2012-06-07

Co.Exist

A Blueprint For A Circular Economy: Reusing And Refurbishing For Prosperity

A new study lays out a vision of the future where we get most of our resources from things we’ve already used. The one trick: It requires making things so they’re easy to reuse in the first place. But if we do, we could save billions.

Important question: How can we maintain global prosperity when natural resources are increasingly scarce, the planet is in increasing disrepair, and 3 billion people are expected to join the "middle class" by 2030?

According to a fascinating new report, the answer is a "circular economy," where materials and products are restored and regenerated much more widely, and where the emphasis is on leasing, renting, and sharing, rather than consumption and ownership.

"In a circular economy, products are designed for ease of reuse, disassembly and refurbishment, or recycling, with the understanding that it is the reuse of vast amounts of material reclaimed from end-of-life products, rather than the extraction of resources, that is the foundation of economic growth," the study says.

In fact, this is no wild-eyed dreaming. The report, which was commissioned by the Ellen MacArthur Foundation in the U.K., is written by McKinsey consultants, and sponsored by several large companies, including Renault, Cisco, and others. It is based on a careful analysis of current consumption trends, and lays out principles for generating economic value by reducing virgin-material inputs.

The report argues that the current "linear" model of "take-make-dispose" is likely to lead to ever-increasing prices and volatility in the next few years. About 65 billion tonnes (U.K.) of raw materials entered the global supply chain in 2010; and, by 2020, that number is expected to rise to about 82 billion tonnes.

"If no action is taken, high prices and volatility will likely be here to stay if growth is robust, populations grow and urbanise, and resource extraction costs continue to rise," it says.

The report argues that companies need a "better hedge" that "decouples revenues from material input." They need to speed the rate at which they collect up old products and reuse them, and develop ways of recuperating pre-used materials and components more efficiently. Doing so could reap large savings. European manufacturing alone could net $630 billion by 2025, it estimates.

The report, which analyses several sectors in detail, finds that "complex medium-lived" products hold the greatest "circular economy potential." These include mobile phones and smartphones, light commercial vehicles, and washing machines.

Re-manufacturing mobile phones, for example, could cut costs by 50% if handsets were easier to dismantle, companies created "capacities for the reverse cycle," and there were more incentives for customers to return phones. Leasing, rather than selling, washing machines would also save money, increase profits, and cut CO2 output, the report finds. In all, "sweet-spot" sectors could see materials savings of 12% to 14% per year, it says.

The report notes that the shift to a circular economy is not only driven by resource scarcity. It is also enabled by improvements to IT that allow greater "traceability" in the supply chain, and changing attitudes among consumers, who are increasingly willing to accept new concepts, as seen with the growth of car sharing.

It says the circular economy could be a "major innovation engine," but will require support in the shape of taxation, incentives for innovation and entrepreneurship, and different guidelines and rules, including better accounting of "externalities" in company reports.

Although the authors admit they don’t have all the answers, they do put several layers of meat and gristle on the circular economy concept, laying out how it can be economically useful, and eminently practical. The report offers an awful lot of food for thought, and is well worth a read.

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5 Comments

  • James Ferguson @kWIQly

    Fascinating write up - the companies involved might lend this great momentum - I wish I could be so profound !

    The other side of the coin is to direct consumption to things we need rather than simply desire and to acknowledge the need to manage the processing of those decisions - but that is my story..

    http://blog.kwiqly.com/2012/02...

    Love this site!

  • Amelia Ufford

    Our crew @debrandservices is working with clients to make this the way of the future - maximizing the value of their resources, measuring the quality of their products and minimizing the impact on the environment. Kudos on sharing this essential info - call it cradle to cradle, Extended Producer Responsibility or Circular Economy. It's all good in our books! - Amelia/debrand

  • LRosari

    My grandmother was way ahead of the times with the way she designed her circular family economy. Thanks for bringing the topic current!  

  • cameron tonkinwise

    Credit where it's due: ideas of closed-loop or lake economies have been promoted for at 30 years by Walter Stahel: http://www.product-life.org/

    So there are clearly obstacles to implementing these obviously good ideas. And those obstacles are primarily the continued ability of industries, especially extractive and manufacturing industries, to externalize environmental costs. To be competitive with business-as-usual, circular economies require regulation that forces all players to internalize ecological impact costs otherwise passed onto society and/or the future.

    As these costs will be passed onto consumers, this means the 'death of cheap,' whether for petrol and electricity, or appliances and houses. It is true that circular economies more or less require consumers to move to leasing arrangements (to provide manufacturers with the legal frameworks that make the logistics of take-back feasible), but it is also true that leasing is more expensive than owning, because it represents a truer whole-of-life cost.

  • Joe

    Hi Cameron,
    You won't be surprised to hear then that Walter was one of the main contributors of the report, and sits on the Foundation's independent experts advisory panel. What we have done with this report is put numbers to these ideas for the first time on a macro economic level - thus outlining the economic opportunity. He is also part of an ongoing collaboration with the Foundation, and will feature in one of our expert webinars later this month - more details on www.circulareconomy.org

    What we have also discovered through the reports findings is that there appears to be a clear benefit to both consumer and user within a circular economy model. For example - a low end washing machine costs the user $27c per wash whereas a higher end machine costs the user just $12c per wash - as the machines last for an average of 5 times longer - ie. 10,000 washes as oppose to 2,000 washes. Therefore what we discovered, looking at a circular economy model was that a leased machine would cost the user the $12c per wash - without the outlay of buying a new high end expensive machine.

    Joe Iles
    Ellen MacArthur Foundation