Circular Economy – The Key to Sustainable Business

The Circular Economy model aims to resolve the conflict between economic growth and resource scarcity and degradation by means of innovation in industrial operations. Its emphasis on economic profit and sustainability makes it very suitable for businesses of all sizes.

How does our current economic system threaten business sustainability?

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Businesses are under increased risk of supply disruptions and price volatility as a result of resource depletion and because of the increasing difficulty and environmental costs of raw material extraction, processing, and disposal.[1][6]

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Supply disruptions and price volatility currently affect many important goods, including food, fibre, metals, energy sources, and minerals.[2][3]

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Figure 1. Consumption of materials such as metals has risen dramatically over the last few decades. Source: Worldwatch Institute (2014).[3]erhsbFigure 2. Changes in material extraction rates between 1980 and 2008, expressed as proportions of the extraction rates in 1980. Source: Organisation for Economic Co-operation and Development (2013).[4]

Commodity prices decreased temporarily after the economic downturn in 2008, but then quickly recovered their steady growth rates (see Figure 3).

New PictureFigure 3. The rise and fall in commodity prices from 1960 to 2010. Prices are normalised for time variations, taking 2000 as the base year. Source: United Nations Environmental Programme (2011).[6]

Many technical products are thrown away instead of being reused – that causes pollution and makes it necessary to extract virgin material for making new products.

Our economy relies heavily on energy derived from fossil fuels – the primary driver of climate change. Coal, natural gas, and oil account for 80% of the global power supply.[6]

drtthyjdFigure 4. A diagram illustrating the different sources of energy and their respective shares of global power supply. Source: International Energy Agency (2013).[5]


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The Circular Economy explained

Picture6Illustration with orthogonal rhomb symbolsPicture5Picture2

The CE model was adopted on a large scale for the first time in China. Since 2002, it has been the country’s official economic development strategy [7]. Europe is moving this way too, starting in 2012 when the European Commission published their Manifesto for a Resource Efficient Europe [8].

Although CE implementation varies slightly between China and Europe, it is based on three fundamental principles:

Extending the life-cycle of goods
Minimizing pollution
Reliance on renewable energy

Extending the life-cycle of goods

Circular (closed-loop) supply chains:

Abstract backgroundThe Circular Economy concept has a special focus on extending the life-cycle of technical (non-decomposable) items by recovering them into new items with similar or identical quality and with the same or improved functions after their end-of-life stage. [1][9][14]

  •  asxfefxwefxaThe recovery process of technical items is achieved through repair, refurbishment, and remanufacture, which are much more resource efficient and cost-effective methods than conventional recycling. [1][9][11]
  • disassembled kitchen sink trapIn a Circular Economy, technical products which are suitable for repair, refurbishment, and remanufacture are designed to be easily fixed, or disassembled and rebuilt, in order to facilitate the recovery process.[9][11]
  • rthrthvsdrIn some cases, technical products (including their packaging) can be replaced by biodegradable alternatives with the same function and quality – these products can then circulate in their natural closed-loop system. [9][10]

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Figure 5. A basic illustration of the process of circulating technical products in a closed-loop supply chain.

Figure 6. The different stages that remanufactured products need to go through before being brought back to the market in ‘like-new’ condition. Source: Steinhilper (1998).[15]

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Utilizing unrecoverable end-of-use goods and waste by-products:

   Another way of extending the life-cycle of products in a CE is through downcycling, which involves processing a product to extract or produce an item of a lower value [9][14]. It can also involve ‘cascading’ an end-of-use good or a by-product through several applications before eventual disposal or incineration [9][14]. Downcycling can be applied to:

  • asefxawePicture16Technical by-products and end-of-use goods which cannot be recovered and rebuilt into the original items. [9][14]
  • Picture14Picture15Biological by-products, waste energy, and end-of use goods that cannot be recovered. [9][14]

New Picture (1)

  • Industrial Symbiosis and eco-industrial parks:

A very popular way of extracting value from by-products is the exchange of waste resources between companies, institutions, and communities located nearby each other, also known as Industrial Symbiosis [16][17]. Places where numerous symbiotic links exist are called eco-industrial parks – these industrial networks are an integral part of the Circular Economy. [16][14]

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Figure 7. A well-known example of a complex Industrial Symbiosis is the Kalundborg Symbiosis eco-industrial park in Denmark, where a coal fired plant, a pharmaceutical company, an oil refinery, a plasterboard manufacturer, local households, and a number of other businesses exchange heat, steam, wastewater, and solid waste products between one another. Source: Chertow (2007). [18]

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Lend or borrow.Product-Service Systems:

Product-Service Systems stress on product utility and performance, rather than on the physical attributes of products and their design for one-off sale. [11][19]

  • Product-Service Systems business practice is particularly useful for companies who engage in product take-back and recovery activities because it can guarantee high return rates. [9][20]

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  • One approach taken in Product-Service Systems is offering extra services together with goods, such as maintenance, repair, return, replacement, and technological upgrade, in order to guarantee product reliability. [19][20]
  • xwefxaweAnother method used in Product-Service Systems is selling the use of an item, rather than the physical item itself [19]. This is done through sharing, leasing, lending, and other similar schemes where producers maintain ownership of a product. [19]

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  • A Product-Service System can be applied to many items which are not normally offered through service-based contracts such as clothing, cell phones, and washing machines (see Towards the Circular Economy Volumes 1 and 2). [9][10]
  • ftrehberbheGoods offered through service-based contracts need to be designed for quick, easy, and cost-effective downcycling, disassembly, remanufacture, refurbishment, repair, and/or upgrade, in order to make the circular process more efficient. [9][10]

UntitledFigure 8. The user borrows the machine and pays for every copy made, while the manufacturer is responsible for maintenance and end-of-use handling of the printer. Source: Baines et. al. (2007). [19]

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Minimizing pollution

The Circular Economy concept suggests that both biological and technical products should circulate safely within their respective natural and artificial loops. [9]

  • drsgverThe amount of toxic substances contained within products should be minimized during the design phase, taking into account all life-cycle stages of the products and preventing potential negative impacts. [2][9][14]
  • awdawdManufacturers must use ‘clean production’ methods in their industrial operations. This requires reducing the amount of hazardous by-products from production activities and responsible handling of such waste products. [21]
  • 567567‘Lightweighting’ can also be used as a method of purifying the life-cycle of products [14]. ‘Lightweighting’ stands for using minimal amounts of material in products and their packaging. [14]

Reliance on renewable energy

drvhtAnother core principle of the Circular Economy is the need for industrial operations to increase their reliance on renewable sources of energy in order to address fossil fuel scarcity and carbon pollution issues [9]. In a circular system such transition would solar panel on whitebe feasible since Circular Economy methods are very energy efficient. [9]

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How can your business benefit from adopting Circular Economy practices?

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The Circular Economy offers an intelligent approach to tackling issues of resource insecurity, price volatility, and rising environmental costs of production, consumption, and disposal [2][11]. These issues currently pose a major threat to global and national economies as a result of unforeseen population levels combined with rapid economic development. [2][11]

yjdntyjbBy means of various innovation strategies, the Circular Economy aims to achieve the necessary shift towards more sustainable business practices without compromising on financial profits. [11]

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Circular Economy methods have the potential to bring significant economic benefits to businesses which are trndytrcourageous enough to try out approaches different than the ones used in business-as-usual practice.

The Business Case for Closed-Loop Manufacturing
The Business Benefits of Circular Economy Product Design
The Business Potential of Product-Service Systems
The Business Case for Product Downcycling
The Business Benefits of Eco-Industrial Parks

The Business Case for Closed-Loop Manufacturing

Closed-loop supply chains can bring substantial benefits to businesses if they are well planned and applied to the right products.

A study by the UK’s Circular Economy Task Force shows that light product recovery methods (i.e. remanufacture, refurbishment, and repair) capture the most value from products. [1]

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Closed-loop manufacturing mitigates risks of raw material supply disruptions and price volatility. This is because circular systems do not rely on virgin material, but rather on used products for their primary material input. [1][9]

Light recovery methods are much more cost-efficient in terms of energy and material consumption.

awdxawFigure 9. The net amount of energy and material needed for remanufacturing a car alternator and starter as compared to their manufacture from raw/recycled materials. Source: Steinhilper (1998). [15]

Closed-loop manufacturing is more suitable for some products than for others. The Ellen MacArthur Foundation have identified fast moving consumer goods like packaging and clothing, and medium-lived (3 to 10 years of lifetime) goods such as motor vehicles, furniture, machinery, and electronic devices as having the highest potential for financial benefits from circular manufacturing. [9][10]

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Figure 10. Estimated savings in the EU (USD billion per year) from applying Circular Economy principles to certain goods. The Transition and Advanced scenarios assume more conservative and more radical changes, respectively. Source: Towards the Circular Economy, volume 1 (Ellen MacArthur Foundation, 2012). [9]axdawdx

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The Business Benefits of Circular Economy Product Design

Product design plays a crucial role in Circular Economy systems Picture1because:

It determines to a great extent the efficiency of remanufacture, refurbishment, repair, and downcycling. [2][9]

wecfawecweDesigning products with modules and from purer materials can facilitate their disassembly, reassembly, and conversion into a product or products of lesser quality. [2][9][22]

Tercfdsche economic benefits from Circular Economy design are not only in the form of cost savings from improved product circulation, but also from opportunities for innovation, product quality enhancement, meeting stakeholder demand, creation of new market flows, and developing green credentials. [9][22][23]

awefdwe[22]whyFigure 11. The different stages of photocopier remanufacture at Xerox. Source: The Remanufacturing Institute (2014). [24]

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The Business Potential of Product-Service Systems

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Product-Service Systems are beneficial to companies for a number of reasons:

ufyifyiFirstly, by replacing physical products with intangible services, firms make optimal use of the valuable materials contained within products without compromising on customer satisfaction. [19]

Secondly, offering services such as productqweswwqs maintenance, return, replacement, upgrade, and post-use handling, as well as offering different purchase options, helps build a better relationship with customers since it guarantees the reliability of products and allows for greater product customization and flexibility of usage by consumers. [11][19]

65757In addition, applying a PSS offers good opportunities for innovation, product differentiation, improved brand image, and exploring new niche markets. [11][19][20][25]

ghgfhd[25]secfsefFigure 12.An illustration of Diddi & Gori’s Product-Service System.

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The Business Case for Product Downcycling

As mentioned previously, end-of-use products that cannot be fully recovered can be made use of in a number of other ways.

anglo[26]fsadfsdfFigure 13. Anglo Recycling’s system of downcycling carpet by-products and used carpet material.

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The Business Benefits of Eco-Industrial Parks

Examples of successful Industrial Symbiosis initiatives demonstrate that EIPs present a great business opportunity:

saec[27][28][29]

austria[18][30][31]styriaFigure 14. Some of the material exchange flows at the Industrial Symbiosis network in Styria. Source: Posch (2010). [31]

china[32]

These and other successful eco-industrial developments, as well as a number of planned and ongoing projects demonstrate that the existing and potential economic benefits of Industrial Symbiosis and eco-industrial parks are significant. [30][33]

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Sources
[1] Hazell, J., and Benton, D. (2013). Resource resilient UK. A report from the Circular Economy Task Force. [pdf] Available at: link to document [Accessed 10 February 2014].

[2] Hill, J., Hislop, H. (2011). Reinventing the wheel: a circular economy for resource security. [online] Available at: http://www.sita.co.uk/downloads/ReinventingTheWheel-1110-web.pdf [Accessed 12 March 2014].

[3] Worldwatch Institute (2013). Vital Signs. The Trends that are Shaping Our Future. Island Press: Washington.

[4] OECD (2013). Material Resources, Productivity and the Environment. Key Findings. [pdf] Available at: link to document [Accessed 29 May 2014].

[5] International Energy Agency (2013). Key World Energy Statistics 2013. [pdf] Available at: http://www.iea.org/publications/freepublications/publication/KeyWorld2013.pdf [Accessed 29 May 2014].

[6] UNEP (2011). Decoupling Natural Resource Use and Environmental Impacts from Economic Growth. [pdf] Available at: link to document [Accessed 29 May 2014].

[7] Yuan, Z., Bi, J., & Moriguichi, Y. (2006). The circular economy: A new development strategy in China. Journal of Industrial Ecology10(1‐2), pp.4-8.

[8] European Commission (2014). European Resource Efficiency Platform. Manifesto & Policy Recommendations. [pdf] Available at: http://ec.europa.eu/environment/resource_efficiency/documents/erep_manifesto_and_policy_recommendations_31-03-2014.pdf [Accessed 14 May 2014].

[9] Ellen MacArthur Foundation (2012). Towards the Circular Economy – Vol.1. [pdf] Available at: http://www.ellenmacarthurfoundation.org/business/reports/ce2012 [Accessed 12 May 2014].

[10] Ellen MacArthur Foundation (2013). Towards the Circular Economy – Vol.2. [pdf] Available at: http://www.ellenmacarthurfoundation.org/business/reports/ce2013 [Accessed 15 May 2014].

[11] Preston, F. (2012). A Global Redesign? Shaping the Circular Economy. [pdf] Available at: http://www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20and%20Development/bp0312_preston.pdf [Accessed 14 May 2014].

[14] Zhijun, F., & Nailing, Y. (2007). Putting a circular economy into practice in China. Sustainability Science2(1), 95-101.

[15] Steinhilper, S. (1998). Remanufacturing – the Ultimate Form of Recycling. [online] Available at: http://reman.org/Publications_main.htm [Accessed 30 May 2014].

[16] Shi, H., Tian, J., & Chen, L. (2012). China’s Quest for Eco‐industrial Parks, Part I. Journal of Industrial Ecology16(1), 8-10.

[17] Boons, F., Spekkink, W., & Mouzakitis, Y. (2011). The dynamics of industrial symbiosis: a proposal for a conceptual framework based upon a comprehensive literature review. Journal of Cleaner Production19(9), 905-911.

[18] Chertow, M. R. (2007). “Uncovering” industrial symbiosis. Journal of Industrial Ecology, 11(1), 11-30.

[19] Baines, T. S., Lightfoot, H. W., Evans, S., Neely, A., Greenough, R., Peppard, J., … & Wilson, H. (2007). State-of-the-art in product-service systems. Proceedings of the Institution of Mechanical Engineers, Part B: Journal of Engineering Manufacture221(10), 1543-1552.

[20] Mont, O. K. (2002). Clarifying the concept of product–service system. Journal of cleaner production10(3), pp.237-245.

[21] Geng, Y., & Doberstein, B. (2008). Developing the circular economy in China: Challenges and opportunities for achieving’leapfrog development’. The International Journal of Sustainable Development & World Ecology15(3), pp.231-239.

[22] Kerr, W., & Ryan, C. (2001). Eco-efficiency gains from remanufacture: a case study of photocopier remanufacture at Fuji Xerox Australia. Journal of cleaner production9(1), 75-81.

[23] Van Hemel, C., & Cramer, J. (2002). Barriers and stimuli for ecodesign in SMEs. Journal of Cleaner Production, 10(5), pp.439-453.

[24] The Remanufacturing Institute (2014). Fuji Xerox. [pdf] Available at: http://www.reman.org/pdf/Fuji-Xerox.pdf [Accessed 4 June 2014].

[25] Manzini, E., & Vezzoli, C. (2003). A strategic design approach to develop sustainable product service systems: examples taken from the ‘environmentally friendly innovation’Italian prize. Journal of Cleaner Production11(8), 851-857.

[26] Anglo Recycling (2014). Products. [online] Available at: http://www.anglorecycling.com/ [Accessed 23 May 2014].

[27] Domenech, T., & Davies, M. (2011). Structure and morphology of industrial symbiosis networks: The case of Kalundborg. Procedia-Social and Behavioral Sciences10, pp.79-89.

[28] Jacobsen, N.B. (2006). Industrial symbiosis in Kalundborg, Denmark: A quantitative assessment of economic and environmental aspects. Journal of Industrial Ecology 10(1-2): pp.239-255.

[29] Côté, R. P., & Cohen-Rosenthal, E. (1998). Designing eco-industrial parks: a synthesis of some experiences. Journal of Cleaner Production, 6(3), 181-188.

[30] Saikku, L. (2006). Eco-Industrial Parks. A background report for the eco-industrial park project at Rantasalmi. [pdf] Available at: http://www.medmeid.eu/wp-content/uploads/2011/04/ECO-INDUSTRIAL-PARKS_Rantasalmi.pdf [Accessed 27 May 2014].

[31] Posch, A. (2010). Industrial Recycling Networks as Starting Points for Broader Sustainability‐Oriented Cooperation?. Journal of Industrial Ecology14(2), 242-257.

[32] Tian, J., Liu, W., Lai, B., Li, X., & Chen, L. (2014). Study of the performance of eco-industrial park development in China. Journal of Cleaner Production64, pp. 486–494.

[33] Isenmann, R. (2010). ICT for Environmental Sustainability concerning Key Area: “Industrial Ecology”. [pdf] Available at: http://www.ict-ensure.eu/en/var/plain_site/storage/original/application/575bae88460983a5cd945aa1ec0c2462.pdf [Accessed 27 May 2014].

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