Important question: How can we maintain global prosperity when natural resources are increasingly scarce, the planet is in increasing disrepair, and 3 billion people are expected to join the “middle class” by 2030?
According to a fascinating new report, the answer is a “circular economy,” where materials and products are restored and regenerated much more widely, and where the emphasis is on leasing, renting, and sharing, rather than consumption and ownership.
“In a circular economy, products are designed for ease of reuse, disassembly and refurbishment, or recycling, with the understanding that it is the reuse of vast amounts of material reclaimed from end-of-life products, rather than the extraction of resources, that is the foundation of economic growth,” the study says.
In fact, this is no wild-eyed dreaming. The report, which was commissioned by the Ellen MacArthur Foundation in the U.K., is written by McKinsey consultants, and sponsored by several large companies, including Renault, Cisco, and others. It is based on a careful analysis of current consumption trends, and lays out principles for generating economic value by reducing virgin-material inputs.
The report argues that the current “linear” model of “take-make-dispose” is likely to lead to ever-increasing prices and volatility in the next few years. About 65 billion tonnes (U.K.) of raw materials entered the global supply chain in 2010; and, by 2020, that number is expected to rise to about 82 billion tonnes.
“If no action is taken, high prices and volatility will likely be here to stay if growth is robust, populations grow and urbanise, and resource extraction costs continue to rise,” it says.
The report argues that companies need a “better hedge” that “decouples revenues from material input.” They need to speed the rate at which they collect up old products and reuse them, and develop ways of recuperating pre-used materials and components more efficiently. Doing so could reap large savings. European manufacturing alone could net $630 billion by 2025, it estimates.
The report, which analyses several sectors in detail, finds that “complex medium-lived” products hold the greatest “circular economy potential.” These include mobile phones and smartphones, light commercial vehicles, and washing machines.
Re-manufacturing mobile phones, for example, could cut costs by 50% if handsets were easier to dismantle, companies created “capacities for the reverse cycle,” and there were more incentives for customers to return phones. Leasing, rather than selling, washing machines would also save money, increase profits, and cut CO2 output, the report finds. In all, “sweet-spot” sectors could see materials savings of 12% to 14% per year, it says.
The report notes that the shift to a circular economy is not only driven by resource scarcity. It is also enabled by improvements to IT that allow greater “traceability” in the supply chain, and changing attitudes among consumers, who are increasingly willing to accept new concepts, as seen with the growth of car sharing.
It says the circular economy could be a “major innovation engine,” but will require support in the shape of taxation, incentives for innovation and entrepreneurship, and different guidelines and rules, including better accounting of “externalities” in company reports.
Although the authors admit they don’t have all the answers, they do put several layers of meat and gristle on the circular economy concept, laying out how it can be economically useful, and eminently practical. The report offers an awful lot of food for thought, and is well worth a read.