An End is a Beginning - The Circular Economy

"Before you discard, think of using,

Before you throw, think of giving,

Before you crush, think of living"

My Dad used to buy me a pen and a set of refills. One day, when I asked him – Why don’t you buy me a new pen instead of a set of refills? He frowned and blared at me – Why to waste money? The new pen will cost Rs.10. The cost of a new refill is Rs.2. With Rs.10, you would get 5 refills. At that time, I didn’t take his words seriously. But later in life, I realized that the act of my Dad was not only economical (5 refills for Rs.10 > 5 pens for Rs.50) but environment friendly (by using the body of the pen again and again) also.

In fact, the economic gains due to material cost savings (by reusing or using recycled materials in lieu of new materials) are estimated at more than $1 trillion per year. Moreover, the process of reusing could reduce 33% of the carbon dioxide emissions implanted in the products and thus serves as a cost-efficient means to mitigate GHGs.

You might have your own story sharing the substance (i.e. reuse of materials) with my pen story. For example – reusing discarded cloth as a mop is very common (known as repurposing).

But, did you know that these acts are the example of the leading concept known as circular economy which presently forms the part of the corporate level strategy of more than half of the world’s top 100 companies and rapidly making its place in the corporate & public policies of many countries?

So, what exactly is a circular economy? Why do we need it? What are its strategies? What are the possible business models of it? What does the future hold?

WHAT IS A CIRCULAR ECONOMY?

In my words, circular economy can be defined as a continuous consumption loop wherein a product or waste material (in existing or modified form) is put to alternative uses or is used for making other products in order to use the energy and resources employed in a product to their full potential.

In simple words, it is concerned with designing products and economic processes in which all the waste materials generating at the various stages of the supply chain can be put to use again and again in such a way that the completion of one consumption loop leads to another consumption loop. It is in contrast to the linear economy which works on ‘take-process-use-dispose’ principle.

From the above definition, we can infer that the circular economy focuses on:

1. Extension of resources and products life by propagating continuous consumption.

2. Substitution of end-of-life concept with beginning-of-new life concept by creating a loop or cycle wherein a product goes back as a raw material in the supply chain through reverse logistics.

3. Restoration, Regeneration, and Waste reduction by making alternative uses of or new products from existing products or waste materials.

4. Value creation and Sustainable Development by using resources and energy to their full potential thereby increasing the material productivity and reducing costs.

Nike’s ‘Nike Grind Initiative’ – An example of circular economy

Nike launched ‘Nike Grind Initiative’ in 1993. Under this, used sports shoes (of any company) are collected and used again as a raw material for making 8 different types of play ground surfaces.

But, is this a good approach? Yes, because average pair of shoes takes 50+ years to totally decompose. Moreover, the chemicals in glues, rubber and leather material contaminate the environment when land-filled.

As depicted above, the completion of consumption loop of shoes (on the left) lead to another consumption loop of play ground surfaces (on the right). In this way, the energy and resources applied in manufacturing shoes also gets utilized in manufacturing of play ground surfaces.

Further, the rubber material of ground surface can be used as a raw material for any other product by any other company thereby creating another loop. Also, the waste material generated while making shoes can be used for making other products such as PET bottles or leather seat covers which can be used in airplanes and cars.

Ultimately, the compounding of loops results in reduced waste and greater value addition in the economy. Remember, this process will continue till the cost of re-using becomes greater than the cost of creating. As soon as it happens, the product will not be used further rather it will be disposed off.

WHY DO WE NEED CIRCULAR ECONOMY?

Isn’t the linear economy works fine? Why to shift to the circular economy? Every year, World Overshoot Day is apprised by the World Wide Fund for Nature (WWF). It is the day on which the use of natural resources exceeds the earth’s capacity to regenerate them. In 2020 and 2021, it was observed on August 22 and July 22 respectively.

This signifies that each unit of natural resources utilized after this day puts extra pressure on the earth (therefore, pressure in 2021 > pressure in 2020). Imagine what if it comes in the 1st month of the year or on 1st day of the year itself? Is this possible? May be yes, because every year 50-75% of used resources are returned to the environment as waste.

This delineates that we are not only using more and more resources at faster pace but returning it as a waste which is gradually slowing down the resource regenerating capacity of the earth (as the waste beyond earth’s assimilative capacity pollutes the environment).

According to a study done by University of New York, 20% of raw material in use will deplete in the next 50 years & 35% of raw material in use will deplete in the next 100 years. The catch is that most of them are not even reused once. What we will do after that? Certainly, we will start re-using the available material. Right? So, why then and not now?

Source: UNIDO

The yearly waste per person stands at 560 kg. On global scale, this figure is 1.3 billion tons and expected to reach 2.2 billion tons by 2025. By shifting to the circular economy, we would not only be able to reduce it rather productively utilize it by applying innovative ideas and creating business models around it (as seen in Nike’s initiative).

Further, the circular economy will expand the secondary sector and promote sharing economies (for e.g. collaborative consumption). According to the research documented in “Finding growth within: A new framework for Europe,” a circular economy could generate a net economic gain of €1.8 trillion per year by 2030. Indeed, it’s time to circulate with responsible consumption.

WHAT ARE THE STRATEGIES OF CIRCULAR ECONOMY?

The implementation of the circular economy requires coordinated efforts on micro (companies/products/services), meso (industries) and macro level (region/national/international). For coordinated efforts, it is important to follow certain strategies as a guiding force. The below image contains ‘9Rs Strategy’ as proposed in the paper on circular economy by OECD.

Source: OECD

As visible in the given image, the higher level of circularity could be achieved with less innovation in core technology (R0 to R9) and more in product design, revenue model and socio-institutional change (R9 to R0). Thus, we should primarily focus on intelligent use of products and extension of products and components life. Also, going from R9 to R0 requires fewer natural resources. This signifies that circularity can be increased by down-sizing the level of social metabolism.

In addition to the 9Rs Strategy, the following can prove to be an effective measure to get on the path of circularity:

1. Sharing of Products: This ensures efficient and pro-longed utilization of the products. In fact, the life of communal products is more than the privately used products. For e.g. car pooling or sharing of accommodation place or clothes or laundry facility.

2. Enhancing Product Performance: This can be done by making the changes in the design of the product or eliminating waste thereon. Also, customer focused design thinking could help both customers & companies to reap more value from products. Even eco-design can save 332 EUR annually for consumers. For e.g. reversible apparels or eye-lenses which can be used for casual wear also as offered by Lenskart.

3. Digi-Presence: For e.g. digital books can save a lot of paper, manufacturing energy and cost associated with it. Therefore, digital substitutes of physical products or materials can be a game-changer. 3D printing is also a step towards this direction.

Using the above strategies individually or in conjunction with one another can boost our return from natural resources and radically improve the cost competitiveness. It can have a profound impact on operating efficiency and energy efficiency which would lead to “more out of less”.

WHAT ARE THE POSSIBLE BUSINESS MODELS UNDER CIRCULAR ECONOMY?

“Eco-Profit” (i.e. profit through environment friendly actions) and “Eco-Value” (i.e. value creation with less resource depletion) are the core elements of circular economy. Any business model under circular economy must take these two elements into consideration. In light of this, following could be the possible business models:

1. Input Focused i.e. which uses renewable inputs or bio-inputs for making of products or delivering experience of services.

2. Revival Focused i.e. which focuses on best from waste principle thereby reviving or recovering the productive components or parts from waste.

3. Life Focused i.e. which emphasizes on durability and multivariate use of products.

4. Collaboration Focused i.e. which embraces communal use or sharing of products or services. For e.g. the use of hybrid or electric buses in cities lead to 60% less energy consumption.

5. Service cum Product Focused i.e. which inspires accessibility over ownership. For e.g. leasing of goods.

WHAT DOES THE FUTURE HOLD?

Circular Economy Model supports SDG 12 on responsible production and consumption. The concept of a circular economy and practice therefore requires attention, as it can unlatch new opportunities for trade, create new skilled jobs, contribute to climate change mitigation and help reduce the costs of cleaning and scrapping all around the globe.

In addition, increased circularity can change production patterns, improving asset utilization rates and producing value chains based on recycling, remaking, and renovation centers close to where products are used. At the moment, the leap to circularity is just an opportunity – an opportunity to innovate, create value and reach out to new consumers.

However, poising national incentives across jurisdictions are important in order to stir value chains towards circular patterns. The achievement of circularity depends on cohesion between national & international policies, business commitments, and consumer choices and education, including technological literacy.

Similarly, efforts may be made to delink esteem from ownership and urge customers instead towards quality public or shared mobility or to choose to repair instead of buying new. More discussion, research, and dialogue should take place in order for Governments and companies to be able to ensure that regional and global circularity contributes to the development aspirations of countries.

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