Tuesday, 13 March 2012

Will the Circular Economy be dominated by entrepreneurs or big business?

Two of the big environmental problems that exist today – the high amount of waste we produce, and the vast amount of raw materials we consume – would appear to have a fairly straightforward, complementary solution. We need to re-use more stuff.

While this is easy to say, it is not so easy to do. Our products were not designed with re-use in mind. With a few exceptions, it is normally more profitable to let people throw away the old so they can purchase something new. Dismantling an old product to re-use the materials is often more costly than getting fresh raw materials for your manufacturing process.

Having said this, recycling of raw materials has become ever more prevalent due to a mixture of legislation and rising commodity prices. But environmentalists have long argued that we need to take matters to another level: instead of decomposing waste into raw materials that resemble our current commodity feedstock, why not design products in such a way that at the end of their lives they can be dismantled and the components re-used without extensive materials processing.

For example, you might want to dispose of a bicycle once the seat and gear mechanisms are worn out. On the one hand, you might take it to the tip, where the steel frame would be used as scrap to help manufacture fresh steel, and the rest would end up in landfill. On the other hand you might give it to a small business which would overhaul the bike, fitting a new seat, a new gear mechanism, giving it a new lick of paint, and then selling it on. In a world where raw materials and landfill space are increasingly scarce, it makes send to do the latter – and this is what the hypothetical ‘Circular Economy’ is all about.

Last week’s New Scientist contained a small but notable article highlighting the publishing of two high profile reports into the potential of the Circular Economy. The reports are well worth a read in their own right, but the most important message is that the idea of the Circular Economy is gaining traction.

Over the next few decades, the Circular Economy has clear potential to be a disruptive force in almost every manufacturing industry. Big companies need to ask themselves where they will fit in the circular value chains of the future. If they don’t take a lead in the move towards ‘remanufacturing’, they risk allowing a new generation of industrial entrepreneurs get a head start. Economies of scale should give established businesses a clear advantage in moving towards a new economic paradigm. But organisational inertia – the natural preference for maintaining the status quo – could hold back companies even when some of their managers understand the need for change. It has happened many times before and it could happen again. For entrepreneurs there are valuable opportunities for building businesses with the circular economy in mind.

It will be fascinating to watch the transition to a more circular economy. I expect it to occur gradually, and it may not even be complete in my lifetime, but the next 10 to 20 years should begin to reveal who will be the winners and who will be the losers.

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