Clean Tech Clean Profits

Using Effective Innovation and Sustainable Business Practices to Win in the New Low-carbon Economy

Adam Jolly

• Verlag: Kogan Page
• Jahr: 2014
• ISBN:
  9780749470425
• Auflage: 1
• Thema: Commerce
• Thema: Activité entrepreneuriale

Through a mixture of innovation and regulation, a future is being mapped out free of carbon and pollutants. The consequences of these changes could be as far-reaching as those triggered in the last 25 years by the web. Just as many winners and losers are likely to be created by the squeeze on carbon and the growth of clean technologies.
Designed for a wide management audience, Clean Tech, Clean Profits provides a practical guide to how organizations can re-think their operations, develop an innovative response, commercialize clean technologies and improve their efficiency. Its emphasis is on the specific steps that can be taken now in reviewing options, drawing up plans, upgrading a process, writing a specification or making an investment.

Part one

The size of the challenge

1.1

Towards the circular economy

Ellen MacArthur, sailor and founder of the Ellen MacArthur Foundation, explains why she is championing the case for a new economic model based on designing products for reuse throughout the industrial chain.

The last 150 years of industrial evolution have been dominated by a one-way or linear model of production and consumption in which goods are manufactured from raw materials, sold, used and then discarded as waste. In the face of sharp resource volatility increases across the global economy and proliferating signs of resource depletion, the call for a new economic model is getting louder.

The quest for a substantial improvement in resource performance across the economy has led businesses to explore ways to reuse products, their components or the materials within them thus preserving more of their precious material, energy and labour inputs. The time is right, many argue, to take this concept of a ‘circular economy’ one step further, to analyse its promise for businesses and economies and to prepare the ground for its wide adoption.

The limits of linear consumption

Throughout its evolution and diversification, our industrial economy has hardly moved beyond one fundamental characteristic established in the early days of industrialization: a linear model of resource consumption that follows a ‘take-make-dispose’ pattern. Companies harvest and extract materials, use them to manufacture a product, and sell it to a consumer – who then discards it when it no longer serves its purpose. Indeed, this is truer now than ever – in terms of volume, some 65 billion tonnes of raw materials entered the economic system in 2010, and this figure is expected to grow to about 82 billion tonnes in 2020.

Recently, many companies have also begun to notice that this linear system increases their exposure to risks, most notably higher resource prices and supply disruptions. More and more businesses feel squeezed between rising and less predictable prices in resource markets on one hand and high competition and stagnating demand for certain sectors on the other. The turn of the millennium marked the point when real prices of natural resources began to climb upwards, essentially erasing a century’s worth of real price declines.

At the same time, price volatility levels for metals, food, and non-food agricultural output in the first decade of the 21st century were higher than in any single decade in the 20th century. If no action is taken, high prices and volatility will likely be here to stay if growth is robust, populations grow and urbanize, and resource extraction costs continue to rise. With 3 billion new middle-class consumers expected to enter the market by 2030, price signals may not be strong or extensive enough to turn the situation around fast enough to meet this growth requirement.

From linear to circular – accelerating a proven concept

A circular economy is an industrial system that is restorative or regenerative by intention and design. It replaces the ‘end-of-life’ concept with restoration, shifts towards the use of renewable energy, eliminates the use of toxic chemicals, which impair reuse and return to the biosphere, and aims for the elimination of waste through the superior design of materials, products, systems, and, within this, business models.

Such an economy is based on a few simple principles. First, at its core, a circular economy aims to ‘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. They set it apart from disposal and even recycling where large amounts of embedded energy and labour are lost, with most current recycled materials being the most we can get out from products which are not designed for materials recovery. At minimum, with a circular economy products are designed for disassembly and recovery of basic materials – even at the very end of product life some value can be recovered. Second, circularity introduces a strict differentiation between consumable and durable components of a product. 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 be safely returned to the biosphere – directly or in a cascade of consecutive uses. Durables such as engines or computers, on the other hand, are made of technical nutrients unsuitable for the biosphere, like metals and most plastics. These should be designed from the start for reuse, and products subject to rapid technological advances are designed for upgrade. Third, the energy required to fuel this cycle should be renewable, again to decrease resource dependence and increase system resilience (eg to oil shocks).

For technical materials, 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. 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.

These principles all drive four clear-cut sources of value creation that offer arbitrage opportunities in comparison with linear product design and materials usage:

• The power of the inner circle refers to minimizing comparative material usage vis-à-vis the linear production system. The tighter the circle, ie, 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, labour, energy and capital embedded in the product and on the associated rucksack of externalities – such as greenhouse gas (GHG) emissions, water, toxicity.
• The power of circling longer refers to maximizing the number of consecutive cycles (be it reuse, remanufacturing, or the cycling of materials) and/or the time in each cycle.
• The power of cascaded use refers to diversifying reuse across the value chain, substituting for an inflow of virgin materials into the economy.
• The power of pure inputs lies in the fact that 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.

These four ways to increase material productivity are not merely one-off effects that will dent resource demand for a short period of time during the initial phase of introduction of these circular setups. Their lasting power lies in changing the run rate of required material intake.

An economic opportunity worth billions – charting the new territory

Eliminating waste from the industrial chain by reusing materials to the maximum extent possible promises production cost savings and less resource dependence. However 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.

Substantial net material savings

Based on detailed product-level modelling, the first report produced by the Ellen MacArthur Foundation with analysis by McKinsey & Company estimates that, in the medium-lived complex products industries, the circular economy represents a net material cost saving opportunity of US $340–380 billion per annum at EU level for a ‘transition scenario’ and US $520–630 billion per annum for an ‘advanced scenario’, in both cases the net value of the materials used in reverse-cycle activities. The latter would equate to 19–23 per cent of current total input costs or a recurrent 3–3.9 per cent of 2010 EU GDP. Benefits in the advanced scenario are highest in the automotive sector (US $170–200 billion per annum), followed by machinery and equipment.

For fast-moving consumer goods, the full value of circular opportunities, globally, could be as much as US $ 700 billion per annum in material savings or a recurring 1.1 per cent of 2010 GDP, all net of materials used in the reverse-cycle processes. Those materials savings would represent about 20 per cent of the materials input costs incurred by the consumer goods industry.

Mitigation of price volatility and supply risks

The resulting net material savings would result in a shift down the cost curve for various raw materials. For steel the global net material savings could add up to more than 100 million tonnes of iron ore in 2025 if applied to a sizeable part of the material flows (ie, in the steel-intensive automotive, machining and other transport sectors, which account for about 40 per cent of demand).

Innovation

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.

Job creation potential

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 total prize is just the beginning of a much bigger set of transformative value-creation plays as the world scales up the new circular technologies and business models. In a world of 9 or 10 billion consumers with fierce competition for resources, market forces are likely to favour those models that best combine specialized knowledge and cross-sector collaboration to create the most value-per-unit of resource over those models that simply rely on ever more resource extraction and throughput.

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. The circular economy, 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.

Lasting benefits for a more resilient economy

Importantly, any increase in material productivity is likely to have a positive impact on economic development beyond the effects of circularity on specific sectors. Circularity as a ‘rethinking device’ has proved to be a powerful new frame, capable of sparking creative solutions and stimulating innovation. A circular economy would shift the economic balance away from energy-intensive materials and primary extraction. It would create a new sector dedicated to reverse cycle activities for reuse, refurbishing, remanufacturing, or recycling on the technical side, and anaerobic digestion, composting, cascading on the biological side.

The shift has begun – mainstreaming the circular economy

Why now? Our economy currently seems locked into a system in which everything from production economics and contracts to regulation and the way people behave favours the linear model of production and consumption. However, this lock-in is weakening under the pressure of several powerful disruptive trends: resource scarcity and tighter environmental standards are here to stay, information technology is now so advanced that it can trace materials anywhere in the supply chain and finally, we are in the midst of a pervasive shift in consumer behaviour – a new generation of consumers seems prepared to prefer access over ownership, especially when they are lower-cost, better product options. The time is right for a regenerative model, capable of providing long-term benefits, to be taken up to scale.

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Ellen MacArthur made yachting history in 2005, when she became the fastest solo sailor to circumnavigate the globe. Having become acutely aware of the finite nature of the resources our linear economy relies u...