Circular Economy

Circular Economy
Overview

Developing countries today grapple with the huge challenge of how to address the unsustainable pattern of fast industrial development based on a “pollute first and clean up later” approach? How to break an alarming trajectory of increasing environmental loss of biodiversity and ecosystems supporting human health and livelihoods, mountains of waste and air pollution? 

The Asia-Pacific region, hosting two-thirds of the world’s growing population, is the powerhouse of global economic growth and industrialization.  While creating jobs and bolstering growth, new regional manufacturing hubs using inefficient production processes have placed increased strain on natural resources, ecosystems and communities. The region is also grappling with increasing untreated wastes and pollution, declining ocean health and human induced climate change -- impeding progress towards the 2030 Agenda for Sustainable Development.

The circular economy is gaining importance among the developing countries, and in the Asia-Pacific region, where the emerging Industrialization 4.0 needs to adopt more resource-efficient and non-linear approaches. Circular economy characterizes production and consumption a regenerative cycle that maximizes the utility of materials and waste products. This design considers waste a usable resource, rather than rubbish, and internalizes all production factors.

In order to position mankind to have a prosperous future, consumers, industry, and government alike must undergo a collective change in priority and behaviour. Moving to a circular economy opens opportunities to capture untapped business value, while creating social and environmental benefits also. 

1

Background

At present, the mainstream “take, make, dispose” behaviour severely threatens the livelihoods of future generations. We would require the equivalent resources provided by three earths to maintain current lifestyles if the global population reaches projected levels of 9.6 billion people by 2050. Drinking water scarcity is already affecting two thirds of the population, but will affect additional processes such as industry, manufacturing, and sanitation. Plastics revolutionized our material world, but now they are destroying our natural one. Almost 50% of all plastics are intended for single-use and only 9% of all plastic waste has ever been recycled. This plastic material lands in oceans and landfills, poisoning the ecosystems and animal life, and, eventually, humans.

In the Asia-Pacific region there is critical focus on the management of urban waste water because 80-90% of this flow into and pollutes already limited fresh water sources. There is also increasing demand for better urban water management because at least half of the Asia-Pacific population lives in ever-expanding urban areas. Accordingly, solid waste management must also be improved considerably. 

For the Asia-Pacific region, getting a grip on waste management is highlighted because of the immense scale of the issues at hand, but upstream changes must be made in order to enact long-lasting sustainable behaviours. In this regard, circular economy encompasses more than just waste recovery.

In the natural world, there is a constant circular flow of materials and energy. The sun provides all energy for plants that are eaten animals eat, while all living organisms return minerals and nutrients to the earth when they die. No matter goes to waste. The circular economy replicates this with the technical products humans have developed. Reforms to manufacturing processes simplify the composition of finished products, by-products, and waste products such that everything can be repurposed with ease.

Redesigning the world’s production-consumption structure requires decoupling economic activity, with Asia-Pacific taking the lead, from continuous extraction and consumption of finite resources. This can be achieved by following three circular economy principles:

waste

  • designing out waste and pollution;

materials

  • keeping products and material in use; and

recycle

  • regenerating natural systems.

Through these aims the goal is to eliminate waste by minimizing its volume while also repurposing any remnants as inputs for another process. 

What are the benefits of adopting the circular economy?

By embracing a circular economy approach, societies, in turn, achieve greater resource efficiency. It is also a multi-stakeholder model; the circular economy offers holistic opportunity for economic, social, and ecological improvements. This is a win-win approach encouraging sustainable business that creates synergies across industries and actors.

For example, the savings on material costs alone are a great incentive for industry to make the circular transition. The cost of virgin materials has crept up in recent years and is expected to only increase in price and volatility in the future largely due to decreasing supply. By reduced extraction, processing and transport of raw materials business also save cost through savings from avoided energy consumption. By one estimate up to US$ 706 billion in the fast-moving consumer goods (FMCG) sector could be retained by transitioning to circular supply chains. For the Asia-Pacific region, this shift would prove immensely impactful because 60 percent of the FMCG are manufactured here. In order to recover usable materials from end-of-life products enterprises are incentivized to innovate and new jobs would be created, providing alternative employment to workers who previously harvested raw materials. Favouring recovered materials over raw materials benefits the environment by reducing the demand for natural services. Land and water resources that remain undisturbed have positive spillover effects creating benefit for the local ecosystems and the general wellbeing of the surrounding communities. 

ellen macarthur diagram

What are the barriers to adopting the circular economy?

Changing the status quo is often met with hesitation and scepticism, and some general misconceptions about circular economy must also be overcome. 

Myth 1: Circular economy is just a buzzword for recycling.

REALITY: The circular economy includes much more than just end-of-life processing for products. The entire supply chain is re-evaluated and reformed to minimize the inputs needed during production and the outputs created in the process. In fact, some aspects of the circular economy model are quite mature. In addition to recycling, repair business and leasing practices contribute to the circular economy and are already familiar to consumers.

Myth 2. Extending product lifespan harms business by reducing sales.

REALITY: “Business as usual”, so to say, is not compatible with a long-term outlook for a company or the planet. Given the planet’s resource constraints, businesses are already exposed to increasing risk and overhead costs as material and commodity prices are expected rise while also becoming increasingly volatile. The circular economy does not harm business but rather it changes the incentives which drive business. By accepting the circular economy process, businesses are motivated to change their practices to align with its sustainable principles. 

Myth 3. Sustainable products are not accessible to all consumers.

REALITY: It is true that products advertised are often most costly upfront than their mainstream competitors. However, when full supply chains and product lifestyles are considered, discounts are passed on to consumers through secondary channels. This could include reduced energy consumption and longer product life.  

Beyond the general misconceptions, there are significant institutional barriers that do exist that must be overcome in order to implement the circular economy on a widespread basis. Existing regulation and labour laws may conflict with new circular business activities. Societal and ecological benefits from circular activities are not easily quantifiable or reportable in order to communicate the greater impact. Mainstream markets do not adequately incorporate the price of externalities (both negative and positive) which ultimately sends false signals to economic actors. Moreover, there is still limited consumer demand specifically for circular economy practices.

Governments may provide the large-scale push that guides society and industry to adopt circular economy activities quicker. In the last decade, many national governments have already introduced circular economy policies into their national planning schemes. China, the leading emitter of greenhouse gases, was the first nation to pass a circular economy law, which came into effect in 2009. Now other individual nations, including Japan, the United Kingdom, France, Canada, The Netherlands, Sweden and Finland, and the European Union actively promote circular economy policies. However, at present, the organization Circle Economy estimates that the world is only 9 percent circular, leaving much room for improvement.

Partnerships in Action

The circular economy has been advocated for in the Asia-Pacific region at least since 2005 as part of the green growth approach adopted at the 5th Ministerial Conference on Environmental and Development (24-29 March 2005, Seoul, Republic of Korea) believing that the linear pattern of “take, make and dispose” must be updated in favour of this sustainable process. The Low Carbon Green Growth Roadmap for Asia and the Pacific, published in 2012, lays out the opportunities available to the region if governments lead the way for a green revolution. 

The ESCAP commitment to the circular economy approach was reemphasized at the 7th Ministerial Conference on Environment and Development in Asia and the Pacific (5-8 September 2017, Bangkok, Thailand).

closing the loop

ESCAP works to gather evidence and identify impactful policy opportunities in the informal economy to recover plastic waste for recycling through the Closing the Loop project implemented in partnership with Stockholm Environment Institute (SEI) Asia Centre, Kashtakari Panchayat and Women in Informal Employment: Globalizing and Organizing (WIEGO). The project is gathering evidence in cities in the Asia-Pacific region in search of opportunities to return plastic resources to the production cycle by linking informal and formal waste processes. Addressing the plastic material flow is especially important for ESCAP given that five countries in the region account for over half of the world’s mismanaged ocean plastics. Case studies in Pune, India and Bangkok, Thailand produced by the project have recognized that associations of informal waste pickers remove plastic pollution that often leaks into the environment and water systems, while providing vital income for those people collecting and sorting waste. A Regional Policy Guide, Innovative Partnerships with the Informal Economy to Recover Plastic Waste for an Inclusive Circular Economy Approach, highlights the scale of the plastic pollution problem in the region’s oceans, as well as other negative impacts of mismanaged plastic waste, ranging from contamination of the food chain to blockage of drainage infrastructure. This means that serious action needs to be taken now, not only to manage waste, but also to reduce overall usage of plastic, especially single-use plastics. The guide demonstrates what action is already being taken, from national down to city scale, through government and private-sector initiatives, as well as the vital role that informal waste pickers play in cities across the Asia-Pacific to enable recycling of waste materials and reduce plastic waste leakage into the ecosystem. 

urban nexus

Since 2013, ESCAP has been working with cities and the national level to promote cross-sectoral and intergovernmental coordination with a focus on optimizing water-energy-food/land resources within a vision of a circular economy. In partnership with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and ICLEI – Local Governments for Sustainability, and funded by the German Federal Ministry for Economic Cooperation and Development (BMZ), the tripartite partnership aims to deliver integrated solutions at the local level that contribute to achievement of the global agendas. Through the Integrated Resource Management in Asian Cities: the Urban Nexus project twelve cities in seven countries design and implement semi-decentralized, cross-sectoral solutions including efficiency improvements in wastewater and drinking water supply systems, wastewater and water reuse, waste-to-energy applications, and building energy efficiency and renewable energy. The project is based on an Urban Nexus approach which is an action-oriented guiding principle within a vision of a circular economy. Lessons learned and achievements are shared through Urban Nexus trainings, regional workshops, national dialogues, and global outreach events.

Circular Business Models

Circular business models create closures at certain parts of the value chain. While new models such as the sharing economy and transitions to product-service models are gaining recent attention, the recycling, reuse and repair aspects and leasing model of circular business models are mature ideas, if not embraced to their fullest potential.

Why would a business go circular? 

The reasons that businesses are going circular–both proactively and reactively–are numerous: reduce production costs through energy, materials, and transportation savings; meet corporate social responsibility demands of stakeholders; create goodwill for the brand; attract innovation funding; adapt to changing government regulation; etc.

Some businesses are circular unintentionally because mainstream practices have left gaps in the market. Airbnb is a widely cited example of a circular business but it was came about by accidental, entrepreneurial nous. Looking beyond the surface of its origin story, there was a gap in the market that the Airbnb founders were able to fill–essentially people were paying for and owning the underutilized product of their housing capacity. Old expectations have created supply and demand gaps that one may not even be aware of.

Who leads?

Businesses react to the demands of consumers, but consumers are severely subject to asymmetric information. However, research shows that consumers are becoming increasingly aware of sustainability issues and seeking out sustainably positioned products. 

A 2014 Nielsen survey found that Millennials (born 1980-1993) are leading this trend worldwide. At the time 51% of global respondents who were willing to pay extra for sustainable products and 51% who check the packaging for sustainable labelling are Millennials. In the Asia-Pacific region it was found that Millennials were three times more likely than Generation X (born 1965-1979) and twelve times more likely than Baby Boomers (born 1950-1964) to be in favour of sustainability actions. A 2017 survey by the market research firm YouGov showed that 50% of APAC consumers believed that businesses have responsibility to ensure their supply chain does not harm the environment. However, specific consumer-side demand for the circular economy is still lacking and regulatory gaps still exist between the product claims made by companies and independent labelling and certification practices.

So long as these gaps exist, the market will not be properly incentivized to incorporate the full environmental and social costs of business into the cost of production.

Governments are also playing strong roles in promoting circular economy practices. Circular economy recommendations are included in at least eight countries’ national planning schemes and that of the European Union. One incentivizing mechanism is generous funds to support research and development for circular innovation. Scotland launched a £18 million Circular Economy Investment Fund in 2018 to support SME and non-profits activities, while the European Investment Bank has allocated €24 billion for circular economy investments. In the Asia-Pacific region, New Zealand has promoted waste reduction activities through the Waste Minimisation Fund since 2010, which has awarded over NZ$102 million through 2017 but additional financing for the circular economy remains a high-priority across the region.

How is change happening?

Resource recovery models plan for the extraction of production by-products and end-of-life value to act as inputs for other industries. Through creative recycling and upcycling, businesses may reduce or eliminate leakages and create value from once costly waste management processes. Companies that create large by-product volume that is cost effective to recover and repurpose.

Examples includes industrial symbiosis, such as that at Kalundborg Symbiosis in Denmark, and cradle-to-cradle models.

Producers could also be forced to act through extended producer responsibility approaches to improve environment-friendly product designs and support plastic recycling and reduction. In certain instances, government regulations may need to be relaxed or changed to encourage the use of “second-life” plastic material. For example, in Thailand, it is currently not possible to use recycled plastic packaging for food items, which thus restricts the market for recycled plastic.

Circular supply models reform supply chains such that only fully renewable, recyclable, or biodegradable inputs are utilized, allowing businesses to end the extraction of natural resources from the environment. This model is most beneficial for companies that require scarce commodities or that cause great environmental externalities.

The Dutch health, nutritional, and materials firm Royal DSM is committed to creating second-hand or organically sourced and non-toxic products, creating signature bio-based resins, paints, chemical compounds, and plastics.

Product life extension models allow to lengthen the lifecycle of products by creating new value opportunities through repairs, upgrades, remanufacturing, or remarketing. This encourages modular product design such that upgrades can be targeted, perhaps replacing only select parts rather than an entire product. Adoption would be most beneficial for capital-intensive B2B investments, such as industrial manufacturing equipment, and B2C sectors where upgrades provide only marginal improvements, thus second-hand ownership is common.

Examples include Philips Healthcare's Diamond Select program, which creates new value by refurbishing and updating large medical equipment. By remanufacturing products such as CT scanners, ultrasound machines, and MRI machines, Philips is able to generate new revenues from products that typically retain up to 80% of the original materials.

Product-service models replaces the traditional “buy-to-own” models. Responsibility and ownership of a product remains with the manufacturer, while the consumers pay to use the product through a lease or pay-for-use arrangement. This incentivises producers to maximise the physical durability of the product as repair and maintenance responsibilities stay with them.

Examples include Philips providing the service of lighting and various bike-sharing schemes, both public and private, like that have been popping up worldwide in cities.

Sharing platforms or sharing economy models reimagine the concept of ownership. As explained in the Airbnb case, people and organizations often own products which are not used to their full capacity. Sharing platforms allow people to match supply and demand for underutilized products. A common feature of these businesses is that little to no physical capital is owned by the business itself, but rather operates the market which matches supply and demand.

Examples include ride sharing platforms Uber, Lyft and Grab, Airbnb, and Peerby.

circular business diagram

Case Studies

UN Environment Program supports grassroots initiatives that are committed to improving the environment through shifts towards circular practices. Twelve young innovators were awarded US$10,000 each to support their projects through the Asia-Pacific Low Carbon Lifestyles Challenge. Check out their initiatives below:

india

Sustainable cooling systems through biomimicry

samoa

Reusable sanitary pads

sri lanka

Electrifying tuk tuks

thai

Blockchain for solar powered eVehicles

Nudging out plastic waste in food delivery

indonesia

Capturing plastic waste to upcycle into helmets

philippines

Upcycled shoes and bags

china

Transforming waste cooking oil to biofuel

closing the loop

UNESCAP: Closing the Loop
 
Approach Circle Economy
Closing the Loop: 3 case studies in the textile industry

Kalundborg Symbiosis

Tools and Methodologies

Delivering the circular economy: a toolkit for policymakers

Delivering the circular economy: a toolkit for policymakers

The circular economy offers business leaders and government a clear opportunity for long-term growth that is less dependent on cheap materials and energy, and which can restore and regenerate natural capital. This report provides an actionable toolkit for policymakers who wish to embark on a circular economy transformation. It identifies eight key insights, details policy options, opportunities and barriers, and demonstrates how the tools may be applied in a pilot study of Denmark.

Circular Design Guide

The scale of what we’re designing has shifted from products, to companies, to economic systems. Who we’re designing for has expanded from a solitary user to an intimately connected web of people, spanning the globe. New tools such as artificial intelligence, the internet of things, and biomimicry mean our design ambitions are limited only by our imagination. Meanwhile, creativity has never been more important. The global economy is stuttering and disruptive technologies challenge established business models.

Circular Economy