Circling the Square

The concept of the Circular Economy (CE) is coming of age. For its advocates it represents a paradigmatic shift in how we do business: a move away from a wasteful model of linear industrial production to one that begins to decouple prosperity from resource throughput through intelligent systems design. The ecological context for such a shift is familiar: we are exceeding planetary boundaries. But the commercial context is now changing too: not only have disruptive technical and organizational innovations pointed the way to what is possible, but resource-price volatility has sharpened the attention of big industrial players; some multi-nationals are exploring ideas outlined by industrial ecologists in the 1990s in search of new ways to create value. This article examines the CE’s ascendance and reflects on its future prospects. While the CE promises much, the ecologically minded retrofit of contemporary consumer capitalism is not without its challenges.

Since the industrial revolution, a linear model of economic activity has prevailed: raw materials are extracted and transformed into goods, which are disposed of at the end of their useful life as waste. By contrast, the philosophy embedded in the CE is to design out waste at a systems level, build durable products from non-toxic materials, and to keep these materials cycling through multiple generations of reclamation and remanufacture. The accompanying philosophies of value creation broadly cast citizens as users rather than as consumers, and aspire to the provision of services (i.e. mobility) rather than the sale of goods (i.e. cars).

While the ambition of the CE is ecologically rooted, its dominant contemporary articulation is in terms of commercial opportunity. Its advocates argue that by minimizing materials usage and turning the outputs of one process into inputs for the next, radical cost and material savings can be achieved. The Ellen MacArthur Foundation (EMF) estimates “a combined annual trillion dollar opportunity globally in net material cost savings for companies making the transition to circular economy.”

The conceptual roots of the CE are in industrial ecology, which has synthesized developments in ecology, systems theory, and environmental science since the 1970’s. The key insight of this scholarship is that ecosystemic organizational principles offer a model for industrial system design. The notion of “cradle to cradle”production was given prominence by McDonough and Braungart in 2002, and their work remains the central text.

But if the theory is 40 years old why does it matter now?

Resource price volatility and its impact on profitability have engaged new audiences in thinking about industrial ecology. In 2011, one third of profit warnings from the largest 350 companies on the London Stock Exchange were because of resource price pressures, and price volatility has been particularly notable since 2002, with almost a century of price declines erased in 10 years.

Other factors have helped to create an enabling context for the CE’s ascendance. Innovations in IT enable new manufacturing approaches such as 3-D printing. Meanwhile, networked technologies have enabled disruptive organizational innovation, particularly related to collaborative consumption: Airbnb and Lyft are favourite examples that attest to the potential of de-materialized businesses that provide familiar services (places to sleep, and ways to move around) in ways that appeal to a new generation of networked people. Furthermore, resource efficiency and waste management is on global governmental agendas in a number of shapes and sizes. At Rio+20 and in particular in the EU, resource efficiency is a focus – it is one of seven flagship initiatives in Europe’s growth strategy to 2020.

Galvanizing innovation related to the CE has been The Ellen MacArthur Foundation (EMF). Based in the UK, the EMF has been the torch-bearer for the CE and helped it to become a gathering concept around which to build practical alternatives to the incumbent linear model. Some fifty companies have joined the EMF’s CE100, a network that includes Unilever, Renault, Phillips, amongst others. By bringing together “emerging innovators” with established multi-nationals to assess roadblocks, identify opportunities, and develop the tools to overcome them, the EMF is supporting the CE’s real world implementation. Through executive education, the sharing of best practice, and the publication of research and analysis the EMF have given rigour and credibility to the CE concept. In collaboration with McKinsey & Co., the EMF has published 3 reports that make a compelling financial case for the CE. In addition, the EMF’s work with institutions at all levels of British education has begun to embed the concept of the CE within the broader intellectual landscape.

At Davos, and the World Economic Forum (WEF), the EMF has moved from the fringes to the conference stage. In 2014 they launched Project Mainstream in collaboration with the WEF, a two-year project to increase the reusability of key raw materials such as polymers, glass, and steel. Additives to materials currently make post-use reclamation difficult, particularly across global supply chains. With established purity standards, wastes from one process can replace virgin materials as inputs for subsequent manufacturing processes, maximizing resource productivity by enabling reclamation and re-use. The project intends to demonstrate proof of concept in 2016.

The ascendance of the CE at the WEF attests to the concept’s maturity. Nevertheless, the proposed shifts to a circular economy raise challenging questions of organizational and political-economic structure that lack definitive and established answers. More analysis is required to understand economic impacts of CE business models for firms and products. The EMF’s ongoing research can seek to address this need and the organization’s role as a hub for knowledge sharing and partnership building will remain integral as the CE moves into adulthood. Furthermore, while opportunity exists for resource savings under contemporary conditions, all analyses of the CE in the grey literature emphasize that more transformative shifts will require changes to incentive and regulatory structures, such as taxation. Such changes are not imminent. It remains to be seen whether emerging corporate engagement with the CE is substantive enough to drive fundamental regulatory shifts.

Although the CE is not a silver bullet for the world’s enviro-economic problems it represents a concept around which important actors have begun to coalesce. This is encouraging. As more partners involve themselves in the CE project, its long-term relevance will become clearer. For now, the vision of dematerialized profitability that it represents is as balanced and coherent as any, and should be monitored with interest.

Image Credit: Keith Williamson

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