The European Commission recently launched phase two of the European Blockchain Services Infrastructure, EBSI, which intends to use distributed ledger technology to meet the EU’s climate targets. EBSI is the first EU-wide blockchain infrastructure project, and developers have been working to develop a market-friendly blockchain ecosystem for the bloc since 2020.
The project’s latest phase targets a convergence of EU digital and green initiatives with the creation of digital product passports, viewed as critical for developing and sustaining the circular economy. However, issues with blockchain scalability raise valid concerns about how they will function in the real world – and whether they can function at all.
Given that Europe has more straightforward options for advancing the circular economy, is the EU missing the forest for the nifty digital trees?
Breaking out of a vicious waste cycle
Support for a circular economy has been gaining traction in the EU since 2015, when the bloc published its first ever action plan calling for maximizing reuse and recycling of raw materials, components, and products. In the time since, Europe’s waste problem has gotten worse.
Of the 2.3 billion tonnes of waste generated in the EU annually, less than 40% is recycled. An estimated 26 million tonnes of plastic waste are generated in Europe each year, most notably in the packaging and transport sectors.
In addition to addressing that mountain of waste, a recent study of five EU member states found that, if fully embraced, the transition to a circular economy could create more than one million jobs and eliminate two-thirds CO2 emissions. To that end, the EU Circular Economy Action Plan was updated in 2020 to specifically target inefficient supply chains, overconsumption, and waste in industries such as textiles, plastics, and batteries.
According to the new plan, responsible supply chains should include product passports disclosing their sustainability performance, to prevent problems such as premature obsolescence, destruction of unsold goods, and single-use solutions.
This prerogative highlights a key obstacle to creating a functioning circular economy: the lack of accurate, verifiable information about a product’s reuse and recycling potential. Moving from circular economic theory to practice requires considerable effort to change how physical goods across the EU are tracked and traced at each stage of their life cycle.
Building around blockchain
To address the issue, the EU is working to develop digital product passports containing information on the composition of goods in the European market. These passports could be a game-changer for the circular economy, establishing supply chain transparency, allowing for process automation, and in the EU’s words, enabling “second life operators to take informed business decisions and allow recyclers to better plan their operations and improve their recycling efficiencies.”
Under a unified enterprise blockchain system, product information would be available electronically via interoperable data services. Each product and component would have unique digital identifiers containing information on hazardous content, performance, durability, and recyclable content, as well as carbon footprints and proof of due diligence in sourcing raw materials.
A blockchain-supported digital product passport would, in theory, be the best option because the system would be decentralised, with digital identifiers recording each stage of a product’s life cycle and every actor in the value chain able to create their own identifier within the same system.
Records would be anchored in the blockchain and accessible to every stakeholder, enabling simple tracking and tracing while simultaneously supporting reuse, recycling, and repurposing.
The scalability challenge
The EBSI project is being touted as a silver bullet, but implementation may prove more challenging than blockchain enthusiasts acknowledge. Indeed, by advocating blockchain-supported digital passports for every single product in the EU, the proposal is throwing longstanding issues with scalability back under the spotlight.
Generally speaking, in a blockchain system, all blocks are broadcast to all nodes, ticking the transparency box because records can’t be changed and anyone can access the information. However, broadcast traffic and processing overheads increase quadratically in line with the number of nodes in the network.
In the case of digital product passports, there would be billions, if not trillions of nodes. That means data storage requirements and energy consumption would increase exponentially as the system grows. Ironically, a blockchain-supported digital product passport could wind up doing more environmental harm than good.
The timeline for digital product passport development hints at these challenges. As of early 2022, only one product – batteries – had a deadline (in 2026) for the release of a digital passport under the EU Batteries Directive. Other, more complex products would take even longer, particularly if the passports are deployed on the blockchain.
Regulations on reuse
Better near-term solutions exist, but the EU seems to be neglecting them. Instead of focusing efforts on unproven technology that will take years, if not decades, to implement, the EU could be taking concrete steps towards the circular economy now, with regulatory reforms that recognise the importance of reusing products to avoid both needless waste and more costly recycling processes.
The Commission, for example, recently released a proposal pertaining to the Waste Shipments Regulation (WSR) – a cornerstone of its green transition – but the latest iteration fails to correct longstanding issues with the bloc’s treatment of certain products that could be standard bearers for the circular economy.
The WSR, for example, still treats industrial packaging such as plastic and steel drums as waste, meaning businesses attempting to recondition and reuse these products – which, if properly handled, can be reused practically in perpetuity – face regulatory obstacles and red tape.
Reusing steel and plastic drums, for example, would reduce their greenhouse gas emissions by up to 70%, potentially costing businesses only half as much as single-use alternatives. Yet recycling takes precedence over reuse in the WSR proposal, despite the fact environmental experts widely believe product reuse is the better economic and environmental option.
This begs the question: instead of attempting to reinvent the wheel, why isn’t the EU being more proactive in pursuing simpler, effective, cost-efficient solutions that exist right now? While blockchain holds the potential to be a game changer one day, amending regulations like the WSR to stress the important of reuse – and not just recycling – would be a far easier first step towards a truly circular economy.