“We make, we consume and we dispose” is the philosophy our society has been following so far, for our growth and prosperity. In recent times, there is a completely different philosophy that is emerging and taking a stronghold. It follows the mantra of “Reduce, Reuse, and Recycle”. The former is called the linear model and the latter is called the circular model. The question is why are we rethinking our model of production and consumption?
First, let us examine how well we did following the linear approach. According to Armin Reller (University of Augsburg) and Tom Graedel (Yale University), if we continue at our current average global utilization rate of metals and other materials (aluminum, copper, nickel, phosphorus, etc.) then they would last for only 58 more years (World Bank, 2013). These materials are being utilized to manufacture products we use daily (electronics, vehicles, fertilizers, etc.). If we continue on with the current trend, it is predicted by the World Bank that global waste generation will double between now and 2025 ( More on this in ‘What a Waste’ Report: Why the Numbers Matter ), to an astounding 6.5 million tons of solid waste every day (World Bank, 2013) . By 2050, it is estimated that we would need three times the number of resources than we currently use, due to global population growth and increase in consumer demand (World Bank, 2013).
- Solid waste generation rates are rising fast, on pace to exceed 11 million tonnes per day by 2100, urban specialist Dan Hoornweg and his colleagues write in the journal Nature. (World Bank, 2013)
- That growth will eventually peak and begin to decline in different regions at different times, depending in part on population growth, waste reduction efforts, and changes in consumption. (World Bank, 2013)
- Until that happens, the rising amount of waste means rising costs for governments and environmental pressures. (World Bank, 2013)
All such patterns suggest the need to change our approach towards consumption. We discard too much of what we consume. Most of these products are manufactured without considering the need for reuse or recycling in the future. It is necessary to control both the production and disposal aspects, for sustaining our growth in the future. What is required is a fundamental change in the way we manage our limited resources. The Circular economy promises a better way forward.
We shall start off by looking into the production and consumption stages of the products we use. On the production side, a circular economy approach focuses on designing and optimizing the products such that there is minimal waste generation. This is accomplished by clearly differentiating between consumable and hard-wearing components of the products . A shift in our approach is possible by putting agreements/policies/contracts in place to ensure the return and reuse of hard-wearing components, rather than discarding them to landfills. This would result in completing the product’s life cycle. Let us see how this would be helpful in a real-world scenario. Let us take the example of a smart phone, a product which is being used by the majority of the population.
In USA, it is estimated that under the current linear model a total of 150 million smart phones (In-depth – Mobile Phones, 2012) are thrown away annually, out of which 90% end up in landfills. Now let us apply the circular economy approach to this. Let us assume that, of the total 150 million smartphones, 135 million will be collected by the respective producers. The plastic, battery, camera, display, charger and approximately 12 more components from each device is reusable. Moreover, the balance of 15 million phones will be used as they are. This will reduce landfill waste and also lower energy consumption, carbon emissions, water consumption and chemical consumption. In this case the use of the circular approach looks like a good option. However the extended use of products may impact the profit margin of manufacturers and companies So, the intriguing question now is why would the corporate world support this new approach?
The answer lies in the approach itself. As we are already consuming majority of the resources at an alarmingly fast pace, we will soon experience scarcity. This is evident from the fact that market prices of many natural resources are too volatile. The re-use of these materials will help the manufacturers reduce their raw material costs and, in majority cases, the bill of materials for the products. The extended usage of the product will help the companies and manufacturers increase their bond with customers. A loyal customer is more important than anything in today’s world. A research by Bain & Co. suggests that if a customer trusts the organization, there is a 68% chance for him or her to purchase the product from the organization (Dustin Benton; In-depth – Mobile Phones, 2012). Let us now see how a smart phone company benefits from a circular economy in our case.
As the company now has majority of the materials already available with them, there is a reduction in the materials cost. It is estimated that by reusing such materials, the company can reduce the production cost of the smart phone by 50 % per device . So, if the average cost of production for a smart phone in the linear approach is 20 USD, it will be reduced to 10 USD per device. On an average, a smart phone manufacturer sells approximately 300 million units in a year which would translate into $3 billion savings for the manufacturer. Apart from this, the company can expand its loyal customer base, develop a new business model of reuse & recycle, increase employment and decrease the negative environmental impact. Looks like a win-win situation for all stakeholders. (In-depth – Mobile Phones, 2012)
It is estimated that by reusing such materials, the company can reduce the production cost of the smart phone by 50 % per device .
There are however some challenges in this approach. The companies need to make a huge initial investment to develop the value chain that adopts this approach. They need to establish reverse logistic mechanisms, systems for screening and dissembling the products and for improving the components. This requires a re-orientation of the business model. However, since circular economy is based on the idea of material circulation, the customer must also be included in the process. Only then a truly circular economy will be successfully created. But the biggest challenge is how to make the customers a part of the whole process?
The existing system would show us how to do it. Most of the consumer product companies offer after sales services to their customers. This increases the product usage cycle. To take back products from customers, companies may need to strategize systems, as done by H&M, Nudie Jeans and Zara. (Ellen MacArthur Foundation, 2013; How it works up close—Case examples of circular products; Incredible Examples of Circular Economy, 2016) These companies request customers to return old clothes and provide some discount coupons. This way, the consumers and the manufacturers both benefit. The future path for the adoption of a circular economy is thus visible. We just need to overcome some hurdles along the way.
Many countries and companies have already started focusing on circular economy . Netherlands adopted this approach in their electronic industry, which contributes an estimated €3.3 billion per annum (McKinsey Center for Business and Environment, 2016). Sweden followed this approach and has been able to eliminate all land waste (Sijbren de Jong, 2016). Alaska Airlines converts its unwanted airline seats into handbags and purses (Incredible Examples of Circular Economy, 2016). Unilever’s program “Zero-Non-Hazardous-Waste-to-Landfill” saves over 140,000 tonnes annually (Incredible Examples of Circular Economy, 2016), of waste going into landfills . Unilever purchases over 2 million tonnes of waste packaging every year and recycles it for new packaging. Everyday more companies and countries are joining this league. (Incredible Examples of Circular Economy, 2016)
This seems to be a high impact strategical move in today’s world. It is an upcoming trend on which we need to work. There are possibilities to increase the efficiency of this model with increased use of advanced information technology. For instance, Radio Frequency IDs can be used for reuse and recycling mechanism, cloud computing can be used for supply chain mechanism etc. We need to look into the opportunity (Eric Hannon, 2016). The journey towards a circular economy is a long one. The businesses need to play a key role, but in the end, so does every consumer. Both the business world and consumers must take the next step beyond traditional recycling efforts by pro-actively supporting products that are part of a closed loop process or those containing recycled materials to secure a sustainable future.
Author : Nitesh Sharma
Editors : Fauzia Babar, Dhruv Chaudhary, Vineeth Palani
Fact Checks : Dhruv Chaudhary, Amanbir Saini
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