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Towards The Circular Economy Vol.1 PDF
Towards The Circular Economy Vol.1 PDF
1
TOWARDS THE
CIRCULAR ECONOMY
Founding
Partners of the
Ellen MacArthur
Foundation
Acknowledgements
Foreword
As part of our strategy for Europe 2020, the European Commission has chosen to
respond to these challenges by moving to a more restorative economic system that drives
substantial and lasting improvements of our resource productivity. It is our choice how,
and how fast, we want to manage this inevitable transition. Good policy offers short- and
long-term economic, social, and environmental benefits. But success in increasing our
overall resilience ultimately depends on the private sector’s ability to adopt and profitably
develop the relevant new business models.
The Foundation’s report paints a clear picture: our linear ‘take-make-dispose’ approach
is leading to scarcity, volatility, and pricing levels that are unaffordable for our economy’s
manufacturing base.
As a compelling response to these challenges, the report advocates the adoption of the
circular economy, and provides an array of case examples, a solid framework, and a few
guiding principles for doing so. Through analysis of a number of specific examples, the
research also highlights immediate and relatively easy-to-implement opportunities. On the
basis of current technologies and trends, it derives an estimate of the net material cost
saving benefits of adopting a more restorative approach—more than USD 600 billion p.a.
by 2025, net of material costs incurred during reverse-cycle activities. The corresponding
shift towards buying and selling ‘performance’ and designing products for regeneration
should also spur positive secondary effects such as a wave of innovations and employment
in growth sectors of the economy, whilst increasing Europe’s competitiveness in the global
marketplace. Many business leaders believe the innovation challenge of the century will
be to foster prosperity in a world of finite resources. Coming up with answers to this
challenge will create competitive advantage.
While The Foundation’s first report has taken a European perspective, I believe that its
lessons are relevant at a global level. It will not be possible for developing economies to
share the developed world’s level of living standards and provide for future generations
unless we dramatically change the way we run our global economy.
The Foundation’s report offers a fresh perspective on what a transition path to a circular
economy at global scale could look like. It is time to ‘mainstream’ the circular economy
as a credible, powerful, and lasting answer to our current and future growth and resource
challenges.
As you read the report, I urge you to consider where and how you can contribute to jointly
moving towards a new era of economic opportunity.
Sincerely,
Janez Potocnik
European Commissoner for the Environment
TOWARDS THE CIRCULAR ECONOMY | 03
Contents
1 Acknowledgements
2 Foreword
5 Report synopsis
6 Executive summary
85 Appendix
94 List of figures
04 | TOWARDS THE CIRCULAR ECONOMY
‘The time is coming when it will no longer make economic sense for ‘business as usual’
and the circular economy will thrive. Our thinking is in its infancy but we’re taking steps
now to see what works in practice and to understand the implications of reworking
our business model. We are preparing to lead this change by rethinking the way we do
business because the reality is, it isn’t a choice anymore’.
B&Q Euan Sutherland, CEO of Kingfisher U.K. & Ireland
(Chairman of the B&Q Board)
‘The concept of the circular economy tallies completely with our thinking at BT about
the importance of providing goods and services sustainably. As a company, we feel
intimately involved with these ideas, because digital technology will play a crucial role in
providing the information needed to create iterative logistics and restorative systems’.
BT Group Gavin Patterson, Chief Executive BT Retail
‘The Circular Economy is a blueprint for a new sustainable economy, one that has
innovation and efficiency at its heart and addresses the business challenges presented
by continued economic unpredictability, exponential population growth and our
escalating demand for the world’s natural resources. Pioneering work carried out by
the Ellen MacArthur Foundation presents an opportunity to fundamentally rethink how
we run our business and challenge all aspects of traditional operating models, from how
we use natural resources, to the way we design and manufacture products, through to
how we educate and train the next generation. We are delighted to be part of the Ellen
MacArthur Foundation and we are committed to exploring how Cisco, our customers,
partners and employees can benefit from the principles of the Circular Economy’.
Cisco Chris Dedicoat, President, EMEA
‘This is an extremely important time for the energy industry with challenges around
sustainability, security and affordability. At National Grid, over the next 9 years, we
are looking to recruit in the region of 2,500 engineers and scientists, a mixture of
experienced engineers and development programme trainees; all vital to the future of
our business. That means we need young people with science, technology, engineering
and mathematics skills, with creative minds and a passion to make a difference. The
circular economy provides a positive, coherent, innovation challenge through which
young people see the relevance and opportunity of these subjects in terms of re-
thinking and redesigning their future.’
National Grid Steve Holliday, Chief Executive
‘Renault believes that innovation favours progress only if the greatest number stand to
benefit from it. Renault believes that the optimisation of existing solutions will not be
enough to realise the vision of sustainable mobility for all. The launch of Renault’s new
game changing fleet of electric vehicles demonstrates that this is possible. A growing
population and increasingly volatile resource market will challenge businesses working
in a business as usual model. Renault is working in partnership with the Ellen MacArthur
Foundation to realise the opportunities of redesigning the future through the vision of a
regenerative, circular economy’.
Renault Carlos Tavares, Chief Operating Officer for Renault
TOWARDS THE CIRCULAR ECONOMY | 05
Report synopsis
4
An economic opportunity worth billions—Charting the new territory
maps out what moving towards a circular economy could mean on a
macroeconomic level and how circular business models could benefit
different market participants.
Executive summary
backdrop, business leaders are in search of in place to ensure the return and thereafter
a ‘better hedge’ and an industrial model that the reuse of the product or its components
decouples revenues from material input: the and materials at the end of its period of
‘circular economy’. primary use.
For technical nutrients, the circular economy These four ways to increase material
largely replaces the concept of a consumer productivity are not merely one-off effects
with that of a user. This calls for a new that will dent resource demand for a short
contract between businesses and their period of time during the initial phase of
customers based on product performance. introduction of these circular setups. Their
Unlike in today’s ‘buy-and-consume’ lasting power lies in changing the run rate of
economy, durable products are leased, required material intake. They can therefore
rented, or shared wherever possible. If they add up to substantial cumulative advantages
are sold, there are incentives or agreements over a classical linear business-as-usual case
(see Figure 10 in Chapter 2).
08 | TOWARDS THE CIRCULAR ECONOMY
Executive summary
Continued
The report provides ample evidence that nutrients returns those back to the biosphere
circularity has started to make inroads on via composting and anaerobic digestion.
the linear economy and that it has moved Furthermore, reverse cycles will not only be
beyond the proof of concept—a number confined within an industry but also ‘cascaded’
of businesses are already thriving on it. across different industries.
Innovative products and contracts designed
for the circular economy are already available We analysed the options for several different
in a variety of forms—from innovative categories of resource-intensive products—
designs of daily materials and products (e.g., from fast-moving consumer goods such as
biodegradable food packaging and easy-to- food and fashion, longer-lasting products
disassemble office printers) to pay-per-use such as phones, washing machines, and light
contracts (e.g., for tyres). Demonstrably, commercial vehicles. We also include single-
these examples have in common that they family houses as an example of a long-life
have focused on optimising the total system product. We used our circularity model to
performance rather than that of a single study products belonging to the ‘sweet-spot’
component. segment—the segment with the highest
circular economy potential—namely, complex
3. How it works up close—Case examples of medium-lived products—in full depth. Our
circular products analysis showed that use of circular economy
approaches would support improvements such
It is evident that reuse and better design as the following:
can significantly reduce the material bill and
the expense of disposal. But how do these The cost of remanufacturing mobile phones
advantages stack up against a production could be reduced by 50% per device—if the
system that has been optimised for industry made phones easier to take apart,
throughput? How can the governing principle improved the reverse cycle, and offered
of ‘selling more equals more revenues’ incentives to return phones.
be replaced? And how can the choice for
circular products, and using rather than High-end washing machines would be
consuming, be rendered more attractive for accessible for most households if they were
customers? leased instead of sold—customers would
save roughly a third per wash cycle, and the
In order for companies to materialise manufacturer would earn roughly a third more
the savings associated with a circular in profits. Over a 20-year period, replacing the
system by reusing resource inputs to the purchase of five 2,000-cycle machines with
maximum degree, they need to increase leases to one 10,000-cycle machine would also
the rate at which their products are yield almost 180 kg of steel savings and more
collected and subsequently reused and/or than 2.5 tonnes of CO2e savings.
their components/materials recuperated.
Apart from the automotive industry, few The U.K. could save USD 1.1 billion a year
industries currently achieve a collection on landfill cost by keeping organic food
rate of 25%. When shifting from linear to waste out of landfills—this would also reduce
circular approaches, the rule of thumb for greenhouse gas emissions by 7.4 million
optimisation is: ‘the tighter the reverse cycle, tonnes p.a. and could deliver up to 2 GWh
the less embedded energy and labour are worth of electricity and provide much-needed
lost and the more material is preserved’. soil restoration and specialty chemicals.
Today’s recycling processes are typically
‘loose’ or long cycles that reduce material These results and those of the other
utility to its lowest ‘nutrient’ level. This products studied in detail in this report (light
is even more true for the incineration of commercial vehicle, smartphone, and textile
waste. In a circular economy, by contrast, cascade) confirm that with some adjustments
reverse activities in the circular economy to product design, business model, reverse
will extend across an array of circles for cycle processes, and/or other enabling factors,
repair and refurbishment of products, and the circular system can yield significant
remanufacturing of technical components. material productivity improvements and can
Likewise, the reverse chain for biological be profitable for manufacturers:
TOWARDS THE CIRCULAR ECONOMY | 09
Circular design, i.e., improvements in Radical designs win. The more consistently
material selection and product design circular design principles were adopted in
(standardisation/modularisation of the R&D phase of the cases we analysed,
components, purer material flows, and design the higher the economic rewards seem to
for easier disassembly) are at the heart of a be. Caterpillar, for example, says it is ‘just at
circular economy. the beginning of full circular design—e.g.,
material science has already and will bring
Innovative business models, especially further major progress into the longevity of
changing from ownership to performance- components.’
based payment models, are instrumental in
translating products designed for reuse into Admittedly, this remains a rough chart of
attractive value propositions. the potential for the circular economy. It is
our hope, however, that this exercise will
Core competencies along reverse cycles and provide companies with sufficient confidence
cascades involve establishing cost-effective, to embark on the transformational journey
better-quality collection and treatment and identify profitable opportunities today—
systems (either by producers themselves or especially piloting circular test cases can
by third parties). often be done with little expansion to the
core capabilities and at moderate risk.
Enablers to improve cross-cycle and cross-
sector performance are factors that support 4. An economic opportunity worth billions—
the required changes at a systems level and Charting the new territory
include higher transparency, alignment of
incentives, and the establishment of industry Eliminating waste from the industrial chain
standards for better cross-chain and cross- by reusing materials to the maximum extent
sector collaboration; access to financing possible promises production cost savings
and risk management tools; regulation and and less resource dependence. However, this
infrastructure development; and—last but not report argues that the benefits of a circular
least—education, both to increase general economy are not merely operational but
awareness and to create the skill base to strategic, not just for industry but also for
drive circular innovation. customers, and serve as sources of both
efficiency and innovation.
In summary, our analysis highlights the net
benefits a circular economy could bring How economies win
in terms of reduced material inputs and
associated labour and energy costs as well Economies will benefit from substantial net
as reduced carbon emissions along the entire material savings, mitigation of volatility and
supply chain: supply risks, positive multipliers, potential
employment benefits, reduced externalities,
Not a niche-only solution. In the past, and long-term resilience of the economy:
products associated with a circular model
have targeted small niche segments. Substantial net material savings. Based
However, our analysis shows that the concept on detailed product level modelling, the
works and is economically viable and scalable report estimates that the circular economy
for diverse products regardless of length of represents a net material cost saving
service life. opportunity of USD 340 to 380 billion p.a.
at EU level for a ‘transition scenario’ and
Opportunities now. Despite our conservative USD 520 to 630 billion p.a. for an ‘advanced
assumptions about changes in product and scenario’, in both cases net of the materials
value chain design and consumer adoption, used in reverse-cycle activities (see Figure
our analysis highlights significant business 18 in Chapter 4). The latter would equate to
benefits today—even in a world with 19 to 23% of current total input costs3 or a
entrenched consumer behaviour, imperfect recurrent 3 to 3.9% of 2010 EU GDP. Benefits
3 Most recent data for design and material formulations, and far in the advanced scenario are highest in the
sector input costs on EU
from perfect incentives. automotive sector (USD 170 to 200 billion
level come from Eurostat
Input/Output tables 2007 p.a.), followed by machinery and equipment
10 | TOWARDS THE CIRCULAR ECONOMY
Executive summary
Continued
(USD 110 to 130 billion p.a.), and by electrical The circular approach offers developed
machinery (USD 75 to 90 billion p.a.). These economies an avenue to resilient growth, a
numbers are indicative as they only cover systemic answer to reducing dependency
‘sweet spot’ sectors that represent a little on resource markets, and a means to reduce
less than half of GDP contribution of EU exposure to resource price shocks as well as
manufacturing sectors. They also assume societal and environmental ‘external’ costs
the addition of only one product cycle with that are not picked up by companies. A
today’s technologies. Yet many cycles would circular economy would shift the economic
be possible and technological innovation balance away from energy-intensive materials
could likely lead to rapid improvements and primary extraction. It would create a new
and additional cost savings. However, these sector dedicated to reverse cycle activities
opportunities are clearly aspirational for for reuse, refurbishing, remanufacturing,
now, and companies must make creative and and recycling. At the same time, emerging
bold moves, break out of the linear system, market economies can benefit from the fact
and ensure that the underlying arbitrage that they are not as ‘locked-in’ as advanced
opportunities are robust over time. economies and have the chance to leap-
frog straight into establishing circular setups
Mitigation of price volatility and supply when building up their manufacturing-based
risks. The resulting net material savings sectors. Indeed, many emerging market
would result in a shift down the cost curve economies are also more material intensive
for various raw materials. For steel the global than typical advanced economies, and
net material savings could add up to more therefore could expect even greater relative
than 100 million tonnes of iron ore in 2025 savings from circular business models. So,
if applied to a sizeable part of the material the circular economy will have winners, and
flows (i.e., in the steel-intensive automotive, it is worth exploring the dynamics that the
machining, and other transport sectors, adoption of the circular economy will trigger.
which account for about 40% of demand).
In addition, such a shift would move us away How companies win
from the steep right-hand side of the cost
curve, thus likely reducing demand-driven Our case studies demonstrate that the
volatility (see Figure 19 in Chapter 4). principles of the circular economy—if
thoughtfully applied—can provide short-
Sectoral shift and possible employment term cost benefits today and some striking
benefits. Creating a ‘user-centric economy’ longer-term strategic opportunities as well
especially in the tertiary (services) sector as new profit pools in reverse cycle services
will lead to increased rates of innovation, (collection sorting, funding and financing of
employment, and capital productivity, all of new business models).
which are important multipliers.
Importantly, the effects of the circular
Reduced externalities. As material and economy could mitigate a number of
products are the carrier of the embedded strategic challenges companies face today:
externalities, a reduction in volumes will
also lead to a reduction in associated Reduced material bills and warranty risks.
externalities—higher than any incremental Through reselling and component recovery,
efficiency improvement in the existing a company can significantly reduce the
material chain. material bill, even without the effects from
yet-to-be-created circular materials and
Lasting benefits for a more resilient advanced reverse technology. In addition,
economy. Importantly, any increase in ‘building to last’ can also reduce warranty
material productivity is likely to have a costs.
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.
TOWARDS THE CIRCULAR ECONOMY | 11
Executive summary
Continued
To push circularity past its tipping point Such a transition offers new prospects to
and capture the larger prize projected for economies in search of sources of growth
2025, the Ellen MacArthur Foundation and and employment.At the same time, it is a
its partners intend to lay further groundwork source of resilience and stability in a more
and work towards the removal of some volatile world. Its inception will likely follow
significant obstacles. Here is a roadmap for a ‘creative destruction’ pattern and create
that revolution: winners and losers. The time to act is now.
The next five years will be the pioneering As our resource consumption and
phase. We expect that industry pioneers dependence continue to rise and our growth
will start building competitive advantage threatens to negate our production efficiency
in various ways: they will build core efforts, governments and companies have
competencies in circular product design, started looking at the circular model not only
drive business model innovation, create the as a hedge against resource scarcity but as
capacities for the reverse cycle, and use an engine for innovation and growth. This
the brand and volume strength of leading report suggests that this opportunity is real
corporations to gain market share. With these and represents an attractive new territory
prerequisites in place, the benefits associated for pioneering enterprises and institutions.
with our transition scenario seem within This report is, however, just the start of
reach—material cost savings in the ‘sweet a mobilisation process—we intend to go
spot’ sectors of 12 to 14% p.a. deeper into different products and sectors,
assess the business opportunity in more
Towards 2025, there is a chance for detail, identify roadblocks and provide the
circularity to go mainstream, and for savings tools to overcome them, and understand the
to move beyond the 20% mark, as described macroeconomic impacts in more depth. The
in the advanced scenario. However, more Ellen MacArthur Foundation and its partners
transformational change is needed from the are committed to identifying, convening,
corporate sector and from government given and motivating the pioneers of the circular
today’s taxation, regulatory, and business economy. The Foundation provides the fact
climate. The mainstreaming phase will base and case study repository, shares best
involve organising reverse-cycle markets, practices, and excites and educates the next
rethinking taxation, igniting innovation and generation through the opportunities this
entrepreneurship, stepping up education, and redesign revolution creates. In this way, it
issuing a more suitable set of environmental helps to bring down the barriers and create
guidelines and rules—especially with regards the leadership and momentum that the bold
to properly accounting for externalities. vision of the circular economy deserves.
FIGURE 1
Global resource extraction is expected to grow to 82 billion tonnes in 2020
82
CAGR:
11 200
+1.8%
65
8 15 81
55
6 12
40 11 20 67
Metal ores 4 16
Fossil energy carriers 8 16
Biomass 12
36 116
27
Non-metallic 22
minerals 16
1 Resource used: amount of extracted resources that enters the economic system for further processing or direct consumption. All materials used are
transformed within the economic system, incl. material used to generate energy and other material used in the production process
2 Forecasted from 2002 OECD figures and OECD extraction scenario for 2020
SOURCE: OECD; Behrens (2007); WMM Global Insight; Ellen MacArthur Foundation circular economy team
FIGURE 3
Construction and demolition (C&D): A noteworthy opportunity
Other 14%
Recycled 20%
or reused - Gypsum board 10% Fertilizer additive
30%
Concrete/rock/brick 11% Gravel, erosion control
Reuse of soil
Soil/fines 11% after treatment
74 26 C&D
Asphalt products 14% Road building material
70%
Discarded -
80%
Wood flooring
Lumber 40%
construction material
SOURCE: Buildings and their Impact on the Environment: A Statistical Summary; revised April 22,
2009 – EPA; Journal of Environmental Engineering; Ellen MacArthur Foundation circular economy team
could thus offer tremendous energy savings. climate and water regulation, the depletion
The reduced energy intensity of the circular of timber and fuel supplies, losses in
model results in a reduction of threshold agricultural productivity, and the costs of lost
energy demand and further enables a shift to nutrient cycling, soil conservation, and flood
renewable energy—a virtuous cycle. prevention.19
Erosion of ecosystem services. At least as The current model creates imbalances that
troubling as climate change, and far less weigh on economic growth
well understood, is the erosion over the past
two centuries of ‘ecosystem services’, that The troubles inherent in a system that does
is those benefits derived from ecosystems not maximise the benefits of energy and
that support and enhance human wellbeing, natural resource usage have become evident
such as forests (which, as an essential both in the high level of real commodity
counterpart of atmospheric, soil, and prices, and in their volatility.
17 Ruth DeFries, Stefano
hydrological systems, absorb carbon dioxide
Pagiola et al, Millennium and emit oxygen, add to soil carbon, and Since 2000, the prices of natural resources
Ecosystem Assessment,
Current State & Trends regulate water tables—and deliver a host of have risen dramatically, erasing a century’s
Assessment, 2005 other benefits). The Millennium Ecosystem worth of real price declines. In McKinsey’s
18 Will Steffen, Åsa Persson Assessment examined 24 ecosystems Commodity Price Index for 2011, the
et al, The Anthropocene:
From Global Change to
services, from direct services such as food arithmetic average of prices in four
Planetary Stewardship, 2011 provision to more indirect services such as commodity sub-indices (food, non-food
19 TEEB for Business, The ecological control of pests and diseases, agricultural items, metals, and energy)
Economics of Ecology and and found that 15 of the 24 are being stood at a higher level than at any time in
Biodiversity, 2010
degraded or used unsustainably. In other the past century (Figure 4).20 Higher prices
20 Sources: Grilli and Yang;
Pfaffenzeller; World Bank;
words, humanity now consumes more than for commodities, most notably oil and
International Monetary Fund; the productivity of Earth’s ecosystems can food, are in the headlines—from the record-
Organisation for
Economic Cooperation and provide sustainably, and is thus reducing breaking USD 147/barrel price for West
Development statistics; the Earth’s natural capital, not just living Texas Intermediate crude oil in 2008 to the
UN Food and Agriculture
Organization; UN Comtrade; off of its productivity.17 18 As an example 107% rise in wheat prices from June 2010
McKinsey analysis
of the potential cost associated with this to January 2011, setting off unrest in several
21 Chicago Mercantile trend, a recent report, The Economics of emerging market economies.21 22 Similarly
Exchange (http://www.
cmegroup.com/company/ Ecosystems and Biodiversity, suggests that dramatic price increases have hit other
history/magazine/vol7- ecosystem services lost to deforestation in commodities, from base metals to precious
issue2/epicenterof-
energy.html) China alone cost the global economy some metals and specialty materials like rare earth
22 IndexMundi (http://www.
USD 12 billion annually over the period from oxides. Even in the absence of specific price
indexmundi.com/commoditi 1950 to 1998. These losses accrue across spikes, sustained higher resource costs
es/?commodity=wheat&mo
nths=60) several dimensions, including the costs of
18 | TOWARDS THE CIRCULAR ECONOMY
15
Infrastructure needs. Besides more
10
infrastructure for a larger population,
the world will also need to expand its
5 infrastructure to get at harder-to-access
resources. Newly discovered reserves do
0
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2011
exist, but tapping them will require heavy
investment in infrastructure and new
1 Calculated as the standard deviation of the commodity sub-index divided by the average of the sub-index over
the time frame
technology. McKinsey estimates that (all else
2 2000-2011: 11-year average being equal) meeting future demands for
SOURCE: Grilli and Yang; Pfaffenzeller; World Bank; International Monetary Fund; Organisation for
Economic Co-operation and Development statistics; UN Food and Agriculture Organization; UN Comtrade; steel, water, agricultural products, and energy
Ellen MacArthur Foundation circular economy team
would require a total investment of around
USD 3 trillion per year31 —an amount roughly
Demographic trends. The world faces a 50% higher than current investment levels.
29 The most reliable and unique demographic challenge over the Should this investment fail to materialise, the
commonly cited models for global
population growth are those of
coming decades—though the economic result could be continued supply constraints.
the United Nations. aspects of demographics may prove more This threat is particularly pressing for
The UN’s estimates vary
significantly based on the fertility difficult to manage than the population agriculture in advanced economies, many of
rate used as an input, but all of
their core scenarios
aspects. China and India, the two largest which are much closer to the technological
involve fertility rates significantly countries by population, are each poised to limit and already producing near their
below the
current global rate
undergo a significant economic transition maximum potential yields.32
in coming decades. Looking at the recent
30 United Nations Population
Division: World Population past gives a sense of both the scope and the Political risks. Recent history shows
Prospects: 2010 Revision, 2010;
and McKinsey Global
speed of the shift. China, starting in 1982, the impact political events can have on
Institute: Resource revolution: took only 12 years to double its per-capita commodity supply. There are numerous
Meeting the world’s energy,
materials, food, and water needs;
GDP from USD 1,300–2,600, and India, historical instances in which political events
November 2011” starting in 1989, took only 16 years to achieve have triggered commodity price spikes:
31 McKinsey Global Institute: the same doubling.27 By comparison, it took the 1972 Arab oil embargo is one example;
Resource revolution: Meeting the
world’s energy, materials, food,
the United Kingdom 154 years to make another is the export declines following the
and water the same transition. Every bit as striking is 1978 Iranian revolution; a third is the price
needs; November 2011
the sheer number of people in China’s and shocks following Iraq’s invasion of Kuwait in
32 Based on yield achievement of India’s populations entering these periods 1990.33 Some commodities are particularly
wheat, rice, maize, and soybean;
maximum attainable yield of economic growth—which implies that a vulnerable: nearly half the new projects to
provided by International Institute
for Applied Systems Analysis
breathtaking number of new middle-class develop copper reserves, for instance, are in
and benchmarked by region consumers could be entering the global countries with high political risk.34 Perhaps
based on climate and technology.
Data from Food and Agriculture
economy if the two countries continue more shockingly, roughly 80% of all available
Organization and International their current growth patterns. McKinsey arable land on earth lies in areas afflicted by
Institute for Applied Systems
Analysis anticipates the emergence of three billion political or infrastructural issues. Some 37%
33 ‘Oil markets and Arab
new middle-class consumers by 2030, led of the world’s proven oil reserves, and 19%
unrest: The Price of Fear’, by economic growth in these two countries of proven gas reserves, are also in countries
The Economist, March 3, 2011
and other rapidly growing—and significantly with a high level of political risk. Political
34 Political risk as per the sized—emerging market economies.28 This decisions also drive cartels, subsidies, and
Economist Intelligence Unit’s
Political Instability Index. mass of new spenders will have significant trade barriers, all of which can trigger or
Countries scoring more than 5.0
on ‘underlying vulnerability’ are
impact on resource demand, a prospect that worsen resource scarcity and push up prices
classified as ‘low political stability’ underlines the potential value of introducing and volatility levels
20 | TOWARDS THE CIRCULAR ECONOMY
Globalised markets. The rapid integration of It is true that a few individual companies
financial markets and the increasing ease of have already started taking the initiative
transporting resources globally mean that to counter the negative effects of a linear
regional price shocks can quickly become approach. The set of benefits that can be
global. There are many examples in recent captured by an individual company on
history, from the impact that Hurricane its own, however, is bounded, and system
Ike in the Gulf of Mexico had on energy limitations will need to be addressed in
markets, to the air travel chaos caused by order to let markets react fully to the pricing
the eruption of the Eyjafjallajökull in Iceland, signals described. A good example of such
to the supply chain disruptions ensuing from system-enhancing steps is the levying
the Fukushima disaster in Japan. This trend of landfill taxes in a growing number of
is likely to continue and, in all likelihood, to countries, as this provides a more level
become more acute as emerging markets playing field for waste treatment and product
integrate more thoroughly into global value recovery methods that aim to preserve
chains and financial systems. resources. A further step might then be to
render some of the environmental and social
Climate. Some resource industries could effects of our resource-based systems more
face disruption from variations in regional visible so as to let them steer the market.
climates over time, particularly water
and agriculture. The U.S. Environmental In this report, we argue for a specific type
Protection Agency suggests that changes in of productivity—a more ‘circular’ business
climate could affect snow cover, stream flow, model in which many more products are
and glacial patterns—and hence fresh water reused, refurbished, and redistributed than
supply, erosion patterns, irrigation needs, and today. More components and materials
flood management requirements, and thus could be remanufactured and ultimately
the overall supply of agricultural products.35 recycled. And more food and other organic
Supply constraints and uncertainty would waste could loop through value-extracting
likely drive up prices and volatility. McKinsey processes such as biochemical extraction
research suggests that by 2030, the disparity and anaerobic digestion. Our preliminary
between global water demand and water research shows that moving in the direction
supply could reach 40%, driven in large part of such a model could lead to significant
by increased demand for energy production, economic benefits for specific industries. It
which is highly water-intensive.36 could more broadly help mitigate aspects
of the current system that put pressure on
Taken together, these dynamics present resource supply, commodity prices, and
a major challenge for the current ‘take- volatility. It could also restore the natural
make-dispose’ system. While this system, capital that is essential for the continual
too, will respond to price signals, these provision of food, feed, and fibre.
signals are incomplete and distorted. We
therefore believe that under a business-as-
usual scenario the market will not overcome
the lock-in effect of existing production
economics, regulations, and mindsets
and will therefore not address the large
and continued imbalances described here
quickly and extensively enough to be able
to keep meeting future demand. If it was
declining resource prices that fuelled much
35 ‘Climate Change
Indicators: Snow and Ice’, of the economic growth of the past century,
from: Climate Change
Indicators Report, U.S.
upward price shifts could, if not stall, then
Environmental Protection severely hamper further growth in the
Agency, 2010, p. 54
decades to come.
36 McKinsey and
Company: Transforming
the Water Economy –
Seven Ways to Ensure
Resources for Growth;
January 2011
2
TOWARDS THE CIRCULAR ECONOMY | 04
1
the ways in which they drive value creation.
22 | TOWARDS THE CIRCULAR ECONOMY
The linear ‘take-make-dispose’ model relies service shifts, where appropriate. As circular
on large quantities of easily accessible economy thinker Walter Stahel explains, ‘The
resources and energy, and as such is linear model turned services into products
increasingly unfit for the reality in which that can be sold, but this throughput
it operates. Working towards efficiency approach is a wasteful one. [...] In the past,
alone—a reduction of resources and fossil reuse and service-life extension were often
energy consumed per unit of manufacturing strategies in situations of scarcity or poverty
output—will not alter the finite nature and led to products of inferior quality. Today,
of their stocks but can only delay the they are signs of good resource husbandry
inevitable. A change of the entire operating and smart management’.38
system seems necessary.
The circular economy is based on a few
The circular economy perspective and simple principles
principles
Design out waste. Waste does not exist when
The circular economy refers to an industrial the biological and technical components
economy that is restorative by intention; (or ‘nutrients’) of a product are designed by
aims to rely on renewable energy; minimises, intention to fit within a biological or technical
tracks, and eliminates the use of toxic materials cycle, designed for disassembly
chemicals; and eradicates waste through and refurbishment. The biological nutrients
careful design. The term goes beyond the are non-toxic and can be simply composted.
mechanics of production and consumption of Technical nutrients—polymers, alloys, and
goods and services in the areas that it seeks other man-made materials are designed to be
to redefine (examples include rebuilding used again with minimal energy and highest
capital, including social and natural, and the quality retention (whereas recycling as
shift from consumer to user). The concept commonly understood results in a reduction
of the circular economy is grounded in the in quality and feeds back into the process as
study of non-linear systems, particularly a crude feedstock).
living ones. A major consequence of taking
insights from living systems is the notion of Build resilience through diversity.
optimising systems rather than components, Modularity, versatility, and adaptivity are
which can also be referred to as ‘design prized features that need to be prioritised
to fit’. It involves a careful management in an uncertain and fast-evolving world.
of materials flows, which, in the circular Diverse systems with many connections
economy, are of two types as described and scales are more resilient in the face of
by McDonough and Braungart: biological external shocks than systems built simply for
nutrients, designed to re-enter the biosphere efficiency—throughput maximisation driven
safely and build natural capital, and technical to the extreme results in fragility.
nutrients, which are designed to circulate at
high quality without entering the biosphere.37 Michael Braungart confirms, ‘Natural systems
support resilient abundance by adapting
As a result, the circular economy draws a to their environments with an infinite mix
sharp distinction between the consumption of diversity, uniformity and complexity.
and use of materials: circular economy The industrial revolution and globalisation
advocates the need for a ‘functional service’ focused on uniformity so our systems
model in which manufacturers or retailers are often unstable. To fix that we can
increasingly retain the ownership of their manufacture products with the same flair for
37 William McDonough and products and, where possible, act as service resilience by using successful natural systems
Michael Braungart, Cradle to
Cradle: remaking the way we providers—selling the use of products, not as models’.
make things, New York:
North Point Press, 2002
their one-way consumption. This shift has
direct implications for the development of Rely on energy from renewable sources.
38 Unless explicitly stated
otherwise, all quotations in this
efficient and effective take-back systems and Systems should ultimately aim to run on
document are from interviews the proliferation of product- and business- renewable sources. As Vestas, the wind
conducted in the period from
November 2011 through January model design practices that generate more energy company, puts it: ‘Any circular story
2012 (A list of experts consulted
for the analysis and reporting is
durable products, facilitate disassembly should start by looking into the energy
given in the appendix) and refurbishment, and consider product/
TOWARDS THE CIRCULAR ECONOMY | 23
‘Rather than using eco-efficiency to try and minimise material flows, eco-effectiveness
transforms products and related material flows to support a workable relationship
between ecological systems and economic growth. Instead of reducing or delaying
the cradle-to-grave flow of materials, eco-effectiveness creates metabolisms where
materials are used over and over again at a high level of quality.’ Michael Braungart
Mining/materials manufacturing
Farming/collection1
Parts manufacturer Technical nutrients
Biological nutrients
Biochemical
feedstock Product manufacturer
Restoration Biosphere Recycle
Service provider
Refurbish/
remanufacture
Reuse/redistribute
Biogas Maintenance
Cascades
6 2803 0006 9
Consumer User
Anaerobic
digestion/ Collection Collection
composting
Extraction of
biochemical Energy recovery
feedstock2
Leakage to be minimised
Landfill
argues that the circular economy should be Industrial Ecology. Industrial ecology is
considered a framework, and its supporters the study of material and energy flows
see it as a coherent model that forms a through industrial systems. Its international
valuable part of a response to the end of the society is headed by Professor Roland Clift
era of low cost oil and materials. at the Centre for Environmental Strategy
at the University of Surrey. Focusing on
Cradle to Cradle. German chemist and connections between operators within the
visionary Michael Braungart went on to ‘industrial ecosystem’, this approach aims
develop, together with American architect at creating closed-loop processes in which
Bill McDonough, the Cradle to Cradle™ waste serves as an input, thus eliminating
concept and certification process. This design the notion of an undesirable by-product.
philosophy considers all material involved Industrial ecology adopts a systemic point
in industrial and commercial processes to of view, designing production processes in
be nutrients, of which there are two main accordance with local ecological constraints
categories: technical and biological. The whilst looking at their global impact from
Cradle to Cradle framework focuses on the outset, and attempting to shape them
design for effectiveness in terms of products so they perform as close to living systems
with positive impact, which fundamentally as possible. This framework is sometimes
differentiates it from the traditional design referred to as the ‘science of sustainability’,
focus on reducing negative impacts. given its interdisciplinary nature, and
its principles can also be applied in the
Cradle to Cradle design perceives the safe and services sector. With an emphasis on natural
productive processes of nature’s ‘biological capital restoration, industrial ecology also
metabolism’ as a model for developing a focuses on social wellbeing.
‘technical metabolism’ flow of industrial
materials. The model puts a particular Biomimicry. Janine Benyus, author of
emphasis on precisely defining the molecular Biomimicry: Innovation Inspired by Nature,
composition of materials—‘knowing what you defines her approach as ‘a new discipline
have, which is the basis of every quality-based that studies nature’s best ideas and then
materials recycling system’. In some cases, imitates these designs and processes to
notably for technological products that are solve human problems’. Studying a leaf
subject to frequent upgrades, durability is not to invent a better solar cell is an example.
the optimum strategy—in that instance, it is She thinks of it as ‘innovation inspired by
preferable to design the products in a way nature’.44 Biomimicry relies on three key
that makes their disassembly and the recovery principles:
of their components easy, either to upgrade
• Nature as model: Study nature’s models
some elements or to use individual parts for
and emulate these forms, processes,
the next generation. It is thus important to
systems, and strategies to solve human
be able to, for various families of products,
problems.
define the use period, as it influences their
conception: will the object remain in use for • Nature as measure: Use an ecological
ten years or more (washing machine) or rather standard to judge the sustainability of our 41 “History of the Lyle
Center”, Lyle Center for
two (mobile phone)? Product components innovations. Regenerative Studies,
Cal Poly Pomona
can be designed for continuous recovery
• Nature as mentor: View and value nature (http://www.csupomona.
and reutilisation as biological and technical edu/~crs/history.html)
not based on what we can extract from the
nutrients within these metabolisms. The Cradle 42 The report was
natural world, but what we can learn from it.
to Cradle framework addresses not only published in 1982 as
the book Jobs for
materials but also energy and water inputs and Tomorrow: The Potential
for Substituting
builds on three key principles: ‘Waste equals Manpower for Energy 98
food’—‘Use current solar income’—‘Celebrate
43 www.performance-
diversity’. economy.org
44 http://www.
biomimicryinstitute.
org/about-us/what-is-
biomimicry.html
28 | TOWARDS THE CIRCULAR ECONOMY
The concept and principles of the circular from end-of-life vehicle disassemblers as well
economy have already been put into practice as with new parts where necessary. Renault’s
successfully by very different companies ability to structure and run its reverse
across the manufacturing landscape. logistics chain and access a steady stream of
Prominent examples include Michelin, cores, together with its deployment of highly
Caterpillar, Renault, Ricoh, and Desso. skilled labour, has allowed the company to
grow its remanufacturing operations into a
• In the 1920s, Michelin pioneered 200 million euro business.
leasing tyres under a pay-per-kilometre
programme. As of 2011, Michelin Fleet • Ricoh, provider of managed document
Solutions had 290,000 vehicles under services, production printing, office
contract in 23 countries, offering tyre solutions and IT services, is another Fortune
management (upgrades, maintenance, 500 company, active in 180 countries. It
replacement) to optimise the performance developed ‘GreenLine’ as part of its Total
of large truck fleets—in Europe, 50% of Green Office Solutions programme, which
large truck fleets externalise their tyre aims to minimise the environmental impact
management. By maintaining control over of products at its customers’ sites. Copiers
the tyres throughout their usage period, and printers returning from their leasing
Michelin is able to easily collect them at end programme are inspected, dismantled, and
of the leases and extend their technical life go through an extensive renewal process—
(for instance by retreading) as well as to including key components replacement and
ensure proper reintegration into the material software update—before re-entering the
cascade at end of life. market under the GreenLine label with the
same warranty scheme that is applied to
• Caterpillar created its remanufacturing new devices. Because it increases customers’
division in 1972; it has kept on growing choice, Ricoh’s GreenLine programme has
ever since—over the last decade at a brisk quickly become a success story and it now
8 to 10%, well above the growth rate of the keeps pace with Ricoh’s new equipment sales.
global economy as a whole. It now has a
remanufacturing portfolio of hundreds of • After buying out the company, the top
parts and handled more than 70,000 tonnes management team at Desso took inspiration
of remanufactured products in 2010, up from from the Cradle to Cradle™ movement and
45,000 tonnes in 2005. Growth is expected decided to pursue C2C CertificationCM for the
to continue as Caterpillar’s engineers are entire company. A major spur to innovation
working systematically through its backlog of and an inspiration for both customers and
warehoused used parts to bring them back employees, Desso’s broad adoption of
into economic use.45 circular economy principles has been driving
top-line growth. After the buyout in 2007,
• From its start in a suburban garage in its European market share for carpet tiles
1898, Renault has grown into a leader, grew from 15 to 23% and profit margins
first in automotive engineering and now (normalised EBIT of the original carpet
also in remanufacturing. It operates a business) from 1 to 9%, with about half of this
dedicated remanufacturing plant near Paris, gain directly attributable to the introduction
France. There, several hundred employees of C2C™ principles. In its ambition to change
re-engineer 17 different mechanical over the complete system rather than cherry-
subassemblies, from water pumps to engines. pick individual measures, Desso is also
Renault works with its distributor network to phasing in renewable energy sources for each
obtain used subassemblies, and supplements of its production sites—in line with another
these with used parts purchased directly core C2C™ principle.
Parts Materials
manufac- Materials
Product manufac- supplier
manufac- turer turer
turer
Sales Reuse of parts
company
Reuse of products User of
recycling
materials
Long use Closed loop Generation of raw materials
materials Open loop • Chemical recycling
Product Parts recycling Materials Oil recovery • Metals recycling
Maintenance recovery recovery materials company,
recovery
User company
center center company recycling smelting
company Metals
Thermal
energy Energy recovery
Collection Sorting and Disassembly oil collection (Energy, CO2)
company
center disassembly
Recycling
center Final
Shredder
company disposal
company
Shredder dust
© 1994 RICOH Crushing of products Landfill
In 1994, Ricoh established the Comet portfolio with lower-cost models and
Circle™ as a catalyst for change. It serving a wider range of customers to
expresses a comprehensive picture of rendering its offering more competitive
how Ricoh can reduce its environmental by mixing ‘new’ and recirculation
impact, not only in its activities as a equipment.
manufacturer and sales company, but
also upstream and downstream—along Its evolved relationship with its
the entire lifecycle of its products. products in use is producing further
The Comet Circle™ centres on the results: optimising the years that
belief that all product parts should machines are in operation at customer
be designed and manufactured in sites and generating annuity;
a way that they can be recycled or generating additional revenue and
reused. Ricoh management uses the margin by selling equipment more
Comet Circle™ as a real tool to plan its than once; and of course making a
portfolio of products and activities. It considerable contribution to resource
is on this basis that Ricoh established conservation. Ricoh’s objectives are to
the GreenLine label as a concrete reduce the input of new resources by
expression of its resource recirculation 25% by 2020 and by 87.5% by 2050
business, with the priority focus on from the level of 2007; and to reduce
inner-loop recycling. the use of—or prepare alternative
materials for—the major materials
The benefits of moving on a ‘tighter of products that are at high risk of
loop’—long use and reuse (the left side depletion (e.g., crude oil, copper, and
of the Comet Circle™) —are manifold chromium) by 2050.
for Ricoh, from enhancing its product
30 | TOWARDS THE CIRCULAR ECONOMY
$ $ $
• We have the same efficiency losses along This model assumes that, at any of these
the value chain from one product step to the stages, the economic trade-offs between
next as for BAU the cost of virgin inputs and the cost of
material that has been kept in the cycle via
• We face the same demand growth of 3% circular streams would always favour the
p.a., but: circular setup. Obviously, this would not
hold true if the price of the virgin material
• We build up reverse cycle treatment is at a level below the cost of keeping
capacities, also at the rate of 4 percentage materials in the reverse cycles. Other trade-
points per annum, with a cap at 40% each for offs must be considered as well. As Peter
reuse/refurbishment and remanufacturing for Guthrie, who leads the Centre of Sustainable
the end-of-life flows Development at Cambridge University’s
Department of Engineering, puts it: ‘There
• We recycle the share of the collected will always need to be consumption
material that exceeds the 40% limits on our of virgin materials, and the process of
reverse treatment capacities
TOWARDS THE CIRCULAR ECONOMY | 33
Farming/collection
Biogas
Service provider Insulation Furniture Apparel
material sales sales sales
Leakage to be minimised
Landfill
cycling will always require some energy use. The time seems right, now, to embrace more
The balance of resource use for different widely and accelerate the circular design
options needs to be carefully considered.’ philosophy. Resource prices are soaring,
Still, Guthrie says, ‘The whole approach of and the implicit or explicit costs of disposal
circularity is precisely the direction of travel drastically increasing. At the same time,
for improved sustainability performance.’ progress in technologies and material science
is yielding longer-lasting and more reusable
To provide a perspective on how robust this designs whilst increased visibility along the
arbitrage opportunity is in practice, Chapter value chain enables better tracking of the
3 examines the effects and costs of reverse whereabouts of products and materials, and
treatments and disposal options for a number consumers and corporations have grown
of selected products in detail, and identifies more accustomed to commercial practices
what building blocks need to be put in place based on performance instead of ownership.
to capture the potential benefits. Chapter 4
then assesses how large this potential
could be if scaled up across the economy.
Chapter 5 puts forward strategies that will
allow companies to extract maximum value
from moving towards more circular business
models.
34 | TOWARDS THE CIRCULAR ECONOMY
FIGURE 10
A circular economy would not just ‘buy time’ — it would reduce the amount
of material consumed to a lower set point
ILLUSTRATIVE
700
Demand, BAU2
600
500
400 Virgin material
substituted by
300 circular material
200 Demand under
100 circular system
0
2010 2015 2020 2025 2030 2035 2040
7,000
6,000 BAU2
5,000
4,000 Circular
3,000 system
2,000
1,000
0
2010 2015 2020 2025 2030 2035 2040
1 Assumptions: Widgets have a 5-year product life; demand for widgets assumed to grow at 3% p.a.; collection
rate rises from 0% in 2010 to 90% in 2040; reuse and refurbishment rates scale up over time, from 0% to 40%
each; all collected material that is not reused or refurbished is recycled
2 Business as usual
1
36 | TOWARDS THE CIRCULAR ECONOMY
It is evident that reuse and better design Instead, we have selected a broad range
can significantly reduce the material bill of manufactured products to illustrate the
and the expense of waste disposal and various design choices and business model
that they can create new enterprises and changes that may help companies reap
more useful products—meeting needs of the benefits of a more circular product
new customers as the population grows. and service portfolio. For some complex
But—from an economics perspective—can products, we go into more detail, because
these advantages match the advantages it is here where the case is most difficult to
of products designed for mass production make. The sector focus of these analyses
based on low labour costs and economies is on manufacturing and, here, the final
of scale? From a business and consumer production stage of the value chain. In other
perspective—can producing, selling, words, we do not analyse the economic
and consuming less material be a more effects on upstream participants in the
attractive proposition? Our treatment of market. Within manufacturing, we examined
these questions in the pages that follow is an intentionally wide range of product types.
in many ways a ‘sixteenth century map’ of Given the starkly different characteristics
the circular economy, a rough chart of its of short-lived manufactured goods (such
potential. It is our hope that this analysis as, say, food packaging) versus long-lived
will entice companies to embark on this manufactured goods (e.g., material used in
journey, and, in that process, refine it with housing construction), we intentionally chose
an ever-more solid base of evidence—not products in both categories, as well as a mid-
only by demonstrating its terrific potential, range, medium-lived category.
but also by testifying to the trials and
tribulations of a transformation into the Our analysis leads us to believe that this
circular economy. final category, medium-lived products—
and specifically, complex medium-lived
To demonstrate the economic opportunity of products—is a sweet-spot segment for
such a model, EMF and its partners analysed circularity. These, then, are the products we
the options for several different categories examine in full depth with our circularity
of resource-intensive products—from fast- calculator (for details on the analysis, see
moving consumer goods such as food and sidebar). The eight sectors that produce
fashion, to longer-lasting products such these and similar types of products represent
as phones, washing machines, and light- 48.6%, or nearly half, of the GDP contribution
commercial vehicles, and including single- of the manufacturing sector within the
family houses as an example of a long-life EU economy, demonstrating that circular
product. Because the service sector is not business activities have the potential to
a converter of materials, services as such outgrow its their ‘niche’ status and become
are not directly affected by the adoption of relevant in the mainstream economy.46
circularity principles. Thus we do not cover
services in our analysis—although it is worth In the pages that follow, we describe at
noting that as a purchaser of products, the length our analysis of products in our
sector could have a considerable impact in ‘sweet spot’ sectors, namely mobile phones,
bringing about change, and of course the smartphones, light commercial vehicles,
circular economy would greatly expand the washing machines—for which we applied
need for services. While the shift towards the circularity calculator—and power tools.
renewable energy is a key principle of the We also discuss the potential for circularity
circular economy, a full assessment of the across the broader economy, from the
impact of a circular transition on the energy long-lived (e.g., buildings) to consumables
sector is also outside the scope of this report, (e.g., packaging and food products), parts
and the analysis excludes energy and other of the manufacturing sector, and calculate a
utilities as producing sectors. cascade for textiles as an example of short-
lived products.
Mobile phones—Extracting lasting value typical 24-month period, we did not identify
out of fashionable items a lot of economic potential except for the
obvious phone resale. Yet this circular option
With 1.6 billion mobile phones produced in also suffers under today’s limited return
2010, more phones are entering the market incentives and inadequate reverse logistics,
than there are consumers.54 As a result, in in that many collected devices are in poor
mature markets (Western Europe, North condition both functionally and in terms
America, Japan) consumers own 1.1 mobile of appearance. Further, demand for used
phones and average usage time is down to devices strongly varies between handset
less than 2.5 years.55 In emerging markets, make and model.
the sector is nevertheless still poised for
growth. With the advent of shortages of some rare
earth59 and precious metals, the recycling of
In 2010, Waste Electrical and Electronic mobile phones has gained momentum over
Equipment (WEEE) volumes in the EU-27 for the past year. Now, the share of phones being
IT and telecommunications equipment were channelled to recycling has risen to 9%, but
estimated at 750 thousand tonnes. Over the only a small fraction of the more than 20
next four years, total WEEE volumes in the different materials they contain is ultimately
EU-27 are expected to grow cumulatively recuperated.60
by more than 10%.56 Yet looking at volumes
of waste generated does not reveal the true To maximise the economic benefit of
54 Gartner statistics on mobile value embedded in consumer electronics keeping mobile phones or at least certain
device sales, February 2011
waste. While not being particularly significant components in a tighter circle at a profit for
55 CIA World Economic in terms of weight, mobile phone waste has the manufacturer, only a few things would
Factbook, 2011
considerable value embedded in its materials need to change in the short term (Figures
56 Jaco Huisman et al., 2008 and components. Typically weighing less 11A, 11B):
Review of Directive 2002/96 on
Waste Electrical and Electronic than 150 grams, a mobile phone is packed
Equipment – Final Report, United
with valuable materials such as gold, silver, Improving overall collection from 15%
Nations University working paper,
August 2007; Jaco Huisman, and rare earth metals. Given today’s low to 50% (close to the proposed WEEE
WEEE recast: from 4kg to 65%:
the compliance consequences, collection and recycling rates, nearly all regulation target of 65% by 2016).61 A better
United Nations University working of this material is lost. In Europe alone, collection system would allow manufacturers,
paper, March 2010
for example, 160 million discarded but remanufacturers, and vendors to gain scale,
57 U.S. Environmental Protection
uncollected devices represent a material which would justify investments in larger,
Agency (EPA), Electronics Waste
Management in the United States loss of up to USD 500 million annually. With more streamlined facilities and hence further
Through 2009, EPA working
paper, May 2011; Eurostat, WEEE collection rates in Europe hovering around improve the attractiveness of these circles
key statistics and data, 2011 15% and mobile phone designs becoming by increasing their efficiency. Collection
58 ‘Basic mobile phones’ include increasingly integrated, there is hardly any can be encouraged with lease/buy-back
low-cost phones and basic
component reuse or remanufacturing, and models, an improved customer dialogue, and,
communication devices as
defined by Gartner and the secondary mobile phone market (while under certain circumstances, with deposit
excludes smartphones. For our
calculations, we considered a fast growing) is almost negligible at around system, and will need to be complemented
sample of four mobile phones 6% of the primary market.57 with more semi-automated treatment and
selling at prices between USD 30
and 60 before VAT extraction systems or better pre-sorting
In order to understand the economic before shredding (to catch reusable phones
59 Rare earth elements
contained in mobile devices implications of circular activities in the and materials). For greater efficiency when
include Neodymium, Terbium,
and Erbium—Marc Humphries, mobile phone market, we applied our moving into the ‘advanced’ circularity
Rare Earth Elements: The Global circularity calculator to a standard low-cost stage, the phone industry would need to
Supply Chain, Congressional
Research Service Report, mobile phone valued at USD 36.58 We first form joint collection systems (e.g., with
September 2010
assessed the economics of different circular original equipment manufacturers (OEMs),
60 Roland Geyer and Vered options for mobile phones and subsequently operators, retailers, manufacturers, reverse
Doctori Blass, ‘The economics of
cell phone reuse and recycling’, considered associated environmental logistics companies). Such concerted efforts
International Journal of Advanced benefits (with a focus on carbon emission are essential to fully overcome interrelated
Manufacturing Technology, 2010,
Volume 47, pp. 515-525 savings). quality leakage points along all reverse value
chain steps.
61 European Commission,
‘Proposal for a Directive of the In today’s world with low collection rates,
European Parliament and of the
Council on Waste Electrical and partially attributable to contract schemes
Electronic Equipment (WEEE)’, that, in the majority of cases, do not require
Proposal for a directive, COD
2008/0241, December 2008 customers to trade in old devices after the
40 | TOWARDS THE CIRCULAR ECONOMY
Mining Mining
Parts manufacturer
Parts manufacturer
Product manufacturer
9 Recycle Product manufacturer
10 Recycle
Service provider
0 Remanufacture1 Service provider
21 Remanufacture1
6 Reuse 19 Reuse
Maintenance Maintenance
User
User
15
85 50 50
Collection
Collection
Unaccounted Unaccounted
and landfill and landfill
1 Remanufacturing, here refers to the reuse of certain components and the recycling of residual materials
SOURCE: Gartner; EPA; Eurostat; UNEP; Ellen MacArthur Foundation circular economy team
TOWARDS THE CIRCULAR ECONOMY | 41
Selling the entire phone ‘as is’ after minimal material input costs and reusing the entire
cleaning and repackaging. Our analysis phone does not require any direct material
shows that a second-hand vendor can realise input.
a profit of USD 6 (30% margin) per device,
even if placing the product on the market While a value of USD 6 to 7 per phone
with a 40% discount and spending USD 17 sounds negligible and is typically lower
on return collection (including buy-back than the average profit margin on a new
incentive), remarketing, and processing. standard low-cost phone (up to 25% of the
A used-phone market would benefit from selling price), capturing a significant fraction
guarantees to customers that manufacturers of the value in the 190 million collected
have software to completely erase a and uncollected end-of-life mobile phones
customer’s personal data after use, as well as in Europe, many of which could produce
from material choices that extend the life of value like that shown in our case study, can
the product ‘core’. be economically attractive for third parties
as well as manufacturers. From the OEM
Stripping out reusable components and perspective, the resale market is to a certain
implementing required design changes to extent a threat to sales of new products.
do this more easily. Of the 10 to 12 major In contrast remanufacturing activities on
components of a standard mobile phone, a component level reduce material costs
the top candidates for remanufacturing by incremental manufactured components
are the camera, display, and potentially the and will not pose a threat to sales of new
battery and charger. They are among the products as long as the latter are offered as
most valuable parts within a phone, are ‘new’ and without a discount. Such circular
comparatively easy to disassemble, and could business practices also offer a solution
be used in the production of new devices to the widespread problem of exporting
or in aftermarkets. Key factors for making consumer electronic waste and improper
such a circular treatment economically end-of-life treatment in developing countries.
and technically feasible are standardising By increasing their circular activities,
components such as displays, cameras, and manufacturers could thus also benefit from a
materials across models and potentially more positive public perception.
brands through agreement on industry
standards; moving to disassembly-friendly From a macroeconomic perspective,
product designs (e.g., easy-access, clip-hold the transition to a circular economy has
assembly instead of adhesives) to enhance major implications for material and energy
the ratio between the value of the material consumption as well as for the balance
and components reclaimed and the labour of trade in the European mobile phone
needed to extract it; and making reverse market. In a transition scenario in which
supply-chain processes more automated. 50% of devices are collected (of those, 38%
are reused, 41% are remanufactured, and
As shown in Figure 11B, we estimate that the 21% are recycled), market-wide savings on
costs of remanufacturing low-cost mobile manufacturing material costs could add up to
phones could be cut by around 50%62 per USD 1 billion (~30% of total industry material
device from their current level (e.g., USD input costs), and manufacturing energy costs
1.0 for collection and transport, USD 3.5 for savings to USD 60 million (~16% of total
disassembly, and USD 1.9 for initial screening) industry energy input costs) a year. These
62 Costs for the entire when proposed changes of the transition savings refer to costs incurred in the phone
disassembly process could be scenario can be realised. In addition, costs production process; further savings occur in
reduced by ~USD 2.5 per phone;
an additional USD 0.8 per phone occurring in the reuse and recycling process upstream value chain steps.63 In an advanced
could be saved in collection and
transport, as well as in the initial
could be reduced by USD 0.7, through more scenario with 95% collection and an equal
screening process efficient transport and initial screening. In split between reuse and remanufacturing,
63 Metal recycling leads to such a scenario, remanufacturing would material and energy savings are estimated to
reduced energy consumption yield material input cost savings of almost be more than USD 2 billion on material and
in the extraction phase. but
is implicitly considered in the 50% in the final phone production process. USD 160 million on energy annually, both net
material value of recycled metals,
not in energy cost savings
Functional recycling could save up to 20% of of material and energy used in the reverse-
42 | TOWARDS THE CIRCULAR ECONOMY
Mining Mining
Parts manufacturer
Parts manufacturer
Product manufacturer
Product manufacturer 63 Recycle1 44 Recycle1
0 Refurbish 26 Refurbish
User
User
71 75
14
14
Non-EU Collection in EU Collection in EU
export3 15 Non-EU
export3
11
Unaccounted Unaccounted
and landfill and landfill
1 Today, recycling and remanufacturing take place in single treatment process as spare parts are taken from end-of-life vehicles (split
here for better visibility)
2 Analysis focuses on end-of-life products (post de-registration), frequent resales of light commercial vehicles during intra-EU lifespan
are not considered due to lack of data
3 Light commercial vehicles exported from EU with unknown intended usage or treatment
SOURCE: Eurostat; ANFAC; Öko-Institut; EIU; Ellen MacArthur Foundation circular economy team
70 The collection rate is defined feasibility alone, we derived two levers Establishing professional refurbishing
as the percentage of total end-
of-life LCV volume (in terms of to move the status quo towards more systems to capture economies of scale in
weight) that is recovered through circularity: the reverse supply chain—by investing in
refurbishing, remanufacturing or
recycling. Exports of vehicles to proper tooling and achieving higher labour
non-EU countries, landfill,
and other non-accounted disposal
Improving vehicle design and focusing on efficiency through process standardisation,
are counted as not collected exchanging the ‘weakest link’ components, workflow optimisation, and specialisation.
71 Georg Mehlhart et al., European which wear out or are most likely to break Such refurbishing centres would typically be
second-hand car market analysis, first, allows for a second usage period at full located centrally within the OEM’s dealership
Öko-Institut working paper,
February 2011; Eurostat, ELV performance (i.e., 100,000 km p.a.). In our and service network.
waste database, 2011
example, six components are exchanged: the
72 In this scenario, 26% of total engine and suspension, bumpers, wheels, Although collection rates70 of vehicles
end-of-life vehicle weight is
recovered by refurbishment, 5% battery, and fluids. Design changes enable at the end of their final usage period
by remanufacturing, and 44% by easier, faster, and less expensive replacement (deregistration) are already as high
recycling. This implies that 30% of
collected vehicles are refurbished. of these critical components, e.g., as ~71%,71 partially due to stringent EU
The discrepancy between rates as
a percentage of total end-of-life
modularisation of the engine by changing the directives, shifting volumes from recycling
weight and as a percentage of design to bracket mounting, widening the to refurbishing—as outlined in the transition
number of end-of-life vehicles
stems from the fact that is it not engine bay for easier access to connection scenario72—can still save substantial material
possible to recover 100% of a points, and using quick fasteners instead of inputs by roughly USD 8.8 billion (i.e., 15%
vehicle’s weight through recycling
or remanufacturing screw couplings or bolted connections. of material budget) annually (Figure 12A).
46 | TOWARDS THE CIRCULAR ECONOMY
a machine and the time horizon high-quality collected machines get refurbished (and the
machines are built for. The leasing scheme other half gets recycled) would generate net
transforms a long-term investment in a material cost savings of more than 12% of total
10,000-cycle machine into multiple cash industry input costs. In an advanced scenario,
flows and the right to use the machine alternative ownership models, such as leasing
for a certain period of time. This results in or performance-based arrangements, could
an economic win-win situation and yields be brought to higher scale with specialised
positive material and energy implications intermediaries entering the market.
through prolonged lifetimes of the products. Aligning incentives between customers and
manufacturers regarding contract financing
Combining benefits of new business models and duration is essential to make alternative
with effective refurbishment. As leasing ownership models work. In an advanced
models give manufacturers strong control scenario with proliferation of alternative
over products over the life cycle and result business models, an increase in manufacturer
in high and stable product return rates, they control over machines in circulation could be
facilitate the recovery of value embedded in reflected in collection rates of up to 95%. This
those collected products. End-of-life washing could be further supported by collaborative
machines are typically recycled, yet it is collection and treatment systems, which
estimated that only up to 10% of collected82 would improve the entire reverse supply
machines currently get refurbished.83 In many chain. In such a scenario, the net material
cases, old washing machines are intact and cost savings associated with refurbishment
would be reusable following the replacement and recycling could be around 18% of total
of some components (e.g., motor, bearings, industry input costs.
front panel, printed circuit board, or pump)
and some cosmetic changes. The cost for Shift to performance-based contracts already
collection, transport, the refurbishing process, happening. Many ideas have already been put
and other expenses is currently estimated forward to exploit the economic and business
to be around USD 170 per machine.84 The opportunities outlined above.
material cost of replaced components could
82 In Europe, ~40% of large
amount to as much as USD 300, but depends Pay-per-wash model. In Northern Europe,
domestic appliances are on the machine’s quality segment as well Electrolux offered customers per-wash
collected in official WEEE
channels. It is estimated that as the number of replaced parts. This could options based on smart metering. The
much more than that is collected make refurbishment economically viable in manufacturer installed its high-quality washing
via ‘unofficial’ channels. Source:
Eurostat, WEEE key statistics and some but not all cases. machines in customer homes, connected to a
data, 2011; CECED, Joint position
paper on WEEE recast second
dedicated measuring device installed at the
reading, CECED position paper, Combining new leasing models with power outlet. This enabled tracking of not
July 2011
refurbishing activities can be a particularly only the number of washing cycles but also
83 Jaco Huisman et al., 2008 interesting opportunity. In a situation where the programme (e.g., cold versus hot wash).
Review of Directive 2002/96 on
Waste Electrical and Electronic circular activities would be pooled and This business model was discontinued after
Equipment – Final Report, United
Nations University working
replacement parts prices would not be the utility provider discontinued the smart
paper, August 2007; Adrian subject to the high trade margins currently metering. Without this element, Electrolux
Chapman et al., Remanufacturing
in the U.K. – A snapshot of the observed, material costs in the refurbishment was unable to assess customer-specific usage
U.K. remanufacturing industry; process could be reduced by up to 40%. This and charge the customer accordingly. Further,
Centre for Remanufacturing &
Reuse report, August 2010 would make refurbishment more attractive customer acceptance was rather low; the
84 This is in line with the
and foster the idea of (multiple) leasing advantages (e.g., free servicing, easy trade-in
assumed cost for reconditioning systems for high-end but also other kinds of for upgrades, high-end machines with hardly
in the leasing process
washing machines, as their lifetimes increase any upfront costs) were not marketed
85 David Pringle, ‘Electrolux with effective circular treatment. adequately. 85
offers free washers to homes
that get wired’, Wall Street
Journal Europe, February
2000; Timothy C. McAloone
A comparison of costs for new and Refurbishing model. ISE, a specialty washing
and Mogens Myrup Andreasen, refurbished machines indicates that material machine company producing professional
Design for utility, sustainability
and societal virtues: developing input costs per product could be reduced by washing machines (10,000 to 12,000 cycles)
product service systems, up to 60%, net. From an industry perspective, in sizes comparable with domestic models,
International Design Conference
working paper, 2004; Jacquelyn a transition scenario in which the collection collects used heavy-duty washing machines
A. Ottman et al., ‘Green market
myopia’, Environment, 2006,
rate increases from 40% to 65% due to from hotel or laundromat customers. After
Vol. 48 (5) adoption of new leasing models, and 50% of
TOWARDS THE CIRCULAR ECONOMY | 49
The end of Electrolux’s experiment with use of returned, empty distribution vehicles)
its new leasing business model shows that and product designs that increase durability
challenges may arise in the cooperation with and facilitate the process of disassembly and
business partners, which can hinder a new refurbishment (e.g., specifying a robust case
business model from becoming effective and made from impact-resistant polymers and
profitable. Adopting more circular business carefully placed protective rubber inserts,
models will therefore require skills in new vibration resistant connectors, and high-
forms of collaboration and alliance-building— quality copper motor windings).
but this, too, we see as eminently feasible,
and indeed quite lucrative given the potential Adopt new business models and a
rewards. segmented approach to circular activities.
One new business opportunity could be
Power tools—Power by the hour rental and leasing schemes for high-end
power tools. As these products are durable
Like mobile phones, power tools are currently and are typically used only sporadically
only recycled to a small extent as end-of- and for a defined period of time in the
life products and rarely remanufactured for household segment, high-quality power
reuse. Yet many used power tools contain tools could be hired out several times
electrical components that are very durable and repaired and refurbished at defined
and not subject to changes in technology intervals between hires. As part of a
or fashion, thus offering significant value service contract, a company could also
recovery potential. B&Q, the U.K. home create additional customer value by
improvement company, estimates that even offering training, workshops, and other
today 20% of collected power tools could be kinds of useful do-it-yourself information,
refurbished. Given the recoverable value and which serves a marketing purpose and
current costs of treatment, refurbishment also functions to highlight the increased
of power tools makes sense only for mid- value of durable products to customers.
range/high-end products. As power tools In a more comprehensive service offering,
are somewhat sensitive to humidity, more companies could provide kits with all the
products could be refurbished if they were equipment needed for a specific project
appropriately stored during their usage (e.g., constructing a new kitchen). This
phase and during the reverse logistics would mark a switch from a product to a
process. service or system business, in which the
power tool manufacturer hires out relevant
A scale-up to significant levels of refurbishment tools and collects them at the end of the
and adoption of new business models would project, during which the manufacturer
need to proceed along the following lines: sells consumables (e.g., screws, nails) and
other higher margin items as part of their
Implement in-store collection, testing ‘kitchen renovation kit’ (e.g., paints, fixtures).
processes, and alternative circular business This would increase efficient use of the
practices for power tools. End-of-life products and enhance overall lifetimes
collection points could be set up in every through frequent repair and refurbishment.
store for a per-store investment of ~USD When combined with additional customer
1,500, and labour costs could be kept to a services (such as support in project planning,
minimum. As an alternative to third-party selection of required equipment and
collection and recycling, end-of-life products materials), a contract scheme of this sort
could then be transferred back to the store’s could generate significantly more value for
distribution centres, where testing facilities customers than standard product purchases.
would check for reusability of products and
components. Some of the products could
then be refurbished or remanufactured in
internal or external facilities. The key success
factors of the approach are cost-efficient
reverse logistics (e.g., dry storage and making
TOWARDS THE CIRCULAR ECONOMY | 51
FIGURE 14
Biological nutrients: Diverting organics from the landfill to create more value
Farming/
Biological nutrients collection Parts manufacturer
Biochemical
Restoration feedstock Product manufacturer
Revenues Revenues
Biosphere
(compost) 0 0 ?
0 0 10-25
Service provider/distributor
Biogas Cascades
Revenues
0 20 20 6 2803 0006 9
Consumer
Anaerobic
digestion/
Collection
composting
Costs
(0) (30)-(50) (30)-(50)
Extraction of
biochemical Landfill/sewage
feedstock1 Costs
Costs (80)-(130) (25) 0
(0) (0) (?)
Transition Advanced
Status quo scenario scenario
Let’s take phosphorous from human excreta however, the U.K. AD infrastructure remains
as an example. Urbanisation is increasing largely undeveloped. That may change
sludge produced through municipal soon. The Scottish government, for example,
wastewater treatment; regulation is requiring intends to lead the way and has laid out
higher proportions of wastewater to be in one of its policy papers the significance
treated, further increasing sludge production; AD could hold for Scotland in terms of
and sludge management represents up to energy and soil restoration. Also in the U.K.,
50% of total wastewater treatment costs National Grid has taken an active interest
(which then, in turn, are further exacerbated in developing biogas, from food and other
by high energy costs, which account for 25 sources, as an alternative to natural gas for
to 30% of sludge management costs). While heating purposes. Because many biogas
little operational data is available on the providers are sub-scale, tapping into this
costs of recovering phosphorus from sewage source at scale will require a few changes
treatment plants, academic literature puts at the system level, for example by relaxing
the cost at an estimated 2 to 8 times that quality control rules, which were developed
of mined rock.90 Such high costs may make for activities in gas terminals, and by
sludge extraction an unlikely candidate to adjusting the commercial rules, which are
compete with mined phosphate rock, but in better suited for the oil majors for which they
2008 the price of the latter flared up even were designed.
beyond this point. Since then, prices have
dropped to a quarter of the high, but 2011 Textiles—Dressing up for different occasions
saw over a 30% increase in rock phosphate
prices, from a monthly average of USD 155/ Textiles, whether made of biological or
tonne in January to USD 203.50/tonne technical nutrients, offer a terrific example of
in December91—making the prospect of the cascading opportunity. This is particularly
profitable sewage nutrient recovery suddenly important for apparel, the usage of which is
much more realistic.92 Until that moment often largely determined by fashion rather
comes—or until technological development than technical lifetime limitations. Instead of
and scale bring down costs—businesses such disposal in the landfill after first use (where
as Ostara Nutrient Recovery Technologies they generate up to 3.6 million tonnes of
are building their business model mainly CO2e in the U.K.93), textiles can be reused
on the overall cost reductions for water multiple times. Reuse of apparel in good
treatment plants by reducing maintenance condition offers the lowest costs and biggest
requirements. On the other hand, a number savings. Various models exist, from donations
of low-tech developments on the market and clothes swaps to small- and large-
cut out the sludge phase altogether by scale commercial resale operations (e.g.,
separating urine from faeces, ranging from Patagonia’s Common Threads Initiative).
the PeePoo bag that enables villagers to
use their excrement straight as a fertiliser to When no longer suitable for its originally
separating toilets that allow infrastructure intended purpose, the next loop for clothing
clusters to develop small-scale nutrient can be re-yarning of treated fibres, with some
concentration solutions. reduced costs and savings on externalities.
End-of-life apparel can also be used as
Energy provision. Energy can be extracted stuffing in upholstered furniture, car seating,
from food waste in several different mattresses, and heat and sound insulation
ways, with anaerobic digestion (AD) and (as illustrated in Figure 9). Some of these
90 Water Environment Resource incineration being the most common ones. applications, too, can be repeated a few
Foundation (www.werf.com) Given food waste’s high moisture content, times. We modelled the effects of cotton
91 IndexMundi, Commodity Price AD will in many cases deliver superior value. textiles being transformed into furniture
Indices (http://www.indexmundi.
com)
In the U.K., for example, the food waste stuffing, and then reused again as housing
currently contained in the municipal solid insulation. For synthetic fibres there is also
92 World Bank (www.worldbank.
org), Water Environment waste stream could deliver up to 1,960 GWh the option of de- and repolymerisation into
Resource Foundation (www.werf. of energy through AD. And that is food waste new fibre applications. This process is, for
com)
only; the available volumes of animal waste— example, applied by the Italian company
93 2006 IPCC Guidelines for
National Greenhouse Gas
which is also well suited for digestion—are Aquafil, which turns Desso’s post-consumer
Inventories, McKinsey analysis more than 10 times as big. At the moment, carpet waste into new polymers and then
TOWARDS THE CIRCULAR ECONOMY | 55
new yarns, and by Teijin in Japan, which turns the end of their useful life, take up precious
apparel from Patagonia’s post-consumer disposal capacity or visually pollute in the
collection programme into new polyester best case, and cause considerable damage to
fibres. Finally, after other options with health and environment in the worst?
more cost and resource savings have been
exhausted or are no longer possible due A better option may be to use materials
to the quality of the fibre, the final loop for that are biogenic in their origin, remain
textiles could consist of energy recovery unadulterated by toxic chemicals at all stages
in various possible forms. We modelled of their lifecycle, and after consumption
anaerobic digestion, a technology that is return to the biosystem—where they will
appropriate for cellulose-based textiles such restore systems that have been previously
as cotton and viscose, with all the residue depleted of minerals and organic nutrients.
going to landfill. Priorities here include moving short-lived
products into pure bio loops, increasing
These various transformations of cotton agricultural productivity to reduce land-
along the cascade allow for substitution of use conflicts, and providing the system for
conventional input materials, the production retrieving and treating bio-based materials as
of which may be energy intense or may compost.
require large amounts of water.94 These
include the polyurethane foam used as Moving short-lived products into purely
furniture stuffing, the stone wool typically biological circles can build on some existing
used for building insulation, and the foundations, for example, in packaging.
electricity production saved by creating Shortly after its introduction, cardboard
energy through anaerobic digestion. Our took off as a mass packaging material.
analysis shows that this replacement process Today, despite the advent of numerous new
is certainly economically viable (the numbers packaging materials and technologies, board
depend strongly on the assumptions around represents a third of the packaging market.
technology innovation, but cumulative costs Since the key raw materials are virgin and
along this particular U.K. cascade could secondary fibre, packaging of this type
amount to about USD 120 million, while should be inherently biodegradable and
the products they save cost up to USD compostable. Numerous studies and pilot
315 million).95 Furthermore, the cascade efforts have shown that this is the case, but
process saves CO2e emissions and water growing performance demands on paper for
94 PlasticsEurope: Eco-profiles usage associated with the production of the both print and packaging applications have
of the European Plastics Industry:
Polyurethane Flexible Foam, substituted products. Looking just at the U.K., led to the use of an increasing number of
Brussels, 2005 we determined that these savings could add additives, many of them toxic. When such
95 We analysed the cascade up to 1 million tonnes of CO2e and 16 million toxic materials end up in compost, it is no
of cotton textiles transformed
cubic meters of water. longer possible to apply it widely as soil
to furniture stuffing, then
transformed to housing insulation, improvement: in many cases, its best use is
and finally anaerobically digested
(with the resulting biogas Other short-lived products and consumables as daily cover in a landfill. Here, too, a design
converted into electricity and system that had not taken into account
the digestion residue landfilled).
Economic viability was assessed This category covers a broad range of the poor design outcomes for end-of-life
through comparison of wholesale
products for which circular solutions may treatment needs to be mended—the goal
price of conventional product
with its reused cotton substitute. take on entirely different forms. For some would be to flush toxic chemicals from the
Cotton-derived products turned
out to be highly competitive. For short-lived products, it may be possible to value chain as much as possible and find non-
this comparison, adjustments change their properties or that of the system harmful substitutes that can deliver the same
due to differences in weight and
insulation efficiency were applied. in which they function and, by doing so, to performance. The benefit of having healthy
The base cotton volume entering
switch the delivery of their function into the compost that is suitable for a broad range of
the cascade is defined as 50% of
today’s recycled textiles. Here, durables or service systems categories. For applications is real and measurable.
further potential exists as the
collection rate for textiles in the many more, however, their short lives cannot
U.K. is low at 22% and recycling be altered in an economically or functionally We do not need to resolve the technical/
only accounts for 6% of collected
volumes (Oakdene Hollins: acceptable way. Many forms of packaging, biological nutrient switch with today’s
Recycling of Low Grade Clothing
for instance, belong to this group. Why, then, materials only. Many companies have
Waste, September 2006;
McKinsey analysis). For the would we continue to serve these purposes taken on the challenge of providing bio-
following steps in the cascade, it
was assumed that 50% of material through the consumption of technical based materials that can rival conventional
enters the next cascading step nutrients—which are finite in nature and, at petroleum-derived products in terms of both
56 | TOWARDS THE CIRCULAR ECONOMY
functionality and cost. These companies issue is that, with current high levels of
range from leading chemicals manufacturers landfilling, many inert bio-based materials
such as Dow (impact modifiers and process end up adding to the production of landfill
aids for polylactic acid or PLA) and BASF gas, so that more and more technology to
(Ecoflex) to niche players such as Cyberpac capture landfill gas is required. If landfill
(Harmless Packaging) and the Canadian firm diversion rates were to go up significantly,
Solegear Bioplastics (compostable plastics). however, as is to be expected under EU
legislation, bio-based materials such as
Overcoming functional gaps will require coated and printed paper and cartonboard
a great deal of innovation on the part of might negatively affect the quality of
chemicals and packaging companies, and recyclate—unless high-performance sorting
at the universities and research institutes technologies are applied. Large-scale
that provide these industries with new ideas deployment of biological nutrients would
and insights. As with the other challenges therefore require systems that capture them
posed by the circular economy, here, too, and return them to the earth. In such a
appropriate curriculum changes are vital system, new biological nutrient applications
to create and impart knowledge in and such as packaging, when designed with
across relevant disciplines, and researchers suitably bio-based coatings and inks, can
and companies alike will need to tap into actually reinforce the existing composting/
many different sources in order to generate anaerobic digestion system. As conventional
sufficient levels of innovation (see also packaging materials are often a source of
sidebar). In the marketplace, arriving at scale contamination in organic material, bio-based
will require buy-in from brand and volume alternatives may ensure a lower level of
leaders in the packaged goods industry so contamination for organics and hence better
that demand will pick up quickly and prices commercial value for the compost/digestate.
can come down.
FIGURE 15 EXAMPLES
Building blocks of a circular economy—what’s needed to win
6 2803 0006 9
B Collection
Collection
D
A B C D
Skills in circular product New business models Skills in building cascades/ Enablers to improve
design and production reverse cycle cross-cycle and cross-
• ‘Consumer as user’ sector performance
• Material choice • Performance • Collection systems:
contracts User-friendly, 1. Cross-cycle and cross-
optimised for
• Products become cost-effective, sector collaboration
circular setup
services quality-preserving facilitating factors
• Design to last
e.g., joint product
• More modularisation/
• Treatment/extraction development and
standardisation
technology: optimising infrastructure
• Easier disassembly
volume and quality management through
• Production process
efficiency
• IT-enabled transparency
and information sharing
• Joint collection systems
• Industry standards
• Aligned incentives
• Match-maker mechanisms
2. Favourable
investment climate
Availability of financing and
risk management tools
4. Education
• Awareness raising in
general public and
business community
• Integration of circular
Source: Ellen MacArthur Foundation circular economy team concepts in university
curricula
TOWARDS THE CIRCULAR ECONOMY | 59
collection rates must not be underestimated • ‘Rules of the game’ in the form of better
(see the significant efforts of Europe’s aligned economic incentives from tax
consumer electronics industry), initial authorities and regulators on issues such
steps can easily be taken already in today’s as cost of landfill and labour costs could
environment (e.g., centralising refurbishment potentially speed up adoption of more circular
of light commercial vans to support it with business models. Professor Roland Clift notes
the use of professional tools). on this topic: ‘Some of the current incentives
at systems levels are just perverse—for
Enabling factors to improve cross-cycle example, taxing labour instead of material.
and cross-sector performance. For the The one resource is non-renewable and in
widespread reuse of materials and higher short supply yet free of taxes and the other is
resource productivity to become as common renewable but taxed’. Furthermore, regulation
and unremarkable as litter and landfills in the areas of customer and corporate
are today, market mechanisms will have to responsibility, accounting, certification, and
play a dominant role, but they will benefit standardisation can help to quickly reach
from support by policy makers, educational scale.
institutions, and popular opinion leaders.
• All parties need access to financing and
• Effective cross-chain and cross-sector risk management tools to support capital
collaboration are imperative for the large- investment and R&D. These points are closely
scale establishment of a circular system. linked to the above-mentioned ‘rules of the
As an example, joint product development game’: a stable regulatory environment is a
and infrastructure management (with, focal point for investors. As Andrew Page,
amongst other goals, that of driving a partner at Foresight Group, the asset
down collection and manufacturing costs) management group pioneering environmental
can be facilitated by transparency along infrastructure investing in the U.K., puts it: ‘A
the value chain, available ‘match-maker’ firm legislative and economic framework is the
mechanisms, establishment of industry number one success factor for the transition
standards (e.g., product labelling), and the towards a circular economy’. Cyberpac, a
alignment of incentives among business specialty packaging company, explains: ‘The
partners. Maintaining visibility along the uncertain investment environment currently
value cycles on the whereabouts and the restrains large retailers from investing in
conditions of components across different new technologies’. Governments can create
stakeholders is essential for most circular further funding stimuli by underwriting
business models to operate efficiently. B&Q some of the risks associated with innovative,
points out, ‘As a trading company, whilst we ‘green’ businesses. For instance, the newly
adhere to all health and safety legislation established Green Investment Bank, an
and proactively work to exclude/reduce initiative launched by the U.K. Department
problematic chemicals from our products—as for Business, Innovation and Skills, aims to
we did when we led the way by significantly ‘accelerate private sector investments in
reducing the harmful chemicals in paint (now the U.K.’s transition to a green economy’
industry standard)—at this time we don’t (including the waste sector), offering
currently know every material contained targeted financial interventions to overcome
in every product we sell. Understanding all market failures such as risk aversion due
the materials and components with every to informational asymmetries and high
product and better labelling of these will transaction costs
be will be crucial for our success in the
Circular Economy game’. This information • The shift to the circular economy must
needs to feed into well-developed company- also be supported by the education system
internal databases and tracking systems, with integration into university curricula and
so that one can easily look up the origin, outreach programs to increase awareness
age, and range of potential applications—‘a in the general public and business, science,
critical requirement for a high-performance and engineering communities—see also the
remanufacturing system’, says Jean-Philippe sidebar on education and skills.
Hermine, CEO of Renault Environnement.
TOWARDS THE CIRCULAR ECONOMY | 61
Examples ILLUSTRATIVE
Building
blocks of
a circular Mobile phone Light commercial vehicle (LCV) Washing machine
economy
From... To... From... To... From... To...
Product Highly integrated Component Limited degree Design for Efficiency Regular software
A design product designs standardisation of modularisation disassembly— gains in energy updates and
and low degree (e.g., displays) (e.g., bolted wider design and water upgrades of
of component and design for connections in of engine bay consumption electronics and
standardisation disassembly LCV engine bay) and use of quick drive economic sensor systems
(e.g., clip-hold fasteners obsolescence post sale
assembly) and limit lifetimes
Systematically looking at these building The in-depth analysis of the different products
blocks can yield specific ideas on how to selected for in-depth study suggest, which is
move business practices forward from the summarised in the appendix, that a circular
current state. Figure 16 summarises what the economy would shift the economic balance in
concerted adoption of these levers could three foreseeable ways. The shares of factor
look like for some of our sample products. inputs will change: products will be made and
Whilst the list of enablers is long, the trends distributed with less material but in some cases
supporting a large-scale shift bode well with more labour. Along the value chain, the
for concerted action. Both resource prices relative importance of primary extraction and
and disposal costs are rising, increasing production operations will decrease, while
motivation to find new solutions. Progress new activities grow up around repeated use
in technological and material development of products, components, and materials—a
supports longer-lasting and more reusable ‘re-sector’ will emerge for reuse, refurbishing,
designs, increased visibility along the value remanufacturing, and recycling offering new
chain enables all participants to better track opportunities for business building. The
products and materials, and consumer and inherent economics of going circular seem to be
corporations have grown more accustomed applicable across a diverse set of products. In
to contracts and usage practices based on the following section we will look at how these
performance instead of ownership. findings would translate to opportunities at
economy, company and user level.
62 | TOWARDS THE CIRCULAR ECONOMY
1
benefit different market participants.
64 | TOWARDS THE CIRCULAR ECONOMY
Given that we are still at the beginning of Examining the benefits EU-wide
a journey to circularity, and assuming that
we can identify profitable new options to Our case studies show the positive business
establish circular setups (e.g., by applying impact of circular business models on a
insights from the selected products we product level. In Chapter 3, we described
examined), we believe that a substantial how we scaled up from the level of an
scale-up from the current starting position individual product to the entire market for
is possible and in fact highly likely. Whilst that product (‘The Circularity Calculator’).
full quantification of a likely end-game will Next, to see what the order of magnitude
require further work, the case for rapid of economic impact might be if more
value creation is quite strong, particularly if businesses were to adopt these methods,
we assume circular business practices reach we ran a second scale-up model, applying
a tipping point and thereafter see more results from our selected product analyses
widespread acceptance. Eliminating waste to the eight sectors we see as having
from the industrial chain by ‘closing the particularly high potential for adopting
loop’ promises production cost savings and circular technologies. These eight sectors
less resource dependence. The benefits are contain products of medium complexity
not merely operational but also strategic; (i.e., circular design principles could be
not merely for industry but also for users; incorporated initially with minor changes to
and not merely a source of efficiency, but existing technologies and processes) and
also a source of innovation and growth. The medium usage periods (i.e., products will go
potential identified so far represents only a through a number of product cycles in the
small fraction of what could be possible if next 15 years).99
circular business models were to be applied Together, these eight sectors represent a
at scale. little under half of the contribution the EU
manufacturing sector makes to overall EU
In the following chapter we will therefore GDP—so this would not represent a narrow or
explore: isolated movement.
How economies will win from substantial To perform our scale-up, we compared the
net savings on material and energy costs, total absolute cost savings on materials and
improved mitigation of volatility and supply energy (net of the required materials and
risks, higher multipliers due to sectoral shifts energy used in the respective reverse cycle)
and reduced externalities for our selected products with the total input
costs for each respective product. We chose
How companies will win by creating new this ratio because it factors out value-add
profit pools and competitive advantage, across different products and industries,
building resilience against some of today’s which is highly variable and potentially a
most strategic challenges, and expanding distorting factor in our analysis.100 We then
from their respective starting situations applied the range of percentage savings
from our detailed analysis to the selected
How consumers and users will win by target sectors to see what kinds of net
gaining more choice, experiencing fewer material cost savings might be expected
hassles from premature obsolescence, were all producers to adopt similar circular
99 As discussed in chapter 3, the
and enjoying improved service quality and setups. We focused on the net material and
eight sectors, as categorised by secondary benefits. energy cost savings as the net economic
Eurostat, are as follows: machinery
and equipment; office machinery benefit of shifts in associated labour costs,
and computers; electrical the redirection of investments, and the split
machinery and apparatus; radio,
television, and communication of savings between users and providers or
equipment and apparatus; medical,
precision and optical instruments,
across players along the value chain would
watches and clocks; motor likely vary across sectors and regions and
vehicles, trailers, and semi-trailers;
other transport equipment; and therefore defies exact prediction.
furniture and other manufactured
goods
Of course, we do not expect all producers
100 For further details on the
methodology discussed in this
to instantly adopt circular business
section, please see the appendix practices. Therefore, we established two
TOWARDS THE CIRCULAR ECONOMY | 65
FIGURE 17
Increasing circular activities is a promising business
opportunity for a variety of products
ILLUSTRATIVE
Circular activities
as promising
business
opportunity
High
Potential
for circular
business
practices1
a ‘transition scenario’ and USD 520 to 630 Adoption of circular setups in relevant
manufacturing sectors could yield net material
billion p.a., or a recurring 3 to 3.9% of 2010 EU cost savings of USD 340 – 630 billion per year
GDP, for an ‘advanced scenario’, all net of the in EU alone
materials used in the reverse-cycle processes. Net material cost savings1 in complex durables
with medium lifespans
(Figure 18). These figures are intended to USD billion per year, based on current total input
demonstrate the order of magnitude of the costs per sector,2 EU
520-630
savings that could be expected in a circular (19-23%)1
economy. Rather than trying to explicitly
model the effect of circularity for the entire
economy—which is highly dependent on
many factors such as industry structure and Motor vehicles
conduct, elasticities, or the drive of companies
to reap the circular potential—we decided
to ground our estimate on the observed
potential material savings for the products
from our case studies. We limited the scale-up 340-380
(12-14%)1
to those sectors that hold the most potential Machinery and
equipment
for mimicking the success of these products
(i.e., products of medium complexity) and
that contain products of medium-term usage
periods (3 to 10 years), so that adoption of Electrical
circular design and processes could actually machinery
& apparatus
affect the material balance over the next 15
years. These medium-lived products represent
Other transport
a little less than half of the contributions
made by manufacturing to the EU’s gross
Furniture
domestic product today—but clearly they
do not represent an exhaustive list of all Radio, TV, and
short-, medium-, and long-lived products that communication
ILLUSTRATIVE
FIGURE 19 Sample AND ROUGH
A small reduction in demand would put downward reduction ESTIMATES
pressure on both iron ore prices and volatility in quantity
of iron ore
200 2025 Global Iron Ore Cost Curve1 demanded
190 2010 USD/tonne, not corrected for real mining cost inflation
180 1
170
160 Potential savings
150
140
130
120
110
100
90 2 Scope for potential price drop,
80 given sample reduction in demand
70
Potential price floor
60 in 2025 under
50 circular economy
40
30 Production
20 Million
10 Tonnes
0
0 250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 3,000 3,250
1 Note: this is not a projection of iron ore demand in 2025; rather it is an illustration of the impact of a demand reduction;
see footnote 105 for more details.
SOURCE: McKinsey iron ore cost curve
(services)—would each have opportunities by the recession in the late 2000s than were
under a circular model, though we anticipate workers in other sectors.108
that the service sector would feel the
biggest impact. The increased need for Reduced externalities. The circular approach
financing and leasing arrangements for a offers developed economies an avenue
wide swath of products and reverse cycle to resilient growth, a systemic answer to
services, as well as the need to expand reducing dependency on resource markets.
services along the reverse cycles, would It also provides a means to reduce exposure
likely bring significant job growth in services to resource price shocks and mitigates the
(Figure 20). This shift could be particularly need to absorb disposal costs—which consist
dramatic in developing economies, which at of the loss of environmental quality and the
present are much more reliant on primary public costs for treatment that is not paid
industries. Net employment effects will for by individual companies. Higher reuse
likely vary across sectors. The extraction and remanufacturing rates for mobile phones
sector—though it may face pressures on the in the EU, for example, could eradicate at
virgin extraction side of its business—would least 1.3 million tonnes of CO2e annually
also have opportunities to benefit from at 2010 production levels in our transition
circularity. Smelters, for example, would scenario, net of the emissions produced
almost certainly see expansion and new job during reverse-cycle processes. In addition
opportunities in secondary extraction. The to the economic benefits, the exclusion of
manufacturing sector is likely to undergo energy- or water-intensive production steps
significant changes, given the removal of (like aluminium smelting) as well as a move
material bottlenecks and the need to adjust towards less toxic materials (such as using
operations. Whether the newly generated more biological nutrients for consumables
remanufacturing volume will more than such as food packaging) could contribute to
compensate for the pressure put on reducing pressure on GHG emissions, water
conventional ‘linear’ manufacturing depends usage, and biodiversity.
in large part on the specific circumstances
of different manufacturing industries. Given Lasting benefits for a more resilient
the strong fundamentals of the underlying economy. Beyond its fundamental value
business case (assuming comprehensive creation potential over the next 10 to 15
design changes to products, service delivery years, a large-scale transition to a circular
processes, etc.), adopting more circular economy promises to address fundamentally
business models would bring significant some of the economy’s long-term challenges.
benefits, including improved innovation Improved material productivity, enhanced
across the economy (Figure 21). While the innovation capabilities, and a further shift
exact GDP implications of more innovation from mass production employment to
across an economy are difficult to quantify, skilled labour, are all potential gains that
the benefits of a more innovative economy will significantly increase the resilience
include higher rates of technological of economies. They will also provide
development, improved material, labour, fundamental changes that would make it
and energy efficiency, and more profit harder to revert back to the troubles of a
opportunities for companies. linear ‘take-make-dispose’-based economy.
Importantly, with its greatly reduced material
Finally, other sources report that a move intensity and a production base that is largely
toward a circular economy could potentially running on renewable sources of energy, the
create moderate benefits, either in terms of circular economy offers a viable contribution
job growth or employment market resilience. to climate change mitigation and fossil fuel
Sita Group, the waste management arm independence. Moreover, the demonstrable
107 French National
Assembly, Rapport
of Suez Environment, estimates that some decoupling of growth and resource demand
D’information No. 3880, 500,000 jobs are created by the recycling will also slow the current rates of resource
October 26, 2011, p. 75
industry in the EU, and this number could depletion.
108 Remanufacturing in well rise in a circular economy.107 A recent
the U.K.: A snapshot of
the U.K. remanufacturing report from the Centre for Manufacturing
industry, Centre for
Remanufacturing
and Reuse argued that workers in the U.K.
and Reuse, August 2010 remanufacturing industry were less affected
TOWARDS THE CIRCULAR ECONOMY | 69
FIGURE 20 Effect on
Employment effects vary across primary, secondary, and tertiary sectors of a circular economy employment
activity
(directional)
Primary sector
Mining/materials manufacturing
Farming/collection
Recycle
Restoration Biosphere
Biochemical
Refurbish/
feedstock Product manufacturer remanufacture
Biogas Maintenance
Cascades
6 2803 0006 9
Consumer User
Anaerobic
digestion/ Collection Collection
composting
Extraction of
biochemical Energy recovery
feedstock
Leakage to be minimised
Landfill
FIGURE 21
Revamping industry, reducing material bottlenecks, and creating tertiary sector opportunities
would benefit labour, capital, and innovation
274
2.97
180
0.16
0.14 1.87
1 Components of index include: R&D intensity; patent, trademark & design intensity; organization/Managerial innovation; and productivity
SOURCE: Labour intensity calculated using data taken from Eurostat Input-Output tables for EU-27; Innovation data from IBM/Melbourne Institute
Innovation Index (covering Australian Industry), 2010
70 | TOWARDS THE CIRCULAR ECONOMY
are offering a sales platform for used and viable business opportunity, it also provides
refurbished products. In the European an excellent means of building relationships
remanufactured medical devices sector, with new customer segments’.
literally dozens of providers such as Pharma
Machines offer these services with dedicated Material recycling systems systems are
sales platforms. well established. They typically take the
form of regionally structured multi-user
Parts and component remanufacturing and organisations (such as the many product-
product refurbishment can be considered category-specific systems in Europe, from
the hardest loop to close on the path to batteries to packaging) or are company
a more circular economy because of the specific (reintroducing production waste
specialised knowledge required. Collection, from car manufacturing into the material
disassembly, refurbishment of products, flows, or Nespresso’s collection and recycling
integration into the remanufacturing of spent capsules). Both group and single-
process, and getting products out to users company solutions require a standard purity
all require specialised skills and process level suitable for high-quality recycling
know-how. Consequently, most of the processes. Consequently, the market has
case examples at scale are subsidiaries generally developed into regionalised,
of existing manufacturers, although specialised players with natural barriers to
large-scale independent operations exist, growth beyond their starting footprint. A
Cardone Industries, for example, has been number of companies have nevertheless
supplying the U.S. automotive aftermarket started to enlarge the scale and scope of
with remanufactured cores for over 40 their operations by adding new geographic
years. Original equipment manufacturers regions and further material fractions to their
do have a number of advantages. For portfolio. Tomra has used its technological
instance, Caterpillar applies product capabilities to provide the technology for
and process know-how from their new- large-scale, nation-wide collection schemes
equipment business to their diesel engine (e.g., PET bottles). The company has grown
remanufacturing operation; they also use at close to 20% per annum. Looking ahead,
their existing dealer network and aftermarket it plans further improvements in technology
service clout to ensure that components to reduce the burden of costly separation
find their way back from the customer to and pre-sorting schemes and therefore
their remanufacturing facilities. Caterpillar aims to achieve higher recycling yields at
engineers study returned components and lower cost, resulting in rapid and profitable
continually improve the company’s ability to growth for recyclers. Similar technology
remanufacture them at lower cost and higher could be applied to the process of taking
quality.112 This allows Caterpillar to provide the back products for remanufacturing and
same warranty for ‘reman’ engines as for new refurbishing. Another company that is
products. Product insights passed on from optimising recycling systems is Renault,
the remanufacturing/refurbishment plant to which has long worked on augmenting the
an OEM’s designers and engineers not only recycled content of its vehicles. ‘While 85%
add to future remanufacturing margins but of the weight of a car is typically recycled,
can also help to improve the performance of only 25% of the material input for new cars
the original cores. Renault, another example, consists of recycled material’, says Jean-
already has a process in place to make sure Philippe Hermine at Renault Environnement.
that its new remanufacturing workshop for Because this disconnect is mainly due to
electric vehicle batteries feeds engineers’ concerns about the quality of recycled
insights into failure modes back into the new materials—in particular plastics—Renault is
product development process. Critically, now developing ways to better retain the
many OEMs also see it as a strategic priority technical and economic value of materials
to serve in their aftersales markets—for brand all along the car’s life cycle. It is not only
112 Corporate annual reports protection, customer retention, or volume actively managing a flow of quality material
2005 to 2010; Product-Life
Institute website (http://www.
reasons—and remanufacturing offers them a dismantled from end-of-life vehicles and
productlife.org/en/archive/ way to do this with attractive margins. Cisco enhancing the actual recycling processes,
case-studies/caterpillar-
remanufactured-products-
confirms, ‘Refurbishing various kinds of end- but is also adjusting the design specifications
group) of-life products is not only an economically of certain parts to allow for closed-loop, or
TOWARDS THE CIRCULAR ECONOMY | 73
FIGURE 23
The circular economy is creating a new ‘reverse’ sector
Remanufacturing Recycling
Thousand tonnes of
Caterpillar remanufactured products Remondis Revenue in USD billions
Remanufacturing
division +9% pa +10% pa
Remondis provides
Cat Reman remanufactures 70
recycling infrastructure
7.02
engines that are resold with and expertise in Europe,
45 4.38
‘same-as-when-new Asia, and Australia
performance and reliability’
SOURCE: Tomra annual reports (2005, 2010); Ixtens research (based on Amazon SEC filings, Forrester analysis); Caterpillar annual reports (2005, 2010);
Remondis annual reports (2005, 2010)
Financing. Individual companies and groups leasing contracts in place, companies can
of companies will need not only support gather more customer insights for improved
with change-in-ownership models but also personalisation, customisation, and retention.
funding for R&D and new technologies. As As Cisco puts it: ‘We think that broadening
in the linear economy, the financial sector our focus beyond pure-play manufacturing—
has an important role to play in the circular to enhance our service offerings as well—will
economy, both in transition and steady deepen our relationships with our customers
state. Because of the numbers of cases and create more value for everyone involved’.
banks handle, they are typically also far Providing end-of-life treatment options and
more experienced and therefore better at incentives to use them could increase the
structuring long-term return models than number of customer touchpoints and help
corporations alone. build a technology pioneer’s image.
1
78 | TOWARDS THE CIRCULAR ECONOMY
Our economies remain strongly locked into Third, and on a related note, we are
a system where everything from production witnessing a pervasive shift in consumer
economics to contracts, and from regulation behaviour.
to mindsets, favours the linear model of Organised car sharing is growing at a rapid
production and consumption. In that linear clip—from fewer than 50,000 members of
world, reuse will indeed replace demand for car-sharing programs globally in the mid-
a company’s incremental sales and weaken 1990s,116 to around 500,000 in the late
revenue and profits. 2000s.117 According to Frost & Sullivan, this
number is likely to increase another 10-
This lock-in, however, is getting weaker in fold between 2009 and 2016, and the total
the wake of powerful disruptive trends that number of cars in the car-sharing market is
will shape the economy for years to come: likely to grow about 30% per year during this
period.118 At this pace, by 2016 the car-sharing
First, resource scarcity and tighter industry would replace the production of
environmental standards are here to stay. more than one million new vehicles. The
This perception is increasingly accepted list of ‘shareware’ extends beyond cars,
by the business sector. In a 2011 McKinsey however, and in some regions even includes
Quarterly executive survey, the number articles of daily use, such as bicycles, toys,
of respondents who pursue sustainability musical instruments, and power tools.119 In
initiatives to reduce costs or improve Germany, for instance, ‘swap in the city’
operating efficiency was up 70% over the garment exchanges have become popular
previous year.114 Along with a changing and are magnets for urban consumers. Taken
appreciation of the business rationale, together, circular business design seems
investment in environment-related areas finally poised to move from the sidelines and
has increased dramatically. According to a into the mainstream. The mushrooming of
joint report by the World Economic Forum new and more circular business propositions—
and Bloomberg, global investment in green from biodegradable packaging to utility
business initiatives in 2010 alone totalled computing and from non-toxic ink to
USD 243 billion, a 30% increase over the sewage phosphate recovery—confirms that
prior year.115 Given their superior resource momentum is building.
performance, it seems likely that investments
in circular businesses will be systematically And yet, to capture the prize of the circular
rewarded over the ‘take-make-dispose’ ones. economy some significant barriers must be
114 ‘The business of sustainability: overcome. What is needed for this revolution
McKinsey Global Survey results’,
McKinsey Quarterly, October 2011.
Second, we now possess the information to take place?
The percentage of respondents technology that will allow us to shift. We
who pursue sustainability
initiatives rose 14 percentage can trace material through the supply chain The transition is likely to be a messy process
points, from 19 to 33% of all (e.g., using RFID), identify products and that defies prediction, and both the journey
respondents
material fractions (using the breathtaking and the destination will no doubt look and
115 Green Investing 2011: Reducing
the Cost of Financing, World
computing power of modern sorting feel different from what we might imagine
Economic Forum and Bloomberg, technology), and track the product status today. We expect this transition to be as
April 2011, p. 6
and costs during its use period (as already non-linear as its inner workings, as a dynamic
116 Susan A. Shaheen and Adam practiced by some car manufacturers). series of leaps at an accelerating pace. Why?
P. Cohen, “Growth in Worldwide
Carsharing: An International Professor Clift points out that whilst the
Comparison”, Transportation
Research Record: Journal of the
idea of a circular economy has been around The Ellen MacArthur Foundation and
Transportation Research Board, for some time, further development and its partners believe that an accelerating
2007, p. 84
wider acceptance of end-to-end costing adoption may result, first, from today’s fast
117 Frost & Sullivan, “Sustainable and better tracking of products, combined proliferation of consumption patterns and,
and Innovative Personal Transport
Solutions—Strategic Analysis of with more acceptance of re-engineering and second, from the scale-invariance of many
Car sharing Market in Europe”,
research report, January 2010
development of the necessary capabilities, circular solutions: once a tracking system
will ease widespread adoption. Most or a collection system is in place, additional
118 Frost & Sullivan, “Sustainable
and Innovative Personal Transport importantly, there are social networks now volumes come at very low extra cost—the
Solutions—Strategic Analysis of that can mobilise millions of users around a ‘internet principle’. We also see a ‘backlog’ of
Car sharing Market in Europe”,
research report, January 2010 new idea instantaneously—from motivating existing technology, design, and contractual
119 http://www.zeit.de/2011/51/
consumer awareness to facilitating concrete solutions that has existed for some time and
Meins-ist-Deins action (e.g.,‘Carrotmobs’). that can now easily multiply as input-cost
TOWARDS THE CIRCULAR ECONOMY | 79
ratios and demand pass critical levels. The Roadmap towards 2025—Rapid pioneering
mining houses are demonstrating how new and broad-based mainstreaming
technologies and the need to address overall
ore grade erosion can accelerate circular The pioneering phase
businesses: Anglo-American and others
are now developing businesses based on Recent decades have served to confirm the
processing materials previously considered technical viability of circularity for a large
mining wastes, such as tailings and fractions number of products and service models. The
of the overburden. Some companies are next five years will be the pioneering phase
taking this a step further by designing their in which circularity’s commercial viability
production processes in a way that enables must be proven more widely. Customers
them to reap additional rewards from the and producers could capture the savings
products they produce when they return opportunity of the ‘transition scenario’ if their
after their first usage period. Desso, the conduct shifts sufficiently (across all three
Dutch carpet manufacturer, offers carpets sectors), as outlined in previous chapters.
today that will be easier to regenerate and For Europe alone, the material savings could
reuse more cost efficiently when they return well be in the order of magnitude associated
in the years to come. with our transition scenario of 12 to 14%,
worth USD 340 to 380 billion per annum120
These factors will make it hard to predict with (net of material expenditures during the
any certainty how quickly principles of the reverse-cycle process). As they capture
circular economy will become mainstream. these benefits, industry pioneers will build
Different times to impact will prevail: some competitive advantage in a number of ways:
products have long cycles, some do not. And
some companies can start off circulating Companies will build core competencies
a stockpile of returned goods, end-of-life in circular design. Circular product (and
products, and process wastes; others need process) design requires advanced skills,
to recover these resource volumes first and information sets, and working methods
wait for improved designs to unlock the full that today are not readily available. Whilst
potential of ‘going circular’. Still, we could much of the ‘software’ for the transition such
imagine that circularity will take hold in two as cradle to cradle and the performance
distinct phases. economy has been on the drawing board
and in development by thought leaders for
During a pioneering phase over the next some time, this knowledge must be brought
five years, we would expect entrepreneurial into the production environment, debugged,
companies to scale up circular models from refined, and rolled out into commercially
their piloting state, largely relying on the viable solutions at scale. At the process level,
existing market environment (with today’s the core of the process design challenge is
input cost ratios, pioneer customers, and likely to be the need to overcome internal
producer responsibility legislation) and their incentive mismatches (such as those
own capabilities, especially around making between organisational units measured on
rapid changes to their end-of-life treatment, their success in driving new product sales
service model innovation, and product and other units aiming to reduce material
designs. During the mainstreaming phase consumption through remanufacturing and
thereafter, towards 2025, when we would remarketing of used products).
expect the economy to have developed more
cross-sector and cross-chain collaboration, Companies will drive business model
built up a reverse infrastructure, and put in innovation, explore new service models, and
place favourable regulation, we will see a challenge today’s orthodoxies of ownership-
proliferation of offerings—possibly to the driven consumption: ‘Forget ownership, it is
point that users have a true ‘circular option’ performance that counts’. Turntoo perceives
for all important product categories. ownership as a key element to achieve
the preservation of resources. ‘By shifting
consumer perception from products to
performance, manufacturers are challenged
120 See also ‘Examining the
benefits EU-wide’ and Figure 18 to approach their products as ‘resource
80 | TOWARDS THE CIRCULAR ECONOMY
depots’ and the raw materials will remain net of the expenditures on material during
available for future generations’. Treating the reverse-cycle process. To realise this
material usage as a service allows companies potential, however, more transformational
to benefit over time from improved material action is needed on the part of the corporate
productivity and product longevity, which sector working jointly with government.
would not be rewarded in today’s short- Advancing the current taxation, regulatory,
term price competition at the time of sale. and business environment to support
Business model innovation will also include pervasive adoption of the circular economy
collaboration across value chains to establish will require joint effort to foster cross-chain
materials standards and information flows collaboration, develop collection systems
that support circularity. We see a variety of at scale, redirect marketing efforts, provide
steps companies are likely to take to help education, and involve service industries
drive this innovation. First, companies with (such as the financial sector).
significant market share and capabilities
along several vertical steps of the linear Although we see businesses themselves
value chain could play a major role in driving as the primary driver of a shift towards
circularity into the mainstream by leveraging circularity, the public sector may also have
their scale and vertical integration, much as a role to play. Specifically, governments can
any other business might. Whilst many new help stimulate fast-track adoption of circular
models, materials, and products will have business opportunities by adjusting the
to come from entrepreneurs, these brand enablers to shift the rules of the game. ‘The
and volume leaders can also play a critical government/regulatory approach’ typically
role. Secondly, we envision ‘missing link’ can be further broken down into different
roles where smaller firms will find market plays:
opportunities—for instance, Turntoo’s ‘market
maker’ role—facilitating new relationships Organising re-markets (and fighting
between producers and consumers who are leakage). Today, ‘reverse cycles’ are
interested in pay-per-performance models. significantly impaired by the high cost
(and low convenience) of collection, lack of
Jointly, pioneering companies will create aggregation facilities, and leakage from the
the capacities for the reverse cycle. Current system through subsidised incineration or
infrastructure is not well equipped to fulfil undue exports to emerging economies where
the requirements of the circular economy. In materials are often downcycled using low-
addition, Europe would need to build up or cost labour, typically with high losses and
strengthen current remanufacturing skills, under poor working conditions. Achieving
‘re-logistics’ (return or reverse transport and scale in collection is critical and will benefit
handling), storage, and information transfer from appropriate landfill gate fees, minimum
capacities to keep materials and components return or collection quotas, and efficient
identifiable as they cycle through different collection rules.
uses and applications. Pursuing pioneering
strategies focused on both sector-wide Rethinking incentives. Taxation today
solutions (e.g., within advanced industries) largely relies on labour income. Resource
and regional solutions (e.g., shared collection and labour market economists have long
schemes within Europe, a single country, or argued that labour as a ‘renewable factor
even a large metropolitan area like London input’ is currently penalised over material
or Paris) is likely to yield the fastest proof and non-renewable inputs in most developed
of concept and highest return by exploiting economies. They promote a shift of the
economies of density and local scale. tax burden away from labour/income and
towards non-renewable resources.
Towards 2025: The mainstreaming phase
Igniting innovation and entrepreneurship,
There is a chance for circularity to go stepping up education. Circularity will
mainstream and to capture (or exceed) the come as a bottom-up revolution, a natural
benefits of the ‘advanced scenario’ in the response/defence as the resource cost
121 See also ‘Examining the
range of 19 to 23%, which is equal to about squeeze and volatility intensify. But such new
benefits EU-wide’ and Figure 18 USD 520 to 630 billion p.a. in Europe121 alone, products and businesses will take hold faster
TOWARDS THE CIRCULAR ECONOMY | 81
if entrepreneurship and venture investment some countries. In the U.K., for instance, an
are welcomed and supported. Strengthening organisation called the Waste & Resources
the education of future generations of Action Programme, or WRAP, aims to bring
entrepreneurs, designers, chemical and community leaders and government leaders
industrial engineers, of procurement officers, together to improve resource efficiency
and product managers, will be critical to across the country.
completely rethink and overturn today’s
linear world. How to get started? Five ideas on how
pioneers could drive the circular economy
Providing a suitable international set of to breakthrough
environmental rules. In the least intrusive
way, government and public sector entities While the above suggestions focus on the
can help to foster cross-chain collaboration broader transformation of the economy as a
by establishing standards and guidelines. whole, we are putting forward five specific
Product labelling is an important lever to ideas worth pursuing as they are likely to
ensure proper treatment in the reverse loops drive benefits rapidly for the pioneers in
regarding non-toxicity, purity, or handling the public and private sectors and might
issues.122 Another is to phase out (toxic) allow them to get a head start on building
chemicals that—if blended into waste— competitive advantage:
significantly impair recycling or reuse of a
much larger set of products and materials. Tightening circles along your own supply
Finally, governments should re-examine chain. Firms with strong influence and
certification programs to enable new ways of control over their current supply chains (e.g.,
confirming the viability or safety of circular in automotive, consumer electronics, trading
products. As one example, no certification organisations and retailers) and those that
guideline currently exists for second-hand exchange large volumes of products with a
wind towers, so verification bureaus typically limited set of business partners (e.g., B2B
cannot certify them—a major barrier to interfaces in the machining, manufacturing
growth in the secondary market, given or chemical sectors) could map out the
the liabilities incumbent in operating an leakage points of their current linear set-ups
uncertified used wind tower. and apply their clout to move others in the
chain towards tighter circular setups. Desso,
Leading by example and driving scale up for example, managed to convince suppliers
fast. There are also many opportunities for to comply with its higher standards of non-
governments to use their own procurement toxicity and purity of materials, necessary
and material handling to accelerate the to allow it to achieve higher recycling rates
spread of circular setups. In the U.S., the for its carpet tiles and to keep material in
policy to move towards procurement of the technical nutrient loop longer. Renault,
performance-based services (rather than in another example, aims to strengthen its
products) has created a market of significant reverse supply chain by helping is vendors
scale. In its convenor or ‘matchmaking’ develop skills, redistributing margins along
role, a government can initiate concerted the chain, and hence rendering the business
efforts among different companies in model more viable for all players, and
the value loops that are large enough to providing a more reliable outlet for recovered
overcome diseconomies of scale. One materials and components. In Europe,
example is in phosphorus markets, where potential capability gaps (in collection and
122
Knowing what is included in
a few governments have started actively sorting, for instance) can be overcome for
a product is vital information trying to help businesses extract value from many types of products by tapping into
to ensure proper treatment
or even completely avoid sewage sludge. In Germany, for instance, the reverse logistics and rapidly expanding
complex separating procedures the Federal Environmental Office recently the capability set of ‘waste management’
altogether, especially for
plastics, which are extremely announced a goal of retrieving phosphorus firms—making ‘resource management’ a more
hard to distinguish without
labelling due to similar product
from sewage, and Sweden set up an action appropriate label for their activities. On this
density and chemical and plan in 2002 aimed at recycling 60% of front, Renault has chosen to partner with
physical properties.
phosphorus, mainly through making sewage Suez Environnement/Sita in order to provide
123 available for reuse.123 There may also be a role access to a steady supply of components and
McKinsey research on sludge
monetisation for intermediate, ‘convener’ institutions in materials.
82 | TOWARDS THE CIRCULAR ECONOMY
Looking for like-minded players in the sector Leverage your individual and collective
could then easily allow for national industry market clout. As the case examples have
consortia to emerge fast, as firms are facing shown, there are many nascent ideas on how
similar pressures at parts of the value chain to innovate and serve users better in the
that do not necessarily lead to conflicts of future with new offerings based on circular
interests or competitive gamesmanship (like economic business models. Individuals,
forming national or regional consortia to deal companies, and customers can now fast-
with the ever-increasing volume of electronic track adoption by exercising their right of
waste). This concern is expressed in public choice to demand, take up, and—jointly with
opinion polls and consumer surveys, and is the provider—continually improve products
reflected in new interest in above-ground and services. Why not ask for a lease-based
‘urban’ mining for scarce and valuable or performance-based model when you next
materials and components. consider purchasing furniture for home or
office, restocking machinery assets or vehicle
Catch the wave at the start. We are at the fleet, upgrading IT and the communications
beginning and will see the formation of system, or expanding and adjusting a
a number of new industries and product building portfolio? Governments can lend
categories that will transform the economy the full weight of their collective purchasing
by themselves. Free of pre-defined power to supporting circularity initiatives
structures, such as established design and de-risking the critical initial phase for
principles, processes, and disposal routes pioneers of the circular arena.
encrusted in brick and mortar or contract
interfaces in silos, several entire industries Build matchmaker businesses and profit
(e.g., the solar panel industry) or emerging from arbitrage. As laid out in the report,
product platforms (such as those for electric there is plenty of low-hanging fruit for the
or lightweight vehicles and car batteries) first movers in adopting circular setups at
have a one-time opportunity to embed a profit. For example, Turntoo’s ‘market
circular principles right from the design stage maker’ business model aims to facilitate
of the product, via material choices, through new relationships between the producers of
the establishment of service-based delivery material-based products (such as lighting
models, right up to the optimised setups for systems) and users simply interested in
circular reverse cycles. performance (in this case, light hours) to
establish a simple method for determining
Activate your (local) community. As last-mile prices that gives both the users and the
distribution, consumption, and disposal are suppliers an incentive. They are capitalising
typically fairly local activities, communities on the new transparency of the web and
should follow the example of municipalities eroding transaction costs. This business
like Seattle—which collaborated with the model not only provides Turntoo with a profit
food retailing sector to introduce biological- stream but also boosts circular business.
nutrient-based packaging to increase the
purity of communal food waste streams. Moving away from wasteful material
Community members could rapidly establish consumption patterns could prove to be the
local pilot applications of collaborative start of a wave of innovation no less powerful
cross-sector participation to further provide than that of the renewable energy sector. It
tangible proof of concept and important offers new prospects to economies in search
test beds for debugging and refining circular of sources of growth and future employment.
setups prior to national/international rollouts. At the same time, it is a source of resilience
Activities among small and medium- and stability in a more volatile world.
sized businesses in local clusters (e.g., the Its inception will likely follow a ‘creative
machining cluster in Southern Germany, destruction’ pattern and create winners
and chemical clusters in central Europe) and losers. As well as long-term benefits,
could represent similar starting grounds for the circular economy also offers immediate
community-based activities. opportunities that are waiting to be seized.
TOWARDS THE CIRCULAR ECONOMY | 83
Appendix
The following section, which is intended to help elucidate the mechanics of our analysis, comprises a
high-level value driver tree, a compendium of the core assumptions regarding input values and likely
improvement levers, the resulting outputs of our in-depth diagnostics at cost item level, and descriptions
of the assumptions we make about what a circular system would entail in terms of collection and reverse
treatment rates for each of the products we examine.
The value driver tree in Figure 24 depicts the architecture of our model. Figure 25 outlines specific input
parameters and underlying assumptions regarding collection and reverse treatment rates. Figures 26
to 30 provide detailed information on the product-level economics of primary production and circular
activities.
The output of the driver tree is an estimate of net material cost savings, as a percentage of total input
costs, in the market for a specific product. Comparing this measure across several products gives us
a range for relative net material savings potential—which we then consider in order to estimate the
collective impact on our selected manufacturing sectors at the EU level.
In order to understand the effects of all specific treatment options, we explicitly chose products with
different opportunities for reverse-cycle treatment. This allowed us to cover all types of circular setups in
depth.
While we assumed an aggressive collection rate in the ‘advanced scenario’, we left this rate shy of 100%
in order to account for some losses; similarly, we assumed only one product cycle, where for some
products multiple cycles might be possible—and would presumably heighten the economic benefits
of circularity; finally, we factored out the possibility of substantial material or product innovations that
could potentially lead to much improved longevity of products or higher preservation of material quality.
The ‘advanced scenario’ only attempts to capture the effect of a high structural proliferation of the
circular economy in terms of collection rates and reverse treatment rates, while allowing further leakage,
which will be unavoidable (given the second law of thermodynamics, i.e., the dissipation towards
entropy).
In order to ground our analysis in current realities, we conducted extensive market-level research
through interviews with relevant partners from industry and academia. Our objective was to ensure
that the assumed improvement levers from the linear ‘status quo’ towards the circular ‘transition’ or
‘advanced’ scenario are individually technically feasible, commercially viable, and collectively sufficient
to describe a consistent new circular operating model.
86 | TOWARDS THE CIRCULAR ECONOMY
Appendix
FIGURE 24 Driver tree: Factors affecting net material cost savings as a percentage of total input costs
Refurbishment/
reuse Material cost saved:
material cost of
Net material primary production
Refurbishing/
reuse rate1 X cost savings per
product Material cost in
refurbishment/
reuse process
Net material
cost savings as Collection rate
percentage of Collected end-
total input costs in of-life
X
market p.a products p.a.
Number of
end-of-life
products p.a.
Number of products
Total input costs put on market p.a.
in market p.a. X
Key drivers in
Number of end-of- circular business
life products p.a. practices
Appendix
FIGURE 25 Scenarios for more collection and circular treatment rates in Europe
Scenario End-of-life Collected Reused Refurbished Remanu- Recycled Components and business model, transition and
products Percent Percent1 Percent 1 factured Percent1 advanced scenario
million p.a. Percent 1
Mobile Status quo 190 15 38 – – 62 • Improved circular capabilities (products designed for
phone disassembly, firms improve reverse-cycle skills)2 enable
higher remanufacturing rates in transition
Transition 190 50 38 – 41 21 • Deposit, leasing and buy-back systems push collection
rates closer to proposed EU 2016 target of 65% in
transition, and beyond that in the advanced scenario
Advanced 190 95 50 – 50 0 • Industry-wide efforts establish comprehensive
collection and treatment systems in advanced scenario
Light Status quo 1.5 86 – 0 – 100 • Improved circular capabilities (products designed for
commercial disassembly, firms improve reverse-cycle skills)2 enable
vehicle3 higher refurbishment in transition scenario
Transition 1.5 86 – 30 – 70 • Warranty offerings and proactive marketing measures
reduce customer concerns about refurbished products
• OEM/sector initiatives promoting circular production
Advanced 1.5 86 – 50 – 50 R&D foster refurbishment in the advanced scenario
SOURCE: Gartner statistics on mobile device sales, February 2011; Yankee statistics on mobile device sales, September 2011; U.S. Environmental Protection Agency
(EPA), Electronics Waste Management in the United States Through 2009, EPA working paper, May 2011; Eurostat, WEEE key statistics and data, 2011; Jaco Huisman
et al., 2008 Review of Directive 2002/96 on Waste Electrical and Electronic Equipment – Final Report, United Nations University working paper, August 2007; Georg
Mehlhart er al., European second-hand car market analysis, Öko-Institut working paper, February 2011; Eurostat, ELV waste database, 2011; Eurostat, WEEE key statistics
and data, 2011; CECED, Joint position paper on WEEE recast second reading, CECED position paper, July 2011; Euromonitor, houshold appliances statistics, 2011; Ellen
MacArthur Foundation circular economy team
88 | TOWARDS THE CIRCULAR ECONOMY
Appendix
Energy 2 6% 2 1% 680 2% 18 2%
SOURCE: Credit Suisse, ‘Smartphone report’, broker report, August 2009; Bloomberg financial data; Pranshu Singhal, Integrated product policy pilot project, stage I
final report: life cycle environmental issues of mobile phones, Nokia report, April 2005; Ina Rüdenauer et al., Eco-Efficiency Analysis of Washing Machines, Öko-Institut
working paper, November 2005; Ellen MacArthur Foundation circular economy team
TOWARDS THE CIRCULAR ECONOMY | 89
Appendix
Treatment costs
Net material cost savings 16.0 16.0 7.0 7.6 3.1 3.6
Improvements in product design • 130 seconds efficiency gains and yield improvement to 95% (from 70%) in
and reverse cycle skills disassembly process through standardised size of displays and cameras and
clip hold assembly
1 Basic mobile phones selling at USD 30 to 80 before VAT with average lifetimes of around 2.5 years
SOURCE: Roland Geyer and Vered Doctori Blass, ‘The economics of cell phone reuse and recycling’, International Journal of Advanced Manufacturing Technology, 2010,
Volume 47, pp. 515-525; Joaquin Neira et al., End-of-Life Management of Cell Phones in the United States, dissertation University of California at Santa Barbara, April
2006; J. Quariguasi Frota Neto et al., ‘From closed-loop to sustainable supply chains: the WEEE case’, International Journal of Production Research, 2010, Volume 48, pp.
4463-4481; Ellen MacArthur Foundation circular economy team
90 | TOWARDS THE CIRCULAR ECONOMY
Appendix
Refurbish Recycle
Treatment costs
Improvements in product design • 50% cost reductions in refurbishment process (excluding material) through
and reverse cycle skills reduced use of adhesives, modular assembly in production phase
• 20% less need to replace casing through more robust, high quality
materials in production process
1 B2B smartphones selling at USD 300 to 600 before VAT with average lifetimes of up to 3.5 years
2 Introduction of buy-back scheme is a lever to increase collection and refurbishment rates. On a strict product level it is associated with additional costs
3 Other includes remarketing and selling costs, which are driven by recoverable value
SOURCE: Credit Suisse, ‘Smartphone report’, broker report, August 2009; Bloomberg financial data; Roland Geyer and Vered Doctori Blass, ‘The economics
of cell phone reuse and recycling’, International Journal of Advanced Manufacturing Technology, 2010, Volume 47, pp. 515-525; Joaquin Neira et al., End-of-
Life Management of Cell Phones in the United States, dissertation University of California at Santa Barbara, April 2006; J. Quariguasi Frota Neto et al., ‘From
closed-loop to sustainable supply chains: the WEEE case’, International Journal of Production Research, 2010, Volume 48, pp. 4463-4481; Ellen MacArthur
Foundation circular economy team
TOWARDS THE CIRCULAR ECONOMY | 91
Appendix
Refurbish Recycle
Treatment costs
Screening 13 0 13 13
Depollution 42 0 42 42
1 Representative light commercial vehicle with an average lifetime of around 8 years in the EU (500-700 thousand kilometres)
2 Collection and transport costs only in transition state for refurbishment as this includes the transport to centralised refurbishment facilities
3 Includes costs for screening and depollution
4 Other includes SG&A costs, which are driven by recoverable value
SOURCE: Georg Mehlhart er al., European second-hand car market analysis, Öko-Institut working paper, February 2011; Eurostat, ELV
waste database, 2011; GHK, A study to examine the benefits of the End of Life Vehicles Directive and the costs and benefits of a revision
of the 2015 targets for recycling, reuse and recovery under the ELV Directive, GHK report, May 2006; Ellen MacArthur Foundation circular
economy team
92 | TOWARDS THE CIRCULAR ECONOMY
Appendix
Refurbish Recycle
Treatment costs
Profit 93 228 12 12
Improvements in product design 40% decrease in material cost for refurbishment through pooled
and reverse cycle skills (OEM centralised) circular activities, as spare parts would not be
subject to high trade margins currently observed
1 Premium washing machine selling above USD 900 before VAT with average lifetime of 10,000 washing cycles
2 Other includes SG&A and other operating expenses
SOURCE: Adrian Chapman et al., Remanufacturing in the U.K. – A snapshot of the U.K. remanufacturing industry; Centre for
Remanufacturing & Reuse report, August 2010; Erik Sundin, Product and process design for successful remanufacturing, Linköping
Studies in Science and Technology, Dissertation No. 906, 2004; Ina Rüdenauer and Carl-Otto Gensch, Eco-Efficiency Analysis of
Washing Machines , Öko-Institut working paper, June 2008; Ellen MacArthur Foundation circular economy team
TOWARDS THE CIRCULAR ECONOMY | 93
Corporate experts
B&Q Zhanna Serdyukova
Matt Sexton Environmental Sustainability Consultant
Director of Corporate Social Responsibility Yasunori Naito
Roy Miller Manager, Environmental Management
Sustainability Manager – Products
OPAI
Caterpillar Douwe Jan Joustra
Greg Folley Managing Partner
Vice President with responsibility for the
Turntoo
Remanufacturing and Components division
Sabine Oberhuber
Cisco Managing Partner
Neil Harris
Turntoo and RAU
Head of Sustainability, Europe
Thomas Rau
Ian Redfern
Founder – Director – Architect
Development Director
Conrad Price Vestas
Product Manager Voice Rob Sauven
Technology Group Managing Director Vestas Technology UK ltd
Alastair Borissow
General Manager EMEA Remarketing
Academic experts
John Malian
Product Environmental Sustainability Program Advanced Sustainability LLP
Manager Chris Tuppen
Founder and Senior Partner
Cyberpac
John Hensley Biomimicry 3.8
Founder Chris Allen
Claire Black CEO
Sales & Production Manager Collaborative Consumption
Desso Lauren Anderson
Stef Kranendijk Innovation Director
CEO EPEA
Rudi Daelmans Michael Braungart & Douglas Mulhall
Sustainability Director Representatives of the Academic Chair,
Foresight Group Cradle to Cradle for Innovation and Quality
Andrew Page Rotterdam School of Management, Erasmus
Partner University, as well as EPEA Internationale
Umweltforschung
ISE Appliances
John Hopwood Product-Life Institute
Managing Director Walter R. Stahel
Founder-Director
Marks & Spencer
Carmel Mcquaid Rochester Institute of Technology
Climate Change Manager Nabil Z. Nasr
Dr Mark Sumner Assistant Provost for Academic
Sustainable Raw Materials Specialist Affairs & Director
List of figures
The Ellen MacArthur Foundation was established in 2010 with the aim of inspiring
a generation to rethink, redesign, and build a positive future through the vision of
a circular economy, and focuses on three areas to help accelerate the transition
towards it.