Circular economy – Wikipedia

A circular economy is a regenerative system in which resource input and waste, emission, and energy leakage are minimised by slowing, closing, and narrowing material and energy loops. This can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling.[1] This is contrast to a linear economy which is a 'take, make, dispose' model of production.[2]

The term encompasses more than the production and consumption of goods and services, including a shift from fossil fuels to the use of renewable energy, and the role of diversity as a characteristic of resilient and productive systems. It includes discussion of the role of money and finance as part of the wider debate, and some of its pioneers have called for a revamp of economic performance measurement tools.[3]

"The concept of a circular economy (CE) has been first raised by two British environmental economists David W. Pearce and R. Kerry Turner in 1989. In Economics of Natural Resources and the Environment,[4] they pointed out that a traditional open-ended economy was developed with no built-in tendency to recycle, which was reflected by treating the environment as a waste reservoir".[5] The circular economy is grounded in the study of feedback-rich (non-linear) systems, particularly living systems.[6] A major outcome of this is the notion of optimising systems rather than components, or the notion of design for fit. As a generic notion it draws from a number of more specific approaches including cradle to cradle, biomimicry, industrial ecology, and the 'blue economy.

Linear "take, make, dispose" industrial processes and the lifestyles that feed on them deplete finite reserves to create products that end up in landfills or in incinerators.

This realisation triggered the thought process of a few scientists and thinkers, including Walter R. Stahel, an architect, economist, and a founding father of industrial sustainability. Credited with having coined the expression "Cradle to Cradle" (in contrast with "Cradle to Grave", illustrating our "Resource to Waste" way of functioning), in the late 1970s, Stahel worked on developing a "closed loop" approach to production processes, co-founding the Product-Life Institute in Geneva more than 25 years ago. In the UK, Steve D. Parker researched waste as a resource in the UK agricultural sector in 1982, developing novel closed loop production systems mimicking, and integrated with, the symbiotic biological ecosystems they exploited.

In their 1976 Hannah Reekman research report to the European Commission, "The Potential for Substituting Manpower for Energy", Walter Stahel and Genevieve Reday sketched the vision of an economy in loops (or circular economy) and its impact on job creation, economic competitiveness, resource savings, and waste prevention. The report was published in 1982 as the book Jobs for Tomorrow: The Potential for Substituting Manpower for Energy.[7]

Considered as one of the first pragmatic and credible sustainability think tanks, the main goals of Stahel's institute are product-life extension, long-life goods, reconditioning activities, and waste prevention. It also insists on the importance of selling services rather than products, an idea referred to as the "functional service economy" and sometimes put under the wider notion of "performance economy" which also advocates "more localisation of economic activity".[8]

In broader terms, the circular approach is a framework that takes insights from living systems. It considers that our systems should work like organisms, processing nutrients that can be fed back into the cyclewhether biological or technicalhence the "closed loop" or "regenerative" terms usually associated with it.

The generic Circular Economy label can be applied to, and claimed by, several different schools of thought, that all gravitate around the same basic principles which they have refined in different ways. The idea itself, which is centred on taking insights from living systems, is hardly a new one and hence cannot be traced back to one precise date or author, yet its practical applications to modern economic systems and industrial processes have gained momentum since the late 1970s, giving birth to four prominent movements, detailed below. The idea of circular material flows as a model for the economy was presented in 1966 by Kenneth E. Boulding in his paper, The Economics of the Coming Spaceship Earth.[9] Promoting a circular economy was identified as national policy in Chinas 11th five-year plan starting in 2006.[10] The Ellen MacArthur Foundation, an independent charity established in 2010, has more recently outlined the economic opportunity of a circular economy. As part of its educational mission, the Foundation has worked to bring together complementary schools of thought and create a coherent framework, thus giving the concept a wide exposure and appeal.[11]

Most frequently described as a framework for thinking, its supporters claim it is a coherent model that has value as part of a response to the end of the era of cheap oil and materials and can contribute to the transition to a low carbon economy. In line with this, a circular economy can contribute to meet the COP 21 Paris Agreement. The emissions reduction commitments made by 195 countries at the COP 21 Paris Agreement, are not sufficient to limit global warming to 1.5C. To reach the 1.5C ambition it is estimated that additional emissions reductions of 15 billion tonnes CO2 per year need to be achieved by 2030. Circle Economy and Ecofys estimated that circular economy strategies may deliver emissions reductions that could basically bridge the gap by half.[12]

The circular economy seems intuitively to be more sustainable than the current linear economic system. The reduction of resource inputs into and waste and emission leakage out of the system reduces resource depletion and environmental pollution. However, these simple assumptions are not sufficient to deal with the involved systemic complexity and disregards potential trade-offs. For example, the social dimension of sustainability seems to be only marginally addressed in many publications on the Circular Economy, and there are cases that require different or additional strategies, like purchasing new, more energy efficient equipment. By reviewing the literature, a team of researchers from Cambridge and TU Delft could show that there are at least eight different relationship types between sustainability and the circular economy:[1]

1.Conditional relation

2.Strong conditional relation

3.Necessary but not sufficient conditional relation

4.Beneficial relationship

5.Subset relation (structured and unstructured)

6.Degree relation

7.Cost-benefit/trade-off relation

8.Selective relation

With a surge in popularity, many circular principles are available, varying widely depending on the problems being addressed, the audience, or the lens through which the author views the world. There are at least the following key elements to be identified within a circular economy.

Ensure renewable, reusable, non-toxic resources are utilised as materials and energy in an efficient way. Ultimately the system should aim to run on current sunshine and generate energy through renewable sources. An example of this principle is The Biosphere Rules framework for closed-loop production which identifies Power Autonomy as one of nature's principles for sustainable manufacturing. It requires that energy efficiency be first maximized so that renewable energy becomes economical. It also requires that materials need to be non-toxic to be able to recirculate without causing harm to the living environment.

The second element aims to utilise waste streams as a source of secondary resources and recover waste for reuse and recycling and is grounded on the idea that waste does not exist. It is necessary here to design out waste, meaning that both the biological and technical components (nutrients) of a product are designed intentionally in such a way that waste streams are minimalized.

Account for the systems perspective during the design process, to use the right materials, to design for appropriate lifetime and to design for extended future use. Meaning that a product is designed to fit within a materials cycle, can easily be dissembled and can easily be used with a different purpose. Hereby one could consider strategies like emotionally durable design. It should be stressed that there is not something like one ideal blueprint for future design. Modularity, versatility and adaptiveness are to be prioritised in an uncertain and fast evolving world, meaning that diverse products, materials, and systems, with many connections and scales are more resilient in the face of external shocks, than monotone systems built simply for efficiency.

While resources are in-use, maintain, repair and upgrade them to maximise their lifetime and give them a second life through take back strategies when applicable. This could mean that a product is accompanied with a pre-thought maintenance programme to maximise its lifetime, including a buyback program and supporting logistics system. Second hand sales or refurbish programs also falls within this element.

Within a circular economy, one should work together throughout the supply chain, internally within organisations and with the public sector to increase transparency and create joint value. For the business sector this calls for collaboration within the supply chain and cross-sectoral, recognising the interdependence between the different market players. Governments can support this by creating the right incentives, for example via common standards within a regulatory framework and provide business support.

Track and optimise resource use and strengthen connections between supply chain actors through digital, online platforms and technologies that provide insights. It also encompasses virtualized value creation and delivering, for example via 3D printers, and communicating with customers virtually.

In a circular economy, prices act as messages, and therefore need to reflect full costs in order to be effective.[13] The full costs of negative externalities are revealed and taken into account, and perverse subsidies are removed. A lack of transparency on externalities acts as a barrier to the transition to a circular economy.

The circular economy is a framework that draws upon and encompasses principles from:[14]

The ability to understand how things influence one another within a whole. Elements are considered as fitting in their infrastructure, environment and social context. Whilst a machine is also a system, systems thinking usually refers to nonlinear systems: systems where through feedback and imprecise starting conditions the outcome is not necessarily proportional to the input and where evolution of the system is possible: the system can display emergent properties. Examples of these systems are all living systems and any open system such as meteorological systems or ocean currents, even the orbits of the planets have nonlinear characteristics.

Understanding a system is crucial when trying to decide and plan (corrections) in a system. Missing or misinterpreting the trends, flows, functions of, and human influences on, our socio-ecological systems can result in disastrous results. In order to prevent errors in planning or design an understanding of the system should be applied to the whole and to the details of the plan or design. The Natural Step created a set of systems conditions (or sustainability principles) that can be applied when designing for (parts of) a circular economy to ensure alignment with functions of the socio-ecological system.

The concept of the circular economy has previously been expressed as the circulation of money versus goods, services, access rights, valuable documents, etc., in macroeconomics. This situation has been illustrated in many diagrams for money and goods circulation associated with social systems. As a system, various agencies or entities are connected by paths through which the various goods etc., pass in exchange for money. However, this situation is different from the circular economy described above, where the flow is unilinear - in only one direction, that is, until the recycled goods again are spread over the world.

Janine Benyus, author of "Biomimicry: Innovation Inspired by Nature", defines her approach as "a new discipline that studies nature's best ideas and then imitates these designs and processes to solve human problems. Studying a leaf to invent a better solar cell is an example. I think of it as "innovation inspired by nature.[15] Biomimicry relies on three key principles:

Industrial Ecology is the study of material and energy flows through industrial systems. Focusing on connections between operators within the "industrial ecosystem", this approach aims at creating closed loop processes in which waste is seen as input, thus eliminating the notion of undesirable by-product. Industrial ecology adopts a systemic - or holistic - point of view, designing production processes according to local ecological constraints whilst looking at their global impact from the outset, and attempting to shape them so they perform as close to living systems as possible. This framework is sometimes referred to as the "science of sustainability", given its interdisciplinary nature, and its principles can also be applied in the services sector. With an emphasis on natural capital restoration, Industrial Ecology also focuses on social wellbeing.[16]

Created by Walter R. Stahel, a Swiss architect, who graduated from the Swiss Federal Institute of Technology Zrich in 1971. He has been influential in developing the field of sustainability, by advocating 'service-life extension of goods - reuse, repair, remanufacture, upgrade technologically' philosophies as they apply to industrialised economies. He co-founded the Product Life Institute in Geneva, Switzerland, a consultancy devoted to developing sustainable strategies and policies, after receiving recognition for his prize winning paper 'The Product Life Factor' in 1982. His ideas and those of similar theorists led to what is now known as the circular economy in which industry adopts the reuse and service-life extension of goods as a strategy of waste prevention, regional job creation and resource efficiency in order to decouple wealth from resource consumption, that is to dematerialise the industrial economy.

Cooper (2005)[17] proposed a theoretical model to illustrate the significance of product life span in a progress towards sustainable consumption. The longer product life spans could contribute to eco-efficiency and sufficiency, thus, slowing the consumption in order to progress towards sustainable consumption.[17]

Initiated by former Ecover CEO and Belgian entrepreneur Gunter Pauli, derived from the study of natural biological production processes the official manifesto states, "using the resources available...the waste of one product becomes the input to create a new cash flow".[18] Based on 21 founding principles, the Blue Economy insists on solutions being determined by their local environment and physical / ecological characteristics, putting the emphasis on gravity as the primary source of energy - a point that differentiates this school of thought from the others within the Circular Economy.[19] The report - which doubles as the movements manifesto - describes "100 innovations which can create 100 million jobs within the next 10 years", and provides many example of winning South-South collaborative projects, another original feature of this approach intent on promoting its hands-on focus.

The Biosphere Rules is a framework for implementing closed loop production processes. They derived from nature systems and translated for industrial production systems. The five principles are Materials Parsimony, Value Cycling, Power Autonomy, Sustainable Product Platforms and Function Over Form.

In January 2012, a report was released entitled Towards the Circular Economy: Economic and business rationale for an accelerated transition. The report, commissioned by the Ellen MacArthur Foundation and developed by McKinsey & Company, was the first of its kind to consider the economic and business opportunity for the transition to a restorative, circular model. Using product case studies and economy-wide analysis, the report details the potential for significant benefits across the EU. It argues that a subset of the EU manufacturing sector could realise net materials cost savings worth up to $630 billion annually towards 2025stimulating economic activity in the areas of product development, remanufacturing and refurbishment. Towards the Circular Economy also identified the key building blocks in making the transition to a circular economy, namely in skills in circular design and production, new business models, skills in building cascades and reverse cycles, and cross-cycle/cross-sector collaboration.[20]

In January 2015 a Definitive Guide to The Circular Economy[21] was published by Coara with the specific aim to raise awareness amongst the general population of the environmental problems already being caused by our "throwaway culture". Waste Electrical and Electronic Equipment (WEEE,) in particular, is contributing to excessive use of landfill sites across the globe in which society is both discarding valuable metals but also dumping toxic compounds that are polluting the surrounding land and water supplies. Mobile devices and computer hard drives typically contain valuable metals such as silver and copper but also hazardous chemicals such as lead, mercury and cadmium. Consumers are unaware of the environmental significance of upgrading their mobile phones, for instance, on such a frequent basis but could do much to encourage manufacturers to start to move away from the wasteful, polluting linear economy towards are sustainable circular economy.

On 17 December 2012, the European Commission published a document entitled Manifesto for a Resource Efficient Europe. This manifesto clearly stated that "In a world with growing pressures on resources and the environment, the EU has no choice but to go for the transition to a resource-efficient and ultimately regenerative circular economy."[22] Furthermore, the document highlighted the importance of "a systemic change in the use and recovery of resources in the economy" in ensuring future jobs and competitiveness, and outlined potential pathways to a circular economy, in innovation and investment, regulation, tackling harmful subsidies, increasing opportunities for new business models, and setting clear targets.

The European environmental research and innovation policy aims at supporting the transition to a circular economy in Europe, defining and driving the implementation of a transformative agenda to green the economy and the society as a whole, to achieve a truly sustainable development. Research and innovation in Europe are financially supported by the programme Horizon 2020, which is also open to participation worldwide.[23]

The European Commission introduced a Circular Economy proposal in 2015. Historically, the policy debate in Brussels mainly focused on waste management which is the second half of the cycle, and very little is said about the first half: eco-design. To draw the attention of policymakers and other stakeholders to this loophole, the Ecothis. An EU campaign was launched raising awareness about the economic and environmental consequences of not including eco-design as part of the circular economy package.[24]

A circular economy calls upon opportunities to create greater value and align incentives through business models that build on the interaction between products and services. Linder and Williander describe a circular business model as a business model in which the conceptual logic for value creation is based on utilizing the economic value retained in products after use in the production of new offerings.[25]

Basically this means that a circular business model is not focused merely on selling a product, but encompasses a shift in thinking about value proposition, bringing forward a whole range of different business models to be used. To mention just a few examples: product-service systems, virtualized services, and collaborative consumption which encompasses the sharing economy. This comprises both the incentives and benefits offered to customers for bringing back used products and a change in revenue streams, comprising payments for a circular product or service, or payments for delivered availability, usage, or performance related to the product-based service offered.

These new ways of doing business require businesses to create an attractive business model for financiers, and financiers to change the way they perceive the risks and opportunities associated with these models. To help businesses position themselves in a circular context and develop future strategies for doing business in a circular economy, the Value Hill has been created. The Value Hill proposes a categorisation based on the lifecycle phases of a product: pre-, in- and post- use. This allows businesses to position themselves on the Value Hill and understand possible circular strategies they can implement as well as identify missing partners in their circular network. The Value Hill provides an overview of the circular partners and collaborations essential to the success of a circular value network.[26]

Mateusz Lewandowski provides a proposition to address this need to design circular business models and presents an extension of the framework from Osterwalder and Pigneur, namely the circular business model canvas (CBMC). The CBMC consists of eleven building blocks, encompassing not only traditional components with minor modifications, but also material loops and adaptation factors. Those building blocks allow the designing of a business model according to the principles of circular economy.[27]

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Circular economy - Wikipedia