The Circular Economy comes to the Davos Economic forum

The following is reprinted from the website of the Institute of Science in Society (http://www.i-sis.org.uk/Circular_Economy_at_Davos.php)


by Dr. Mae-Wan Ho

Down and out in Davos and in need of salvation

Davos is a ski resort in the Swiss Alps that hosts the annual World Economic Forum for the political and business elites, and its name has become synonymous with the forum itself. With the world economy still to recover from the crisis of 2007-2008 and threat of worse to come, the idea of circular economy attracted considerable attention as a potential life line for business to lift itself out of the doldrums and bring much needed growth, prosperity and jobs.  The Ellen MacArthur Foundation [2] set up in 2010 by world champion yachtswoman now world champion of circular economy prepared a report [3] with the help of global management consultant firm McKinsey to put circular economy on the agenda of Davos 2013. In simple terms, circular economy is about eliminating waste and shifting business models from products to services and collaborative consumption; and in the process hundreds of billions can be saved and more added to profits.

The timing is perfect. Quite apart from the global economic crisis though obviously related to it, the linear model based on profligate consumption and waste that has dominated the world over the past 150 years is fast becoming obsolete. Not only are raw materials running scarce and expensive in increasingly volatile markets; resources essential for life-support such as fresh, unpolluted water for drinking and fertile soils for growing food are also depleting much faster than can be renewed. Climate change is generally predicted to make things worse everywhere as severe storms and extreme weather become more frequent.

A circular economy that reuses and recycles reduces the drain on virgin raw materials and resources, thereby also cutting costs and insulating itself from the volatile commodities market. It can reduce energy use, carbon emissions, avoid polluting the environment, and at the same time create new jobs and encourage innovations in design, management and technology. Business wins, because circular economy builds in ‘dynamic resilience’ to market volatility, reduces cost and increases profit. The environment wins because it has time to regenerate renewable resources and suffers much less pollution. As the use of virgin raw materials goes down, so does mining and other extractive processes that destroy natural ecosystems. In agriculture, recycling wastes (including waste water) to produce energy and regenerate nutrients in anaerobic digestion minimizes runoffs that cause algal blooms and dead zones in aquatic ecosystems while the land remains fertile and more productive. Society at large wins because more jobs are created in recycling, with new companies and new wealth from innovations and imaginative solutions to close the circle from production to reproduction, from ‘cradle to cradle’.  

This is not just a theoretical wish list. Circular economy is already happening in the real world.

Savings of US$ 700 billion in consumer goods materials

McKinsey estimates the full potential of the circular economy to be as much as US$ 700 billion savings in materials for fast-moving consumer goods - food, beverages, textiles and packaging – representing 80% of the total consumer goods market by value. This also amounts to 1.1% of 2010 global GDP, or about 20% of the materials input costs. Savings from circular economy exists all along the value chain: in manufacturing, distribution and consumption; and in processing wastes especially food.

Municipalities and investors could generate an income of US$ 1.5 billion annually by collecting household food wastes in the UK separately and processing it by anaerobic digestion to produce biogas and return nutrients to the soil. If all countries in the EU matched Italy’s current high rates of separate household food waste collection for biogas and compost production, towns and cities would have a new source of revenue.

An additional profit of $ 1.9 – 2.0 per hectolitre (100 litres) of beer produced could be made in Brazil by selling the biggest waste product – brewer’s spent grain – to farmers for fish farming and livestock feed.

In textiles, a revenue of $1,975 per tonne of clothing collected could be generated in the UK with the garments sold at current prices, at a gross profit of $ 1,295 set against the cost of $ 680 for collecting and sorting. UK’s 65% collection rate of discarded clothing is currently the highest in the world. In addition to being worn again, used clothing can be cascaded down to make insulation or stuffing, or even recycled into yarn to make fabrics thus saving on virgin fibres, and offering an additional income stream.

In packaging, a cut of 20% in cost from $29 to $24 per hectolitre of beer consumed is possible in the UK by shifting from disposable to reusable glass beer bottles. While it would mean a 34% increase in glass to make the bottles more durable, this  is set against savings from reusing the bottle up to 30 times, as is the case in Germany.

Where it is not feasible to install reuse infrastructure, collecting and recycling plastic packaging is already profitable in OECD countries today at nearly $200 per tonne of plastic collected. More thoughtful product design, such as avoiding mixed plastics, should improve the ease and profitability of recycling.

Biodegradable packaging for food is attractive in facilitating the return of biological material to the soil via anaerobic digestion or composting.

In extracting value from otherwise wasted resources, circular economy is inherently more productive than linear business models.

The total material value of fast-moving consumer goods is $3.2 trillion per annum. To-day, we recover an estimated 20% of the material largely through decomposition and recycling, and partly through reuse; but this proportion could easily go up to 50% in the near future and considerably more in the longer term.  We need to build efficient collection systems for goods produced far from their consumption. Of course, collection would be much easier in a future scenario of local production for local consumption, but the Circular Economy Report [2] falls somewhat shy of pointing that out, just as it refrains from mentioning the tremendous advantage to be gained by local production for local consumption for both food [4] Food Futures Now *Organic *Sustainable *Fossil Fuel Free  (ISIS publication) and renewable energy [5] Green Energies - 100% Renewable by 2050 (ISIS publication).

The future bodes well for circular economy

Although the world economy appears locked into a linear model - from production economics and contracts to regulation and consumer behaviour - circular economy is here to stay, and even expand in the not too distant future. The Report [3] identifies three factors favouring the development of circular economy. First, the scarcity of raw materials and resources is unlikely to get better. Second, information technology enables companies to trace materials and stocks anywhere in the supply chain, hence making circular economy much easier to operate. Third, consumer behaviour is shifting towards a preference for access over ownership, which favours recycling.  

Indeed, the Report offers the greatest hope to the biggest companies: “Capturing the new opportunities will require leading corporations and municipal authorities to develop a new set of ‘circular’ muscles and capabilities along their traditional supply chains.” These new capabilities will be reinforced by developments in resource markets, technology and information systems, and consumer preferences.

  • Urbanisation, which centralises flows of consumer goods and waste streams
  • New technologies such as anaerobic digestion that dramatically improves the way value is extracted from biological wastes as well as opportunities to combine multiple waste streams (CO2, heat, wastewater, nutrients) into advanced agro-manufacturing systems
  • New IT capabilities for supporting precise management and tracking of material flows, as for example, radiofrequency identity (RFID) chips that provide detailed information about product spoilage rates)
  • Online retail channels that transform the way value chains work in distribution, waste recovery and consumer choice without increasing material impact
  • New business models that improve control over scarce resources and turns them into assets for reuse as feedstock to other industrial or agricultural processes
  • A new model of ‘collaborative consumerism’ in which consumers access products on demand rather than owning them, and provide more interaction between consumers, retailers and manufacturers, such as performance for pay, rent or leasing schemes, return and reuse
  • New packaging technologies that extend food life and minimise packaging waste.

McKinsey also sees opportunities for new business roles in areas currently underdeveloped. 

‘Volume aggregators’ are needed to organize markets for residues and by-products. For example, Asos, an online fashion company offering more than 850 brands of new clothes, has created a parallel platform where consumers can resell used clothing and small firms can market ‘vintage’ garments and accessories as well as new ones. The Waste Producer Exchange in the UK supports specialized companies selling waste products and materials.

‘Technology pioneers’ will have great opportunities in areas such as bioplastics from industrial wastewaters for special construction use, or further down the line, for biodegradable food packaging (provided the hygiene problem can be solved).

‘Micro-marketeers’ for big food supermarkets to locally sourcing produce, diversifying customer demand and engaging in “more intimate customer relationships”, hyper-local advertising platforms that enable people to find businesses in their neighbourhood. “Serving these micro-markets at scale and developing an integrated systems offering that links products, ordering, delivery, and aftersales service could be the name of the game, and could even feature ‘assisted’ self-production by the consumer….Micro-marketeers could proactively offer B2B [business to business] service contracts, develop blueprints for ‘zero-waste’ plants, or establish food waste reuse centres.”

‘Urban loop-providers’ with sophisticated know-how in design, engineering and infrastructure operations are needed for urban and peri-urban economies. An example is The Plant Chicago, a vertical aquaponic farm producing tilapia and vegetables that also serves as an incubator for craft food businesses and operates an anaerobic digester and combined heat and power plant. Wastes from one business are resources for others in an explicitly circular system.

‘Product-to-service converters’ such as Patagonia pioneered the ‘Common Threads Initiative’ to reduce the environmental footprint of its clothing. It offers repair, amendment, return, and leasing with greater customer interaction.

The Report says [3]: “We do not know how the shift will come about. It would come slowly or in a sudden sweep, as a reaction to external shocks. It may be the outcome of stirring public stimuli (‘man on the moon’) or of a killer application, as a silent manufacturing revolution. It could even emerge as grassroots consumer activism, or as voluntary, inclusive industry commitment.. We do expect, however, that the shift will play out between pioneering industry leaders, discriminating well-informed consumers, and forward-looking public constituencies.”

Launch of CE100

On 6 February 2013, the Ellen MacArthur Foundation launched the Circular Economy 100 (CE100), a three year programme bringing together 100 leading companies in the world to facilitate development and commitment to new circular economy projects [6]. It will provide “executive education on key themes and trends, share knowledge and learnings, and identify and develop solutions to common challenges.”  The objective is that by 2015, the participating companies will have a total economic benefit of $ 10 billion.

The creation of CE100 is supported by the Foundation’s founding partners, Cisco, BT, National Grid, B&Q and Renault.  Twenty companies have already confirmed their membership of the programme, including Coca Cola, M&S, IKEA Group, Morrisons, Tarkett, FLOOW2, Heights UK, iFixit, Ricoh, Vestas, WRAP, Turntoo, and Desso.

Membership of CE100 allows companies to benefit from

  • Privileged access to a library of best practice guidance and application tools
  • Access to an online executive education programme
  • Access to a series of acceleration workshops aimed at stimulating circular economy innovation
  • An annual summit that exposes members to latest thinking, offering an opportunity to showcase success stories and network with other CE100 members.

All well and good and highly commendable; but I can’t help feeling apprehensive at this big picture of the circular economy aimed predominantly at big business and the power elite.

Will the world be saved?

What can we expect for the man and woman in the street, in the farm, and in the hills? Is there a danger that the less fortunate in both the developed and underdeveloped parts of the world will be locked into the underbelly of a brave new Global Circular Economy to eke  out a living sorting wastes? Will super-circular and efficient factory farms lock out small farmers whose land will be commandeered for producing bioplastics with sludge and waste water shunted from the anaerobic digesters and other waste-treatment facilities? Will the individual consumer become an identification-tagged statistic in the company’s cloud supercomputer whose life is measured out in goods sold and returned?

If my understanding of the archetypal circular economy (thermodynamics) of the natural world is correct [1], what we need is decentralized localism or dynamic closures on every scale: a nested fractal structure of circular economies that includes, renews, and sustains all, from the smallest to the biggest player, from the most local to the most global. The fractal structure bridging all space times is the hallmark of organic systems and processes; it is optimized for capturing, storing, and mobilizing energy and resources efficiently and rapidly while conferring local autonomy on all scales. Such a system survives and thrives on symbiosis and reciprocity, not on competition and exploitation. It is also inherently a much more equitable system than the one we have, which is dominated by a small number of global conglomerates.  

Consequently, we need to break up the global conglomerates and sever the traditional global supply chains that have literally enchained the world to the linear model. The UK is in the midst of the latest food scare as horse meat has been identified in processed beef mince [7], thanks to the convoluted global supply chain that allows big players to dodge both regulation and taxation with impunity, and at the same time to maximize profits and exploitation of farmers and farm workers.

Another burning issue not addressed by McKinsey is the finance and banking system needed to support decentralized circular economies.

The political elite have already taken on the banner of “circular economy”, which they wave interchangeably with the “green economy”. This is what I wrote most recently on the subject by way of setting goal posts for the political elite [8] (Living, Green and Circular, SiS 53): “There are two aspects to the new truly green economy. The first is to learn from nature and living organisms how to structure the money and banking system for the survival of the whole, and the second is to support renewable, closed loop approaches in all sectors of commerce and industry. The two aspects are closely intertwined…In structuring the money and banking system, we need all levels of locally accountable financial institutions that support community projects towards greater equity and sustainability…most of all, we need to ensure that money is never decoupled from the value of real goods and services.” 

I also proposed that the creation of money should be tied to supporting green infrastructure projects, such as city public transport based on biogas/solar electric vehicles, green corridors for pedestrians and cyclists; excluding for example, big dams, coal-fire stations, nuclear power stations and so on. Similarly, it should divest investments into all sectors of green commerce and industry beginning with organic agro-ecological farming, renewable sustainable energy use, green buildings and retrofitting existing buildings to be green and energy efficient. In adopting closed loop, cradle to cradle approaches in the manufacturing and service industries, emphasis should be placed on cooperation and reciprocity between companies in closing resource loops. Above all, national healthcare is essential, especially primary healthcare.

Governments not only need to set realistic and strict targets and roadmaps towards the truly green economy, they must provide proper legislation to discourage or penalise the generation of wastes and incentivize efficient, closed loop resource use, especially in community projects that eradicate poverty and increase equity and sustainability. Most of all, they must remove distorting subsidies on unsustainable resource use. Subsidies on fossil fuels, for example, cost Europe €50 billion a year in tax breaks for company cars alone. In 2011, global subsidies for fossil fuels exceeded US $ 520 billion, according to the International Energy Agency [9].

To conclude

Circular economy is a whole new way of life that is inclusive of and sustains the planet and all its inhabitants [8]. It is a renewable, closed-loop resource use model that encompasses agriculture, the energy, construction, manufacturing, and service industries, as well as finance. It is also firmly embedded within nature’s circular economy, for nature is the ultimate source of ‘natural capital’ that must be regenerated and indeed, increased, in order to feed all sectors of the human economy.

References

  1. Ho MW. The Rainbow and the Worm, the Physics of Organisms, 1993; 2nd ed, 1998, reprinted 1999, 2002. 2003, 2005,2006; 3rd edition, 2008, reprinted 2012, http://www.i-sis.org.uk/rnbwwrm.php
  2. Ellen MacArthur Foundation, accessed 17 February 2013, http://www.ellenmacarthurfoundation.org/
  3. Towards the Circular Economy 2, Ellen MacArthur Foundation, 2013,  http://www.ellenmacarthurfoundation.org/
  4. Ho MW, Burcher S, Lim LC et al. Food Futures Now, Organic, Sustainable, Fossil-Fuel Free, ISIS/TWN, London/Penang, 2008, http://www.i-sis.org.uk/foodFutures.php
  5. Ho MW, Cherry B, Burcher S and Saunder PT. Green Energies, 100 % Renewables by 2050, ISIS/TWN, London/Penang, 2009, http://www.i-sis.org.uk/GreenEnergies.php
  6. “Ellen MacArthur Foundation launches global business alliance: the Circular Economy 100”, Ellen MacArthur Foundation Press Release, 6 February 2013, http://www.ellenmacarthurfoundation.org/news/foundation-launches-global-business-alliance-the-circular-economy-100
  7.  “Horsemeat or not, it’s all junk”, Joanna Blythman, The Guardian, 16 February 2013, http://www.guardian.co.uk/commentisfree/2013/feb/16/horsemeat-or-not-all-junk
  8. Ho MW. Living, green & circular. Science in Society 53, 20-23, 2012.
  9. World Energy Outlook, International Energy Agency, Paris, 12 November 2012, http://www.worldenergyoutlook.org/publications/weo-2012/