The Circular Economy Model (part 2)
I recommend reading “The Circular Economy Model Part 1” before reading this article.
The macroeconomic benefits from transitioning from linear to a circular economy will be positively felt across the society and will comprise of:
- Eliminating dependency on finite resources. Instead of constantly producing new items, re-using products and materials will help to regenerate the natural system rather than degrade it. For instance: land regeneration is costly, and that doesn’t even include the alternative costs of losing biodiversity or unique landscapes. A circular economy regenerates the land by returning biological materials into the soil when their natural circle has ended.
- Designing out waste and pollution during the production process. For example: if Europe committed to a circular economy by 2030, they could halve carbon dioxide emissions. The UK could reduce greenhouse gas emissions by 7.4 million tonnes per annum by keeping organic waste out of landfills. (via Ellen MacArthur Foundation).
- Innovation – replacing the linear model will create many innovative and creative opportunities for people to develop technological solutions for a sustainable economy, improving efficiency in using new/re-used materials, and generating new ways of consuming energy.
- Growth – increased growth will be achieved by applying circular activities (upcycling products, re-using materials and repairing) and lower production costs through the utilization of products. The circular way of production and consumption will be mirrored in consumers’ demand (demand will change and shift towards repair and longevity), pricing (pricing will have to adjust to reflect shifting customers’ demands) and supply (the supply chain won’t be relying on new materials but re-used materials and parts). Based on detailed product-level modelling in the EU alone, for medium-lived products (mobile phones, washing machines), annual net material cost savings could amount to $630 billion. For fast-moving consumer goods, such as household cleaning products, the potential savings could go up to $700 billion globally.
- Creating more robust employment – the circular economy model will be built on a service-based economy, generating new jobs across various sectors.
- Lowering the production costs as there is a lesser need for new materials.
- Constructing new profit streams, such as leasing high-end products rather than buying them, repairing, buying back parts of the products or the products themselves, re-selling refurbished products, re-selling used parts, etc.
- Reducing exposure to materials from volatile parts of the world (war, natural disaster, human rights abuse).
- Demand for new business sectors will grow, i.e. collection and reverse logistics, product marketers and sales platforms, parts and component remanufacturing, refurbishment, rentals and leasing.
- The business will have to learn and adjust towards building a lifetime relationship between customers and the company providing the product because they will start providing long-term services, not products only.
A circular economy won’t only benefit small and large business/organisations but also individuals:
- It will offer more considerable disposable income. The cost of products and services will be reduced.
- People will have less unproductive time, such as finding a replacement for the broken product, collection, or someone who could fix the issue. The company people buy their product from will provide all the logistics.
- Customers will have much better choices regarding products, often tailored to meet their needs. It will be easier to choose an ethical company that promotes a circular economic model in an honest way.
- The products won’t fail as often, which will bring down ownership costs, while delivering higher convenience at the same time.
- Health costs could lower significantly, and many of the pollution-related illnesses and deaths could be avoided.
In practice of course, shifting from linear to circular economy isn’t going to be easy and will take enormous human effort. From the operational point of view, a lot will have to change, including business models, accounting practices, delivery of goods, aftercare, training, profit share, etc.
Many linear economic model elements will need to change to bring the desired effect; changing just one piece won’t change anything.
At the moment, we are in a perfect situation when the economy, technology and social factors are coming together to push for change. The challenge is to make sure that the circular economy can go mainstream and scale up fast enough for that change to become a reality that benefits everyone, not only the “chosen” few.