ABOUT THE CIRCULAR ECONOMY

Today’s economic growth is largely dependent on a take-make-dispose ‘linear’ model of extraction, production, consumption and disposal. For example, the Fast Moving Consumer Goods (FMCGs) market relies on USD 3.2 Trillion of commodity inputs, of which 80% are required from virgin inputs.

The linear economy has a number of system inefficiencies including the reliance on finite resources, dependence on fossil fuel energy, pollution, waste generation and depletion of eco-system services. A series of mega-trends are now acting as macro-economic drivers of the shift to the circular economy:

  • User Revolution - An evolution in how we buy, own and consume and a shift to sharing based transaction models;
  • Technology - Advances in materials, manufacturing and information technology;
  • Increasing Demand - The number of middle-class consumers is predicted to increase from 1.8 billion in 2009 to 3.2 billion by 2020 and 4.9 billion by 2030;
  • Resource Price Volatility - Input price volatility is a significant economic risk that impacts profitability, customer demand and restricts management’s ability to forecast margins and demand; and
  • Security of Supply - China currently produces more than 90% of all rare earth materials, that are critical to a wide range of industry sectors globally.

The circular economy is a generic term for an industrial economy that is, by design, restorative and in which component and material flows are of two types;

  • Biological nutrients, designed to re-enter the biosphere safely; and
  • Technical nutrients or assets, which are designed to circulate at high quality (without entering the biosphere).

A circular economy aims to ‘design out’ waste. Waste does not exist—products are designed and optimised to re-enter the economy whilst maintaining maximum value. The ability to cycle products, materials and components at their highest integrity defines the circular economy and sets it apart from disposal and recycling – where large amounts of embedded energy and labour are lost.

The circular economy outlines a set of enabling system conditions and provides a framework for the transformation of the economy through the restoration of eco-system services, transformation of energy use, elimination of waste and pollution and increased resilience of financial and labour markets.

Biological Nutrients

Biological materials or 'nutrients' have the ability to re-enter the biosphere (or food, farming and aquatic systems) through non-toxic and potentially restorative loops.

Farming/collection

The harvesting of organic matter.

Restoration

The process of returning organic matter to rebuild the capacity and resilience of natural capital. E.g. the use of organic waste from a food manufacturing plant to provide fertilizer for farmland or food for aquaponics.

Biogas

Thermal conversion involves the use of heat, with or without the presence of oxygen, to convert biomass materials or feedstocks into other forms of energy. Thermal conversion technologies include direct combustion, pyrolysis, and torrefaction. Thermochemical conversion involves the application of heat and chemical processes in the production of energy products from biomass. A key thermochemical conversion process is gasification. Chemical conversion involves use of chemical agents to convert biomass into liquid fuels.

Anaerobic digestion/composting

Biochemical conversion involves use of enzymes, bacteria or other microorganisms to break down biomass into liquid fuels, and includes anaerobic digestion, and fermentation.

Extraction of biochemical feedstock

The process of productively harnessing the value of organic feedstock for a number of applications in the economy.

Technical Nutrients

Technical nutrients including metals, alloys and polymers are designed (at material, component or product level) to cycle continuously without losing integrity or quality. In this manner these materials and components can be used over and over again instead of being "down cycled" into lesser products, ultimately becoming waste.

Recycling

The process of collection, treatment and redeployment of valuable material streams back into a market or supply-chain. In reality much of what is termed 'recycling' results in the down-cycling of material and loss of significant value. Choosing the right materials early in a design of specification process can significantly increase the ability to retain value.

Remanufacturing/ refurbishment

The process of taking a used product or component and systematically disassembling, rebuilding and redeploying it back into the market - in the same if not better condition. Products and components which are designed by intent for manual or automated disassembly reduce the incremental cost of remanufacturing and increase profitability.

Reuse/redistribute

The process of taking an existing product and redeploying it to a different customer, market or application. From cars to mobile phones to buildings this practice is as old as the economy itself. The evolution of the internet has resulted in a step-change in the ability to increase the productivity of assets in the economy and what many call collaborative consumption or the sharing economy.

Maintenance

The process of supporting an asset in use to maximise its productivity. The level of complexity of this process is effected by the type of asset. Maintenance is often accompanied by business models which provide service provision and/or performance management.

Mining materials extraction

Extraction of virgin ores, compounds or materials (commodities), often requiring large inputs of energy, water during these processes.

Parts manufacture

Manufacturing of components and their sub-assemblies within a supply chain - of varying complexity depending on product and industry sector. The design of components and assemblies effects the ability to deconstruct, recover, regenerate within a circular business model.

Product manufacture

Manufacture and assembly of sub-assembly parts and components into a product.

Service provider

Market mechanism to make product or service available to customers. Changing consumer attitudes and technology innovation is increasingly leading to businesses exploring selling 'performance' through pay per use and other innovative business models. The benefits of such models vary but include i. retention of assets for redeployment (e.g. Rolls Royce retaining materials when providing Power by the Hour, positive feedback for performance improvement (e.g. Philips's Pay by Lux lighting model where a contract for 'lumens of light' is agreed with a customer and it is then in Philips's interest to pro-actively upgrade to more energy efficient solutions) and iii. providing customers with a better product (e.g. Vodafone's Red Hot contract option where customers forgo the ownership of hardware in place of an 12 month technology refresh cycle to always have the best technology and service plan).

Energy recovery

The burning of materials and products to create energy. Sometimes known as Waste to Energy.

Landfill

The disposal of materials and products underground. A small number of businesses are also now seeing landfill as a temporary storage solution, for what is currently seen as waste, until processing technologies or market conditions turn what is currently waste into a potential resource.

Biochemical feedstock

Making the transition from simple digestion to more advanced feedstock extraction technologies and cascading the use of biological materials significantly increases the opportunity to drive commercial value for businesses operating in food, farming, pharmaceuticals and other industries in this sector of the economy.

Cascades

The process of taking a material through a series of applications to extract maximum value before ultimate end of life.

Leakage to be minimised

Businesses operating within a circular economy are interested in displacing input costs through the reuse and regeneration of materials, components and products, leakage from these flows is minimised to avoid loss of valuable assets.

Hover over the diagram to reveal explanations of each part of the system.

The Macro-Economic Impact of the Circular Economy

A report by the Ellen MacArthur Foundation, with Analysis by McKinsey & Co, used a series of case studies and economy-wide analysis, to quantify the economic opportunity of the transition towards the circular economy. The report highlights the potential for significant benefits across the EU. It argues that a subset of the EU manufacturing sector could realise net material cost savings worth up to $630 billion p.a. towards 2025, stimulating economic activity in the areas of product development, remanufacturing and refurbishment.

The effect of the circular economic model on a macro-economic scale:

  • Decouples economic growth from resource constraints;
  • Positively impact of reduced primary resource extraction;
  • Reduces energy demand and green house gas emissions;
  • Regenerates natural capital through 'biological' economy; and
  • Increases employment opportunities.

For further reading on the circular economy please follow the links below:

Sources: Towards the circular economy (Vol 1 & 2), Ellen MacArthur Foundation, 2012 & 2013. Employment in the circular economy, Green Alliance and WRAP, 2015. Volatile Resource Prices a Menace to Global Stability, Chatham House, 2013. Mineral Commodity Summaries, United States Geological Survey, 2014. United Nations population forecast. Managing Risk In A Challenging Business Environment, QBE, June 2014. Managing Risk in the Global Supply Chain, University of Tennessee Supply Chain Management Faculty, Summer 2014