New Studies Measure Benefits of the Circular Economy

Two reports from prominent global think tanks bring into question some past “best practices” of supply chain management, which may soon be regarded as not only antiquated, but wasteful as well.

Ellen MacArthur Foundation researchers maintain that the linear “take, make, dispose” model – the dominant economic template of our time – relies on large quantities of easily accessible resources and energy, and therefore is increasingly unfit for today's complex global trade networks.

Unfortunately, researchers add, working towards efficiency by reducing the resources and fossil energy consumed per unit of economic output will not alter the finite nature of their stocks…but can only “delay the inevitable.”

They conclude that a more fundamental change of the operating system is necessary because the concept of the circular economy has been gaining traction for a variety of obvious reasons. It is characterized, more than defined, as an economy that is restorative and regenerative by design and which aims to keep products, components and materials at their highest utility and value at all times.

EU Model

The study Growth Within: A Circular Economy Vision for a Competitive Europe estimated that a shift to the circular economy development path in three core industry sectors – mobility, food and built environment – would allow Europe to increase resource productivity by up to 3% annually.

In addition, it would generate EUR 1.2 trillion in non-resource and externality benefits, bringing the annual total benefits for Europe to around EUR 1.8 trillion versus the current development scenario.

On a global scale – using different methodologies and performed across different sectorial and geographical scopes – researchers have consistently “monetized” the positive impacts of the circular economy: growing GDP by 0.8–7%, adding 0.2–3.0% jobs, and reducing carbon emissions by 8–70%.

Circularity as a “rethinking device” has proved powerful, capable of sparking creative solutions and stimulating innovation. An academic meta-study of the relationship between employment and the circular economy, conducted in the Growth Within report, found a positive effect on jobs in scenarios where the circular economy is implemented.

Researchers admit, however, that despite the repeated demonstration of the benefits of the circular economy, the introduction of some of its core practices – such as performance models – has to date been slower than expected.

The study concludes by asking two provocative questions:

*Could the onset of intelligent assets perhaps provide the missing link to make a step change in the uptake of circular business models – removing barriers that prevent sharing, leasing and performance models from becoming the “the new normal”?

*Could the digital revolution offer a blueprint of the infrastructure needed to keep materials in circulation – or could the infrastructure in fact even be fully virtualized?

Digital Transformation

As second study seems to indeed suggest the match between the digital development and the circular economy does seem promising. Intelligent Assets: Unlocking the Circular Economy Potential is the product of Project MainStream, an initiative that leverages the convening power of the World Economic Forum, the circular economy innovation capabilities of the Ellen MacArthur Foundation, and the analytical capabilities of McKinsey & Company.

Here, researchers observe that the rapid increase in the number of intelligent assets is reshaping the economy, and this development will create significant value. The number of connected devices is expected to grow to 25–50 billion by 2020, from around 10 billion today.

A growing body of research indicates that this Internet of Things (IoT) offers a trillion- dollar opportunity, brought about by improved production and distribution processes and, perhaps more importantly, a significant shift in the way products are utilized.

Businesses are already exploiting the interactions between the circular economy framework and intelligent assets today, across several sectors, and with a focal point in cities.

By breaking down structural barriers established over time between production and consumption or use, an IoT-enabled circular economy offers considerable opportunities for a multitude of sectors including manufacturing, energy and utilities, built environment and infrastructure, logistics and waste management, and agriculture and fishing.

Both large incumbents and disruptive innovators are rethinking their models and value chains, indicating that the digital revolution is not a niche market but the underpinning of a new economy. With over 80% of global GDP generated in urban areas and multiple opportunities to optimize materials flows, cities are at the forefront of the upcoming transformation.

What is at stake is not incremental change or a gradual digitization of the system as we know it, but a “reboot”: pervasive connectivity rolled out at scale has the power to redefine value generation, while helping emerging economies bypass heavy upfront investments and material-intensive solutions.

For example, an ecosystem of intelligent asset-enabled services could jointly open widespread access to reliable, grid-free renewable energy. Solar panels could be provided as a service to individuals and businesses without access to the capital to buy solar panels themselves, through weekly online payments. Battery health monitoring, predictive maintenance of panels, automated management of distribution systems and other IoT-enabled services could complement this model to avoid the massive investment in capital and resources needed to develop a centralized grid infrastructure.

Such a promising horizon entails redefined collaborative mechanisms between technology and the framework within which it operates. At the confines of innovation and regulation, creativity needs to be called upon in order to manage the complex questions raised by data circulation and capture, compatibility of systems and intellectual property.

Several experts consulted have remarked that companies need to shift away from a protective approach and closed innovation, towards more open-source, collaborative data platforms. At the same time, the proliferation of sensing equipment in society raises important questions about data security and privacy. Addressing these challenges requires new rules of the game that will allow the fast-moving technology and market trends to evolve.

The report concludes by noting that companies and policymakers would need a “multi-stakeholder” approach to create such conditions. Should this strategy prove if successful it could lay the groundwork for solving several of the core challenges for designing an economy that is truly restorative and regenerative.

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