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#SRI — 23.04.2019

The Circular Economy: A New Economic Paradigm

Kanol Pal, Senior Advisor, Responsible Investments

To ensure there is enough food, water and prosperity for ourselves and future generations, it has become critical to move urgently from our current linear economy to a circular economy.

Circular economy

Our planet has finite resources. Yet our current economic system has always considered Earth’s natural resources as free, cheap and infinitely available.

Today, we measure every year how much natural resources have been consumed from Earth than nature can renew in the whole year. In 2018, the Earth “overshoot day” fell on 1st August, the day we have exhausted our natural resources budget for the year. For the past 3 years (2015-2018), “overshoot days” falls around August, meaning that we are using about 1.7 times Earth natural resources each year.

With world population expected to grow to 10 billion people by 2050, this will cause additional stress on the Earth resources and accelerate the pace of its depletion. To ensure there is enough food, water and prosperity for ourselves and future generations, we have to rethink and redesign our economic structure. It has become critical to move urgently from our current linear economy to a circular economy.

What is a linear economy ?

In the current linear economy, raw materials are used to make a product and after its use, any waste is thrown away. To make common use products like kitchen utensils, plastic bags or clothes, we take raw materials and use other resources like water and energy.

Once we have finished using them, most of the products are disposed away. For example, the EU textile industry generates waste estimated at 16 million tons per year. Much of this waste is thrown in landfills or incinerated, with a high environmental impact and at great cost1

A linear economy is a  “Take, Make and Dispose” model. It is consuming irreversibly our planet resources. Virgin raw materials are ending as waste instead of being recycled.

The Flow of A Linear Economy

The Flow of A Linear Economy

What is a circular economy?

A circular economy is a system that is regenerative and restorative by intention and design. Products are designed so that they can be recycled and re-usable. A circular economy is a model of “ Take, Make, Use and Re-use” again and again.

First we need to improve waste collection and recycling.

Let’s take a mobile phone. It weighs about 150gms and is packed with valuable materials such as gold, silver, and rare earth metals.

Today, in Europe, 160 million are discarded, the waste collection is only 15% and uncollected devices represent a material loss of up to USD 500 million annually. If the collection rate goes up to 50%, then savings on material costs could add 1 billion USD a year (30% of total industry material input costs)2. However, mobile phone designs are so integrated, there is hardly any component reuse or remanufacturing.

The flow of a Circular Economy

Watch this video - The concept of a Circular Economy

Circular Economy, An Example

We need to do more than recycling. In a circular economy, we need to reinvent Design for Sustainability to take into account the complete product lifecycle.

Let’s take the example of REALCAR3, the REcycled ALuminium CAR, a project by Jaguar Land Rover (JLR) and Novelis. The aluminium body panel waste from used cars are recycled back to the supplier and are incorporated back into new body panels.

This process is called a closed-loop value chain which requires technical innovations, such as creating a new aluminium grade that would be viable for re-use. Collaboration between the manufacturer (JLR) and its supplier (Novelis) is equally important to achieve shared values. Recycled aluminium requires up to 95% less energy during production than primary material.

Jaguar Land Rover is able to achieve a significant reduction on its environmental footprint. Novelis is also able to reduce its absolute green house gas emissions.

But do we need to own a product if we only use it for a limited amount of time ?

For example, cars have an average utilization of 5% to 8%. To expand the framework of the Circular Economy further, we need to go beyond the notion of ownership.

In today’s sharing economy, people and in particular millennials prefer to have access to a product or pay per usage than having full ownership. Many business models of the sharing economy have become established and successful, from hospitality (Airbnb) to car sharing (Uber, Grab) to media and entertainment (Netflix). Sharing economy is part of the circular economy as it optimizes the use of resources and reduces waste.

Our world is only 9% circular4, meaning that 91% of what we use go to complete waste. How can we bridge this Circularity Gap ?  

A circular economy will help us improve resource efficiency, minimise resource extraction, reduce greenhouse gases. It will help us push back the Earth Overshoot Day so we are not overconsuming our existing scarce natural resources. A circular economy mindset is also about collaboration and sharing. This will contribute to promote trust and reduce social inequality.

It is the new economic paradigm.

Further Reading:

What is the Circular Economy?

 

References

1https://ec.europa.eu/easme/en/news/circular-economy-practice-reducing-textile-waste

2https://www.ellenmacarthurfoundation.org/news/in-depth-mobile-phones

3https://www.cisl.cam.ac.uk/resources/publication-pdfs/cisl-closed-loop-case-study-web.pdf

4 https://www.circularity-gap.world/