Opportunities in the circular economy

Terms of reference

I, the Hon Jim Chalmers MP, Treasurer, pursuant to Parts 2 and 3 of the Productivity Commission Act 1998, hereby request that the Productivity Commission undertake an inquiry into Australia’s opportunities in the circular economy to improve materials productivity and efficiency in ways that benefit the economy and the environment.

Background

A circular economy is an economic strategy that maintains the value of materials for as long as possible and ensures materials are used efficiently across all phases of their life cycle. In October 2022, Australia’s Environment Ministers committed to accelerate the transition to a circular economy by 2030.

International studies suggest that a more circular economy supports higher economic growth and productivity, including by increasing materials productivity (how much output is produced per unit of raw input). Australia currently has the fourth lowest rate of materials productivity in the OECD. We generate US$1.20 of economic output for every kg of materials consumed, which is under half the OECD benchmark of US$2.50

The Minister for the Environment and Water’s Circular Economy Advisory Group has also identified commercial, regulatory, information and other barriers to achieving a more circular economy, and opportunities for Australia to improve economic and environmental outcomes through greater materials productivity and efficiency.

However, there is currently limited analysis of these matters, including the relative importance of these opportunities and how they should be measured and realised.

Scope

In this inquiry, the Productivity Commission is to investigate and report on:

• The potential scope to lift Australia’s materials productivity and efficiency, and the best metrics to measure this opportunity and improvements made.
• Priority circular economy opportunities for Australia, including identification of the sectors, products or supply chain segments:
  • Where Australia has the greatest potential to improve materials productivity/efficiency in ways that can strengthen economic outcomes, such as productivity, economic growth, economic diversity and capability
  • Where other countries have made the greatest progress towards circularity, and the risks and opportunities associated with these developments in international markets for Australia
  • Where cost-efficient emissions reduction could be achieved by improving materials productivity and reducing waste.
• Barriers to enhanced materials productivity and prospective approaches to addressing them, including but not limited to:
  • Place based circular economy activities (e.g. industrial precincts and others enabled by urban planning and development)
  • Regulatory frameworks, and other mechanisms that influence businesses’ and consumers’ decisions on materials purchasing, use and replacement or the competitiveness of circular economy initiatives
  • Policy actions that are achievable over the near and medium term
  • Policy actions that could be progressed by Commonwealth, state and territory, and local governments, including improvements to existing national policy frameworks.

The Commission’s findings will inform policymaking regarding strengthening Australian circular economy. Accordingly, recommendations made by the Commission should, where relevant and appropriate, include an assessment of implementation feasibility and risk.

Process

The Commission should engage with relevant stakeholders and experts, including the state and territory governments, to identify opportunities and constraints in this area.

The Commission should provide a final report to government within 12 months of the receipt of this Terms of Reference.

The Hon Jim Chalmers MP
Treasurer

[Received 23 August 2024]