Recently at work I have been asked to look at the concept of the circular economy (CE) for an upcoming project. You may have heard of the concept via the media, in fact you have probably been bombarded with advertisements with one of the most successful CE business models each day. Studies even predict that the adoption of CE business models within the EU could lead to net materials cost savings worth up to $630 billion per year by 2025. However, the more I read into the CE, the more I question whether it is a quasi-utopian concept.
So what is the circular economy?
Well, for the past one hundred or so years economic growth has relied on the ever increasing consumption of cheap and abundant natural resources. In today’s economy resources are extracted, turned into products and eventually discarded. This so-called linear economy, has been criticised as unsustainable by a number of economists. For instance, in the UK alone 80% of products are discarded after a single use.
The CE is an attempt to decouple economic growth and prosperity from resource consumption. In a CE, large amounts of raw materials are captured and reused within the economy, in what are termed resource loops. The system mimics self sustaining processes within the natural world whereby one organism’s waste is another’s food.
One of the key ideas behind the CE is that material flows can be differentiated into two types:
- biological nutrients – which are non-toxic and can be readily returned to the biosphere, and
- technical nutrients – which are designed to circulate at high quality without entering the biosphere
The fundamental principle here is that there is no waste. Hence biological materials are simply composted whilst man made materials are designed to be used again with minimal energy and the highest level of quality retention. This is where the concept differs from just recycling. CE begins at the design phase where waste is ‘designed out’ of the final product and the product’s value is maintained over a number of uses. On the other hand, recycling refers generally to a process whereby there is a reduction in quality and the material is returned as feedstock.
One of the most interesting aspects of the circular economy is the concept of access-over-ownership. Essentially this concept states as individuals we only require the services that goods provide, not ownership. Renting and leasing are therefore key components of the model whereby the business retains ownership of the good and the consumer accesses the service it provides. This not only incentivises the manufacturer to provide a high quality and durable good, but also reduces the quantity of the goods manufactured thus reducing the consumption of raw materials.
Mud Jeans is one business pioneering this type of access-over-ownership model. Within the model, customers can rent jeans for €5 a month and after one year the users have three options: either swap their jeans for a new pair; pay an extra deposit of €20 and keep the jeans indefinitely; or return the jeans and end the contract. For those that decide to keep the jeans there are added financial incentives to return them to Mud after usage.
The jeans are made with 30% recycled content and 70% organic cotton. Once returned the jeans are processed in three ways. If they are in good condition they are cleaned and re-used. If they are repairable the company will carry out the repairs and resell the items. If they are beyond repair, the jeans will be returned to manufacturer whereby the materials are recycled. The model thus divorces usage and ownership whilst simultaneously reducing the need for raw materials.
Whilst I have been generally intrigued with the idea of the CE I do have a number of reservations about the feasibility of such a concept. Although Felix Preston rightly points out that mass paradigm shifts have happened in the past, such as the transitions to mass and flexible production, I believe a change of this magnitude would require, what is termed in development economics as a ‘big push’. In this sense I believe our current path on a linear economy can be seen as a coordination failure i.e. many individuals want to invest in the CE approaches but the true benefits of doing so are only realised when others do the same. As Preston points out (on page 15), for business moving towards a CE:
..there will inevitably be significant up-front investment costs and risks for businesses – e.g. retooling machines, relocating whole factories, building new distribution and logistics arrangements and retraining staff
Such high up front costs and risk may lock companies and industries into a linear economic model, unless there is concerted drive by economic actors to move to the CE. To think of it in a more general way ask yourself the following question: why would I as a company invest heavily in a risky CE business model, when my competitors are not going to do the same? It can therefore be argued that there is a need for governments to legislate and invest in a ‘big push’ towards the CE (something of which has arguably yet to happen).
Aside from this there is also the issue of developing countries. According to McKinsey, developing countries account for 70 to 85% of the global resource productivity potential. However, although countries such as China are making strides towards promoting resource efficiency and the CE, there is still a lot to be done. I feel one issue here is that the concept of CE could be seen as asking developing countries to forego a economic model that has brought prosperity to the developed world.
Developing countries may ask why they should pay, through investments in CE, when today’s developed economies harnessed the linear economy during their periods of industrialisation. That is not to say that there aren’t benefits to moving to the CE for developing countries, but I do believe this could be a major stumbling block in the short term. The issue is further compounded by the fact that the developed world already exports a significant amount of its waste to developing countries.
This post has looked briefly at the aims and theory behind the CE. It has also taken a short look at what I see as two of the biggest obstacles to its implementation. It should be noted that in addition to these obstacles there are a number of political and logistical hurdles that have not been mentioned (Felix Preston’s paper summarises these well).
Although the title might suggest otherwise, this post should not be seen as an attack on the CE but rather a questioning of the concept’s feasibility in the real world. It has also been intended to promote discussion of the topic and look at ways of circumnavigating the obstacles stated above – so if you have taken the time to read this post please feel free to leave your thoughts below.
Photo courtesy of woodleywonderworks