Worldwide, experts have established 7 elements as key to the development of circular economies. These elements are prioritizing regenerative resources, preserving and extending what’s already made, using waste as a resource, rethinking business models, designing for the future, incorporating digital technologies and collaborating to create joint value.
Drivers for change
The drivers for change and new economic models have been identified as — economic losses and structural waste –- some of these have been included in our last issue.
Price and supply risks – In the last decade, price volatility of several key resources like metals and agricultural output have seriously affected economies and heightened exposure to risk. Since the dawn of the new millennium, costs of extraction of non-renewable resources have escalated steeply. Problems have been compounded by the fact that many areas of the world possess few natural resources of their own and must rely on imports. (Japan imports almost all of its petroleum, liquid fuels and natural gas. The EU imports six times as much materials and natural resources as it exports.)
Degradation of natural systems – Depletion of low-cost resources, degradation of natural capital and environmental pressures like climate change, loss of bio-diversity, land degradation and ocean pollution.
Regulatory changes – Laws regulating climate change, carbon taxes, increased landfill levies driven by lack of land availability and others.
Advances in technology – Advances so far have all been dictated by the needs of linear economies and need drastic restructuring to suit circular economies. This presents both a problem and a significant opportunity.
Acceptance of alternative business models – industry needs to develop models that work on offering services (as opposed to products), leased or widely owned products (like pooled crates, pallets and containers, B to B bulk packaging systems that can be reused; autonomous vehicles, leased appliances). This will be discussed in more detail later.
Urbanization – For the first time, over half the world will reside in urban areas.
Concepts and principles
Thinking on value creation will have to be based on restorative and regenerative resources by design and efficient management of usage of non-renewable resources where they cannot be totally avoided. Circular economies will need to use the following three principles:
Principle 1: Preservation and enhancement of natural capital by controlling finite stocks and balancing renewable resource flows.
Principle 2: Optimization of resource yields by circulating products, components and materials at the highest utility in both technical and biological cycles. This means designing for remanufacturing, refurbishing and recycling to keep technical components and materials recirculating.
For biological cycles, products are designed by intention to deliver additional value by cascading them through other applications and, at the end of useful life, to enable them to re-enter the biosphere as regenerated nutrients. (For example, cotton is used to make garments which are then disposed of as second-hand apparel and then recycled as fibre-fill for upholstery and then further recycled as additives with stone for construction materials. At the end of life, the product is bio-degraded to be restored as nutrients for soil.)
Principle 3: Fostering system effectiveness by deliberately ‘designing out’ waste, switching to renewable energy and make everyone think in systems.
A framework called RESOLVE has been developed to assist designers to develop products for circular economies. RESOLVE stands for Regenerate; Share assets, develop reuse and secondhand markets and prolong life through maintenance and durability; Optimize by removing waste and leveraging big data, automation, and remote sensing; Looping by remanufacture of products and components, recycling materials, and extracting biochemicals from organic waste; Virtualize items that can be sold and or distributed online directly (like books, music, CD’s/DVD’s); and, Exchange by replacing old inputs with new renewable materials and choose new business models that replace products with services (leased items of services like cars, appliances and multimodal transport).
Several studies carried out have shown that the potential gains by switching over to circular economies run into trillions of dollars but, unfortunately, very little has been achieved on the ground – the road is going to be long-drawn and will take a long time.
The New Plastics Economy
One of the major areas identified for focused attention is the plastics economy, especially plastics used in packaging. A new initiative called the New Plastics Economy has been put in place by the Ellen Macarthur Foundation, McKinsey and the World Economic Forum. One of the major drawbacks of the plastics economy today is that, after a brief first-use cycle, 95% of plastics packaging valued at between US$ 80 billion and US$120 billion annually, is lost to the economy. A staggering 32% of plastics packaging escapes collection altogether and ‘leakages’ lead to enormous losses and deleterious consequences as clogging of urban infrastructure and destruction of vital natural habitats like oceans. It has been conservatively estimated that the cost of after-use externalities of plastics packaging and GHG emissions during their manufacture is over US$40 billion –- exceeding the plastics packaging industry profit pool.
In our next issue, we will look at the New Plastics Economy initiative in more detail.