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From waste to wealth

June 22, 2016

As the world undergoes considerable change, with resources becoming increasingly scarce and consumer expectations shifting, the stage has been set for the concept of circular economy. The question then becomes, how can companies best identify opportunities provided by this concept?

Megatrends, such as climate change and overuse of natural resources, are challenging our current business models. Over the next 20 years, the world will need 32% more energy, 57% more steel and 139% more clean water than in the last 20 years. The world’s population already consumes over 1.5 times the natural resources that the world can provide. At our current pace, we will require three to four Earths by 2050. This equation simply does not work.

The circular economy seeks to decouple economic growth from the use of virgin natural resources to generate more economic value with fewer natural resources. Materials taken into use will keep circulating, instead of ending up in a landfill or in an incinerator. Circulation will therefore maintain or even increase the value of these materials.

 

The European Commission has placed high expectations on the circular economy in terms of new jobs, economic growth, and improved competitiveness and self-sufficiency within Europe. The Commission published its ambitious Circular Economy Package in December 2015 and is currently preparing the related regulations. According to a McKinsey study, Growth Within, the circular economy will generate a net economic benefit of up to EUR 1.8 trillion for the EU by 2030. Meanwhile, Britain’s Waste and Resources Action Programme (WRAP) estimates that the transfer to a circular economy will bring as many as 250,000–520,000 new jobs to Europe. These jobs will be created in the fields of material circulation and collection, and repair and maintenance.

A challenge to the disposable mindset

The circular economy will change the business models of companies, and forerunner companies are already profiting from it. Services and digitalization add value to products. For example, the Product As a Service (PAAS) business model offers the user the service provided by the product, instead of ownership of the product. Even today, we can purchase lighting as a service, rather than buy lamps and bulbs; acquire safe driving kilometers, instead of buying tires; or rent art instead of buying it. The PAAS business model also benefits the climate and environment, as it provides manufacturers with the incentive to develop sustainable, durable and energy-efficient products.

The PAAS model presents a challenge to our current throw-away society. When products are sold as a service, the manufacturer gets the product back after use, including its raw materials, components and their value. The manufacturer can repair and service the products, and remanufacture them, earning a margin on the same raw materials several times over. Furthermore, remanufacturing typically consumes less energy than the first round of manufacturing.

The business models associated with the circular economy also help companies to strengthen their brands. As customers’ environmental awareness grows, sustainability is becoming mainstream. And responsible companies will have a better chance at success.

Inspiration from the past

Although the concept of circular economy has recently garnered more attention, it is nothing new. Libraries and video, car and clothing rental shops have been serving people for decades. And we can often identify major future opportunities by looking to the past, modifying its lessons to suit our current needs.

The development of a circular economy requires pioneer companies and steering from governments. This in turn requires us to understand that the world is inexorably moving into a new era in which we can no longer afford to waste materials or their value.

 

Text: Mari Pantsar
Photos: Shutterstock, Sitra

Mari Pantsar

  • Director, Resource-wise and carbon-neutral society, at Sitra
  • Has been leading the ecological sustainability theme area at Finnish innovation fund Sitra since 2013.
  • Earlier, she served as director of the Finnish government’s Cleantech Strategy Programme and Finland’s Cleantech Cluster, and held the post of Manager of Environmental Affairs at UPM.
  • Has a PhD and holds the status of docent at Lappeenranta University of Technology and the University of Helsinki, and has also served on the boards of several cleantech companies.