The case of the underperforming circular economy

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Circular economy – the idea of ​​integrating supply, production and consumption into common systems to minimize waste, extend the life cycle of products and stimulate innovation throughout the value chain for advancing sustainability – is a powerful concept.

While this is not a new idea – it draws on methods such as life cycle analysis and the pioneering “cradle to cradle” work of Bill McDonough and Michael Braungart – the circular economy has enormous appeal due to its global reach and applicability to a host of major sustainability issues. It has spawned a growing industry of consultants, think tanks, initiatives and demonstration projects – all generating noble statements and growing expectations of major breakthroughs.

And that is where the problem lies.

Fundamentally, the path to a circular economy does not lie in high-level resolutions, commitments and manifestos. On the contrary, progress lies in the decidedly less glamorous work of business process improvements, negotiations between buyers and sellers, and internal sales teams having to solve very complex technical problems. These efforts are essential to create more empowering corporate cultures through intra-organizational and cross-value chain networks.

Structural gaps

While the rise of many current circular economy activities is commendable in terms of motivation and enthusiasm, they are constrained by a number of structural issues that limit their scale and impact. Some of the most important:

The path to a circular economy does not lie in high-altitude resolutions, promises and manifestos, but through decidedly less glamorous earthly work.

Markets and public policies encourage the use of virgin materials. Subsidies and other market distortions have historically led to the overconsumption of many natural resources and raw materials. The World Economic Forum has estimated, for example, that the gap between water supply and demand will be 40% by 2030 if current water management practices continue. The rates set by the US government to govern the extraction of minerals, hydrocarbons and other commodities on federal lands have been set well below market equilibrium levels. Markets encourage more consumption of virgin materials by ignoring pollution and other negative externalities.

Many individual components of the circular economy are not connected. “Many aspects of the circular economy do not yet have a business model,” Paul Camuti, executive vice president and chief technology and sustainability officer of Trane Technologies told me in a recent conversation. The consequence is a lack of consistent price signals and insufficient infrastructure and demand for a huge number of products, including glass recycling and the reuse or recycling of greenhouse gas-intensive refrigerants.

Recycling receives paramount attention, to the detriment of research and development, design, procurement and other building blocks of the circular economy. Such a limited field of vision inherently limits innovation, restricts the scale of potential initiatives and results in a continued pursuit of large and growing waste streams already generated. Focusing primarily on recycling represents a de facto concession on the part of businesses and government agencies that more creative and impactful solutions designed to prevent waste are not a priority consideration.

Public policy is a mess. Many current public policy frameworks were not designed with circular economy in mind, and they do not easily incorporate circular goals. One example is the Basel Convention, the international agreement that governs controls over the movement of hazardous wastes. As currently defined, the convention in many instances prohibits trade in a growing number of recyclable materials, including electronics, electric vehicle batteries, plastics and other substances necessary for reuse, repair and remanufacturing of products. As Paul Hagen, Russell LaMotte and Dacie Meng wrote in “The Environmental Forum” (September / October), the recent Basel Amendments “may affect the ability of companies to meet ambitious circular economy commitments … or to develop closed-loop business models … [and] face an increasingly complex and uncertain operating environment. “

The concept of circular economy lacks clarity, but insufficient knowledge is not the main obstacle to progress. In addition to the economic and political factors discussed above, the main challenges include: a lack of definitions of optimal obsolescence of products after recycling, reuse and refurbishment; the need to develop targets and measures to avoid the use of energy, resources and materials throughout the life cycle and to avoid emissions and waste generation; and insufficient collaboration between producers, waste collectors and remanufacturers during the product design phase.

Governance is ineffective in all supply chains. With the exception of quality and management standards, most companies are reluctant to require their suppliers to adhere to specific practices. In general, they prefer more general principles that their trading partners can adapt to their own needs, as well as greater transparency through reporting on specific measures. Even more ineffective are the proclamations of trade associations that engage in the rhetorical aspects of sustainability while avoiding mandatory performance requirements for individual member companies.

These and other factors currently outweigh any impacts that proponents of the circular economy think they are achieving. Volumes of plastic waste continue to increase beyond the current capacity of the waste collection infrastructure and the available recycling and reuse capacities. Agricultural runoff of nitrogen and pesticides into watersheds compromises water quality, while methane releases from meat production continue to increase. Newer and larger waste streams are also emerging. Near-Earth orbiting space debris, for example, includes around 3,000 inoperative satellites and 34,000 objects larger than 4 inches, posing increasing risks to spacecraft and personnel in orbit.

The long and winding road

Despite these significant structural obstacles, there are some encouraging developments that, over time, may gain momentum and reshape our thinking and behavior when it comes to circularity. These more positive indicators include:

The circularity toolkit is growing and improving rapidly. As companies seek to understand whether specific products have low, medium, or high built-in circularity potential – and, therefore, built-in economic value – they are able to access a growing array of emerging tools. They include value chain mapping to identify the movement of raw materials, energy flows and products across the boundaries of the value chain; assess which raw materials, business processes and packaging are the largest emitters and users of natural resources; apply digital technologies to identify the location of waste streams in order to better plan waste collection and management infrastructure; and access circularity metrics for specific businesses (as published by the World Business Council on Sustainable Development).

Some companies and cities, along with their value chains and stakeholders, are redefining leadership in practical and tangible ways. Several years ago, Walmart and Trane Technologies announced their commitment to each remove 1 gigaton of carbon from the atmosphere by 2030. These announcements have sparked a wide variety of conversations about how best to socialize collaborations towards this goal. through their value chains. In September, Unilever announced a new effort involving its 56,000 suppliers to halve their GHG emissions by 2030, while focusing on a subset of 300 suppliers with the greatest climate impact. Cities like Rotterdam, meanwhile, have pledged to halve carbon dioxide emissions, halve the use of raw materials and improve air quality by 2030. wide range of collaborations aimed at innovation in the city to improve environmental protection, mobility, clean energy and consumption.

While these positive developments will gain visibility and dynamism in the years to come, the highly granular nature of business processes and buy-sell transactions will require many years for truer, more impactful applications of circularity to evolve. Meanwhile, consumers are not sufficiently aware of the circular economy and their role within it.

Overall, with the aforementioned structural limitations, the advancement of the circular economy remains only in the early stages of a very steep learning and impact curve.

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