Three circular economy examples

Like most residents of Amsterdam, Andy Ridley is enchanted by the city’s picturesque canals.

Unlike most of its residents, however, it is not just the aesthetic quality of the UNESCO-protected waterways that fascinates him. It is also the mud in the canal bed.

“Amsterdam’s canals may have originally been designed for smooth logistics into the city, but the sewage sludge that collects at the bottom can be used to produce biogas and synthetic fertiliser,” he explains. “That has a lot of value for both the local economy and the agricultural industry.”

This idiosyncratic observation is clearly not that of an ordinary Amsterdammer. Ridley is the chief executive of Circle Economy, a social enterprise and advocate of a novel approach to corporate sustainability that puts safeguarding the environment on a par with maintaining profitable growth.

The idea of Amsterdam’s canals doubling up as source of biogas and fertiliser is just one of many that Ridley and his team of scientists, engineers and designers have proposed following the completion of their ‘circularity scan’ of the city, through which they analysed its flows of energy, food production and water.

Circle Economy maintains the world economy has become dangerously reliant on a near-defunct linear model of ‘take, make, and dispose’ that is putting increasing strain on the world’s reserves of natural resources.

The economy would be better served, Ridley says, if companies make more efficient use of raw materials by keeping them in circulation for as long as possible, and recovering products at the end of service to give them a new lease of life. To help businesses, communities and governments do that, Circle Economy has developed a number of practical tools and products.

Ridley says his ideas for redesigning the economic system are beginning to gain momentum – not least because persistent volatility in the price of rare earth metals and other commodities has acted as a wake-up call for corporations.

Textiles and autos get the circular habit

Many industries are starting to see value in extending the life of raw materials.

The auto sector is one where the potential benefits of circularity are substantial.

Carmakers such as Renault are increasingly remanufacturing auto parts, and exploring the use of recycled materials such as aluminium.

Renault’s remanufacturing plant in Choisy-le-Roi near Paris uses 80 per cent less energy and 88 per cent less water than its traditional factories; it has also cut waste by 77 per cent. Its remanufactured parts, meanwhile, which are sold at 50 to 70 per cent of their original price, have generated revenues of USD270 million annually.

Car parts such as tyres also lend themselves easily to smart re-use. Materials company Black Bear carbon, for instance, has developed technology to recover carbon black from old tyres. Carbon black is an additive used in the tyre, plastics and paint industry that is manufactured by burning oil in a process which emits around 38 million tonnes of CO2 annually. Black Bear’s pyrolysis process – a substance decomposition carried out in an oxygen-free furnace at a temperature of 600 degrees – enables the conversion of some of the 1 billion of worn tyres that are discarded each year into high-quality carbon black, gas and oil.

Construction and circularity

The industry that could perhaps benefit most from the circular approach is construction, one of the world’s largest contributors of harmful waste products, Ridley explains. Cement production is currently rising at 2.5 per cent per year, which means the world could be producing around 4 billion tonnes of concrete by 2050.

That presents a potentially huge environmental problem as concrete production is responsible for between 5-10 per cent of global carbon emissions. But with approximately 99 per cent of all construction waste recycled as an aggregate under roads, Ridley says is not hard to see the potential for improvement here.

“When you look at the construction sector, you can immediately see the extraordinary amount of waste that could be turned into value – but also how you could design a city in future to retain value from the beginning.”

One simple circular process is to use waste generated by construction and demolition sites and turn it into building bricks. Cities could also be built by bolting modular elements of buildings together to they can easily be taken apart and reused, Ridley says.

There are more innovative approaches too, such as using bacteria in concrete to help the material repair itself and replacing steel in reinforced concrete with recycled plastic.

From selling to leasing

Another circular model that a number of manufacturers are pioneering is ‘pay-per-use’.

This is the approach adopted by Dutch electronics giant Philips in its industrial lighting-as-a-service business. As part of a deal with Amsterdam’s Schiphol Airport, Philips’ lighting division will supply energy-saving LED lights for the terminals but will retain ownership of the equipment. This means the airport will only be charged for usage, while Philips will be able to take the equipment back at any time to recycle the materials or upgrade them.

With this model, the approach shifts from paying for ownership to paying for access. Switching from a one-time transaction to pay-per-use such allows businesses to stay connected with their customers and gives both parties an incentive to make the equipment last.

However, such an approach requires entirely new ways of doing business, upending the way companies charge and bill customers.

“The way companies handle charging and billing – their cash flow management – is inhibiting the wider spread of circular models such as leasing,” says Ridley. “We need to adapt the financial system and change the way we run our companies to pave the way for new business models.”

Economists at ING predict that under this approach, companies’ accounting models will have to change to reflect the fact that cash flows will become of greater importance than the collateral value of assets. Firms will also have to more closely scrutinise the creditworthiness of their customers.

Among the other changes ING envisages, profit and loss statements will incorporate environmental and social costs and benefits in order to show the total cost of goods and services to society.

“Ten years ago, this would have been almost impossible. But the emergence of disruptive business models like Airbnb or Uber have shown the market place can adapt very quickly,” says Ridley.