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TOWARDS THE CIRCULAR ECONOMY

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Title: TOWARDS THE CIRCULAR ECONOMY


1
TOWARDS THE CIRCULAR ECONOMY
  • Ellen MacArthur Foundation

Leonardo
Den Bosch, Sep 2012
2
(No Transcript)
3
This seems attractive in a world of changing
resource prices (and more environmental pressure)
McKinsey Commodity Price Index (years 1999 - 2001
100)1
World War I
World War II
1970s oil shock
Postwar depression
Great Depression
Turning point in price trend
1990
2000
2010
1900
1980
1970
1960
1950
1940
1930
1920
1910
1 Based on arithmetic average of 4 commodity
subindices food, nonfood agricultural items,
metals, and energy 2011 prices based on average
of first 8 months of 2011
Source Grilli and Yang Pfaffenzeller World
Bank International Monetary Fund Organisation
for Economic Cooperation and Development
statistics UN Food and Agriculture
Organization UN Comtrade Ellen MacArthur
Foundation circular economy team
4
A perfect storm of forces makes the time right
for a transition
Resource constraints
Mobilised governments
  • 3 bn new consumers are driving resource demand
  • Exhaustion of easy-to-access reserves
  • Need for imports from volatile regions stretches
    supply and increases volatility
  • Governments drive strategic resource programs (D,
    UK, EU, )
  • UK landfill tax hikes
  • Seattle works with food retail-ers to promote
    nutrient-based packaging

The new consumer
Enabling technology
  • Emerging bias of acces over ownership
  • Car-sharing services are an examplemembership
    is spiking
  • New technologies improve product tracking and
    separation
  • Better supply chain manage-ment makes reverse
    logistics feasible

Source The Guardian Seattle Public Utilities
(Seattle.gov) Frost Sullivan, "Sustainable and
Innovative Personal Transport SolutionsStrategic
Analysis of Car sharing Market in Europe
5
So, the Ellen MacArthur Foundation asked McKinsey
to find out whether a circular system is
economically viable
Does it really solve the resource question?
Is it profitable for business?
Is it good for the economy?
Source Ellen MacArthur Foundation circular
economy team
6
We first had to understand how the circular
economy works
Biological nutrients
Technical nutrients
1 Hunting and fishing 2 Can take both postharvest
and postconsumer waste as an input
Source Ellen MacArthur Foundation circular
economy team
7
and how it is linked to economic value drivers
The power of
the inner circle
circling longer
cascaded use across industries
pure/non-toxic/easier-to- separate inputs and
designs
8
A circular economy would not just "buy time"it
would reduce the amount of material consumed to a
lower set point
ILLUSTRATIVE
Effect of circular system on primary material
demand in widget market Volume of annual material
input required
1,500
Demand BAU
Virgin material substituted by circular material
1,000
500
Demand under circularity
0
2010
20
30
40
50
2075
60
70
Effect of circular system on material stock and
landfills Cumulative volume of material used
25,000
In use
BAU material stock
20,000
BAU landfilled
15,000
10,000
Material stock under circularity
5,000
Landfill under circularity
0
2010
20
30
40
50
2075
60
70
Source Ellen MacArthur Foundation circular
economy team
9
Based on that, we analysed selected product
markets in detail, dis-covering high potential
for reusing of resourcesmobile phones
End-of-life product flows based on 2010 EU
figures Percentage of total end-of-life devices
ESTIMATES
Transition scenario1
Status quo
Mining
Mining
Parts manufacturer
Parts manufacturer
10
Recycle
9
Recycle
Product manufacturer
Product manufacturer
Remanu- facture2
Remanu- facture2
Service provider
Service provider
21
0
6
Reuse
19
Reuse
Mainte-nance
Mainte-nance
15
50
50
85
Collection
Collection
Unaccounted and landfill
Unaccounted and landfill
1 Transition scenario conservative assumptions
on improvements in circular design and the
reverse cycle, within today's technical
boundaries 2 Remanufacturing, here refers to the
reuse of certain components and the recycling of
residual materials
Source Gartner EPA Eurostat UNEP Ellen
MacArthur Foundation circular economy team
10
Design changes and investments in reverse
infrastructure could greatly improve the circular
business casemobile phone example
ESTIMATES
USD per device
Status quo
Improvement
Transition scenario
Cost improvement
22.8
Value improvement
6.9
16.6
6.2
0
0.7
Reuse
1.3
5.0
0.7
2.5
0.6
6.4
Remanufacture
2.6
-1.4
0.9
0.6
3.0
3.1
1.3
0.3
0.3
0.1
Recycle materials
Recover-able value
Treatment costs
Net benefit improved
Net benefit status quo
Circular design
Treatment process
Source Geyer Doctori Blass (2008) Neto
Bloemhof-Ruwaard (2009) Neira et al. (2006)
EPA Umicore LME Metal Bulletin
recellular.com amazon.com recyclemobilephones.c
o.uk Ellen MacArthur Foundation circular economy
team
11
Our deep-dive analyses show that substantial
savings are already possible with minor changes
to the current setup
TRANSITION SCENARIO
Net material cost savings (percentage of
material costs vs. primary production)
Profit change in circular activity USD/product
From
To
?
Example
Mobile phone remanufacturing
  • Collection rate increase by 35 pts
  • Remanufacturing rate from 0 to 42

4
48
Deep dive on prior pages
Smartphone refurbishment
  • Collection rate increase by 30 pts
  • Refurbishing rate from 38 to 60

14
66
Light commercial vehicle refurbishment
  • No collection rate change
  • Refurbishing rate from 0 to 30

2,056
89
Washing machine refurbishment
  • Collection rate increase by 25 pts
  • Refurbishing rate from 10 to 50

135
63
Textiles cascading1
  • Collection rate of 22, of which 14 enter
    cascade
  • 50 material enters next cascading step

622
442
1 Cascading example for UK market 2 Here, product
refers to 10 kg of collected cotton material
Source Ellen MacArthur Foundation circular
economy team
12
Adoption of circular setups in subset of EU
manufacturing sectors could yield net material
cost savings of up to USD 630 billion p.a.
Net material cost savings in complex durables
with medium lifespans USD billions per year,
based on current total input costs per sector, EU
ROUGH ESTIMATES
520 - 630 (19 - 23)
Motor vehicles
340 - 380 (12 - 14)
Machinery and equipment
Electrical machinery and apparatus
Other transport
Furniture
Radio, TV, and communication
Medical precision and optical equipment
Office machinery and computers
Advanced scenario
Transition scenario
Source Eurostat input/output tables 2007 for
EU-27 economies Ellen MacArthur Foundation
circular economy team
13
Significant barriers remain action is needed in
four critical areas
ILLUSTRATIVE
Building blocks
Barriers
A
Design to last
Modularisation
  • Premature obsolescence
  • Limited degree of modularisation that would
    facilitate upgrade or maintenance
  • Materials chemically contaminated

Design for disassembly
Ban of toxics
Design/ production
B
  • Low customer incentives to return products after
    usage
  • Limited control of manufacturers/ retailers over
    post-sale value chain

From consumer to user
Technology improvements
Business models
Extension and upgrade of collection infrastructure
C
  • Subscale and thus expensive reverse operations
  • Lack of professionalisation

Pooling of reverse operations
"Relogistics"
D
  • Misaligned incentives
  • Lack of standards

Enablers to increase systemwide coordination
Education Rules of the game Cross-chain and
cross-sector cooperation
Source Ellen MacArthur Foundation circular
economy team
14
The first steps of the transition are already
underwaythere remains lots to do for companies,
governments, and research institutions
Companies
Governments
Research institutions
  • Develop viable business mdels for
  • Financial institutions
  • Equipment/consumer goods manufacturer
  • Logistics providers
  • Service firms (rental, MRO, )
  • Information services
  • Set standards (esp. toxicity)
  • Procurement
  • Support re-infrastructure
  • Level the playingfield (taxation, gate fees,
    etc.)
  • Stimulate RD, education
  • Continue to analyse potential of circular
    business models
  • Drive material and techno-logy innovation
  • Help to activate govern-ments and businesses

Source Ellen MacArthur Foundation circular
economy team
15
(No Transcript)
16
For several examples, circular design is likely
to deliver a resource performance far beyond the
incremental efficiency improvement
Carpet
Fridge
Furniture
Linear system
Circular system
1 In Germany, based on resource productivity
growth 1995 - 2005 resources include material,
energy, and water 2 Globally, growth rates for
carpets and fridges are 2009 - 14E averages, for
furniture 2004 - 09 averages
Source German System of Integrated Environmental
and Economic Accounting Euromonitor (2011)
Centre for Industrial Studies (2011)
Freedonia (2011) Ellen MacArthur Foundation
circular economy team
17
Employment effects vary across primary,
secondary, and tertiary sectors of a circular
economy
Effect on employment activity (directional)
Mining/materials manufacturing
Primary sector
Farming/ collection
Parts manufacturer
Recycle
Secondary sector
Biochemical feedstock
Product manufacturer
Service provider
Tertiary sector
Cascades
Collection
Collection
Energy recovery
Leakageto be minimized
Landfill
Source Ellen MacArthur Foundation circular
economy team
18
Revamping industry, reducing material
bottlenecks, and creating tertiary sector
opportunities would benefit labour, capital, and
innovation
FIGURE 21
Labour intensity Labour spending per unit of GDP
output, EU-27 economies
Innovation index¹ IBM/Melbourne Institute Index
Capital intensity Total expenditures / labour
expenditures, EU-27 economies
0.30
4.07
2.97
0.16
0.14
1.87
Tertiary
Secondary
Primary
Tertiary
Secondary
Primary
Tertiary
Secondary
Primary
1 Components of index include RD intensity
patent, trademark and design intensity
organization/managerial innovation and
productivity
SOURCE Labour intensity calculated using data
taken from Eurostat Input-Output tables for
EU-27 Innovation data from IBM/Melbourne
Institute Innovation Index (covering Australian
Industry), 2010
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