A more circular economy also has the potential to bring production home, eliminate foreign dependencies and create hundreds of thousands of new jobs.
COVID-19 Recovery Plan for Europe
The economic fall-out from COVID-19 is widespread. Companies struggling or going out of business, individuals losing their jobs and families losing their livelihoods. The recovery will need to address these as a priority while reducing the mountain of national debt that has accumulated in recent months. In this blog I argue that the circular economy can offer part of the solution for a sustainable and lasting recovery.
What is wrong with our current model?
To understand what the circular economy is I’ll start by explaining the linear economic model that has dominated industrial activity since the 19th century: Resources are extracted to produce goods, which are then distributed to markets, consumed and thrown away at the end of their useful life. In short it is a ‘Take – Make – Waste’ model. This system worked well in a world of less than one billion inhabitants where resources were cheap and abundant and waste was not a particular problem.
But this has changed: With 7 billion people on the planet – and rising – all expecting the standard of living we have grown accustomed to in the West, our demand on resources has grown, increasing pressures on non-renewable resources and waste management.
According to the UN’s Resource Panel Report, around 90 billion tons of natural resources, are extracted every year to make what we consume, which equates to more than 12 tons for every person on the planet. Based on current trends, that number is likely to double by 2050. Only 10 percent of these resources are recovered according to Circle Economy, and that which is not recycled is wasted. A few examples stand out:
One-third of food is wasted between farm and fork worldwide;
Only 14% of plastic packaging is collected for recycling;
We create over 40 million tonnes of electronic waste worldwide, every year.
What is the circular economy?
According to the Ellen Macarthur Foundation, a circular economy is an industrial system that is restorative or regenerative by design. It is underpinned by three principles.
- Design out waste and pollution: changing our mindset to view waste as a design flaw.
- Keep products and materials in use: design products and components so they can be reused, repaired and remanufactured, ensuring no materials end up in landfill.
- Regenerate natural systems: aim to enhance natural resources by returning valuable nutrients to the soil and other ecosystems.
In other words, the circular economy is about much more than recycling. It is about maintaining economic value in production processes for as long as possible. This includes reducing the demand for high-resource products and ensuring products last longer, are easily reparable and upgradeable. Something must be wrong when it costs less to buy a new TV than it costs to repair your old one.
One of the most interesting aspects of the circular economy is the transition from products to service, where companies offer a service rather than a product. Examples of this include Uber (getting from A to B rather than owning a car), AirBnB (using excess capacity rather than building new capacity), or Rent the Runway (a new wardrobe every month without ever owning one). The sharing economy as promoted by the Library of Things (why buy when you can borrow?) is also moving us towards a more circular economy.
COVID and the circular economy
What does this have to do with COVID-19 recovery? While the crisis has increased some waste streams in single-use, disposable items, there is growing consensus that the circular economy can support recovery plans in four key areas:
Reducing supply-chain risks: One of the consequences of the crisis is that our confidence in global supply-chains has diminished. In a world that can shut down international transport in a matter of weeks, an over-reliance on global supply-chains is a significant risk to business continuity. Nations and businesses will seek to build greater supply-chain resilience by increasing the local purchase of raw materials, many of which can already be found in existing products that have reached the end of their useful life.
Alleviating cost pressures: As businesses and households are struggling financially as a result of the crisis, we will have to prioritise our purchases. This means that ‘second-life’ products will become much more attractive as they can meet our needs at lower cost. For businesses there are already a number of materials marketplaces which allow for industrial reuse of raw materials, while at the consumer end, the Re-Tuna recycling mall in the Swedish town of Eskilstuna delivers that ‘shopping-mall buzz’ while only selling recycled goods, supporting by Swedish tax law which reduces VAT on used products. Online platforms like eBay have of course capitalised on this for many years.
Creating jobs: According to the EU’s Green Deal, “a more circular economy has the potential to bring production home, eliminate foreign dependencies and create hundreds of thousands of new jobs”. The EU has aims to create 1 million new green jobs. This potential for job creation stems from the fact that the circular economy has been known to create employment in three areas:
- Core circular employment jobs such as waste and resource management and repair and maintenance.
- Enabling jobs that facilitate the upscaling of core circular activities such as leasing, engineering, digital technology and collaboration.
- Indirect circular employment that provide services to core and enabling activities, such as education and logistics.
Generate growth: An increasing number of studies have highlighted the wider macro-economic benefits of the circular economy, which is one of the reasons it is part of the EU’s recovery plan:
- The World Economic Forum estimates that material savings of over $1tn can be achieved from reuse, recycling and upcycling.
- The Ellen MacArthur Foundation estimates that circularity in manufacturing could yield net material cost savings of $630Bn per year in the EU alone.
- According to London’s Circular Economy Route Map, a circular economy in London could generate up to £7Bn net benefit per annum by 2036.
What can business do?
The case for action is strong and here are some thoughts on what business can do, partly inspired by excellent WEF and BCG reports:
- Engage with external stakeholders: No single business can do this alone
- Make the business case: Identify and quantify the opportunities that rethinking products, business models, processes and material flows can bring
- Define and measure goals: Transparency and accountability are key
- Set up reverse networks for products and components: In a circular economy, value flows both ways, not just from raw materials to consumption.
- Reorganise and streamline pure material flows: Ensure that material flows are visible and that your value-chain identifies and utilises sources of value.
- Innovate business models on the demand side: Innovation is critical and circular innovation has many dimensions: Product design, supply-chain logistics, production processes and business models.
What is Freshfields doing? The New York Circular City Initiative
In closing, I would like to share an initiative that Freshfields has convened in New York City. Over the last 18 months Freshfields has brought together a range of key stakeholders including the mayor’s office, city agencies, multinational corporations, foundations and academic institutions to help the city make the transition towards the circular economy.
The New York Circular City Initiative’s vision is to: help create a city where no waste is sent to landfill, environmental pollution is minimized, and thousands of good jobs are created through the intelligent use of products and raw materials.
The New York Circular City Initiative’s first report to be released in the Autumn of 2020 will identify key levers for change that have the potential to transform New York into a circular city and define actions that the City, businesses and financial institutions can take to support the transition to circularity.
Watch this space.