Understanding the Circular Economy

Beneath the topics discussed, the main motive of the DIF and the Ellen MacArthur Foundation is to facilitate the transition to a circular economy. Sailing in her yacht, Ellen MacArthur came to the conclusion that our planet is just one big boat – a plentiful boat, yet packed with finite supplies. Finite supplies which will run out and make our boat unliveable if misused. Unlike on a boat, it is much harder for us to dock at a harbour for a refill, or to dispose our waste.

The circular economy is a term that anyone interested in sustainability has encountered or will encounter at some point. One man’s trash becomes another man’s treasure. The way circularity mimics ecosystems is appealing. Intuitively, it seems like a great solution to the problems caused by our current linear economy.

These familiar images made the circular economy intrigued me. Before attending the DIF, the circular economy seemed no more than an ideal situation with closed loops and zero waste. I understood the main principle and technologies such as biorefinery and recycling, but what were the broader implications? On the surface, the circular economy seemed almost trivial, like some large recycling project.

It’s not just about how technologies will help us go circular. Going circular requires us to see our technology in a different way. Any technology exists to serve a purpose within its context. If the context is to become circular, what should engineers and businesses consider?

First, a quick recap on the current, linear economy. A simplistic description is that resources are gathered and transformed into a product. This product is in use for a certain period of time – anything from seconds to decades. The product deteriorates until it is no longer suitable for use. Tyres wear out, wrappers get torn, fuel gets burned. End of the product’s life. At worst, it will end up in a landfill, and we will have to start all over again to replace it. This model’s underlying assumption is: “If it is no longer suitable for its intended use, it is no longer of any use.”

Looking at an ecosystem reveals that this is untrue. When leaves fall off a tree, they can no longer photosynthesise – but microbes will happily break them down for energy. Once there is no more energy left and the microbes are finished with the leaves, their nutrients are available to other organisms, including trees at some point. Long-term, everyone benefits. A linear tree in a linear world might hog all the nutrients in the forest, only to end up suffocating in its own dead leaves.

But enough with the clichéd metaphors. Businesses are already applying these ideas today.

Take MUD Jeans, a Dutch clothes brand. The fashion industry is the second-most polluting industry, after oil. MUD Jeans does more than making clothes. They will also accept your old jeans to do so, offering you a discount in return. This way, old products actually increase in value, and MUD Jeans get part of their resources back.

This is being expanded to ‘Lease A Jeans’. For a fee of 7.50€ a month, you enjoy a pair of jeans. After 12 months, you may keep them, return them, or lease a different pair for 12 months all over again. Not cheap, but for those addicted to novelty, a more sustainable solution nonetheless.

Philips and Cofely are doing the same with lighting at Schiphol Airport in Amsterdam. Instead of buying an entire installation, the airport leases it. Philips doesn’t sell the lights. It remains the owner of all installations, and with Cofely it is responsible for maintenance. Notice how this creates the incentive to make technology durable and easy to fix, as opposed to the planned obsolescence of an iPad. It is only in Philips’s favour, since it is now their responsibility to make sure that Schiphol is lit. Nassim Taleb might say their engineers have skin in the game.

This highlights the principle of access over ownership as well. Schiphol is paying to solve a problem. They want light in their airport. This doesn’t necessarily involve owning the lights. As long as there is light. Rather than just manufacturing the technology to do this, Philips is providing a service. Most of the time, we buy goods for the service they bring us, not for the sake of ownership. Philips is providing a service, and technology is just a part of that. Likewise, MUD Jeans provides access to a new pair of jeans every year. Priva’s Kompano deleafing robot is available to growers as a service as well.

When access replaces ownership, we have to look at business models differently. A single transaction becomes a relationship. That sounds fluffy but bear with me. In the linear economy, once a product is sold, it’s sold. Yes, the customer should be satisfied if the business is to expect loyalty, but it pretty much ends there. There’s still a lot of room to cut corners. The circular economy is more continuous. The relationship becomes similar to that with an energy company or a landlord. There’s always an interface between the business and the customer. To increase profits, companies will have to improve the service and expand the business model, rather than selling you more stuff. I wonder whether this will make competition harsher, since switching costs might be lower than before.

As the economy changes, engineers will have to design with new priorities – like exchangeability of parts, reliability, and recyclability. The product will become part of an expandable business model. Of course, this is not perfect – there are still material losses, and 90€ a year for a single pair of jeans is expensive. The thing to note is that businesses are already implementing circular principles in industries where this wouldn’t normally happen, and for good reason. We can expect this to continue.

This article is part of a series on the Disruptive Innovation Festival (DIF).
Click here to read part 1.

Click here to read part 2.

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