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The Circular Economy

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Maika Henry Northrop

on 12 April 2014

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Transcript of The Circular Economy

Employing the Circular
Concept at DGM
Why Consider The Circular Concept?
How Executives at DGM Can Drive Change Following Seven Key Circular Business Strategies
DGM's potential advantages
versus disadvantages of employing a circular economy
Circular Economy Case Studies
Employing The Circular Economy
Understanding the Potential Impacts and Benefits for
Diversified Global Manufacturing, Inc.

Mounting Pressure
On Resources
Resource price increases
Over the last decade and a half, commodity prices overall
increased by nearly 150% from 2002 to 2010, erasing the
entire last century’s worth of real price declines. Almost all
companies interviewed in this scoping study confirmed
steep materials cost increases in recent years.
Favorable
Alignment of Enablers
Consumer preferences are shifting away from ownership
and displaying a preference for access over ownership, i.e. services over products. This is important because young urban and rural consumers’ lifestyle choices in this decade have the power to shift the economic model away from the linear system.
Losses due to a
Geographic Dispersion
The rise of globalization and product modulation has created global economic growth by maximizing the economic arbitrage of materials and production costs. However, the loop for each of the components, sub-components and materials should
eventually be closed. Geographic dispersion will need to be
examined at very granular levels to close the loops because
of how very spread out the different activities are along the
value chain.
Leakages Due to
Materials Complexity and
Proliferation
Today’s materials complexity compounds the obstacles to
scaling up the circular economy. While tools and methods
exist to create complex product formulations, it is still difficult after the fact—even for a manufacturer—to identify and separate materials, maintain quality and ensure
purity (including non-toxicity). Without reliable classification, it
is hard to collect materials at sufficient scale and robust
supply rates to create arbitrage opportunities. Without these,
investors do not see potential returns to justify investment in
new processes, infrastructure, business models and R&D to
close innovation.
Trapped in the
Linear Lock-In
There is an inherited and powerful lock-in to the linear system. Our industrial system—like our QWERTY keyboards or electrical power standards—is an encrusted reflection of decisions taken during our earlier industrial history. It is hard to disentangle ourselves from it, which makes it such a challenge to capture the substantial arbitrage opportunities. The most relevant barriers fall into four categories:
The Circular Benefits
Design out waste
Introduces a differentiation between consumable & durable components of a product
The energy required to fuel this cycle is renewable
Durable products are leased, rented or shared
The potential for re-manufacturing
Design Out Waste
Waste does not exist: products are designed and
optimized for a cycle of disassembly and reuse. These tight component and product cycles define the circular
economy and set it apart from disposal and even recycling, where large amounts of embedded energy and labor are lost.
Introduces a differentiation between consumable & durable components
Unlike today, consumables in the circular economy
are largely made of biological ingredients or ‘nutrients’ that are at least non-toxic and possibly even beneficial, and can safely be returned to the
biosphere, either directly or in a cascade of consecutive uses.
The energy required
to fuel this cycle is renewable
A circular economy decreases resource dependence and increases systems resilience (to oil shocks, for example). For technical nutrients, the circular
economy largely replaces the concept of a consumer with that of a user. This calls for a new contract between businesses and their customers based
on product performance.
Durable products are
leased, rented or shared
Unlike in today’s buy-and-consume economy, durable products are leased, rented or shared wherever possible. If they are sold, there are incentives or agreements in place to ensure the return and thereafter the reuse of the product or its components and materials at the end of its period of primary use.
The potential for
re-manufacturing
There is a process of disassembly and recovery at the subassembly or component level. Functioning,
reusable parts are taken out of a used product and rebuilt into a new one. This process includes quality assurance and
potential enhancements or changes to the components
Meet the Circular Economy
Kalundborg Symbiosisis the world’s first well-functioning example of industrial symbiosis and, within the academic discipline of industrial ecology, has become a textbook example of effective resource saving and cycling of materials in industrial production.
The Power of Circling Longer
FLOOW2 facilitates the sharing of overcapacity of business equipment and skills & knowledge of personnel that are under-utilized for half of the time, by making it transparent and tradable on their platform.
The Power of Cascaded use Across Industries
Flooring company Desso have been one of the pioneers of the Cradle to Cradle approach, and was the first carpet manufacturer in EMEA to gain C2C certification. The company continues to innovate around the principles of a circular economy, extending these products to a large portfolio of clients in both carpet and artificial grass divisions.

"The business model works and makes sense, we’ve gained a competitive edge whilst making better products, when in 2009 eight out of the ten biggest carpet manufacturers recorded considerable losses. The idea is not for me to brag, but to show that the Cradle to Cradle concept is highly credible. "
Stef Kranendijk

DESSO uses 100% renewable electricity (hydropower) in production locations in Waalwijk and Dendermonde.
The Power of Pure Inputs
These 4 Clear Cut Principles of Value Creation underlie the following case studies which fuels the circular economy:
The Power of the Inner Circle
The Power of Circling longer
The Power of cascaded use across industries
The Power of pure inputs which includes non-toxic, easier-to-separate inputs and designs
Land Productivity and Soil Health
Land degradation costs an estimated US$ 40 billion
annually worldwide, without taking into account the
hidden costs of increased fertilizer use, loss of biodiversity
and loss of unique landscapes.

Higher land productivity, less waste in the food value chain
and the return of nutrients to the soil will enhance the value
of land and soil as assets.

By moving much more biological material through the anaerobic
digestion or composting process and back into the soil, will
reduce the need for replenishment with additional nutrients.
This is the principle of regeneration at work.
Job Creation Potential
There are signs that a circular economy might bring
greater local employment, especially in entry-level
and semi-skilled jobs, which would address a serious issue
facing the economies of developed countries.

The job creation potential of remanufacturing globally and recycling in Europe is predicted to exceed 1 million. Worldwide, the figure will far exceed this over time.

A shift to innovatively reusing, remanufacturing
and recycling products could lead to significant job creation. 500,000 jobs are created by the recycling industry in
the EU alone.
Mitigation of Price Volatility and Supply Risks
The net materials savings would result in a shift down the cost curve for various raw materials. For steel, the global net materials savings could add up to more than 100 million tonnes of iron ore in 2025 if applied to a sizeable share of the materials flows (i.e. in the steel-intensive automotive, machining and other
transport sectors, which account for about 40% of demand).

In addition, such a shift would move the steel industry away
from the steep (increasing) right-hand side of the raw materials
cost curve, thus likely reducing demand-driven volatility.
Substantial Net Material Savings
Based on detailed product-level modeling, in the medium-lived
complex products industries, the circular economy represents a net
materials cost savings opportunity of US$ 340 to 380 billion
p.a. at an EU level for a ‘transition scenario’ and US$ 520 to
630 billion p.a. for an ‘advanced scenario,’ net of the
materials used in reverse-cycle activities in both cases. The latter
range equals 19 to 23% of current total input costs, or a recurrent 3
to 3.9% of 2010 EU GDP.

Benefits in the advanced scenario are highest in the
automotive sector (US$ 170 to 200 billion p.a.), followed by
machinery and equipment
Set-up Global Reverse Networks
This focuses on building out reverse network
capabilities, which is essential to address the
geographic dispersion challenge. This will ideally take place at a product and component level, so it will be industry specific and require collaboration along the incumbent value chain and adjacent/cascaded activities.
Re-organize & streamline pure materials flows
Reorganize and streamline pure materials flows.
Materials represent the greatest common denominator,
and the most universal assets across industries and
geographies: they will ultimately require closed loops at a
global level to achieve full potential. The key will be to
tackle materials complexity and create pure materials
stocks at scale that generate sufficient economic benefits
for participants.
Create a circular business setup
The aspiration to replace one-way products with
goods that are ‘circular by design’ and create reverse
logistics networks and other systems to support the circular
economy is a powerful spur to new ideas. Adopting more
circular business models would bring significant benefits,
including improved innovation across the economy.
It is already proving a vibrant terrain for entrepreneurs who
target the benefits of an economy that operates with higher
rates of technological development; improved materials,
labor, and energy efficiency, and more profit opportunities
for resource-productive companies.
Innovate demand focused business model
Business models are needed that allow better access to products,
components and materials during and within the post-usage
loops. Business model innovation will be critical to
mainstreaming the uptake of the circular economy principle in
more B2B setups, and in B2C. It will also be important to fully
capture the potential of the shift to a sharing economy already
discussed.

Advancing new access-over-ownership and take-back models will further accelerate the adoption of circular economy business models because they drive the greater use of existing idle assets.
Focus on pure materials stock management at the outset
Catalyzing “trigger projects” to develop pure materials flows could significantly accelerate scale-up of the circular economy across many sectors. Materials flows are the largest common denominator, where multiple stakeholders need support to collaborate effectively in order to generate benefits for multiple players along the value chain, across sectors and geographies. Pursuing this path will likely entail positive second-order effects, such as job creation and higher value added in the reverse cycle decoupled from resource price volatility, which will create a more robust planning environment. This typically results in superior financial returns, from the overall elimination of waste, and the associated wider economic benefits.
Join forces to make the change
Concerted action is key. The challenges are not
insurmountable, but addressing the leakage points described will require cooperation from players across different industries. In the words of Rudi Daelmans, Desso’s Director of Sustainability, “We cannot do it alone”. Collaboration across different stakeholders, industries and geographies will be needed to devise standards and mechanisms for materials use, conversion methods, and reverse setups.
Catalyzing a series of 'Trigger Projects' is the most effective way to reach tipping points for each category
Four materials categories are prime candidates for demonstrating viability
Defining materials formulations is the key to unlocking change
The materials list is exploding. A wide range of new
additives are added each year, making post-use valorization ever more demanding. The key is to tame materials complexity by defining and using a set of pure materials stocks at scale, designing out the leakages that hamper classification from the start. Reorganizing and streamlining flows of pure materials will create arbitrage opportunities that generate economic benefits and make investments in reverse cycle setups profitable.
Supply chains are the key unit of action, and will jointly drive change
The materials leakage points and barriers to mainstreaming the new model of circular material flows in a globalized economy must now be addressed and overcome. This requires better understanding of the archetypes into which supply chains fall, and the three main barriers to change: geographic dispersion, materials complexity, and linear lock-in. Analyzing the most advanced business cases confirms that a supply chain management approach that balances the forward and
reverse loops and ensures uniform materials quality is critical
to maximizing resource productivity globally. The transition
can begin once the hinge points are identified and acted
upon in a concerted effort—across companies, geographies,
and along the supply chain.
Circular supply chains are up and running and they've gone global
The global secondary fiber stream for paper and cardboard is one example. The economics of such arbitrage opportunities are expected to improve as raw materials prices rise and the costs of establishing reverse cycles decline. Trends favoring lower costs and making it possible to close the reverse loop include urbanization, which concentrates demand, allowing tighter forward and reverse cycles. Advanced tracking and treatment technologies also boost the efficiency of both forward and reverse logistics.

Governments have started to provide stimuli, too: higher
charges for landfill increase the competitiveness of circular
products, and thus the arbitrage opportunities of setting up
reverse cycle options.
The circular concept fosters wealth & employment generation against the backdrop of resource constraints
Eliminating Waste from the industrial chain
Tangible outcomes can be achieved in 2 years through joint action
Subject to price volatility as population growth & resource extraction costs continues to rise
Increased exposure to risks due to higher resource prices and supply disruptions
More restrictions on virgin materials and resources from land, atmosphere or water
Loss of competitive edge
Disadvantages
Advantages
Unprecedented resource price volatility
The last decade has also seen higher price volatility for metals, food and non-food agricultural output than in any single decade in the 20th century. Higher resource price volatility can dampen economic growth by increasing uncertainty, discouraging businesses from investing and increasing the cost of hedging against resource-related risks.
1. Misaligned incentives across the value chain are the key driver of the decline. Misaligned incentives often result in the inability to create, capture and redistribute value.
2. ‘Industrial-scale’ markets do not yet exist for many materials suitable for reverse cycles, making it hard or impossible for companies to secure quality-controlled and reliable secondary materials and components to complement or replace primary stock.
3. In the linear take-make-dispose economy, last-mile transport to landfills and incinerators is historically often local, with little or no ability to sort and handle different types of materials carefully enough to maintain quality and purity at scale.
4. Boundary conditions such as regulations, or funding and
sufficient transparency on opportunities.
The Power of the Inner Circle
Our Case Studies:
Eliminating waste from the industrial chain by reusing
materials to the maximum extent possible promises
production cost savings and less resource dependence.
However, this report argues that the benefits of a circular economy are not merely operational but strategic, not just for industry but also for customers, and serve as sources of both efficiency and innovation.

Economies will benefit from substantial net material savings, mitigation of volatility and supply risks, drivers for innovation and job creation, improved land productivity and soil health, and long-term resilience of the economy.
1. ‘Golden Oldies.’ These are well-established, high-volume recyclables with a remaining purity challenge. Paper and cardboard as a high-volume materials stream has high collection rates, but suffers from quality loss and ink contamination during the reverse cycle, resulting in an estimated US$ 32 billion in value lost annually. PET, glass, and steel also fall into this category.

2. ‘High Potentials.’ Materials used in high volumes that currently lack systematic reuse solutions are polymers, for example. Collection rates are limited and separating out the materials/maintaining their quality and purity is hard due to the high fragmentation of formulas, supply chains and treatment technologies.

3. ‘Rough Diamonds.’ These are large-volume by-products of many manufacturing processes, such as carbon dioxide and food waste. These could provide additional value and displace virgin materials intake.

4. ‘Future Blockbusters.’ A number of innovative materials have breakthrough potential, either from enabling substantial improvement of materials productivity (e.g. 3D printing), or having usage cycles that are fully restorative by design and intention (bio-based materials).
Choosing a signature material from each category as
an example will facilitate practical collaboration on the study
of specific materials by different players across industries and
geographies. With proof of concept and initial flagship
successes, stakeholders can roll out the solutions to other
materials in that category much faster than trying to cover an
entire category in one go. The proposed signature materials
by category are paper and cardboard, polypropylene, carbon
dioxide, and bio-based and 3D printing materials. Agreement
on their preferred formulations will in itself fast-track the
scale-up of the circular economy, as well as opening up
exciting business opportunities.
In 24 months, the initiative should be able to create a preferred list of pure, high-quality materials with cross-industry applications to aggregate volume and enhance stock valorization.

It should also be possible to arrive at a proof-of-concept result within 24 months for two or more selected materials. In parallel, the initiative will define methods
and systems enablers for achieving sustainable change in the medium and long term.
Source:
Circular business models will gain an ever greater competitive
edge in the years to come because they create more value
from each unit of resource than the traditional linear ‘take-make-
dispose’ model. Accelerating the scale-up promises to
deliver substantial macroeconomic benefits as well as open
up new opportunities for corporate growth. The materials
saving potential alone is estimated at over a trillion dollars a
year. The net employment opportunity is hard to estimate,
and will largely depend on the labor market design. But
even today, the job creation potential of remanufacturing
globally and recycling in Europe already exceeds one million.

3 million m3 of water saved through recycling and reuse
The incentive structure of Kalundborg Symbiosis is driven by resource scarcity, with increased costs of materials and energy for businesses being the primary basis for a shift in the method of production. Incentivisation is based on the individual project’s commercial value, and any exchange between companies are initially assessed and established on the basis of economic gain in a saving of resources or money. The environmental benefits of this relationship are apparent, and have become a key priority, but the primary motivation in establishing the symbiotic relationships in Kalundborg has economic benefit for participating businesses.
150,000 tons of yeast replaces 70% of soy protein in traditional feed mix for more than 800,000 pigs.
Cooperation between companies in Kalundborg Symbiosis has occurred from the bottom-up, initiated by the companies themselves with continuous support from the Kalundborg Municipality. The close physical proximity of the companies and exchange of resources has resulted in a collaborative mindset among the partners, as they have actively chosen communication, openness and cooperation. This extends beyond the economic benefits involved with the transfer of waste products, surplus heat and water, and these very different companies see the potential of joint-problem solving and development for the area, for example with a recent project to move towards renewable energy sources for Kalundborg.
FLOOW2 is the first business-to-business marketplace established in early 2012 that enables companies and institutions to share their equipment and knowledge & skills of personnel that is currently underutilized. The platform is currently operational in Belgium, The Netherlands and Germany with a rapid global expansion plan envisaged.

There are many existing business models based on collaborative consumption, however they primarily focus on consumers and peer-to-peer sharing. Meanwhile, FLOOW2 focuses on the sharing activities between companies and started in the heavy equipment market. However, they have also detected 7 other markets in which the platform can trade overcapacity, like healthcare, knowledge & skills, transport & logistics, theatre & events and manufacturing.

“By shifting from a scarcity perspective to one of utilizing the abundance of goods already on the market through highlighting spare capacity, companies can make better use of what they already have. That can potentially lead to a reduction in the overproduction of goods by reducing demand.” Will Robben, Founder, FLOOW2
NIKE
“While Flyknit and other Nike-led technologies have greatly advanced the integration of sustainability and performance, materials innovation is not a problem we can solve alone. Creating a sustainable palette of materials would be disruptive to the world of making, but it’s also incredibly complicated,” writes Jones in a blog post on the WEF website. “It is clear that no single company, organization or government has the ability to tackle this innovation challenge on their own. Instead, the innovations required to create the future will require new models of collaboration. We need to catalyze capital, capabilities, science and technology and resources far beyond the boundaries of our own supply chain.” Nike, Inc. VP of Sustainable Innovation Hannah Jones
http://www.ellenmacarthurfoundation.org/business/reports/ce2014
http://www.theguardian.com/sustainable-business/interactive/how-to-transition-to-a-circular-economy-infographic
http://nikeinc.com/news/nike-inc-promotes-circular-economy-at-world-economic-forum
http://www.ellenmacarthurfoundation.org/case_studies/kalundborg-symbiosis
http://www.ellenmacarthurfoundation.org/case_studies/floow2-1
http://www.ellenmacarthurfoundation.org/case_studies/desso
Refers to minimizing comparative materials use
via the linear production system. The tighter the circle, i.e. the less a product has to be changed in reuse, refurbishment and remanufacturing and the faster it returns to use, the higher the potential savings on
the shares of material, labor, energy
and capital still embedded in the
product, and the associated
externalities (such as
greenhouse gas (GHG)
emissions, water and
toxicity).
Refers to diversifying reuse across the value chain, as when cotton clothing is reused first as second-hand apparel,
then crosses to the furniture industry as fiber-fill in upholstery, and the fiber-fill is later reused in stone wool insulation for construction—substituting for an inflow of virgin materials into the economy in each case—before the cotton fibers are safely returned to the biosphere.
Kalundborg Symbiosisis
FLOOW2
DESSO
Nike
Refers to
maximizing the
number of consecutive
cycles (be it repair, reuse, or
full remanufacturing) and/or the
time in each cycle. Each prolonged cycle
avoids the material, energy and labor
of creating a new product or
component.
Uncontaminated
material streams
increase collection and
redistribution efficiency while maintaining quality, particularly of technical materials, which in turn
extends product longevity and thus
increases material productivity.
Full transcript