Tuesday, 22 January 2013

Introduction to the Circular Economy

While businesses have largely embraced the notion that they must manage their direct carbon emissions – in terms of gas, electricity and vehicle fuel – there is a growing awareness that embodied carbon has an equally significant, although less direct, effect. For every mobile phone, washing machine or vehicle that is produced, carbon emissions are created at every stage of the lifecycle; from extracting the raw materials used in its manufacture to managing its disposal at end of life. And as the global population grows, urbanises and becomes increasingly prosperous, the amount of goods we consume grows, too. This has the dual effect of both increasing carbon emissions from the manufacture, transport and use of the products and also putting stress on the raw materials used to manufacture and transport them. This stress leads to prices of raw materials becoming both higher and more volatile, creating clear economic risks for business through the whole value chain from raw material extraction right through to the retailer.

The concept of the Circular Economy is a provocation to move from the traditional linear “take-make-waste” model of consumption to a model where resources are used more efficiently and can cycle through the economy multiple times. A Circular Economy describes an industrial system designed to be restorative or regenerative, where end of life products become a source of materials for other processes. It is consistent with a transition from fossil fuels to renewable energy, the elimination of toxic chemicals that impair re-use of materials and promotion of product design that seeks to reduce waste, facilitate repair and make disassembly and materials re-use the norm.

A Circular Economy is based on three core principles. Firstly, it aims to ‘design out’ waste. In a Circular Economy waste simply does not exist—products are designed and optimised for a cycle of disassembly and all resources are re-used. These resource cycles define the Circular Economy and set it apart from disposal and even recycling where large amounts of embodied energy and labour are lost. Secondly, circularity differentiates between consumable and durable components. In the Circular Economy consumable components are largely made of biological ingredients or ‘nutrients’ that are at least non-toxic and possibly even beneficial, and can be safely returned to the biosphere—either directly or in a cascade of consecutive uses. Conversely, durable components such as engines or computers are made of technical nutrients, like metals and most plastics, and are designed from the outset for reuse. And finally, the energy required to fuel this cycle should be renewable by nature, to decrease resource dependence and increase system resilience.

The Circular Economy also redefines the customer’s need as functionality rather than necessarily the ownership of a product. This can lead to a new relationship between businesses and their customers based on product performance. An economy where users usually buy products outright encourages industry to make them “to a price” which can lead to longevity being designed out in order to remain competitive at the point of sale. In a Circular Economy, durable products are leased, rented or shared – and if they are sold, there are incentives in place to encourage the return of the product or its components and materials at the end of its period of primary use, so that they may be re-used. The innate resistance to paying more for a durable product that will last longer may be addressed by new “pay as you use” pricing models.

From a business perspective, the Circular Economy doesn’t just address the risks of resource scarcity and price volatility, it offers the opportunity to create new customer value through disruptive innovation. It invites businesses to re-think how they fulfil customer demand and to develop new business models that continue to create wealth and provide employment while at the same time conserving resources and reducing carbon emissions.
The Ellen MacArthur Foundation has fantastic free resources for educators and businesses who want to learn more.

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