10 Mar

Three Challenges to the Circular Economy

(This article first appeared at the ISR blog)

A sustainable society without circular flows is hard to conceive. For instance cradle-to-cradle, bio-mimicry, and industrial ecology heavily emphasise recycling and reuse activities. Today, all those philosophies seem to have been summarized and trumped by the concept of the circular economy. This week, the circular economy was being celebrated at the “Resource Event” in London, where some 100 speakers shared their views on the circular economy.

Based on my research on understanding, measuring and achieving sustainability, I have developed quite positive feelings towards the circular economy. To me, it clearly represents the most important strategies towards sustainable resource use. However, the road to a circular economy is long and winding, and there may be many potholes on the way.

Drawing from the presentations and panel discussions at the Resource Event, I identified three major challenges in achieving the circular economy.

     1. Controlling life cycles efficiently

It is no surprise that many products are hard to disassemble or to recycle. Product designers are not waste managers and have no strong reasons to incorporate end-of-life considerations into their products. The circular economy therefore requires integrating the entire product life cycle from raw material extraction to disposal (or preferably reuse and recycling). This can be done either through intensive collaboration between companies or single ownership of the product chain.

However, such integration has many disadvantages. First, if companies own the entire life cycle of products, they can easily cross-subsidize different activities, leading to inefficient production and high prices. Similarly, strong collaboration can facilitate cartel like behaviour. Second, if producers manage the waste of their own products, it may be more difficult to benefit from economies of scale in waste management. Finally, the upfront costs of owning or managing the entire life cycle may be too high for newcomers.

     2. Making linked industries resilient 

Sometimes the resource loop cannot be closed within one industry. It is possible to turn plastic bottles into plastic bottles into eternity, as closed loop shows, but many industries will see their waste being used as a resource by other industries. Linking up different production chains creates a web of complex interdependencies that can leave the system very vulnerable to disruptions. Similar complexities and collapses are quite common in other systems.

Many proponents of the circular economy set nature as an example. However, nature is not perfect. The huge complexity of ecosystems means that a change in one variable (say loss in biodiversity) can create a cascade of effects ending in the collapse of the entire system. In the same way, a cascade of events led to the crash of the complex and interlinked financial system, which in turn affected many others sectors. The ramifications of a similar crash in for instance manufacturing would be unpleasant at least.

     3. Keeping the environment on the agenda

The conversation among all the participants at the Resource Events was clearly mostly about the economics of the circular economy. The trillion pound opportunity in transitioning to the circular economy – as calculated by the Ellen MacArthur Foundation – was cited extensively. However, it would be silly to forget that resource use is strongly connected to environmental and social issues.

Of course, there is great potential for reducing environmental harm in applying the circularity concept and many proponents of circularity see this as an important argument in favour of the concept. But the exact relationship between circularity that maximizes profits and circularity that minimizes environmental benefits is unclear. If governments want to support the circular economy, they should know what policies are needed to achieve both economic growth and reduced environmental impacts.

Circularity clearly is an attractive option for the future. However, the actual implementation of circularity requires facing some major challenges. Integrating life cycles and industries leads to complex systems that may hamper competition and leave the economy vulnerable to disruptions. Most importantly, the circular economy should not only create monetary benefits but also meet the need for reduced environmental impacts. Hopefully, we have gained a better understanding of these issues by the time of the next Resource Event in 2015.

Photo credit: carrotmadman6