The global economy has created a great deal of value to people over the decades. It has provided products and services that satisfy many of our needs and desires. While this value is very unevenly spread, some societies have gained from high levels of material wealth and many millions of people have been pulled out of poverty.
However, the economy that creates this value is linear, or ‘take-make-waste’, in the way it handles materials. It extracts resources to make products that eventually end up buried or burned. This approach pollutes nature, consumes finite resources, and is the main underlying driver of climate change and biodiversity loss.
The circular economy: eliminate, circulate, regenerate
The circular economycircular economyA systems solution framework that tackles global challenges like climate change, biodiversity loss, waste, and pollution. It is based on three principles, driven by design: eliminate waste and pollution, circulate products and materials (at their highest value), and regenerate nature. takes a different approach. Instead of allowing valuable materials to go to waste and natural systems to be degraded, it applies three principles: eliminate waste and pollution, circulate products and materials, and regenerate nature.
This means designing buildings, cars, and electronics, for instance, to be used longer, reused many times, remanufactured, and in the end recycled. This keeps the resources that went into making them – the materials, energy, and people’s time – in the economy.
Creating value in a circular economy
The value created for businesses is reduced costs of buying raw materials and making new products (even if more materials are used upfront to make products durable). The value for customers is getting access to goods at lower prices. The benefits to the environment and society include lower greenhouse gas emissions, cleaner water, and fewer landfills.
Digitally-enabled business models such as product-as-a-service, reusereuseThe repeated use of a product or component for its intended purpose without significant modification. and refurbishment, and predictive maintenance can help capture this value for businesses and customers. Examples for durable goods include on-demand car services, subscription models for clothes, and remanufacturing jet engine components before they wear out.
Circular economy value for the food industry
When it comes to food and agriculture, regenerating nature is key to creating value. Designing food to come from regenerative farming systems can increase farmers’ profits and food output while reducing pollution, storing carbon in the ground, and helping biodiversity. This is achieved by cultivating healthy and highly productive soils in which to grow a wide variety of crops.
Other circular economy opportunities in food also create value. Designing out food waste reduces the overall cost of producing food and the amount of land needed for agriculture. Making use of food byproducts to make textiles, building materials, or new food products reduces raw material costs for businesses in those industries.
Measuring the value of a circular economy
The size of this value can be measured. For example, analysis shows that in Europe, putting in place a circular economy for buildings, transport, and food could create EUR 900 billion a year more than would be created without it in 2030. This is a mix of cost savings to businesses and customers and wider benefits to society and the environment.
While these wider benefits do not always have a price, their economic value can be estimated. For example, lower GHG emissions means lower future costs resulting from climate change, reduced road congestion means higher productivity, and less local air pollution means reduced spending on healthcare.
While they might not always benefit their bottom line in the short term, these benefits can create value for businesses. Circular economy business models can, for instance, help companies meet their climate change commitments, get ahead of government regulations to protect biodiversity, and increase the security of their raw material supplies.
Creating value in a circular economy is to harness innovation to grow regenerative businesses. These businesses improve profitability and resilience, reduce costs for customers, and benefit society and the environment: a compelling economic rationale.
