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Report by Research Group for Promotion of Cycle Economy

December 22, 2000


<Contents>

  1. Basic Concept
    (1) Basic Recognition
    (2) Our Group's Concept of Reverse/Inverse Manufacturing
  2. Status Quo and Problems of Japan's Reverse/Inverse Manufacturing
    (1) Status Quo of Reverse/Inverse Manufacturing
    (2) Measures to Foster Reverse/Inverse Manufacturing
  3. Specific Policies for Fostering Reverse/Inverse Manufacturing
    (1) Creation of Right Market
    (2) Development of Conditions for Effective Working of Market
    (3) Enhancement and Improvement of Planning
    (4) Economic Policies
  4. Macroeconomic Impact of Efforts to Build the Cycle Economy
    (1) Analysis Methodology (Establishment of Scenario)
    (2) Analysis Results
    (3) Conclusion

Epilogue

  1. Figure 1  Cycle-Economy Construction's Impact and Effects on Domestic Production
  2. Figure 2  GDP Trend Stemming from Cycle Economy Construction


1  Basic Concept

(1)  Basic Recognition

1)  Japan has achieved fast economic growth through the development of industries that use domestic and overseas natural resources for the mass production of goods for supply to domestic and overseas markets. In national livelihood, mass consumption-oriented living practices have been established in pursuit of comforts and conveniences. On the other hand, little attention has been paid to the reduction of waste. As a result, massive amounts of waste have continued to be dumped. Over recent years, the surplus capacity of waste disposal facilities has declined critically and the burden of waste disposal on the environment has increased. The effects of economic activities on the global environment have attracted global attention and concerns have emerged on the exhaustion of natural mineral and fossil energy resources.

    Under the circumstances, the key challenge in the 21st century is to create an economy that is in harmony with the environment and can achieve sustainable development. The current waste-dumping economy based on conventional manufacturing[1] must be restructured into a cycle economy where conventional manufacturing will be well balanced with reverse/inverse manufacturing[2]. We are required to create an economic system where goods becoming waste will be reduced[3] to correct massive waste dumping and recycling will be widely implemented.

    In order to efficiently create the cycle economy, we must take advantage of market forces to build a smooth, efficient cycle of production, consumption, reuse[4] and recycling. This means that the urgent challenge is to foster reverse/inverse manufacturing that takes account of the improvement of recycling efficiency and the reduction of environmental loads.

2)  Based on the above basic recognition, the group carries out the following tasks in order to suggest the desirable course of the Japanese economy and specify an ideal cycle economy:

a.  Review the status quo of Japanese reverse/inverse manufacturing and problems with its development.

b.  Propose major measures to develop reverse/inverse manufacturing.

c.  Analyze the macroeconomic impact of cycle-economy construction efforts quantitatively.

(2)  Our Group's Concept of Reverse/Inverse Manufacturing

    An integrated development of conventional and reverse/inverse manufacturing industries is required to build a cycle economy. We already see some conventional manufacturing industries becoming reverse/inverse. For example, the electric home appliance industry is playing a reverse/inverse role under the law for recycling certain electric home appliances (1998 Law 97, hereinafter referred to as the electric home appliance recycling law). On the other hand, some reverse/inverse industries are becoming conventional, including some firms that use sludge from sewage treatment plants for developing bricks and other products. Therefore, we may have to integrally treat them as recycling-oriented industries. However, our group dares to separate reverse/inverse manufacturing from conventional manufacturing for the following reasons:

1)  We must increase the public recognition of the importance of reverse/inverse manufacturing.

2)  We consider the cost burden on reverse/inverse manufacturing in connection with other industries and consumers.

3)  Reverse/inverse manufacturing industries are growing conscious of business management due to their managers' rejuvenation.

    Based on the above, our group defines reverse/inverse manufacturing industries as "waste disposal industries and a wide scope of recycling industries (distribution and wholesale of recycled resources, processing of recycled resources, and distribution and wholesale of reusable product)." We here must take note of the fact that the business environment for reverse/inverse manufacturing in Japan is fluid. Because of economic growth, lifestyle development and an emerging international chain of reusable and recycled products under international economic gaps, for example, used and recycled products are increasingly failing to trade on the market in Japan. They are distributed as goods that have no value or require fees[5].

2  Status Quo and Problems of Japan's Reverse/Inverse Manufacturing

(1)  Status Quo of Reverse/Inverse Manufacturing

1)  Characteristics of Reverse/Inverse Manufacturing Market

    In trading in waste, waste dischargers pay prices and transfer waste to disposers. Since dischargers lose waste in this way, they fail to be interested in how waste would be treated with prices they pay. They have difficulties getting information on appropriate disposal and fees. The waste market thus has an unsymmetrical information system[6].

    Waste dischargers select disposers depending not on the details of waste disposal services but on disposal service prices that disposers offer through competition. This could allow disposers to compete with each other with undue prices for inappropriate disposal. As a result, dischargers could make a reverse selection[7] where disposers who make inappropriate disposal including illegal dumping are selected.

    In the circumstances, disposers who have excellent technology and implement appropriate disposal could fail to be selected for disposal or recycling of waste. This could discourage investment from being made in excellent disposers or technologies.

    In 1997, the Law on Waste Disposal and Public Cleaning (1960 Law 137, hereinafter referred to as the waste disposal law) was revised to introduce the manifest system[8] where all dischargers of industrial waste are required to issue manifests on waste. This system allows dischargers to manage the flow of waste and ensure appropriate disposal of waste. This is designed to prevent the unsymmetrical information system or reverse selection regarding waste disposal. But no system has been developed to efficiently check up on waste disposal or manifest issues.

2)  Underdeveloped Market Infrastructure

a.  Unsuitable Legal System for Fostering and Developing Reverse/Inverse Manufacturing

    Present law requires the people and businesses to reduce waste, but leaves the requirement to fail to be met. In reality, therefore, it is difficult to restrict waste. As a result, conventional manufacturing discharges waste that is too massive for reverse/inverse manufacturing to dispose or recycle.

    Under the current regulations, even usable goods are considered waste as far as they are transferred to disposers with payments. Irrespective of characteristics of waste, they are classified as ordinary or industrial waste depending on the classification of their dischargers. Furthermore, dischargers are classified in licensing in accordance with classes of waste. The current regulations thus prevent waste from being recycled in an efficient, optimum manner that takes characteristics of waste into account. The current institutional framework does not presume recycling. Especially, local governments are required in principle to dispose ordinary waste within their respective regions. The requirement is inefficient, failing to provide incentives for reduction of costs for collection and transportation or for cooperation between local governments.

    The Law for Promoting Use of Recycled Resources (1991 Law 48, renamed Law for Promoting Effective Use of Resources, herein after referred to as the effective resources use promotion law) was revised in 2000 to oblige large-sized businesses to restrict emissions of industrial waste and used goods, with the introduction of penalties.

b.  Prospects for Reverse/Inverse Manufacturing as Investment Target

    In efforts to realize a cycle economy, some try to thoroughly divide waste into various groups and recycle these groups of waste as materials of various products. Others try to use waste as heating energy sources generally, irrespective of their characteristics.

    The diversification of classification, collection, disposal and recycling methods to meet respective characteristics of waste has no special problems. But the absence of firm medium- and long-term prospects for disposal or recycling methods for each group of waste, as well as of target recycling rates, can hurt investment incentives. At present, official prospects for them are very limited.

    In the circumstances, the certainty of specific or long-term prospects for reverse/inverse manufacturing is not secure. Market size projections, waste volume and demand for recycled materials and products could possibly change in the short run. The market uncertainties lead private-sector investors to view their investment in the reverse/inverse manufacturing sector as risky and hesitate to make investment in the sector. The absence of private investment has prevented the sector from expanding its size and introducing new technologies. As a result, disposal and recycling of waste have remained costly.

    The Fundamental Law for Promoting Formation of Cycle Society (2000 Law 110, hereinafter referred to as the cycle society law), which took effect in 2000, gives a definition of the cycle society and provides for the government to make a basic plan for formation of the cycle society by October 1, 2003. The revision in 2000 to the waste disposal law calls for the government to work out the basic policy for the comprehensive and systematic promotion of measures for reduction and appropriate disposal of waste. Future challenges are to implement the plan and policy and to consider how to form a cycle society.

c.  Potential Reserves/Inverse Manufacturing Technology

    Some waste disposal and recycling technologies have been developed and subjected to practical use. Among them, technologies have been developed for recycling plastic bumpers on automobiles and for easier-to-recycle materials for bumpers. Products have been developed using shredder dust[9]. Material recycling[10] technologies have emerged including those for using sewage plant sludge for making bricks and cement. Gasification and melting technologies[11] have been developed for using waste as fuel.

    Conventional manufacturing industries always try to develop new technologies and introduce better technologies in pursuit of higher profit margins and lower costs. In the reverse/inverse manufacturing sector, however, new or better technologies fail to emerge as economic incentives for innovation do not work, if people have little interest in environmental conservation or if environmental or resources constraints are loose.

3)  Reverse/Inverse Manufacturing's Friction with Residents and Increasing Illegal Waste Dumping

    Waste must be disposed of appropriately under the provisions of the waste disposal law. Especially, dischargers of industrial waste are held responsible for disposal of their waste. In reality, however, illegal waste dumping has never been discontinued. In fiscal 1997, 855 illegal waste dumping cases were found involving a total 408,000 tons of waste. Both figures exceeded respective ones in the previous year.

    Restoration of the original state after illegal dumping of industrial waste may frequently take massive costs. Since those responsible for illegal dumping have difficulties shouldering such costs or tend to go bankrupt, local governments are frequently forced to bear the costs.

    Lawsuits and other disputes over construction of waste disposal facilities have increased as the people have grown conscious of environmental problems and the dioxin problem has emerged in connection with burning of waste. Spending on these disputes has expanded to levels we cannot ignore.

(2)  Measures to Foster Reverse/Inverse Manufacturing

1)  Formation of an Effective Market

    In order to foster excellent companies through market competition and promote efficient and appropriate disposal and recycling of waste, we must develop a market where participants can compete with appropriate costs for disposal and recycling of waste.

    In order to balance waste emissions in the conventional manufacturing sector with the reverse/inverse manufacturing sector's capacity to efficiently and appropriately dispose and recycle waste to achieve an efficient cycle of goods, various industries must be linked closely to each other to build a chain of reverse/inverse manufacturing. In this respect, we must promote disclosure of information on disposal and recycling of waste and develop a system for exchange of information among various industries.

    We must also develop a mechanism to assess the efforts of business corporations for promoting recycling in the market in order to encourage investment in reverse/inverse manufacturing and recycling promotion programs and to foster excellent companies in the reverse/inverse manufacturing sector.

2)  Development of Climate for Effective Working of Market

    In order to foster excellent companies to undertake appropriate and efficient disposal and recycling of waste, we must establish principles of transparent costs for appropriate disposal and recycling of waste by specifying cycle-constituting economic units that are responsible for disposing of waste or for shouldering disposal costs.

    Since companies and consumers may tend to consider appropriate disposal and recycling of waste to be causing new short-term costs to them, a free market mechanism may fail to promote appropriate disposal and recycling of waste. In this respect, we must develop a mechanism for due social and economic assessment of appropriate waste disposal and recycling.

3)  Planning

    In order to guide business activities to the promotion of recycling and encourage investment in fostering reverse/inverse manufacturing, we must specify the construction of a cycle economy in national law and policy and ensure the effectiveness of the construction by explaining what a cycle economy should be.

    In order to realize efficient disposal and recycling of waste, we must ensure the consistency of policies and efforts of central and local governments and businesses.

4)  Promoting Emergence of Reverse/Inverse Manufacturing Technologies

    In order to foster excellent companies to undertake appropriate and efficient disposal and recycling of waste, we must lead potential excellent reverse/inverse manufacturing technologies to emerge and develop. Since companies have already conducted massive research and technological development, we must lead companies to take voluntary actions and step up investment and risk-taking activities in order to allow relevant technologies to emerge.

3  Specific Policies for Fostering Reverse/Inverse Manufacturing

    As discussed above, in order to foster reverse/inverse manufacturing and realize a cycle economy, we must develop an institutional framework suitable for the construction of a cycle economy and a market where the recycling efforts of companies are duly assessed. This may guide business activities to the promotion of recycling, encourage investment in fostering reverse/inverse manufacturing and allow reverse/inverse manufacturing technologies to emerge and develop. Specific policies to this end follow:

(1)  Creation of Right Market

1)  Improvement of Unsymmetrical Information System

    In order to remove the unsymmetrical information system in the market for reverse/inverse manufacturing, waste dischargers will be required to give explanations to waste disposers or recyclers about materials, composition, designs and other technological information when making waste disposal orders. Waste disposers or recyclers for their part will be required to give explanations to dischargers about details of waste disposal or recycling (including technologies, methods, final dumping sites, measures against environmental loads and how to use recycled resources).

    In order to develop inter-industry cycle systems, regional databases should be established on actual and projected type-by-type emissions of waste, and some law for ensuring reliability of information should authorize third parties to identify information and create information networks.

    For example, a network could be developed to match waste dischargers against excellent waste disposers or recyclers. Specifics follow:

a.  Waste disposers and recyclers, which are certified by a specific law-authorized third party as excellent, register disposal technologies, demand and other information with the manager of a network and the manager discloses the information on the network on an anonymous basis.

b.  Waste dischargers get the registered information on the network and access the network to convey their type-by-type waste emission results and projections and their waste disposal requests to the manager.

c.  The network manager provides information on optimum waste disposers or recyclers meeting the requests of waste dischargers. It then leaves waste dischargers to directly negotiate with waste disposers or recyclers.

    If dischargers fear to suffer losses on disclosure of information about compositions of waste and technologies, they may be given tax incentives, subsidies or any other official PA activity[12] assistance, or waste disposers and recyclers may be obliged to keep such information confidential.

2)  Development of Mechanism for Due Assessment of Corporate Efforts in Market

    In order to encourage the recycling effects of conventional manufacturing companies and private-sector investment in reverse/inverse manufacturing, the government should promote the development of the environmental accounting system and the diffusion of the product life cycle assessment[13] system to ensure quantitative and objective assessment of corporate contributions to building a cycle economy. The environmental accounting system has already been introduced for some companies. The government should also give corporate tax cuts and other tax incentives, subsidies and other assistance to companies that systematically promote recycling-oriented management including the introduction of the environmental accounting system, or develop and introduce epoch-making technologies for disposal or recycling of waste.

    Excellent waste disposers and recyclers and local governments should jointly found debt-guarantee organizations to allow such disposers and recyclers to raise funds more easily in the financial market.

    In addition to recycling to reduce waste, the efforts are important to promote the further linkage and integration of conventional and reverse/inverse manufacturing sectors and develop the zero emission[14] initiative for minimizing environmental loads to realize inverse manufacturing[15] that takes account of full product life cycles and lengthens product life cycles including maintenance and repair.

3)  Further Promotion of Regulation Reform

    The construction of a cycle economy has two aspects - relaxation of regulations to improve the efficiency of waste disposal and recycling, and expansion of regulations to eliminate inappropriate disposal and prevent environmental loads.

    Local governments' disposal of ordinary waste tends to be inefficient. Incentives to reduce waste fail to work since capacities of waste disposal facilities sometimes exceed actual waste volume. Furthermore, waste dischargers hardly feel their financial burdens since tax covers disposal. While ensuring public sanitation, local governments should relax waste disposal business approval systems and impose specific fees on waste for disposal. This should encourage private-sector concerns to participate in disposal of ordinary waste to promote recycling and contribute to reducing the volume of waste for final dumping.

    Business licenses for collection, transportation and disposal of waste, and prior consultation and reporting systems have interrupted reverse/inverse distribution and waste disposal covering wider areas by requiring a company to get permits at multiple points for services across prefectural or municipal borders. Local governments should specify licensing standards to improve the transparency of licensing procedures and cooperate in allowing a company to get an extensive permit through an application at one point for wider-area services.

    The government should review legal definitions of waste to allow waste to be recycled or disposed with environmental loads reduced effectively within the scope that is possible socially, technologically and economically. Under the waste disposal law's system for recycling ordinary and industrial waste, the government should consider improving the transparency of procedures for selecting exceptional waste and expanding the scope of exceptional waste with a view to fostering reverse/inverse manufacturing.

    In relaxation of regulations on waste business licenses to ensure appropriate disposal of waste, the government should introduce a system where legally authorized third parties will give ratings and certifications to excellent waste disposers and recyclers.

    On the other hand, the substantial development of recycling could complicate material-recycling processes to cause unfavorable mixtures of substances leading to new environmental loads. Risk management efforts to grasp and control chemical substances are required to forestall such a situation. In this respect, the government should oblige industrial corporations to thoroughly classify industrial waste and specify types, toxicity, physical and chemical characteristics, regulations for treatment and specific quantities of chemical substances in waste on manifests. Industrial corporations should also be required to report these details to local governments that cover these corporations, waste-relaying facilities, intermediate disposal facilities and final dumping plants.

    In order to eliminate perception gaps between materials producers, product manufacturers and waste disposers on disposal and recycling of waste to build a link between the conventional and reverse/inverse manufacturing sectors, manufacturers should be required to use a certain percentage of resources recovered from used products for production of the same products. Surcharges should be imposed on input of natural resources under an international agreement.

    Efficient construction of waste disposal and recycling facilities must be promoted to develop efficient reverse/inverse manufacturing. But it may take a lot of time to get residents concerned' understanding about and cooperation in the construction. The legal system should be reviewed to give considerations to the formation of a residents concerned' consensus for smooth construction of waste disposal and recycling facilities.

4)  Ascertaining Materials Flow from an International Viewpoint

    In order to build an efficient cycle economy, Japan must ascertain cycles of materials from an international viewpoint that includes considerations given to cases where waste in Japan could be used as resources or goods in other countries.

    For exports of products for reuse, the government should toughen regulations on transparency-lacking markets. In order to prevent exports of waste from causing pollution, the government should take advantage of ODA[16] for the provision of reusing/recycling system operation know-how and the construction of recycling plants in developing countries.

(2)  Development of Conditions for Effective Working of Market

    The government should design an institutional framework suitable for the realization of a cycle economy with a view to building a chain of stages from production and consumption to reusing and recycling efficiently. As for waste that are difficult to recycle through a single chain, the government should build chains linking multiple industrial sectors while specifying parties that are responsible for disposal.

1)  Development of Institutional Framework

    An institutional framework required for building a cycle economy should be provided in law as much as possible. The government should give positive assistance to new and advanced efforts that the industrial world makes voluntarily.

a.  Development of Cycle-Oriented Legal System

    An institutional framework suitable for the promotion of the realization of a cycle economy should focus on how to efficiently build a chain of stages from production and consumption to reusing and recycling. In line with the cycle society law, the government should adopt the following principles for developing the legal system for disposal and recycling of waste:

a)  Definition of "recyclable resources" that may be valuable or invaluable.

b)  Priority order of reduction, reuse, material recycling, thermal recycling[17] and appropriate disposal.

c)  Specifying responsibilities including the responsibility of waste-discharging businesses and people, and the extended producer responsibility[18] as a general principle.

    From the viewpoint of environmental loads, law should provide for a ban on production of certain products, requirements for certain percentages of waste to be recycled, manufacturers' and distributors' takeover of used products, economic measures like surcharges on certain products, information disclosure requirements, processes of public efforts, requirements and methods for maintenance of prices for recycled resources, environmental labeling systems[19], standardization of products, the environmental conservation initiative action program[20], assistance for green purchases[21] and other requirements. In order to give consumers incentives to recover and recycle used goods, deposit systems[22] should be introduced for standardized and quality-unified returnable vessels[23] and other products to be recovered and recycled by their manufacturers. Such systems may have to be adapted to life cycles and other characteristics of products.

    The 147th Diet enacted the Law for Promoting Government Procurement of Environmentally Friendly Products (2000 Law 100, hereinafter referred to as the green purchase law) to institutionalize the environmental conservation initiative action program and the green purchase assistance. Some  of the other measures listed above have been introduced by new laws in accordance with respective characteristics of individual products. The new laws include the effective resources use promotion law, the Law for Recycling Materials for Construction (2000 Law 104, hereinafter referred to as the construction recycle law) and the Law for Promoting Recycling of Food Resources (2000 Law 116, hereinafter referred to as the food recycle law). In future, the government should try to ensure the effectiveness of the systems as introduced in the law.

b.  Identification of Parties Responsible for Control and Disposal

    Waste dischargers should clearly be held responsible under public law for restoration of the original state after inappropriate disposal including illegal dumping if they failed to meet an obligation to confirm appropriate disposal or pay appropriate fees after making orders for waste disposal. In this respect, the 147th Diet revised the waste disposal law to specify such responsibility for industrial waste dischargers and toughen relevant penalties.

    The most appropriate parties responsible for control and disposal should be identified so that manufacturers will be held responsible for taking over and recycling used products and conducting assessment of used products before their takeover.

    In identification of the most appropriate parties responsible for control and disposal, considerations should be given to differences between products in recyclability and emission controllability. Depending on the waste, however, the most appropriate parties for control or disposal may be unable to undertake disposal or recycling because of their relations with existing reverse/inverse manufacturing concerns. In such cases, long-term systematic efforts should be made to structurally reform industrial relations toward the identification of the most appropriate parties for control and disposal.

c.  Specification of Cost Payments

    Those who discharge waste should shoulder costs for disposal or recycling of such waste in principle. As for products that have massive environmental loads, however, their manufacturers should bear such costs. Finally, economic units should share costs as determined by market forces in accordance with their shares of responsibility for each waste.

    A mechanism should be developed to grasp correct costs for appropriate disposal and recycling and ensure the transparency of cost details and cost determination processes.

2)  Monitoring and Preventing Illegal Acts

    In order to foster excellent waste disposers and recyclers, the government should eliminate illegal acts including unlawful dumping of waste. The existing waste disposal law provides for penalties against illegal acts. Since local governments' monitoring of illegal acts is limited by personnel shortages, however, the penalty provision has not necessarily been working well as a deterrent.

    In the circumstances, local governments should simplify licensing procedures for waste disposal and transportation services to increase administrative efficiency and should provide preferential treatments like the extension of business licenses for excellent waste disposers and recyclers to encourage their voluntary improvement efforts. They should positively take advantage of police to control illegal acts and enhance the legal deterrent to such acts. At the same time, they should introduce social monitoring systems including a reward-based reporting system and a monitoring system involving NPOs[24]. Local governments should also publish their waste disposal plans, massive waste dischargers' industrial waste disposal programs and licensed waste disposers' business reports to boost social concerns and surveillance on illegal acts.

    As is the case with industrial waste, businesses that discharge massive amounts of ordinary waste should be required to make waste disposal plans for publication.

(3)  Enhancement and Improvement of Planning

1)  Preparation of Material-Recycling Plans

    In order to foster an efficient reverse/inverse manufacturing sector and build its smooth link to conventional manufacturing, national and regional (blocs[25] and prefectures) material-recycling plans should be prepared. Such plans may cover construction waste, food-related waste and energy, as well as demand for recycled materials. They may specify sizes of markets for reverse/inverse manufacturing. They may also give guidelines, including on waste reduction, reusing and recycling rate targets and deadlines for achieving targets for certain products or categories to be addressed, in order to encourage private companies to invest and take risks in reverse/inverse manufacturing. Based on the material recycling plans, recycled product demand expansion plans should be made.

    The basic policy for preparation of the material-recycling plans should call for a chain of conventional and reverse/inverse manufacturing systems and chain-participating companies to improve environmental efficiency. Medium-term (five-year) and long-term (10-year) plans may be made for regular review.

2)  Administrative Intervention

    Administrative intervention in waste disposal and recycling services should be enhanced if necessary, and should be made more systematic. For example, the government sector may promote assistance to private companies that must select locations, acquire sites and negotiate with residents concerned for construction of waste disposal and recycling facilities. If necessary, the government sector may invest and participate in private waste disposal and recycling services. Administrative intervention should be generally enhanced and published.

    Local governments should unify their respective contacts regarding waste disposal and recycling with a view to linking industrial policy to environmental policy.

    According to a demonstration research on the eco-town project[26], local governments' intervention should include provision of sites, construction of supporting facilities, provision of testing materials, briefings for residents, environmental management and supply of research achievements. Administrative intervention is required to support the eco-town project as a trial to clear various regulations.

3)  Education of Waste Dischargers and People

    In order to build a cycle economy, the way must be paved for the people to accept waste disposal and recycling and for investment to increase in reverse/inverse manufacturing. In this respect, it is important for the administrative sector to efficiently educate waste dischargers and consumers on waste disposal and recycling. Especially, the administrative sector should lead waste dischargers and consumers to easily and accurately understand terms regarding waste disposal and recycling. (For example, the commercial reuse rate in the electric home appliance recycling law involves recycled resources excluding those made of waste that manufacturers have taken over in exchange for dischargers' reverse payments. It is confused with the traditional recycle rate that involves the weight of all materials that have been recovered free of charge and in exchange for conventional and reverse payments. The confusion has led people to mistake the commercial reuse rate as indicating a low recycle rate for electric home appliances.)

    Specific education measures at elementary and junior high schools should include the promotion of ethical education on environmental conservation and experience-oriented education though volunteers from the industrial world. Regional study meetings as well as senior high school and university education should be expanded to lead citizens and students towards an understanding of technological aspects of environmental information.

    Campaigns should be promoted to change the negative image of "the end" for waste disposal to the positive image of "rebirth." State-of-the-art recycling plants may be constructed and made public to improve the image. Commendation and reward systems may be created to encourage companies and administrative agencies to contribute to the construction of a cycle economy.

4)  Development of Data on Recycling and Reverse/Inverse Manufacturing

    Law should provide for the administrative sector's development and publication of statistics on waste emissions as part of the infrastructure for fostering reverse/inverse manufacturing and building a cycle economy.

(4)  Economic Policies

    In order to stimulate the private sector's voluntary efforts and lead to the emergence of its research results and technologies, the government should specify the way to the construction of a cycle economy, develop relevant economic policies and ensure their effectiveness. In implementing economic policies to foster reverse/inverse manufacturing with tax incentives, surcharges, subsidies and other economic means, the government should promote disclosure of policy details and objectives to ensure the transparency of such policies.

1)  Promotion of Optimum, Efficient Reverse/Inverse Manufacturing Locations

    Important factors for the location of reverse/inverse manufacturing include how to efficiently collect waste and how to develop a link for conventional manufacturing to use products from reverse/inverse manufacturing. They should reflect locations of materials, transportation costs and the development of industrial infrastructure. Consideration should be given to an optimum scope of material recycling, new environmental loads accompanying moves of waste, and reverse/inverse manufacturing's relations with existing conventional manufacturing infrastructure and urban and commercial functions.

    Specifically, the locations of reverse/inverse manufacturing should be based on appropriate material-recycling plans and on the establishment of optimum scopes for individual material cycles. For locations of reverse/inverse manufacturing plants to cover wider areas, the idea of a regional minimum should be introduced and local governments should cooperate and ally with each other on a municipal, prefectural, bloc or national basis.

    The regional minimum idea is a development of the "civil minimum (minimum necessary, desirable levels of administrative services as proposed by residents voluntarily within municipal communities)" concept covering a wide range of problems involving urban lifestyles, social overhead capital and social health. For the construction of a truly affluent cycle economy for the 21st century, people's needs for better quality of life become subject to government policies. Under the strategic concept of regional minimum, the administrative sector should meet the needs efficiently on a wider-area basis to improve regional amenity. In making policies based on the concept, considerations should be given to harmony with nature as well as sharing of functions among regional communities to develop living and industrial infrastructure. (For example, under a wider-area waste disposal project, City A may have an electric home appliance recycling plant, City B an RDF[27] power station and City B a managed waste disposal plant. In this way, regional communities within a wide area may thus share functions and cooperate in developing living and industrial infrastructure regarding flows of waste and used resources.) As a result, a wider-area organized infrastructure for reverse/inverse manufacturing may be developed to increase the efficiency of waste disposal and recycling.

2)  Promotion of Infrastructure Development for Reverse/Inverse Manufacturing

    The administrative sector should take the initiative in developing infrastructure for reverse/inverse manufacturing while taking advantage of existing industrial infrastructure, based on regional material-recycling plans, and waste disposal and recycling plant location plans. At the same time, the administrative sector should promote the private sector's use of public industrial infrastructure.

    Especially, the revised waste disposal law has added PFI[28] companies to waste disposal centers in order to promote construction of facilities to appropriately dispose waste. It has also added disposal of ordinary waste to the business of waste disposal centers. The administrative sector should take advantage of the waste disposal center system to develop infrastructure for wider-area waste disposal.

3)  Promotion of Efficient Distribution Networks for Reverse/Inverse Manufacturing

    In building efficient distribution networks for reverse/inverse manufacturing, coordination is required to incorporate existing waste collection and transportation companies into such networks or share services with them. Especially, primary distribution requires know-how of local small transportation firms. Excellent firms should be fostered among them. In this respect, newcomers should be promoted in the services to stimulate competition. In order to ensure appropriate and accurate collection and transportation of waste, the administrative sector should introduce a system to have companies deposit certain levels of reserves upon giving business licenses to them. Companies violating licensing standards may fail to receive refunding of such deposit.

    The administrative sector should also promote the recycling and classification functions at waste-relaying facilities to help ensure appropriate disposal of waste and reduce overall recycling costs.

    Port and harbor managers are allowed to give licenses for marine transportation of waste on a discretionary basis. In order to solve such transparency problems, the administrative sector should promote uniform licensing standards for the sake of efficient distribution for reverse/inverse manufacturing.

4)  Fostering Key Players in Reverse/Inverse Manufacturing

    In order to develop the reverse/inverse manufacturing sector as an important participant in the construction of a cycle economy, the government should consider corporate tax cuts and other tax incentives, subsidies and low interest loans of public financial institutions for outstanding waste disposers and recyclers. Since most of the Japanese waste disposers and recyclers are small companies, the government should give similar assistance to alliance and integration of these companies to enhance their financial bases for cases where the economy of scale works.

    The reverse/inverse manufacturing sector including waste disposers has a negative image because of gray markets and illegal waste dumping, serving to prevent the development of excellent companies. To help improve the image, the government should give JIS (Japanese industrial standards) and ISO (International Organization for Standardization)[29] certificates to excellent companies and plants to make them attractive workplaces for workers. Study visits to excellent plants may be introduced for school education. The government should also commend excellent companies and monitor inappropriate companies and illegal acts in cooperation with non-profit organizations.

    On the other hand, the reverse/inverse manufacturing sector has many jobs for part-timers. Employment should be promoted to cover such part-time jobs.

5)  Expansion of Technological Development and Education

    In order to expand research into the promotion of a cycle economy at universities, engineering faculties should enhance alliance with jurisprudence and economics faculties with sufficient budgets and personnel ensured.

    Technology ethics and practical technological education are of such importance at universities that national universities and research institutes should be expanded or reorganized, if necessary. Opportunities should be expanded for citizens to enroll in technology courses at universities and graduate schools.

    In order to allow newcomers to easily acquire technologies and know-how, the government should give tax and other incentives to pioneering companies that provide technologies to newcomers.

    To strategically promote the construction of a cycle economy from the international viewpoint, the government should positively provide technological information to other countries and accept foreign trainees in accordance with their countries' situations.

6)  Expansion of Demand for Recycled Products

    In order to promote the use of recycled products in the public sector, local governments should be obliged to give priority to environmentally friendly products, as the central government has done under the green purchase law. The government should also introduce the projection of effects of environmentally friendly product procurement. Furthermore, it should specify positions of recycled products and resources in estimating costs for public works projects.

    In order to promote the use of recycled products in the industrial world, the government should promote standardization of recycled materials and parts and implement tax incentives for companies using recycled products.

    In promoting products for reuse, the government should toughen regulations on transactions in gray markets, manage histories of products and unify quality standards for markets for such products.

7)  Promotion of Services

    In order to develop the waste disposal and recycling industry, the government should promote marketing, finance, product planning and other services as well as hardware facilities for waste disposal and recycling.

    Designers may be employed to develop attractive recycled products meeting consumers' tastes. In such employment, companies that make recycled products should positively provide information including materials, shapes and quality. Regular trade fairs and other events should be held to promote recycled products.

    To expand demand for recycled and reused products, information should be promoted on their demand, prices and quality.

8)  Formation of Regional Societies Featuring Waste Reduction, Reusable Products and Recycles

    Local governments do not have to unilaterally or independently provide waste disposal services. But regional communities as a whole, including town associations as well as municipal governments, should try to reduce waste and recover recyclable waste.

    For example, recycle shops should be used as the center for regional exchange, recycle cultures and regional communities. This should lead community participants to share goods, boost their consciousness about waste reduction and promote recovery of recyclable waste.

    Reuse and repair within each community should be promoted to create jobs for skilled engineers and repair masters. Such jobs have recently been declining.

    Familiar convenience stores, schools, agricultural cooperatives, post offices and other facilities should be used for promoting classification and recovery of recyclable waste.

    Recycling plants should be used for people to experience disposal and recycling of waste they have discharged.

4  Macroeconomic Impact of Efforts to Build Cycle Economy[30]

    We have so far focused on specific measures for fostering and enhancing reverse/inverse manufacturing toward the construction of a cycle economy. Various other measures are required for the building of a cycle economy. Here, we try to analyze the macroeconomic impact of efforts to build a cycle economy.

(1)  Analysis Methodology (Establishment of Scenario)

    A scenario has been made to halve the volume of waste for final dumping by 2010, as decided on at a ministerial meeting on anti-dioxin measures, and to maintain the pace of waste reduction later (to reduce waste to a quarter of the current level by 2020).

    We analyze industrial structure changes for the case where the recycle rate is achieved to meet the scenario, using an inter-industry waste  model[31]. Since sludge and construction material waste are the most dominant among waste subject to final dumping, measures should be taken to cope with this waste in order to achieve the recycle rate. Their emissions may have to be reduced to cut their volume subject to final dumping. In reality, however, it may be difficult for process improvements to reduce emissions substantially. Therefore, our considerations are limited to recycling and reduction of those for final dumping.

    Furthermore, we use an environmental general equilibrium model[32] to analyze the dynamic impact that the achievement of the recycle rate would have on economic growth. In this analysis, we establish two different scenarios. One is the fixed-economy scenario where the present recycling efforts are fixed. Another is a cycle economy scenario where waste recycling and disposal efforts are developed as much as possible.

(2)  Analysis Results

1)  Industrial Structure and Other Changes (based on the waste inter-industry model, see Figure 1)

a.  Industrial Structure Changes

    In a cycle economy, mining and other industries depending on natural resources will shrink as recycled resources replace traditional natural resources. The electricity utility sector will also shrink relatively as thermal recycling of waste is developed.

    On the other hand, the ordinary machinery sector will benefit remarkably from the development of waste disposal technologies that will lead to the introduction of gasification furnaces and other new equipment.

    Road and railway transportation will expand as waste disposal covers wider areas in a cycle economy.

b.  Resources Imports

    In a cycle economy, the development of recycling will serve to reduce imports of mineral and other natural resources. The development of waste-burning electricity generation will work to cut imports of oil and other fuel resources.

c.  Employment

    While mining and electricity utility sectors will shrink in a cycle economy, the ordinary machinery sector will expand on the development of waste disposal technologies that will lead to the introduction of gasification furnaces and other new equipment. Employment will rise slightly for the economy as a whole.

2)  Relaxed Constraints on Economic Growth (based on the environment general equilibrium mode, see Figure 2)

    In the fixed-society scenario, the precondition of the reduction in waste for final dumping will force a rise in costs for final dumping thus causing restrictions on production. As a result, economic growth will turn negative in around 2010 (annual GDP growth is estimated at minus 1.8% for the 2000-2020 period).

    In a cycle economy scenario, however, recycling efforts will develop to reduce waste for final dumping. This will serve to avoid a rise in waste disposal costs. As a result, positive economic growth will be sustained (annual GDP growth is estimated at 1.5% for the 2000-2020 period).

(3)  Conclusion

    Based on the above analysis, efforts to build a cycle economy in Japan will have the following macroeconomic impacts:

1)  Sustainable economic growth can be achieved.

2)  Industrial structure will be reformed to meet a cycle economy.

3)  Japan will be able to reduce its dependence on overseas resources.

4)  Employment can be ensured.

    The macroeconomic impact indicates that a cycle economy could be achieved without economic losses.

Epilogue

    For a smooth shift to a cycle economy, businesses, consumers and other economic units should be given appropriate market-based incentives to pursue a cycle economy. In response to the electric home appliance recycling law, the electric home appliance industry has begun efforts to build and operate recycling plants and improve product designs to use more recyclable parts. Similar actions are seen in other industries as well. In a shift to a cycle economy, conventional and reverse/inverse manufacturing sectors will thus be integrated to develop cycle-participating businesses.

    As discussed in Section 3 "Specific Policies for Fostering Reverse/Inverse Manufacturing," the creation of institutions to ensure the effective function of market forces is the key to the achievement of a cycle economy.

    The creation of institutions to promote recycling alone is insufficient for the building of a cycle economy. Recovery and recycling of used products and waste should be done with relevant environmental loads minimized. Considerations should be given to how to hold down carbon dioxide emissions and how to conserve the limited global environment.

Figure 1  Cycle-Economy Construction’s Impact and Effects on Domestic ProductionFigure 2  GDP Trend Stemming from Cycle Economy Construction


  1. [1] Conventional manufacturing industries mean manufacturing, production and distribution industries that collect natural resources, process them into products and distribute them to consumers.
  2. [2] See the definition of reverse/inverse manufacturing on Page 2.
  3. [3] To reduce the emergence and emission of waste.
  4. [4] To reuse used products and parts.
  5. [5] If used products fail to trade on the market, their owners must make, rather than receive, payments for their transfer to their disposers.
  6. [6] Under this system, either suppliers or buyers have sufficient information on prices and quality of goods or services, while the others don't.
  7. [7] In a market having an unsymmetrical information system, bad products could be selected instead of good ones.
  8. [8] Under the industrial waste manifest system, waste dischargers and intermediate disposers issue manifests when they commission others to undertake disposal of waste. After disposal, disposers send back manifest copies specifying the completion of disposal. In this way, waste dischargers can manage the flow of waste to ensure appropriate disposal. In 2000, the waste disposal law was revised to enhance the manifest system by requiring waste dischargers to confirm disposal.
  9. [9] Used automobiles and electric home appliances are shredded up for recovery of iron and nonferrous metal. Remaining plastic, rubber and glass pieces are called shredder dust.
  10. [10] Recycling of recovered things as raw materials.
  11. [11] These technologies are designed to melt waste without burning and use emerging gas as fuel for generating electricity.
  12. [12] Public Affairs: Companies' public relations activity to solve public problems for their survival.
  13. [13] Life Cycle Assessment: A method to quantitatively assess products' loads on the environment and resources over their life cycles from the procurement of raw materials to production, consumption and use, and disposal.
  14. [14] The United Nations University in 1994 advocated the "zero emission recycle initiative" to reorganize industrial production processes and build cycle-oriented industrial systems cutting waste emissions in order to minimize waste's environmental burden accompanying industrial activities.
  15. [15] In contrast to the productivity-oriented mass production system focusing on the conventional process "from design and development to production," inverse manufacturing means an optimum production system that pays attention to the inverse process from "recovery to breakdown and classification, recycling and production."
  16. [16] Official Development Assistance.
  17. [17] Recovered waste is used as thermal energy sources.
  18. [18] The concept of extended producer responsibility has been proposed by the Organization for Economic Cooperation and Development. Under this concept, producers are held responsible for the environmental impact of products' whole life cycle including the use and the downstream disposal.
  19. [19] The systems require environmental information to be labeled for goods and services. Such information includes Japan's eco-mark and quantitative information. Under the ISO concept, labels include an "environmentally friendly" advertisement.
  20. [20] This is an action program for the government to take the initiative as the business operator and consumer for environmental conservation efforts (as decided on by the Cabinet on June 13, 1995). The program lasting until fiscal 2000 calls for the government to give considerations to environmental conservation measures to be implemented in its purchases and uses of goods and services, and its construction and management of buildings.
  21. [21] Green purchases mean that purchasers give priority to goods or services having less environmental load.
  22. [22] Under the deposit systems, deposits for vessels are added to product prices for sale and refunded to consumers upon the return of vessels at certain points. They can promote recovery of recyclable resources.
  23. [23] The returnable vessels can be washed and used repeatedly. They include beer, sake and milk bottles.
  24. [24] Non-profit organizations.
  25. [25] Regional blocs: Hokkaido, Tohoku, Kanto, Hokuriku, etc.
  26. [26] The project is sponsored by the Ministry of International Trade and Industry. Based on the regional zero emission initiative (an initiative to recycle all waste from some industries as materials for other industries to eliminate waste emissions), the ministry gives software and hardware assistance to the construction of new environmentally friendly towns toward the 21st century.
  27. [27] Refuse-derived fuel. RDF in Japan amounts to solid fuel made through pulverizing, drying and forming processes.
  28. [28] Private finance initiative: Private-sector funds and know-how are introduced for the public sector's social capital development and public services.
  29. [29] International Organization for Standardization: The ISO standards cover all technology areas other than electric and electronic engineering. The ISO 14001 represents standards for environmental management systems. Companies establish their respective environmental management systems and use the ISO 14001 certificates to demonstrate their appropriate operations to others.
  30. [30] For details of the analysis, see the Economic Planning Agency-requested report on "Quantitative Analysis of Industrial Structure Changes from and Macroeconomic Impact of Cycle Economy Construction."
  31. [31] Prof. Shinichiro Nakamura of the Politics and Economics Department of Waseda University has developed the model. This is a static inter-industry model based on an ordinary inter-industry relations table that is extended to include waste-discharging, -disposing, -dumping and -recycling sectors. Final demand, and waste-disposing and -recycling methods and rates in the reverse/inverse manufacturing sector are put into the model to illustrate economic activity levels and material flows in a detailed sector-by-sector manner.
  32. [32] The model is under development by the AIM Project Team of the National Institute of Environmental Studies that is led by researcher Toshihiko Masui. Primary energy production and conversion, environmental equipment manufacturing, waste-disposing and -recycling and some other sectors have been separated from the inter-industry relations table to make the model. This is an applied successive general equilibrium model that includes not only usual money flows but also various environmental loads and quantities of waste emissions, disposal and dumping. The model, which covers various environmental industries including environmental equipment manufacturers as well as waste recyclers and disposers, enables us to conduct a comprehensive analysis on the macroeconomic impact of these environmental industries under environmental constraints.
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