Haven't heard of the idea of a circular economy before? We love how simple and elegant of a solution it is. The economy must change in the sustainable future, and the circular economy is here to offer a new way of doing things.
Read below for our deep-dive explainer:
WHAT IS THE CIRCULAR ECONOMY?
According to the Ellen MacArthur Foundation, the circular economy:
“entails gradually decoupling economic activity from the consumption of finite resources, and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital.”
The circular economy is based on several principles that promote a system designed to minimize unnecessary waste and pollution and ensure that production processes enable the most value to be captured by keeping materials and products in use. Additionally, the circular economy recognizes that we live on a planet of finite resources and works to ensure that the natural systems we are dependent on are maintained through regenerative practices. In other words, how can our waste products be nutritional the way organic material returning to the soil provides food for new living things?
Not all waste is ready to return to the soil so easily, though. We must divide waste into two different types: biological, for materials that naturally biodegrade and can actually return to the soil without negative impact; and technical, for materials that require engineered decomposition or reuse or repair.
If we want to be able to continue using natural resources, we need to make them more productive and long-lasting, but we also need to make our waste obviate the need for anything more than what we’ve already extracted.
Source: Closed Loop Partners
WHY WE NEED TO TRANSITION TO A CIRCULAR ECONOMY
Taking a step back, first, we must recognize that our current economic system, by design, produces harmful waste and pollution. We are talking about $4.5 trillion of waste and greenhouse gas emissions generated in the process of constantly making new products that end up in landfills. When protesters and activists decried the environmental degradation of large corporations in the United States, those corporations largely moved those same operations to other countries where the resulting pollution was seen as a byproduct to the influx of jobs that came with it. That was never a tenable solution and we’ve long observed how short-sighted those decisions were.
We need a circular economy because we need a systematic reorganization of how our economy operates, how we define value, and how we engage with all the “stuff” that fills our lives. While individual efforts and actions are critical as we become more aware of the impact of our consumption, a system that makes it the default option to choose the better option (better for the planet, our communities, and our health), rather than a choice that requires a lot of education, awareness, and discipline will be much more effective.
Take a simple example of upgrading your phone. Every year or two, a new model comes out, and people want the latest version, which often results in a perfectly functioning phone getting thrown away. Sometimes, the manufacturer or phone service company may offer ten to thirty dollars to purchase the phone, but at such a low price, many people might prefer to hold onto the phone. What if every time you wanted to get a new phone, you could trade in your existing phone for a significant discount on the new phone? You could use that to offset your purchase and the manufacturer can refurbish your phone and provide a functioning phone to a consumer at a fraction of the cost to make a new one? You and the manufacturer would be better off!
We must design out waste and pollution from our economies, not just ignore them. When people ignore the garbage that they generate, not seeing all of the biological and technical nutrients within—when they believe that whatever they put in the trash it is somehow no longer related to them—it results in pollution and environmental degradation.THE CIRCULAR ECONOMY IN STAGES: MANUFACTURING, SUPPLY CHAIN, CONSUMER ANGLE, END OF LIFE
Since there are so many considerations to make in evaluating products and system under the circular economy lens, we break down the cycle of consumption into several parts:
Prepare (Pre-Cycle): The shift to a closed-loop cycle will require a shift from fossil fuel and synthetic materials to natural ones. All that new solar power means more solar energy generation: more solar arrays, more photovoltaic cells (meaning more minerals extracted from the ground or recycled), more batteries, and new transmission lines. All that timber in buildings instead of concrete and steel means vastly expanded forests.
And what do we do with our old systems? The oil and coal industry, the plastic manufacturers, the plastic itself. The Prepare stage encompasses the needed job retraining, the structuring of entirely new industries, massive investment dollars, and potential relocations. It also includes figuring out what to do with all of the toxins in our environment so they can be cycled our and safely disposed. Prepare is not a discrete cycle, but rather the ball that needs to be set in motion and kept in motion as the rest of the stages kick in.
Design & Manufacture: The fundamental changes that need to be made in this stage are largely related to crafting a product that has a long life and lives even beyond that life. Every aspect needs to be rethought: the manufacturing process (including source of energy and the machinery/hardware), the sourcing of sustainable materials, responsible use of labor, avoidance of producing harmful byproducts, the distribution of the product, and how that product is actually used by the end consumer. How will the product promote sustainable practices and encourage positive behavior?
It’s not just the product that needs a redesign, or the manufacturing of that product. Its afterlife needs planning, too. Will the product be reused, repaired, or stripped down to component parts? What other products can take components from our product decades from now? What incentives need to be put in place, such as trade-in discounts or disposal fees, so that consumers choose to reuse or recycle the product once it’s reached the end of its useful life? Are new models of ownership required, such as product licensing? Rather than selling a product to consumers, should the onus be on the manufacturer to find a safe second and third life for products at the end of their first?
Consume: Products need to be high quality and healthful to users and secondary individuals (secondhand smoke anyone?). It has to be built to last, not to be thrown out immediately when the fad is over. Repairs and reuses need to be easy and cost-effective when broken or worn.
Collect: In a linear economy, this stage is easy because everything is dumped in one place and one truck takes it away. Just the thought of itemizing all of the things we own and use and all the different places they would have to go to be either repaired or recycled—is daunting. That’s why so much effort will be needed to transition from the linear to circular economy. The Collect phase involves diverting products that would normally go to waste or pollute the environment for processing to a future use. It includes the transportation infrastructure needed to bring materials from point of consumption to point of processing and the requisite energy needed for that travel. It is also the formation of markets for waste material to be processed, as market demand and pricing of these materials will determine how far it needs to travel and what its future life will be.
It’s well known that companies that stand behind their products and guarantee their high-quality and longevity have a significant edge when it comes to brand loyalty. Companies with this DNA can more easily shift to a circular economy model and win even more followers by offering perks such as lifetime guarantees and free repair. Huit Denim, for example provides free repairs for life for its jeans.
Process: Once the products have been collected, there must be machinery and infrastructure to convert materials to nutritious substrate that help build the next generation of things, and also a route that brings those materials straight to another product’s design and manufacturing stage.
What types of businesses will make up the circular economy?
Here are five generally accepted business models that fit within the circular economy:
Resource recovery: recover useful or valuable resources or energy from discarded products or by-products
Circular supplies: create renewable energy, full recyclable or bio-based input materials to supplant one time use inputs into the production processes
Product life extension: expand the product’s useful lifecycle and parts through repairs, upgrades, and re-selling
Sharing platforms: increase the productivity of existing capital by allowing multiple users or owners
Product as a service: Maintain product/technology ownership and provide access access through a loan or lease program to maximize benefits of circular resource productivity
Spotlight on product as a service: the circular economy asks us to re-think consumption and ownership. Instead of individuals buying goods that we know have an end of use date — due to upgrade/downgrade, wear and tear, or because the product is designed to only work for a set time, so owners will buy another (planned obsolescence) — companies could own the products and technology and lease or rent them out to us. For example, rather than each household buying and owning a refrigerator, what if manufacturers leased out a refrigerator the way they lease cars? Customers would pay less to lease out a fridge than they would to own it, and the manufacturer is responsible for picking up the fridge at the end of the lease/product lifecycle. They take it back to their manufacturing center to refurbish it for the next customer, which costs a fraction for both the manufacturer and the new customer. Or, they scrap for parts. When manufacturers or companies owns the product, they are incentivized to ensure that their products works better, are more efficient, and last longer, because they are responsible for the product’s full life cycle. This, in turn, encourages them to be creative in how they design products to harvest and reuse valuable materials.
What is the role of policy versus business in shifting towards a circular economy?
Transitioning to a circular economy will require both public and private engagement. Governments are able to bring together stakeholders from all sectors to understand the opportunities and constraints of policy measures to better inform the creation of a strategic vision and roadmap. Public-private partnerships are also critical for spurring innovation, testing out pilots, and eventually scaling systems. Some city governments have already created opportunities and entities to bring together stakeholders to share ideas and resources, such as Seoul’s Share Hub, Copenhagen’s Resource and Waste Plan, and Circular London.
There are a variety of ways that governments can influence this transition with a range of policy tools and levers:
Engagement: Government can bring together stakeholders, raise awareness, and work with organizations to increase capacity of private organizations.
Public asset management and planning: Especially within cities, municipal governments own many of the city’s physical assets and are responsible for managing the city’s physical development. Governments can use these assets and urban planning as seeds of circularity, incubating a city’s circular economy by levering its own resources to further the design, use, and movement of materials.
Economic incentives: Government can incentivize innovation and help build new markets by providing financial support in the form of tax credits, grants, and additional forms of funding. They can also discourage linear economy models with taxes and other financial penalties, such as charging direct waste disposal fees. Let’s make waste unaffordable. It’s the exact opposite now—people on the margins of society can get by on little more than the cheap, frail goods we all subsidize by insufficiently regulating resource extraction and paying for their afterlives. While federal policies would be most effective, local and state governments can also work together to implement fiscal measures.
Legislative regulation: Beyond incentivizing or dis-incentivizing behavior, one of the key roles of government is to enact regulatory legislation. Government could mandate that companies adhere to requirements to create a closed loop system.
Effective policy utilizes different parts of the above-mentioned tools and varies greatly depending on the country’s governing structure and the roles that local, state, and federal governments play. Regardless of the structure, transitioning to a circular economy requires coordinated strategic planning that incorporates the viewpoints of all of the stakeholders involved.
As we move into a future that is more and more resource-limited, policy and regulations will expand from current realms of quality control and ethical behavior to include matters concerning the circular economy. Imagine the SEC investigating not just insider trading but inaccurate product labeling or misleading statements on material origins. Regardless of whatever regulatory bodies take on the task of the circular economy, investors and consumers will demand adherence to the model. The most competitive companies, therefore, will be those that are able to pivot their business models—everything from supply chain management to product design to customer engagement—to adapt to a closed loop system.
Source: World Resources Institute
We believe that counting carbon won’t be enough on its own to save our planet. Resource extraction and environmental degradation cannot be ignored. To make any impact, we have to consider the entire lifecycle of a product, from cradle to grave, to expose the interconnected systems that need to be changed alongside. Let’s pick the brightest star in the constellation of sustainability, one that takes up all the shine...electric vehicles. Viewing EVs from a circular economy perspective incorporates the entire ecosystem it will require. Where do the batteries come from? How are they made? Where will they go when they can’t be used anymore? We think about the huge demand for battery creation and charging and the opportunity to clean up our air and reduce carbon emissions, but here’s why the circular economy takes things a step further: battery recycling is currently too expensive to be practicable, and the production requires the mining of rare earth metals. What good will EVs do when an avalanche of batteries end up turning our landfills into stews of toxic waste?
As businesses begin to think about changing their manufacturing and distribution processes, we must all (with the aid of government regulation) think about how we can realign the buying relationship. How can we incentivize manufacturers to build long-lasting products with a harmless afterlife, and how can we incentivize consumers to use those products long and well? We must also begin to question the current standards for business success and profitability and adopt new standards (like B corp certification). Sustainability and circularity must be metrics by which companies are measured, having equal or greater weight with profitability or enterprise value. Strategic planning and long-term vision will have more importance than ever. And importantly, under this new paradigm, our government policies will finally reflect our needs and desires to bring the circular economy to life.