What is Understood by the Circular Economy Concept?

Recently a organisation of Dutch academics, Het Groene Brein, published 10 research questions they consider important for developing the Circular Economy.

The first question is directly a philosophical one: does the concept of Circular Economy mean the same for everybody? A very legitimate question. Especially since more and more companies, organisations and governments are (ab)using the term while often not really understanding what it actually implicates. And alike other popular concepts, it threatens to become an all-purpose word and may perish of its own popularity. Understanding what people actually mean by the Circular Economy helps to put their claims in the right context. Next to that it can support the definition of the basic principles of the Circular Economy, and hence give a more comprehensive definition.

For my master graduation (Sustainable Technology for Product Development), I researched the Circular Economy in relation to Asset Management. During my desk research I noticed that there are various takes on the concept of the Circular Economy and thus I asked myself the same question as Het Groene Brein does. Even though it was not the focus of my research I briefly addressed the issue within my thesis. Initially I identified various perspectives, for example the difference between China and western Europe. However, also within western Europe there are different takes on the matter. Below I’ll describe two of those perspectives: the legitimacy of the Circular Economy and the Scoping of the Circular Economy.

Legitimacy

Why one should implement, seek for, or support the Circular Economy? Many reports and articles legitimise or incentivise the Crcular Economy from a certain perspective. Three different perspectives can be identified: the economic, business and environmental sustainability. A mere social perspective has not been identified, although it is sometimes an additional reason given for the concept.

Economic perspective

A sole economic perspective receives quite some attention due to the promising advantages that are being portrayed by various organisations research institutes. Exemplary advantages are the thousands of jobs that the Circular Economy is supposed to create, economical growth and additional economic activity.

[pullquote align=”full” color=”” class=”” cite=”TNO, 2013″ link=”http://www.government.nl/files/documents-and-publications/reports/2013/10/04/opportunities-for-a-circular-economy-in-the-netherlands/tno-circular-economy-for-ienm.pdf”]We estimate that the added value could amount to €7.3 billion per year, involving 54,000 jobs. It would also provide a number of spin-off benefits for the Netherlands, including strengthening the country’s knowledge position.[/pullquote]

[pullquote align=”full” color=”” class=”” cite=”Accenture, 2014″ link=”https://www.accenture.com/t20150523T053139__w__/in-en/_acnmedia/Accenture/Conversion-Assets/DotCom/Documents/Global/PDF/Strategy_6/Accenture-Circular-Advantage-Innovative-Business-Models-Technologies-Value-Growth.pdf”]In the case of the EU, for example, it has been estimated that every one percent increase in resource efficiency is worth as much as 23 billion euro for business and can create up to two hundred thousand jobs.[/pullquote]

These advantages are often referred to by governments to embrace the Circular Economy. After all, it is a nice promise to give a new impulse to the economy after the 2008 crisis.

Business perspective

The business perspective builds on the economic advantages that those various reports propagate, however the legitimacy for implementing the Circular Economy is more based upon image, competitive advantage, the larger fluctuation in resource prices and resource availability. This way of legitimising the Circular Economy causes a different look on assets and resources.

[pullquote align=”full” color=”” class=”” cite=”OPAi, 2014″ link=”http://www.opai.eu/uploads/ondernemen-in-de-circulaire-economie.pdf”]The circular business model becomes a driver for innovation and growth. It enables companies to increase their competitive advantage through a smarter design.[/pullquote]

If managed well, assets and resources keep value over time and can be capitalised at the end of their useful lifetime instead of thrown away as waste. In a study on Electrical Distribution Transformers in the Netherlands, current gains are €700 per asset at the end of their lifespan while, based on the value of its material content, the asset may potentially be a ten-fold of that.

The way to open up the existing value to the business is in many cases the implementation of new business cases and models. For example offering services or product service systems (PSS) instead of simple products. This changes the ownership throughout the value chain and with that the responsibilities.

Sustainability perspective

Scholars tend to focus more on the sustainability perspective, often reasoning from the issues that human kind is expected to face. From that perspective it argues that our economy should be viewed from a more holistic angle including environmental and social effects on the long run.

This new way of looking at our system Earth has already started in the 60s of the 20th century when the Earth Rise photo was made. This photo became an icon leading up to the concept of Spaceship Earth and the report Limits to Growth. This caused scholars to start looking at how the economy is not an entity on its own but how it is a part of the ecology. Some people even see the economy as fifth element to the Earth’s system: lithosphere, hydrosphere, biosphere, atmosphere and antroposphere. Hence the upcoming academic field of the Earth System Sciences.

The image of Spaceship Earth, in which no material or data is exchanged with the vast black space around it, resulted in the awareness that the materials that we currently have on our planet will be the same materials that we will be using in the future. If we destroy or downgrade any of those materials now they will not come back. Therefore, a responsible management of our resources, for example through reuse and recycling, should be an inherent element of our economic system.

Scoping of the Circular Economy

Another differentiation that can be identified within the perspectives on the Circular Economy is what I call the scoping perspective. This differentiation is about the level of detail of a Circular Economic approach or solution and how one should deal with Circular Economy challenges such as the conservation of resources and materials. In general three scoping levels can be identified: micro, meso and macro. The graph below is the result of a literature study in which I could easily point out this differentiation.

Micro

The micro level is about materials and products at very local level. For example the reuse of materials within a single company or the reuse of energy in a single building. In many cases only a single party is involved in this process and therefore controlling and optimising this process is relatively easy. However, the impact on the overall circular performance is limited.

Meso

The meso level is about the use of materials and products on a local and regional level. In general there is a cooperation between various parties in a specific area. The materials that are being reused do not necessarily return to their original user or producer but stay useful and valuable to others. Examples are heat grids that transports heat from supply to demand, the cascading of materials from processes with high quality requirements to ones with a lower requirement standard.

Macro

The macro level is about the largest scale: national, continental or even global. At this level the chance that certain materials return to previous users unless a very specific process has been designed. Generally the main focus at this level is about the larger and more complicated processes. These make make it difficult to map out the exact material flows and thus the total system is difficult to assess on its circular performance. As long as each chain partner (including users) is taking responsibility and that they manage and use these  materials according to the Circular Economic principles, it can be argued that the system is closed. Regulation at this level may help to ensure this argument.