Many businesses still operate based on an outdated model: the linear economy, which encompasses a simple, one-way process: take – make – dispose.
This model is omnipresent in most industries, as in the case of the plastic straws, plastic bags, or other disposable products. As a result, businesses operating based on the linear economy contribute little to the protection of the environment and the reduction of waste, which is an important factor in countering climate change.
What’s fortunate, however, is that an increasing number of businesses now follow a different model that, unlike the linear economy, facilitates waste elimination and the continual use of resources. That model is the circular economy, also known as circularity.
What is a circular economy?
According to the Ellen MacArthur Foundation, a circular economy is an economic system that is “restorative and regenerative by design.”
Compared to a linear economy where products are disposed of after being used, the circular system, as its name suggests, creates a closed-loop process that employs and emphasizes the reuse, recycling, refurbishment, reparation, remanufacturing, and sharing of end-of-life products.
All of this is to eliminate waste and pollution, reduce the amount of required inputs, and maximize the use of available products.
The idea of circularity dates back to 1976, in a research report to the European Commission titled “Jobs for Tomorrow: The Potential for Substituting Manpower for Energy”. In this report, Walter Stahel and Genevieve Reday-Mulvey painted a picture of a closed-loop economy—circular economy—and what impacts it would have on job creation, economic competitiveness, resource savings, and waste prevention.
From then, this concept has been extensively expanded upon, and in 2015, a report by the Ellen MacArthur Foundation titled “Towards a Circular Economy: Business Rationale for an Accelerated Transition” outlines the economic and business opportunities available in the transition to a circular economy. It can be seen that most businesses nowadays place a heavy focus on sustainability and waste reduction, as an application of this concept.
How can a circular economy help reduce waste?
In many ways, this circular approach resembles living systems, in which end-of-life organisms can feed back into various ecological cycles. The circular economy model, however, can be biological or technical, and is applicable in a variety of business models.
In particular, Accenture, in their 2015 “Circular Advantage” report, has identified five circular business models applicable to organizations in various industries:
Accenture’s “Circular Advantage” (2015)
Circular business model #1: Circular supplies
Businesses operating using this model need to support circular production by providing fully renewable, recyclable, or biodegradable input materials. This model can be applied in various industries, but it is most relevant for companies dealing with scarce commodities or having major carbon footprint.
Apple is an example of a company that is very transparent on its path to be more sustainable and carbon neutral. The company website mentions its aim to follow a circular economy model—to make products only using recycled resources or renewable materials—and more detailed information is provided in terms of what materials it uses to make its products and what kind of impact that makes on the environment.
Circular business model #2: Resource recovery
This particular business model focuses on the use of products at the end of their lifecycle. More specifically, companies applying this model tend to feed their resource outputs into another production cycle, transforming waste into value. The resource recovery model, therefore, is a good fit for companies that produce large volumes of by-product or organizations that can cost effectively reclaim and reprocess waste material.
An example of this is the Dutch insect ingredient company Protix, which owns a production facility that upcycles food waste into sustainable protein for animals like fish, chicken, or pets.
Circular business model #3: Product life extension
Product life extension model allows companies to extend the current lifecycle of their products, through repairing, upgrading, remanufacturing or remarketing products. Companies following this model tend to operate in capital-intensive B2B segments (such as industrial equipment), or in the technology industry where pre-owned products are fairly common and new product releases do not equate a huge addition in performance benefits for customers over the previous version.
Apple, again, is an example of a company applying this model with their Apple Trade In program, where customers can trade in their old gadgets for Apple credits towards buying a new one. Products belonging to the “Certified Refurbished” category are also an example of companies using this model.
Circular business model #4: Sharing platforms
Companies applying the sharing platforms business model facilitate the collaboration among product users to maximize utilization. This product model is most commonly used by companies specializing in increasing the utilization rate of products without doing any manufacturing themselves.
Transportation service companies like Uber or Lyft, or lodging service providers like Airbnb, are famous examples of those applying this particular circular business model.
The sharing platforms model also represents the choice between access and ownership—an important concept of a circular economy. The circularity model raises the question of what is more important, ownership of a product or access to a product. Case in point: people who have no need of owning a car can enjoy transportation services like Uber or Lyft without having to pay for an actual vehicle, taking the time to take care of it, all the while contributing to carbon emissions for no good reason.
Circular business model #5: Product as a service
This particular model also supports the concept of access over ownership. More specifically, products are used by one or many customers through a lease or pay-for-use arrangement. This model is attractive to companies with high operational costs and having an advantage over their customers in terms of managing maintenance of products.
Moving companies that rent out moving boxes or moving trucks is an example. Companies offering subscription services like Netflix or Spotify are also those applying this business model, helping their customers have access to a wide range of products as they need to, without having to physically own CDs or DVDs.
Examples of circular economy in Canada
As is the case for many other nations around the world, Canada has begun taking initial steps towards transitioning to this model.
The global vision underlying the circular economy movement remains the same in Canada—this encompasses both the shift towards repurposing products at the end of the service line, as well as the restructuring of design models to incorporate sustainability early on in the manufacturing of materials.
For instance, in the manufacturing of plastics, some key target parameters include the use of renewable resins and the cyclical movement of hydrocarbon molecules. Another aspect that is currently being actively developed is the use of renewable energy to power various steps of the manufacturing process.
In Canada, much of the waste disposal legislature is dealt with at the provincial and territorial level. However, communication and congruence with the federal government are needed to settle upon agreed terms of standards and measurement protocols that are consistent between provinces and territories.
Initial challenges to implementation of circular economy
As promising as the circular economy model seems, there are many hurdles that must be overcome for its successful implementation.
Consumers must be willing to give the extra effort that is often implied in circular strategies—for example, by bringing their used products back to a facility. In addition, the restructuring of business models at such a large scale requires a high degree of collaboration among stakeholders, including not just the consumers, but also regulatory bodies, recyclers, and product developers.
Most importantly, circular strategies—especially those with effects felt by multiple industries—often require a complete rethinking and overhaul of the design process, not just a simple ramification to an existing one. This lengthy and labour-intensive process may be expensive, risky, and discouraging.
Why circular economy is worth pursuing in the long run?
However, the long-term benefits of the circular economy model are undeniable. The vast potential for economic growth over time is matched only by the obvious and significant environmental advantages that the model can confer. It has been estimated that the transition to this model, although challenging initially, will result in material savings of upwards of one trillion dollars. But in a world where natural resources are quickly depleting, the circular economy may have to be adopted not by choice, but by necessity.