Navigant Research Blog

The Circular Economy Rolls Forward

— January 15, 2014

In 2002, Michael Braungart, a German chemist, and American architect William McDonough published a book called Cradle-to-Cradle: Remaking the Way We Make Things.  The book put forth a manifesto for how to achieve closed loops in the lifecycles of both technical and biological materials.  Put another way, the book uses the concept of “waste = food” to outline strategies for creating an economy where the need for landfills and incinerators is minimized (also called the circular economy).  As the authors put it, the recycling system of today is actually one of downcycling, which only postpones most materials from ending up in a landfill.  The authors see this as a design problem: products are currently designed for their usable life with no thought of what happens after they’re discarded.

Instead, Braungart and McDonough argue, products should be designed to be easily broken down into their raw materials, which can be cycled back into the manufacturing process without any degradation.  In fact, the authors point to opportunities for the quality of materials to even be upgraded in the recycling process.  Today, a number of organizations, such as the Ellen MacArthur Foundation, are trying to implement some version of the circular economy.  In fact, the U.S. Green Building Council has added the Cradle to Cradle Certified Program to its LEED Version 4 Rating System.

In order to achieve a circular economy, you have to be able to sell businesses and consumers on the (monetary) benefits of making such a transition.  There’s no point in designing a good to be infinitely recyclable if you don’t have a practical, cost-effective system in place to collect and process it at the end of its usable life.  According to the Ellen MacArthur Foundation, circular business models present a significant financial opportunity. However, defining what a circular business model actually looks like has remained largely speculative.

Lease, Rent, Return

In Cradle to Cradle, the authors propose using a leasing model for technical (non-biodegradable) goods.  Instead of paying for ownership of the product, consuming it, and throwing it away, the customer pays for performance of the product without ever owning it.  The company maintains ownership and collects the product when the customer is done with it. The leasing model has taken off in the residential PV industry, and it is beginning to show up in LED installations, such as with Philips’ Pay-per-Lux concept and Duke Energy’s Outdoor Lighting Services.  While it’s not necessarily Cradle to Cradle (C2C) principles that are driving adoption of leasing models in these industries, having a leasing model in place could make companies more likely to adopt C2C principles.

Leasing adapts well to the circular economy; however, it doesn’t work in every situation. For example, I don’t see leasing working for most consumer goods, especially the less expensive ones. Can you imagine paying a monthly fee for everything you possess?  Luckily, leasing isn’t the only option.  An obvious alternative to leasing is pay-as-you-go renting, and this model is manifesting itself in new ways that are gaining popularity, such as in carsharing services.  For products with shorter lifespans, such as consumer electronics, it might be more practical to let consumers retain ownership but offer them strong incentives to return products at the end of their usable life. A trade-in policy would be a natural fit for cell phones as well as for a myriad of other products. Tesla is experimenting with a battery-swapping program that it may end up turning into a battery-leasing program. These kinds of programs, which are just new takes on old business models, could lead to serious customer lock-in and a new level of consumer/producer interaction. Stay tuned for future blogs in which I’ll talk about some of the new takes on old business models that are already being implemented in more detail, and for more information about smart materials use, refer to Navigant Research’s Materials in Green Buildings report.

 

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