The circular economy's hidden wealth

Ahead of the 2016 Macao International Environmental Co-operation Forum & Exhibition, Eco-Business speaks to Professor Walter Stahel, one of the founding fathers of the circular economy, on its untapped potential to increase profits and economic competitiveness.

The circular economy has gained global popularity among businesses in recent years, thanks to its environmental benefits as waste streams get transformed into useful resources.

But it has an equal ability to increase profits and economic competitiveness for organisations, and this potential has largely been underestimated, says Professor Walter Stahel, widely regarded as one of the founding fathers of the circular economy.

The circular economy is an umbrella term for business models and industrial processes which do not generate waste but rather, reuse natural resources repeatedly. According to global management consultancy Accenture, circular economy approaches can add as much as US$6 trillion to global economic growth by 2030.

At its core, the circular economy is “about economics and competitiveness,” Stahel tells Eco-Business in a recent interview. “The ecological impact comes as a gift”.

The 70-year old Swiss academic is known for his pioneering work on extending the life cycle of products since the 1970s, long before terms like the circular economy, closed loop, and zero-waste were part of the business lexicon.

He is also the brain behind key circular economy concepts like ‘cradle to cradle’ manufacturing, where goods are made, dismantled and re-made into new products.

Stahel also came up with the idea of the performance economy, also known as the “goods as services” system.

This is a business model within the circular economy where instead of selling items to customers, companies retain ownership of the physical products and customers only pay for the use they derive from it. This spurs firms to make their wares last as long as possible.

An example of the performance economy in action is tyre manufacturer Michelin, which sells mileage to customers, not tyres. When a tyre is no longer roadworthy, it simply replaces them for clients, and re-treads, repairs, and re-grooves the old tyres in its own workshops.

Stahel will be speaking about the circular economy’s financial and environmental advantages at the Macao International Environmental Co-operation Forum & Exhibition (MIECF) this March, a three-day event aimed at highlighting the opportunities arising from effective waste management and a green economy. 

An architect by training, Stahel’s foray into the circular economy began with a 1976 paper in which he argued that making products like cars and buildings more long-lasting and easier to dismantle can create more jobs and simultaneously reduce energy, water, and resource use.

In 1982, he went on to set up a research centre, the Product-Life Institute in Geneva, with Italian economist Orio Giarini. The organisation’s mission is to develop business models to reuse goods, extend product life cycles, and prevent waste.

In addition to his pioneering work on the circular economy at the Product-Life Institute, Stahel is also a full member of the Club of Rome - a global thinktank which focuses on finding solutions for a sustainable economy - and has taught sustainable design at universities in the United Kingdom, Europe, United States, and Japan.

These days, circular economy concepts and business models are enjoying a lot more popularity than they did in the 1970s.

“From the start, my biggest challenge has been to change the conventional belief that only manufacturing can create jobs and wealth and that new is better,” he explains.

Many multinationals have since embraced this business model: American computer firm Dell started a plastic recycling system for their hardware, car giant Renault collects back used car parts and re-makes them into new machines, and Swedish fashion house H&M recycles used clothing, just to name a few. 

But still, most companies and governments don’t fully grasp the scale of opportunities, says Stahel. 

The circular economy is about economics and competitiveness. The ecological impact comes as a gift.

Walter Stahel, founder, The Product-Life Institute

Circular competitiveness

At a national level, countries can boost their economic competitiveness by supporting a shift towards industrial processes which minimise waste and focus instead on resource recovery, Stahel says. 

This is because the circular economy, with its focus on recycling, skills development and innovation, is inherently more labour intensive than the linear model of “take, make, waste”, but uses less energy and resources.

Not only does job creation help to boost regional economies, local labour is not seen as a taxable resource in many countries, unlike imported natural resources. By not taxing people’s income from working, governments will increase national competitiveness, says Stahel.

Dwindling natural resources have also prompted many countries to look for ways to increase their resilience to a shortfall in the supply of industrial raw materials, he adds. Here, breaking down products into their individual materials and using them to make new products is a cheap and effective solution. 

Meanwhile, companies will find that virgin natural resources will become increasingly expensive and onerous to obtain due to the various environmental sourcing rules they must comply with, Stahel explains.

By reusing existing materials, firms can avoid the hassle and cost of procuring new raw materials. “Turning 100 per cent of resources into new products promises multiple financial savings,” he says.  

There are several new frontiers of circular methods yet to be explored.

For example, businesses are still hunting for a suitable model which will allow manufacturers in various industries to take responsibility for their product’s entire life cycle and still make a profit while doing so.

Today, many manufacturers struggle with the investments required to do this, including better raw materials, logistics to recover them at the end of a product’s life and technology to reuse them.

There is also potential to develop new ways to break down items to the molecular level such as breaking metal alloys or organic polymers down to their individual components, says Stahel, which could help open up new world markets.

He adds that the performance economy system, where the ownership of goods is not transferred to customers at all, “is the most profitable business model of the circular economy”.

In these business models where companies retain ownership of the goods, they have a guaranteed ability to recover all the materials they used to make the item, and as a result, they are also protected from sudden spikes in commodity prices.

Asia’s untapped potential

Stahel notes that despite its enormous potential, the concept has made little headway in Asia’s rapidly growing economies.

In comparison, companies and governments in Europe and the United States have taken a more proactive approach to embrace this business model. The European Union, for example, last year passed a ‘circular economy package’, which includes various laws on reducing waste and sustainable manufacturing.

Still, despite the lack of formal policies, Asia has a long legacy of finding ways to repurpose goods and reduce waste, says Stahel.

For example, jeepneys - a common mode of public transport in the Philippines - are repurposed military jeeps left behind by the American army in the Second World War. Localised services such as garment repair and tyre restoration are also better developed in Asian countries than in most Western economies, he adds.

But as the region grew economically, “these are increasingly seen as signs of ‘underdevelopment’, not as the lighthouses of a future circular industrial economy”, he says. 

Other barriers to the growth of the circular economy in Asia include the fact that the region’s markets are not yet saturated. In saturated markets, product sales hit a peak and can increase no further unless companies improve a product significantly.

But this is not the case in Asia, where economic growth is driving an ever-increasing growth in demand from consumers.

Waste prevention is also not a political priority among most of the region’s lawmakers, he adds.

But governments around the world are slowly taking notice of the environmental and economic importance of the circular economy.  

The Chinese territory of Macao, for example, is focusing on waste management as the central theme of the upcoming MIECF conference. Located in the Pearl River Delta, one of the most densely urban areas of the world, the special administrative region is one of China’s main growth hubs.

Macao is perhaps better known for its tourist attractions than its sustainability credentials, but its government, driven by a strategic aim to nurture green business practices and knowledge-sharing among the companies operating in the region, has since 2008 organised MIECF, an annual mega-event on sustainability.

This year’s event is themed ‘Green Economy - Opportunities for Waste Management’, and aims to communicate to participants responsible waste management is not only important for a company’s sustainability goals, it also gives rise to a plethora of economic opportunities.

This is why Stahel has been invited to deliver the keynote address at 2016MIECF, where he will share insights on key trends in the development of the circular economy, and offer analysis on how companies can start to adopt circular and performance economy practices into their business.

He will provide an in-depth explanation of the challenges inherent in each of these rapidly evolving business models, as well the skills and resources that companies will need to reap the benefits of transitioning away from the linear economy.

2016MIECF, organised by the Government of Macao Special Administrative Region and co-organised by the governments of the Pan-Pearl River Delta (PPRD, also known as “9+2” Region), consists of a conference, trade fair, networking events, and public campaign.

Over 7,200 participants from 59 countries and regions participated in the 2015 MIECF, and the 2016 edition will be held at the Venetian Macao-Resort-Hotel from 31 March to 2 April.

Industry leaders and policy makers alike have a strong incentive to study alternatives to their present activities, says Stahel. 

If businesses and governments commit to integrate circular and performance economy concepts into their working models, “quantum leaps in competitiveness are possible,” he adds.

 

This year’s MIECF features former circular economy pioneer Professor Walter R. Stahel as keynote speaker. To hear more from him and other experts, register for the Macao International Environmental Co-operation Forum & Exhibition (MIECF) held from 31 March to 2 April 2016 here.

With an exciting lineup of an international conference, exhibition, business matching and networking activities, MIECF offers access to opportunities from the Pan-Pearl River Delta Region of China (PPRD Region), Asia-Pacific and Portuguese-Speaking Countries and beyond. At the Green Forum, speakers will discuss latest trends and strategies on waste management at the manufacturing, hospitality, environmental and construction industries at the two-days conference, alongside a series of networking events and business matching activities during the three-days event.

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