The traditional linear economy, which comprises over 95% of the global economy, begins with extraction and ends with disposal. The circular economy, by contrast, aims to reuse and recycle resources in order to extract their maximum value and decrease their impact on the environment.
A panel on new consumption frontiers at the recent World Economic Forum meeting in Davos, defined the steps consumers, the private sector, and the government must take to create a truly global circular economy.
In order to incorporate the circular environment into a profitable, operational business model, the private sector must keep in mind five frontiers. The circular economy currently makes up only five percent of the global economy. In order for the private sector to embrace the circular economy and to make it a profitable, viable alternative to the linear economy, each actor must understand and plan around five changing frontiers: technology, business models, finance and investment, policy, and consumer behavior.
Technology is a disrupter to established industries. Technological innovation allows businesses to incorporate new business models that engage in the circular economy in a way that increases profits.
Business models, especially in the waste and recycling sectors, are changing. Many businesses in these sectors operate locally, allowing for a distributed business model rather than a business model reliant on centralized manufacturing.
Finance and investment must shift toward a more long-term valuation process. Sustainability has always created value. The question is, over what time frame are investors willing to wait? There must be enough capital that focuses on long-term return for businesses to invest in the circular economy.
Governmental policies can create circular economy growth. Governmental policies can drive demand and enable nascent industries that are focused on the long-term by providing fiscal incentives, granting subsidies, and pricing externalities.
Consumer behavior is beginning to favor the circular economy. Customers are looking for sustainable, fair-trade sourced, and renewable goods.
The consumers, private sector, and public sector must all work together to push the circular economy forward. A one-line approach to establishing a more substantive circular economy will not work. There must be a coordinated, integrative push for the circular economy from all sectors of the economy.
Consumers must push the private sector into action. A strong push from society will provide the necessary demand to incentivize businesses to invest in new manufacturing and supply networks.
Governments must create the pathway for the circular economy. Governments must set the economic vision for the circular economy by regulating markets and creating platforms. They must also offer fiscal incentives to nurture initiatives already in place within the system and push consumers to increase demand for cleaner goods.
The private sector must innovate and scale solutions. Above all, the private sector must redesign existing supply chains to prevent resources from being thrown away or contaminated with other materials. If circular supply chains can be widely established resources may be recycled almost endlessly, giving manufacturers an incentive to make products to last.
There remain a few key challenges that must be overcome to make a true global circular economy viable. The growth of developing countries, the disruption of established industries, the need for technological innovation, and existing consumer habits all present challenges to establishing a global circular economy.
As developing countries, such as India, continue to grow economically, they will produce more waste. Steady GDP growth will raise a large proportion of the population into the middle class, pushing both consumption and waste production to increase.
Designing circular supply chains necessitates disrupting established industries. For example, if carpets could be made with one material as opposed to the multitude of materials they are made with now, they could be almost endlessly recycled. Carpets could become even more reusable if consumers began to rent, rather than buy them. However, the existing carpet manufacturing industry would be severely shaken by these innovations and would most likely resist the change.
The Fourth Industrial Revolution will make new solutions possible; however, innovation now is still needed. Additionally, the data revolution will allow for greater sharing of new solutions, but the current technology and level of connectivity must be improved to help establish the circular economy worldwide.
Consumers have a disposable mindset. For a large portion of the global population the culture of finding value in every part of every product is regressing. In its place a culture of viewing products as disposable has taken root. In addition to efforts to change technology and business models, there must be an effort to scale back the disposable mindset by incentivizing circularity or penalizing disposability.