Green Deal Monitor #8 - Right to Repair

The EU’s Green Deal sets out to transform the EU into a modern and resource efficient economy where economic growth is decoupled from resource use. There is money to be made by focussing on longer life cycles for products, refurbishing and design for repair - keeping the value of our products intact for longer - as part of a shift to a circular and away from a linear economic system.

What is the Right to Repair?

To repair or to discard - that is the question? The Right to Repair is the concept that the consumer should have the right to repair his or her (electronics) devices rather than discarding them. It is one of the strategies to move from our current linear system of production to a circular one. It is part of the EU Green Deal’s ambition to make the European economy circular and resource efficient by decoupling economic growth from resource use.

Repairs are mentioned in the Green Deal also as a consumer policy. Consumers should be able to choose reusable, durable and repairable products. Despite this, there has been little legislation to date. And regulation that came into effect in 2021 as part of the EU’s Ecodesign Directive currently only covers large appliances.¹ For smaller consumer electronics goods there is not yet any such legislation.

In this context, the Right to Repair has been very much consumer driven. It started as a movement in order for consumers to be able to repair their (electronics) products, rather than having to discard and replace them at the end of product life. According to one Eurobarometer Survey, 77 percent of EU citizens say they would rather repair their devices than replace them, and 79 percent think that manufacturers should be legally obliged to facilitate the repair of digital devices or the replacement of their individual parts.²

The question is then why are we currently not repairing a greater share of our old electronics products? This is the question we will set out to answer in this article. But first let’s look at the problem that the lack of a Right to Repair creates from an economics perspective.

_{¹Under the Ecodesign Directive manufacturers of large electric appliances, such as refrigerators or washing machines, need to supply replacement parts to professional repairmen for ten years from manufacture.

²European parliament (2020), Press Release: Parliament wants to grant EU consumers a “right to repair”.}

Figure 1: Global electronics waste is predicted to grow from 53.6 to 74.7 million tonnes 2019-2030

Figure 2: EU annual e-waste in total and per capita

The growing e-waste mountain

Consumers world wide use an ever increasing amount of electronics products every year and this is true also for the EU.³ This consumer trend taken together with shorter life cycles of products means that an increasing number of products are also being discarded every year,⁴ with serious consequences for the environment if discarded products are not handled properly. Economists call this a negative externality. The economic activity of one economic agent has a negative effect on a third party, in this case the environment or society as a whole which has to deal with the issue of cleaning up the electronics waste.

E-waste is in fact the fastest growing waste stream in the EU.⁵ Globally the amount of e-waste is predicted to grow from 53.6 in 2019 to 74.7 million tonnes in 2030.⁶ In the EU four million tonnes of electronics products were discarded in 2018, or almost eight kilos per capita.⁷

On top of this comes the issue of scarce and unevenly distributed resources. So called critical raw materials are important components in smartphones or other electronics devices consuming more resources than the Earth can provide will inevitably lead to shortages of some resources. Of the 54 materials identified as critical raw materials for Europe, 90% are imported, mostly from China.⁸

_{³The United Nations University (2020), In-depth review of the WEEE Collection Rates and Targets.

⁴Eurostat: Waste electrical and electronic equipment (WEEE) by waste management operations.

⁵European Parliament (2021), E-waste in the EU: facts and figures.

⁶The United Nations University (2020), Global E-waste Monitor 2020.

⁷Eurostat: Waste electrical and electronic equipment (WEEE) by waste management operations.

⁸Rijksoverheid (2016), Nederland circulair in 2050.}

Before recycling, repair

While recycling the materials that come out of discharged products is one solution that would reduce the negative externalities of our production and consumption choices, using products for a longer period of time still has a greater positive impact on the environment than recycling. Recycling still means buying things anew, which will cost either the consumer, a company or the planet more.

Repairing for re-use saves the energy that comes with having to completely dismantle and re-manufacture products and reduces the value leakage that occurs when we discard parts that cannot be recycled. Figure 3 shows how recycling takes one step towards a circular economy, but parts of products and some materials still get discarded. Repairing for re-use closes the loop by keeping products in use for longer.

Why aren’t we repairing much more?

Consumers seem to be increasingly asking to be able to repair their broken devices and this would be good news for the planet. From an economics perspective, in a free market economy, demand for repair on the part of the consumer should result in the creation of a market for repairs. So why isn’t this happening?

One answer to this question is that repairing for re-use appears to be a rather new trend. A consumer survey from 2018 found that only eight percent of the people in the survey had ever purchased a second hand mobile phone. Among the small minority that had ever bought a second hand mobile phone, the survey found that the overwhelming reason was their lower price - 64.6 percent indicated this as their reason. Environmental considerations were a driving force only for 19.6 percent of participants in the survey.⁹

The second answer to this question lies on the production side. For manufacturers there has historically been little incentive to create repairable products. In the past, it was more costly to set up a decentralised system for repair than to maintain a centralised distribution system of new products. Fragmented collection methods, the increasing number of components going into one electronics device as well as technical complexities of repairing has hampered the set-up of repair systems. Simply put the marginal costs of repair were high, and marginal benefits low. A consequence of this is that product design has developed to supply an ever increasing stream of new products to the market.

_{⁹Cerulli-Harms, A. et al. (2018), Behavioural Study on Consumers’ Engagement in the Circular Economy - Final report.}

Figure 3: From linear to circular - repairing for re-use closes the loop

Two main ways to incentivise the Right to Repair

Develop second hand markets
Make repair cheaper than not repairing

Develop second hand markets

A linear economic model creates little incentive for second hand markets. In a linear system, old products have little or no value and this is especially true for product categories where the speed of innovation is high. Many consumer electronics fall in this category meaning that they get out of date very fast. Think for example of a smartphone which is on average changed every two years in mature markets¹⁰ and the second hand market for old handsets is limited. There is often little value in repair for re-use because upgrades make older devices incompatible with new operating systems, for example. This makes the market for even a refurbished device limited and fashion also plays a role in consumer choices.

For some products there are already more developed collection systems and second hand markets. Indeed, the products that have the largest market share on the second hand market are freestanding fridge freezers and freestanding washing machines.¹¹ As the new Ecodesign Directive comes into force for producers of large electrical appliances, our expectation is that both second hand markets and the repair sector will grow stronger over time. We think of this as products where the (slower) speed of innovation makes it more attractive for consumers to consider second hand options.

However, in line with trends in other second hand products this could change.¹² In fact there is already an upward trend of increasing life cycle for smartphones however and this could change the outlook for repairing, refurbishing or upgrading products to extend the product life-cycle.

_{¹⁰CNBC (2019), Smartphone users are waiting longer before upgrading - here’s why.

¹¹PRNNewswire (2018), Global Second Hand Appliances Market to 2025 - Freestanding Fridge Freezers and Freestanding Automatic Washing Machines Hold the Largest Market Share.

¹²PwC (2019), The Road to Circularity.}

Make repair cheaper than not repairing

The second reason why the Right to Repair is not more prevalent today, is the cost of collection and repair. Consumers’ repair decisions are driven by cost and convenience or ease-of-repair. In the 2018 consumer survey mentioned above, 40 percent of consumers said they did not repair their mobile phone because of cost considerations. A further 6 percent did not know how or where to repair their products and 10 percent said that repairing would entail too much effort.¹³ Online sources indicate that the cost to the consumer of just replacing a broken screen can range anywhere between 33-51 percent of the cost of a new device.¹⁴

Nonetheless there is an increasing trend to repair, at least for some items and turnover in the repair sector has been rising,¹⁵ and consumer centred websites like iFixit now also provide repairability scores in order to help consumers take into account the longevity of their device when making purchasing choices.¹⁶ In addition, some countries, like France, have set up their own index to guide consumers in their technology choices.¹⁷

_{¹³Cerulli-Harms, A. et al. (2018), Behavioural Study on Consumers' Engagement in the Circular Economy - Final report.

¹⁴Nextpit: Why are smartphone repairs so expensive?

¹⁵Eionet (2020), Electronic products and obsolescence in a circular economy.

¹⁶See for example: https://nl.ifixit.com/#

¹⁷Indice de reparabilité: https://www.indicereparabilite.fr/appareils/smartphone}

The way forward - how can the Right to Repair be encouraged?

From an economics perspective marginal repair costs need to come down, either organically, or supported by the government. As second hand markets are not coming into existence fast enough to prevent further e-waste accumulation, there is a case for government intervention.

Governments and the EU can do a number of things to incentivise repairing for re-use.

To illustrate how that would work we use a simple graph, we look at how the marginal cost of repair and the demand for repairability - if there is no demand for repairability there will not be a second hand market (refer to section above) - influence consumer choices to repair their electrical and electronic equipment or not.

We take the example of two stylised products - the smartphone and the e-bike - to show how the incentives to repair and re-use differs according to the product category. The smartphone is an example of a fast-moving good with a certain fashion value, where there is less demand for repairs/ repaired products and the costs of repair are also high, while the e-bike is an example of a ‘utility’ good where the demand for repairability is high (there is a second hand market) and repairs are also relatively less costly (see Figure 4).

In this example we want to get to the bottom right for both products. This is where the case for a collection and repair market becomes attractive for entrants (short-term) and incentives to start designing for use-repair-reuse becomes appealing for producers (long-term).

Figure 4: Current reality - repairing certain products doesn’t pay off

Figure 5: The demand for repairability for a smartphone will increase if you introduce a tax on new devices

One of the main ways that policy makers can nudge consumers to repair their devices is through taxation or levies. VAT is an example of this. Governments can introduce either an increase in VAT on new devices in categories where the demand for repairability is particularly low or reduce VAT for second hand goods or repair services. In the EU Ireland, Luxembourg, Malta, the Netherlands, Poland, Slovenia, Finland and Sweden have already reduced VAT on some second hand goods as well as repair services, and in France the collection and sales of used goods carried out by social enterprises are exempt from VAT.

Another example of how a tax or a levy can work is the ‘disposal fee’ whereby the consumer pays for the product's disposal through an additional fee at the moment of purchase. How taxation or levies work as incentives is shown in Figure 5.

On the flip side of taxation, subsidising consumers or producers to help scale up a market would also help us arrive in the bottom right quadrant.

Another way of incentivising repairs is by making repairs cheaper. This can be done through design for repairability and smarter supply chains to also facilitate the set-up of reverse supply chains for collection and repair. Governments or the EU can set-up policies that mandate this through standardisation, requirements for repair capabilities, availability of spare parts and circular waste streams, but companies also have a role to play here. How this would work in practise if shown in Figure 6 - for the sake of the example we used design for repairability as the main tool to be used but as mentioned this would interact with setting up smarter supply chains, repair capabilities and spare part availability.

Figure 6: The cost of repairs can be reduced by designing products in a way that they can easily be repaired

Figure 7: If incentives are used correctly the outlook for repaired goods in all product categories could improve

Ultimately if governments/ the EU and companies would work together and make use of all tools available, repairing for re-use or the Right to Repair would become more viable also for products where there are currently no (well developed) second hand markets, due both to low demand by consumers and high marginal costs. In our stylised example marginal cost of repair of a smartphone could then become equal to that of an e-bike and the demand for repairability would also increase (see Figure 7).

What can companies do to facilitate the Right to Repair?

For companies the new focus on repairability means that additional legislation will likely come their way in the years to come. However, aside from regulatory pressures there are good reasons for companies to think about how to make repairability, refurbishment and upgrades part of their business model. As explained above, design for repairability is a key driver of the marginal cost of repair and should be part of the fundamental principles in product design and innovation, and it also decreases a company’s dependency on virgin raw materials or components in their supply networks. After all, using products and materials for longer reduces value leakage which ultimately will benefit either the consumer, the producer or society as a whole. In this sense, wasting less is also sound business.

For companies this would start with embedding repair and re-use of products into their strategy. This would help make repair and re-use strategic priorities within the company. With repair and re-use being part of the strategy this would also show how they contribute to the sustainability and SDG ambitions of a company.

In addition, it is important for companies to invest into the right capabilities to facilitate the repair process in an efficient way. Companies need to organise an efficient reverse supply chain, consolidate repair capabilities for the most common repair categories, develop a cost efficient supply strategy for spare parts, train employees and provide clear repair manuals and think of how to re-use sub-components of products that are beyond repair for repairing other products.

Following this line of thinking, companies should also look for synergies with existing business processes, for example by combining forward and reverse supply chain assets or by combining production and repair capacity.

Key take-aways

The Right to Repair is a consumer movement but is gaining increasing attention with EU regulators in the context of the EU’s Green Deal and Circular Economy Action Plan
Governments/ the EU can incentivise repair for re-use, but companies also have a role to play in this transition
In anticipation of what governments are going to do, companies can already look ahead and assess what is in the Right to Repair for them
The obvious start for companies is to design their products with the end in mind: design for repairability
Embedding the repair and re-use of products into the overall business of a company can introduce efficiencies in supply chain and repair capabilities that will decrease the marginal cost of repairs. This can make repair and re-use a value adding component to the business and be a distinctive competitive factor for the company
Consumers and society are increasingly asking for this so there is money to be made!