Eco-innovation towards a circular economy in the Basque Country

Sharpening the competitive edge of Basque industry through ecodesign and life cycle thinking, following a Smart Specialisation approach

Summary of the case

The Basque Country places especially strong strategic emphasis on eco-innovation in its industrial base for successful transition to a circular economy. The autonomous region has been promoting eco-innovation intensively for over 10 years and has achieved inspiring results:there are now 150 Basque industrial companies applying circular practices such as life cycle assessment and ecodesign, as well as new circular business models, bringing remarkable economic and environmental benefits. Three particular initiatives stand out:

• Basque Ecodesign Centre (since 2011) – accelerating the integration of ‘life cycle thinking’ in the strategies of the region’s largest companies;
• Circular Economy Innovation Programme (since 2017) – generating circular business opportunities for SMEs through demonstration projects focused on regional priorities;
• Basque Ecodesign Hub (since 2015) - building up long-term green capacity by developing key circular business skills in young people and supporting their employment in local SMEs.

Entrepreneurial Discovery Processes (EDP) established in the framework of the Region’s Smart Specialisation Strategy (S3) have fostered productive dialogue between the actors from large companies, clusters, SMEs, universities and regional and local government bodies involved in these initiatives. This proactively managed EDP has strengthened the operational linkages between the three initiatives and helped improve their efficiency. Support to eco-innovation is proving to be by far the region’s most cost-effective public intervention in the circular economy sphere.

Valuable lessons learnt from the region’s eco-innovation initiatives fed into the development of the new ‘Circular Economy Strategy of the Basque Country 2030’, adopted at the beginning of 2020, under which they will be continued and further refined. The region’s new S3 for post-2021 will see circular economy expanded into more of a transversal driver as a result and in turn, a strengthened focus in its EDP structures on eco-innovation.

1. Territorial context and challenge faced

The Basque Country managed its transition from heavy industry over 30 years ago with a high degree of success, to become one of the wealthiest regions in Europe today. The autonomous Regional Government has been investing consistently in environmental protection throughout this transition and more recently also in green innovation. In the 2014-2020 period, green innovation investments have taken place in the strategic context of Basque Environment Framework Programme 2020 and the Science, Technology and Innovation Plan ‘PCTI 2020’ – the region’s current Smart Specialisation Strategy (S3).

Whilst the Basque economy has grown by 26% since 2000, material consumption has fallen by 25% and the volume of municipal waste going to landfill has reduced by 56%. There are therefore encouraging signs that the region’s economy is decoupling from material consumption and waste generation. The circular economy in the Basque Country currently accounts for 1.12% of the GDP, with gross annual income of €764m. In terms of employment, there are 18,463 jobs related to the circular economy – some 2.08% of total jobs in the region.[1]

Nevertheless, the Basque industrial sector still consumes 21 million tons of raw materials per year, 77% of which are imported. It generates 72% of total waste, of which 42% ends up in landfill. The costs of raw materials in Basque industry account for 61% of company expenditure, compared to 2% for energy costs, both similar percentages to those for Germany.[2]

2. Aims and ambition of the initiative

The Region has recently developed its new Smart Specialisation Strategy (S3) covering the 2021-2027 EU funding period, in the form of the ‘Regional Research, Development and Innovation Plan 2030’ (RDIP). The new S3 fully supports the ‘Circular Economy Strategy of the Basque Country 2030’, launched by the Regional Government in January 2020. Circular economy is now integrated more transversally into the S3 priority area of ‘Advanced Manufacturing and Energy’, with the objectives, by 2030, to:

• increase material productivity by 30%;
• increase the circular material use rate by 30%;
• cut waste generation per unit of GDP by 30%.

The role of eco-innovation is strongly emphasised in both strategies. Eco-innovation now replaces ‘ecosystems’ as one of the four so-called opportunity niches of the current S3, around which the Entrepreneurial Discovery Process (EDP) is organised. It is estimated that innovative circular solutions in Basque industry could potentially lead to annual savings of 6% in the consumption of raw materials, resulting in savings of €2bn/year for companies.

3. Content and implementation of the initiative

The new S3 and the Action Plan to 2025 of the Circular Economy Strategy, both stress the importance of consolidating existing eco-innovation initiatives in achieving the above goals, as well as placing greater emphasis on the development of circular business models.

Strengthened cross-sectoral and multi-level governance for circular economy

Under the new strategic framework, the previously separate programmes of the Ministry of Economic Development and Infrastructures and the Ministry of the Environment, Territorial Planning and Housing, which contribute collectively to circular economy objectives, are now better coordinated. Following a Government decision taken in September 2020, programmes relating to Environment, Industry and Innovation have been brought together for implementation under a single department. Ihobe, the Government’s Agency for Eco-Innovation, delivers those measures specifically targeting eco-innovation. At local level, ‘Udalsarea 2030’, the Basque Network of Municipalities for Sustainability, and the Development Agencies will play a key role in coordinating the actions of the different local entities in the field of circular economy and disseminating good local practices.

Entrepreneurial Discovery Process focused on eco-innovation

Ihobe coordinates the new S3 Eco-Innovation Working Group, organising structured debate around key eco-innovation themes. Membership of the Working Group largely comprises the actors involved in the three main eco-innovation initiatives in the region, namely:

Basque Ecodesign Centre

A public private partnership with prestigious physical location, created in 2011, bringing together 9 leading multinationals - CIE Automotive, EDP Energia, Eroski, Euskaltel, Iberdrola, Orona, Siemens-Gamesa, Velatia, Vicinay (collective annual turnover €36bn), together with SME sectoral clusters and Basque public agencies. The Ecodesign Centre serves to enhance the competitiveness of participating firms through their acquisition and application of cutting-edge ecodesign-related knowledge and to ensure that environmental considerations are fully integrated into supply chains.

Circular Economy Innovation Programme

Established in 2017, based on lessons learnt from the three earlier circular economy calls (2014-2016), the programme supports circular business creation for SMEs through demonstration projects focused on regional priorities. Each demonstration project forms a specific public-private dialogue involving SMEs and an inter-sectoral networking platform, linking projects results to demand-driven instruments and formulating policy recommendations for the future.

Basque Ecodesign Hub

A collaboration between the Basque Government and all the Basque universities, the Hub has been training young people, since 2015, in specialist green growth topics, such as eco-design, Life Cycle Analysis, environmental footprint, plastic recycling, competitive-environmental analysis and ISO 14006 implementation. The Ecodesign Hub aims to successfully integrate Life Cycle thinking, Ecodesign and circularity into the operations of regional SMEs.

Participation of these regional initiatives in the S3 Eco-innovation Working Group helps to cement the operational linkages between them. The Ecodesign Hub provides skilled people for the supply chains of the multinationals supported through the Ecodesign Centre, whilst the Circular Economy Innovation Programme helps focus business innovations in SMEs onto circular economy challenges of the region requiring people with the appropriate skills and so on. Further circular economy specialists of the Basque Science and Technology Network and other catalyst stakeholders also participate in the Working Group.

Large companies, clusters, universities and government actors are therefore fully involved in the Basque Country’s EDP on eco-innovation. SMEs are also associated with the EDP, but Ihobe aims to stimulate stronger involvement by them through a Think Tank dynamic currently being designed. Different S3 activities, such as the recent Basque Ecodesign Meeting 2020 and technical events like ‘Value Chain Green Competitive Surveillance Studies and Challenges’ have facilitated the exchange between companies. Citizens have been less directly involved, although they have taken part in co-creation sessions for the Circular Economy Strategy and have indirect involvement in the EDP through the municipality network ‘Udalsarea 2030’.

Specific tools used to encourage circular economy

To help create circular economy demand, the Region offers 30% tax deductions for business investment in equipment on its Clean Technologies List. The Region also requires commitments to green purchasing practices from companies and provides comprehensive guidance for this purpose. These measures overlay a progressive greening of the Region’s techno-environmental standards and procedures for environmental authorisations and inspections, which are expected to be further strengthened in the future.

Ihobe provides innovation grants to companies for ecodesign, material efficiency and recycling. It also financially supports the three linked ecodesign initiatives – Ecodesign Centre, Ecodesign Hub and Circular Economy Innovation Programme. Ihobe reports the comparative cost-effectiveness of these measures as shown in the box below:

Basque Country Induced business investment (€) per Euro of public support Clean Tech tax deductions (2010-2020) = €4 Innovation grants (2014-2020) = €21 Support for ecodesign (2005-2020) = €178 Source: Ihobe 2020

Ecodesign – which includes the Ecodesign Center, the Ecodesign Hub and SME ecodesign projects assisted -is therefore considered by far the most cost-effective support measure for the circular economy.

Ihobe also seeks to adopt a more demand-driven approach, through its own awareness raising actions for businesses, concentrating on the following topics:

• Green Product Policy Drivers: mainly the EU Ecodesign Directive, Green Public Procurement (GPP), Green Supply Chain Management (GSCM) and Circular Business Models for product durability and product value retention.
• Green Materials Policy Drivers: mainly the Integrated Pollution Prevention and Control (IPPC) Best Available Technologies Directive, EU Plastic Strategy, EU Critical Materials Strategy. The priority materials for the region are metal alloys, polymers, minerals and wood.

Ihobe’s budget for promoting eco-innovation is relatively modest at €2.1m for 2020, all sourced from the Regional Government. Ihobe highlights the importance of levering private investment, noting the overwhelming strength of major companies in dictating demand conditions for its own supply chains and acknowledging the crucial role of the Ecodesign Centre in this regard.

Monitoring the circular economy transition

The Basque Country Government publishes a comprehensive monitoring document, every two years, with data and commentary in line with the requirements of the EU Monitoring Framework for Circular Economy established in 2018. In the document, the Region supplements the data needed for the EU Framework with values for complementary indicators relating to domestic materials consumption, resource productivity, material flows per capita and total waste treatment per capita. The Region also commits itself to developing further indicators beyond the EU framework and is working on possible indicators to measure spending on eco-innovation, development of ecodesigned products, new dematerialised business models introduced, etc.

In addition, from 2022, there will be two-yearly monitoring reports for the region’s Circular Economy Strategy, which will report on progress achieved under each of the measures of its first Action Plan to 2025. There will also be an external Assessment Report for the Action Plan, produced in 2025, which will be used as the basis for developing the following Action Plan.

4. Achievements

After a decade of intensive collaboration on eco-innovation, some 239 industrial companies of the Basque Country are already applying circular practices or models – such as ecodesign, servitisation (i.e. products as services), remanufacturing, life cycle assessment, environmental declarations etc.

The Ecodesign Centre has been instrumental in almost doubling turnover expectations, since 2015, for ecodesigned products and services to €7bn/year. . Its large company members now enjoy better ‘green’ credentials – such as Iberdrola increasing corporate reputation as the first multinational implementing the EU´s Organizational Environmental Footprint, or Eroski heading Greenpeace´s ‘Green Retailers Ranking’ in Spain. Others have built market lead based on ISO 14006 ecodesign certifications, like Siemens Gamesa.

The Circular Economy Innovation Programme has seen 130 completed demonstration projects, with potential to create 12 new circular businesses, achieve additional turnover of €85m/year and generate 230 new green jobs in SMEs. In terms of environmental impact, it is expected that these projects will contribute to a reduction of 350,000 tonnes of CO₂ equivalent/year and to a saving of raw materials of some 400,000 tonnes/year.

The Ecodesign Hub has contributed to a significant increase in the employability of youngsters, with a throughput of 130 graduates with circular economy skills since 2016. Outputs include 147 green projects developed by skilled graduates in the region, including 118 in-factory. Around 60% of the graduates are recruited by local companies, with SME satisfaction rates reaching 84%.

The well-publicised results from these three initiatives are inspiring. They show numerous examples of Basque companies introducing circular product or process innovations, which have led to tangible productivity improvements through material savings and/or reduced energy consumption in the short term, with improved image and greater market access, leading to increased sales later on.

Key success factors and lessons learnt

The central success factor for the Basque Country is that it began early with promoting eco-innovation. The example of the Ecodesign Centre shows that lifecycle thinking certainly pays off, but it has taken some 10 years for the region to develop a pipeline of graduates with the necessary skills for this approach to be internalised in a critical mass of local companies.

Another important ingredient has been the S3 implementation system, with its Working Group structure to encourage effective EDP. The S3 approach has therefore helped the region bring its different eco-innovation initiatives together so that they mutually support each other. Public subsidies for eco-innovation have helped provide a ‘hook’ to initiate circular thinking, but additional advice and support close to businesses available through the network of initiatives, have been essential in bringing about success.

Ihobe nevertheless considers that pro-active greening of supply chains has been slower than expected. The agency acknowledges that greater efforts are needed to increase the adoption of circular approaches by SMEs – starting with improved awareness and understanding of ‘green’ policy drivers, and new ‘green’ market opportunities. Other key challenges for the future include the disposal of Non-Hazardous Waste and product end-of-life, in the context of the new European regulatory framework for waste,as well as the generation of a stable and safe market for secondary raw materials.

5. Replicability

Ihobe has always sought to benchmark policy tools it has found elsewhere in the EU and has adapted certain aspects of other countries’ policies into its own instruments – such as the Dutch Vamil Tax deduction system, the UK WRAP Programme and the Swedish CPM Center for Life Cycle Thinking.

As regards dissemination of Ihobe’s experiences elsewhere, three main platforms are used:

• the European Knowledge Network for Resource Efficiency (EREK), now being integrated in the EU Cluster Collaboration Platform);
• the EU Regular Meeting on Integrated Product Policy and Circular Economy (where Ihobe co-represents Spain) and the EU Environmental Footprint Working Group;
• the Spanish Network of Heads of Environmental Protection Agencies and their Green Economy Working Groups.

There has not yet been any full-scale replication transfer from Ihobe, but there have been requests in recent years from the Scottish Government and the German Region of Baden Württemberg to transfer the Basque Ecodesign Centre, of which the latter is currently being analysed.

 

Quotation

‘Businesses we have supported often say the most important thing for them was not the grant money. It was actually the new learning they gained about how to integrate circular thinking into their strategies, as well as the chance to exchange experience with other companies facing similar challenges.’

Alexander Boto – Ihobe Agency for Eco-Innovation, Government of the Basque Country

Businesses we have supported often say the most important thing for them was not the grant money. It was actually the new learning they gained about how to integrate circular thinking into their strategies, as well as the chance to exchange experience with other companies facing similar challenges.’