economic and Environmental Study of the Canadian Remanufacturing Sector and Other Value-Retention Processes in the Context of a Circular Economy

The full study is available on the Government of Canada Publications catalogue.

Introduction

Transitioning to a circular economy (CE) has been identified as a way to reduce the environmental impacts associated with current production and consumption processes while improving socio-economic outcomes. One tactic for bringing about the circular economy, both in Canada and worldwide, is through the use of value-retention processes (VRPs).

There are only a handful of studies from around the world that have gathered data in this topic. They cover broadly the same sector areas, but they focus entirely on one VRP, remanufacturing. That makes comparisons on the level of activity more complicated: this study is the world’s first attempt to assess what is happening in a country across all VRPs. There is no other benchmark.

Recognizing VRPs’ potential for enabling a transition to a more circular economy, and to positively contribute to the federal agenda on zero plastic waste, Canada intends to develop a national strategy to encourage remanufacturing of products and other VRPs. The outcomes of this study will feed into that process and will inform policy options and recommendations for action. The ultimate objective of the strategy is to enable the growth of the Canadian remanufacturing sectors and other VRPs, but to do this requires a better understanding of the state of Canada’s overall VRP industry. Currently, the scope and size of the VRPs industry in Canada is not well understood and there is little socio-economic information for this industry that is available on a national scale. With the broad aim of establishing this ‘baseline’, the objectives of this study were to:

• define and describe the current state of the remanufacturing sector and other VRPs in Canada
• evaluate their environmental and socio-economic cost and benefits
• identify barriers and opportunities
• provide case studies on remanufacturing in specific industry sectors in Canada
• identify sectors in Canada that would benefit the most from remanufacturing and those where remanufacturing would not be the best placed approach, and
• suggest potential policy instruments and incentives that could be implemented in Canada to further develop the remanufacturing sector.

Value-retention processes

Simply put, VRPs are activities which keep products in use for longer, either through direct reuse, repair, refurbishment, comprehensive refurbishment or remanufacturing. The level of formal processes and the socio-economic and environmental benefits of VRPs are on a spectrum (see Figure 1). At one end of the spectrum are re-use and repair – familiar processes to almost everyone - which prolong the in-use life of a product. At the other end of the spectrum, few people will have heard of remanufacturing and comprehensive refurbishment, tactics designed to put worn out products back to as-new or better condition and which, for many products, can provide better socio-economic and environmental outcomes over less rigorous processes.

Different sectors have taken various approaches to these ‘as-new’ processes and often use different terminology – one of the problems identified in getting concerted action to promote them. This is compounded by the treatment of terms in different languages, which will be a challenge for Canada. Definitions used for VRPs in this report are based on those used in the 2018 International Resource Panel report on VRPs (1) and have been included in the “Definitions” section at the beginning of this report.

It is important to stress that not all VRPs are appropriate for all sectors and products. For example, commercial furniture is amenable to remanufacturing while domestic furniture may not have the right characteristics to support remanufacturing. In this case, it’s better to:

• encourage re-use between citizens to maximize useful life
• ensure domestic furniture is designed for easy recycling, and
• make sure that there are robust collection, segregation and recycling processes in place.

All in all, this highlights the need to evaluate each case on its merits and use sound evidence to examine the consequences of different VRP options.

Sectors included in the study

The initial phase of the study identified and researched 10 sectors, listed below. Based on this initial research, 6 priority sectors were identified for more in-depth study. In this report, where necessary in tables, these are referred to as the ‘refined’ and ‘initial’ sets.

The 6 refined sectors, listed below, account for over 50% of the potential VRP revenue.

The following, smaller sectors, were not investigated to the same extent as the first 6 sectors. These sectors were selected based on their sales statistics and for having the right characteristics to support VRP activity.

The estimated remaining 30% of potentially viable activity is broadly spread across the swathe of manufacturing. This includes a host of niche and not-so-niche products. It is not possible to detail this vast range of individual products across so many sectors, but some of the sectors which fell into this category are listed in the main report.

The importance of VRPs to the Canadian economy

The research suggests VRPs in Canada are currently (2019) worth about $CAD 56 billion to the economy, judged by their sales incomes. This is split by type of VRP in Figure 3 and Table 1 summarizes the VRP activity levels in each sector.

VRPs currently support around 380,000 jobs in Canada.

*Note:
a. Annual VRP activity for aerospace is based on 2020 data.
b. Heavy-Duty and Off-Road Equipment.

For context, the Gross Domestic Product (GDP) for manufacturing as a whole in Canada in 2019 was $CAD 199 billion according to Canadian Government statistics (3) – a little over 10% of the entire economy. GDP is not the same as sales income but provides a rough measure of the size. On this basis, VRP activities represent a significant element of the Canadian economy, although mostly focused on the industrial customers rather than domestic consumers.

VRPs are significant contributors to environmental impact reduction

Table 2 summarizes the estimates of environmental benefits of current (2019) VRP activities in Canada. Information on our methodology can be found in the main report.

*Note:
a. Excludes hypothetical Automotive 600 kt & HDOR 60 kt material saving from 2nd hand re-use.
b. Scaled by Sales Income to automotive. Not included in totals.
c. GWP – Global Warming Potential (expressed as tonnes-equivalent of CO₂).
d. Findings reported related to the sectors only examined for the initial assessment.
e. There is insufficient data to quantify medical benefits.
f. Plastics re-used’ is included in ‘Material savings’

Figure 4 uses the source data of Table 2 to show how each VRP contributes to the three impacts.

The research suggests that current (2019) VRPs are saving at least 1.6 million tonnes per year (Mt/yr) of CO_2e emissions from entering the atmosphere. Similarly, the need for virgin materials is reduced by at least 470 thousand tonnes per year (kt/yr), of which at least 74 kt/yr are plastics. Remembering that these sectors capture 70% of all potential VRP activity, and that estimates of some environmental benefits are not available for a portion of the sectors listed in Table 2, there is a fair case for believing all sector VRP activity is up to double the figures calculated.

To put these environmental benefits in context, the CO_2e emissions savings equate to 2.3% of Canada’s 2017 industrial emissions (4) and the material savings is equal to 4.7% of all materials recycled in Canada per annum. Notably, these materials savings are more beneficial than recycling since they are materials in products that are re-used, in effect as-is, with very little energy input.

The tonnages of plastics re-used via VRPs seem small in the context of plastics used and discarded in Canada. However, in line with our benchmarks, this number corresponds to about 25% of the current Canadian plastics recycling performance. In relative terms, though, plastics are generally low in manufacturers’ concerns because of their relative cost, which in large part reflects their low CO_2e impact at point of manufacture. Nevertheless, the best opportunities to recover more plastics almost certainly lie in the electronics and home appliances sectors because of the construction of these devices.

Scenario modelling for the 6 refined sectors

Part of this examination has been to uncover the motives for engaging in VRPs and to understand the challenges faced within each sector. With that understanding, a sector strategic framework (Table 3) was developed which outlines a set of ‘strategic thrusts’ for the growth of VRPs in each sector.

Additionally, suggested approaches for each of the 6 sectors were elaborated upon (Table 4). These actions and policies are directed almost exclusively at areas which federal and other levels of government can influence and are not necessarily directed at industry players themselves. They are outline policies, which may need substantial development beyond the scope of this study and possibly across sectors.

A condensed synthesis of the findings is captured in Table 4 which gives a one- or two-word summary of key responses (in parentheses) to the challenges. For example, under Automotive/Sustain, (skills, Lean) means focus on ‘developing future-proofing skills, such as electric technologies’ and ‘implement Lean (re)manufacturing techniques widely adopted in new-build production’.

Table 4: Summary of suggested approaches per sector 

Canada could address some or all of these to enable the growth of remanufacturing and other VRPs. The more tackled, the better the prospects.

Potential future benefits of VRPs

The study also projected the socio-economic and environmental outcomes in 2030 associated with three growth scenarios (Natural Growth, Moderate Action and Strong Action) using applied economic input-output factors and available proxies to provide high-level estimates of growth related to jobs, GDP and the like. These analyses are illustrative of what might be achieved with more or less supporting action but are heavily caveated due to the ongoing COVID-19 pandemic, which has put a discontinuity into many businesses and made projections even more challenging. The effects of the pandemic and possible recovery trajectories have played heavily into these assessments of growth and are described in detail in the main report.

The scenario analysis for the aerospace sector does not follow the same format as the other five sectors. VRP activity in the aerospace sector is a mature and well-developed industry with more limited potential for external intervention to influence its development. By far the most significant influence for future VRP activity in the aerospace sector is the global industry response to the current COVID-19 pandemic. Therefore, the aerospace VRP scenarios are aligned with scenarios for the global aerospace industry response to COVID-19. These scenarios consider rebound, delayed rebound and recession-based trajectories.

Table 5 summarizes the estimated direct benefits of the expansion of VRP activity in Canada in 2030, including the ‘As-Is’ scenario. We would expect additional benefits due to the indirect and induced economic activity stimulated by the direct activities.

Notes: The numbers in this table are reflective of summations from tables in the main report. For methods, please refer to the sector specific tables. Only direct revenues are considered. Projected revenues and jobs ranges reflect the lowest possible number of direct jobs and the highest number of direct jobs related to the given range of scenarios from ‘As-Is’ to ‘Strong Growth’ or ‘Rebound’ for aerospace.

Table 6 provides a summary of the potential environmental impacts that might be realized through the range of growth scenarios.

Notes:
a. Excludes notional benefits of re-use (~GWP 600 kt/yr) and associated materials savings etc.
b. Excludes tire retreading.
c. Totals may vary due to rounding of components.

The important point to note about expansion is that in truth there is plenty of headroom to grow VRPs. Optimism arises from the fact that VRP practitioners tend to be relatively bullish about the ultimate levels of VRPs despite current concerns over the effect of COVID-19; and because VRPs are currently at low levels compared to manufacturing. This topic is explored in more detail in a later section when the idea of a ‘challenge target’ is considered.

Achieving VRP expansion

The VRP sector currently faces a range of barriers that can be broadly summarized as follows:

• Regulatory and access barriers: barriers affecting flows of finished remanufactured products from producers to customers in domestic and/or international markets (forward-logistics) present operational challenges to VRP practitioners.
• Market structure barriers: barriers affecting VRP practitioners’ access to customers via intermediaries, such as retailers, who may have little/no interest in boosting VRP activity at the expense of new sales.
• Price barriers: barriers related to subsidized raw material extraction as well as competition with low-cost imports.
• Collection infrastructure barriers: barriers affecting flows of end-of-use products and components from the customer/user back into the secondary markets and/or to the original equipment manufacturer to be used as inputs to remanufacturing (reverse-logistics) can constrain VRP activity.
• Customer market barriers: barriers limiting customer awareness and understanding, demand and trust in VRP activities and outputs may hinder the industry’s growth.
• Technological barriers: barriers affecting the ability to and cost of developing and maintaining domestic VRP capabilities.
• Administrative barriers: barriers affecting the visibility, understanding and measuring of VRP activities at a governmental level, whereby the industry is not well regulated and supported by appropriate policy.

The presence and impact of these barriers currently limit the potential of Canada’s VRP activities, however this study has identified and prioritized action areas that could be taken to support a transition towards a higher VRP activity-level scenario. Given the jurisdictional structure of Canada, and for the sake of coherency and gaining traction, the case appears strong for a central commonly agreed ‘Directive’ approach at the federal level with supporting actions and policies from the provinces and territories. In support of this, a key finding of this study is that there is a high level of receptiveness amongst the provinces and territories to a stronger steer from the federal level – together with adequate funding to enable potentially radical infrastructure changes.

The main report identifies 16 headline action areas. However, a shortlist of 10 priority action areas for the Government of Canada to positively influence market forces and encourage increased VRP activity is summarized below. These action areas cover the five target areas for intervention including:

• providing clear direction and control for how priorities and targets for VRPs are set;
• supporting the development of a framework within which VRP activity in Canada is defined, monitored and supported through regulation;
• increasing market pull and confidence building with the aim of supporting increased demand for VRP outputs;
• action under provincial and territorial control; and
• action requiring international engagement and alignment.

The priority action areas are mapped out under the above target areas in Figure 5.

Here is a brief description of the 10 priority action areas (not listed in a particular order of priority):

These priority action areas would represent the start of a long-term strategy to recognize, regulate and support VRP activities in Canada. While not all VRPs are appropriate for all sectors and products, this study has shown that increased VRP activity (particularly remanufacturing) within Canada has the potential to make a valuable contribution to the socially, economically and environmentally sustainable country Canada seeks to become.

Priority sectors to boost remanufacturing and other VRPs

Firstly, it is easiest to say where not to spend promotional effort: Aerospace. Remanufacturing is well embedded, and awareness and activity are high. This does not mean that assistance is not required: the sector strategy acknowledges that aerospace is a high tech, value-adding component of the economy; it should be sustained by feeding the skills base and staying internationally current with appropriate partnerships and collaborations to keep critical mass. Because it has leading practices, it can also be an exemplar for growing remanufacturing sectors and to support sunrise technology sectors such as renewables.

Automotive is a prime target for assistance because of both its potential and existential challenges (such as needing to maintain critical mass against the US and Mexico and embrace technology shifts due to electrification of transport). Currently, remanufacturing services – at best – process components arising during warranty periods because there are strong recovery networks from franchises to Tier 1 suppliers with a strong financial motive imposed by brand owners. While remanufacturing is well embedded as a practice, considerable potential exists to reclaim the post-warranty ‘grey’ market. Technology (reclamation techniques, component tracking, tracing and provenance determination) and skills (Lean remanufacturing) are key components of this. Shifts to electric technology will require different set of skills and technology support. Additionally, international collaboration may play a stronger role.

HDOR is estimated to have some capacity to grow, though this is not highlighted as a prime driver for strategic action in the sector actions section (in the main report). However, because of the similarity to automotive, it can benefit from common actions in skills, for example, and by use of public purchasing in fleet contracts for public vehicles.

Probably the biggest VRP shifts can be achieved in consumer-facing goods. The outstanding sector in this analysis is information and communication technologies (ICT), a subset of the Electronics sector. These goods embody a lot of carbon in their manufacture and through the extraction of often critical raw materials, but they are discarded for recycling too easily with a huge loss of potential. This is unfortunate because ICT is generally very modular with elements of ‘frozen’ technology. To some extent, ICT is seen as a fashion item which is expected to be upgraded irrespective of residual age or actual performance even if it is years from failure.

There are several businesses exploiting this potential in, for example, laptop refurbishment into corporate markets, but buyers are risk averse as they fear that technology is not future proof. Leading edge companies are addressing this, but they need support to expand into domestic consumer markets.

This is a sector where the full range of VRPs can play a role: remanufacturing at the ‘top end’ for expensive performance goods, through repair and, even better, home-repair enabled through advice, parts and repair cafés. Here the public sector can play a role in all parts of the life-cycle: Public purchasing can pull through volumes of devices or return them into legitimate operators for remanufacture; by establishing and promoting resources for home and community-based repair; and ensuring end-of-use devices are securely and safely managed and directed back to remanufacturers by consumer information campaigns or dedicated collection and aggregation infrastructure.

Home appliances are a worthy but more challenging target that requires a different approach. Ideally, appliances would be servitized: manufacturers would engage directly with consumers to lease a device which they would maintain, keep at high performance through monitoring and servicing and manage properly at end-of-use or end-of-life. To date, there have been experiments in this area, but no large-scale uptake so sector dialogue with advocates is recommended to understand the issues.

A more practical model is the Dyson model: staying in touch with and closely supporting through parts support and cost effective at-home rejuvenation services. These companies could be encouraged and promoted, not least through public purchasing. (This applies equally to office equipment such as photocopiers).

Again, home repair for more accessible devices opens up the repair VRP route as is the case with ICT. Promotion of repair resources, parts, manuals, etc. is within local government’s capability. At the federal level, though, we know that there are concerns from manufacturers over their residual liabilities and this may need industry dialogue to ensure a fair balance of responsibilities in the eyes of the law.

A challenge target for VRPs

Up to this point, this report has been laying out the current understanding of VRP levels and impacts, considering where opportunities lie and what action Canada could take to boost them. This plan has been set against a modest – but still challenging – set of scenarios out to 2030. This is a sort of ‘bottom-up’ approach, building on where Canada is now, and it is not a radical departure from what is familiar and expected. But what if there is a change of perspective, a top-down ‘helicopter’ view that considers a vision that is more radical, more challenging but more impactful?

As part of the study, we asked industry contributors to consider a VRP future where all barriers to expansion had been removed. Some industry participants to this study have expressed much higher potentials for remanufacture and comprehensive refurbishment (R+R) than the sector scenarios have considered, often more than 20% of manufacturing. This is an exciting prospect given that R+R, in particular is, currently, a low proportion of total manufacturing sales income – an estimated 2 to 4% overall.

Is this a realistic prospect? Aerospace appears to already have achieved at least 20% so, yes. Therefore, a very challenging target for R+R could be set at 20% compared to manufacturing. Adding a note of realism, starting from the 2019 position, this will not be possible to achieve by 2030, the horizon for this study, but should rather be part of the 2050 ambition.

The main report examines what this target means for each sector in more detail, but the overall impact is that CO_2e savings across all VRPs could reach 10 Mt/yr by 2050 if all sectors achieved 20% of manufacturing levels. The bulk of this increased saving is in R+R.

Achieving such a target would meet around 13% of Canada’s commitment to reducing industry emissions to net-zero in the same timescale. This, of course, also means materials and plastics savings go up.

To repeat, the challenge targets outlined above are beyond what can be reasonably achieved by 2030 and should more likely be set at 2050. They require wider changes in society that can only happen as priorities evolve in the public’s and policy makers’ minds. In normal times, changing mindsets to accept VRP’d goods and to adapt business models and the political environment to fully reward these changes takes substantial time, likely beyond the 2030 horizon.

That being said, these are not normal times and 2020 has demonstrated that changes in behaviour, what is acceptable and where future priorities – including environmental challenges – lie can happen very quickly. Conditions may therefore be better than might have been expected, as attitudes to keeping products in use are improving. However, all the barriers discovered and actions proposed within this report are still relevant. These proposed actions are necessary to allow businesses to adapt to and take advantage of these changing conditions and realize the great potential of VRPs in terms of revenue, jobs and fighting climate change.

Summaries of sectors

• Aerospace
• Automotive
• Heavy-Duty & Off-Road (HDOR)
• Electronics
• Home Appliances
• Furniture
• 4 ‘initial sector’ summary

References

1. Nasr, N., et al. Redefining Value – The Manufacturing Revolution. Remanufacturing, Refurbishment, Repair and Direct Reuse in the Circular Economy. International Resource Panel, United Nations Environment Program. s.l. : UNEP-IRP, 2018.

2. The European Parliament and the Council of the European Union. Directive 2008/98/EC on waste. EUR-Lex. [Online] November 19, 2008.

3. Government of Canada. Canadian manufacturing sector gateway. Government of Canada. [Online] March 20, 2020d.

4. —. Greenhouse Gas Emissions. Government of Canada. [Online] May 15, 2020a.