If we take a close look at nature, we’ll notice that its systems are waste-free. Food chains that we were taught about in school, for instance, form a cycle where one organism always benefits another in some way. For example, deer consume plants, and tigers then prey on deer. When tigers die, they become food for worms, bacteria, and other decomposers, and their carcasses in turn give nutrients to plants, forming a complete cycle. As such, every part of nature is utilized and circulated in the system, with no waste created as time goes on.
Now, let’s have a look at the business world. Ever since the industrial revolution about 150 years ago, the global economy has seen as an exponential growth, with consumption as the central driving force that moves the economy forward. The system we have been operating in thus far is called a linear economy, which entails taking, making, and disposal.
‘Taking’ refers to the extraction of massive amounts of natural resources at the lowest cost possible. These resources are then fed to the ‘making’ process, which turn them into products for consumers. Once no longer of use, these products are ‘disposed’ and become waste. These three steps form process which is repeated time and again, whereby very little of what is discarded is reused as initial raw materials to obviate further extraction. These materials travel through a linear process, and as we are not as efficient as nature, this amounts to massive waste at the end. After all this, unfortunately, there still seems to be no end to our need for more natural resources, which are mostly transformed into single-use products.
This linear economy would not pose any problem if we had infinite natural resources or could produce refuse with no consequences. However, our extraction of natural resources has overtaxed nature and outstripped its capacity for recovery. With the global population set to reach 10 billion by 2030, we would need two Earths to acquire sufficient resources to meet the demand. The repercussions of our limited resources are beginning to be felt across the business sector through surges in raw material prices and fluctuating supply. From 2002 to 2010, the global prices of commodity goods soared by 150%, while metals and agricultural products have also seen their prices hit their 20th-century peaks in these past few years.
Once the products reach the end of their usefulness, their disposal results in garbage, one of many global problems. Each year, as much as 311 million tons of plastic, a material notoriously difficult to decompose, is produced, but only a mere five percent is recycled. Our consumption of disposable plastic products, such as single-use packages, is costing the world a whopping 80-120 billion dollars per year in economic value. In addition, 5-13 million tons of plastic makes its way to the ocean, wreaking havoc on the ecosystems. Our inefficient waste management has also resulted in greenhouse gas emissions and forced us to seek more and more land to turn into landfills.
It is evident that linear economy is plagued with limitations and not sustainable in the long run. It stands in stark contrast to cyclical systems in nature, which are the source of inspiration for the conception of circular economy – a notion that many believe will resolve a host of issues with our conventional economic model.
Circular economy refers to an industrial system that is designed to restore or breathe new life into the materials in the life cycle of a product to prevent them from being dumped at the end of their consumption. This type of economy makes use of materials retrieved from components of a product, putting them back into the circular system in a waste-free way. This economic model also sets out to conserve the environment and extract new natural resources in a way that ensures balance, while also creating efficient systems and designs to reduce negative externalities. Therefore, in circular economy, we will often see reliance on renewable energy and elimination of the use of toxic chemicals, which prevent materials from being reused if they are to be released back to nature. To develop this economic system, what is indispensable is the designing of new materials, products, systems, and business models that are underpinned by a new and innovative way of thinking.
Many familiar products have already entered circular economy for quite some time, such as paper, PET cups, and metals, but they make up only a small fraction of the vast array of materials that are employed in the industrial worlds and are yet to be “circulated” with optimal efficiency. As of now, the majority of products have not been designed to be restored or recovered with ease. Cases in point are milk cartons, which are made up of virtually inextricable layers of materials, and electronic components, whose useful minerals or materials are not easily recoverable at the end of their lifespans. Furthermore, chemicals and additives also present a challenge in restoring a large number of materials for reuse.
In circular economy, materials are categorized into two types:
1) biological materials, or materials derived from natural substances and processed barely without chemical contamination, which means that they can be decomposed and released back into nature; and
2) technical materials, or technically processed materials, such as metal and plastic components, that are deleterious to nature and therefore must be designed for reuse in a closed system, with no waste leaving the system.
The circulation of biological materials can be achieved through simple means, such as turning leftovers from our daily life into fertilizers to return nutrients to soil or into biogases, using biodegradable natural packaging, and reprocessing natural materials for other uses. For instance, cotton clothing can be reused first as second-hand apparel, then crosses to the furniture industry as padding in upholstery, and the fiber fill is later reused in insulation for construction, after which the cotton fibers undergo appropriate processes to be returned to nature.
As for technical materials, circular economy is changing consumers into users. As such, the delivery of value between businesses and customers is shifting towards utility and away from ownership of what will eventually become garbage, and many businesses have begun to opt for short-term and long-term rentals or sharing. For instance, instead of selling light bulbs, Phillips is beginning to offer lighting systems leasing where its customers do not have to own the light bulbs but still enjoy the same value, which is light. By offering services rather than products, Phillips can control the life cycle of its products. When light bulbs expire, the company will collect and disassemble them to recover materials that can be processed and used to manufacture other products. As with other types of products, such as clothing and office supplies, incentives or agreements are being increasingly offered to ensure the return and thereafter the reuse of the products or their components and materials within a closed loop at the end of its period of primary use.
Circular economy is being driven forward not only by the pressing resource and cost challenges mentioned above but also by governmental agencies in different regions across the world. For example, Japan has established a circular economy through laws that make recycling of electronic devices mandatory, which has led to 98% of metals in these gadgets being recycled. The European Union has also formulated plans for circular economy since 2015 and has recently announced a circular economy policy specifically on plastic as well as a goal to have only reusable or recyclable plastic packaging by 2030.
Circular economy has also given new hopes for economic expansion, new business models, innovation, as well as future employment. A number of auto, electronics, textile, and alternative energy companies have already adopted this notion and are beginning to see results in reduced costs, increased revenue, enhanced competitive capacity, and heightened eco-efficiency.
Next time, we will discuss more examples of businesses that have embraced this new economic system and challenges from shifting from linear to circular economy.
Value creation in circular economy can be achieved through four major sources as follows.
1) The inner circle: Products or materials may be refurbished or repaired to prolong their service life. For instance, once a car is beyond repair, its parts can be repaired or reassembled for subsequent use, which saves material, energy, and labor.
2) Circling longer: The life span and each cycle of a product can be extended through reuse or by prolonging service life. Examples are such reusable or recyclable plastic products.
3) Cascaded use: The use of a material can be diversified within a supply chain or across industries. A case in point is cotton.
4) Pure inputs: Natural materials are put through as little processing as possible to ensure efficient recovery, maintain their quality, and extending their longevity in the cycle.