Innovation and the circular economy

As things stand, within the next decade the global economy will need transform to the meet the needs of close to 9 billion people.

Radical action on climate change will be needed to drive significant improvements in clean energy, waste reduction, and systems for sustainable production and consumption.

The following gives an indication of the unsustainability of the status quo, and the scale of challenges and potential opportunities:

  • Each year an estimate 8m tonnes of plastic material is dumped in our oceans. The cumulative amount of waste floating around in our oceans, and the impact on marine and ultimately food supply is as yet unknown.
  • In the UK alone approximately 25% or 50 million tonnes of waste each year is disposed of in landfill sites with the associated risks of toxins released into the land, and greenhouse gases.

On current projections the level of waste produced by the UK economy is set to double in the next 25 years, and with the availability of landfill sites and export routes for waste rapidly diminishing, political pressure will mount in the UK for new solutions and these will present opportunities for businesses.

These pressures are leading to the emergence of what has been referred to as the circular economy.

The circular economy is an alternative to a traditional linear economy (make, use, dispose) in which we keep resources in use for as long as possible, extract the maximum value from them whilst in use, then recover and regenerate products and materials at the end of each service.

Examples of the Circular Economy

Numerous examples of the circular economy are emerging, some examples include:

  • Energy from waste

There are numerous examples of how waste destined for landfill is being converted to energy. Well established examples include anaerobic digestion.

Here In the North West, Lancashire Waste Recycling has pioneering the production of high grade SRF material made from plastic and waste materials into a fuel to be used by industry.

Other notable examples of energy from waste include biobean who are recycling spent coffee grounds into biofuels.

  • Remanufacturing

This is the rebuilding of a product using a combination of reused, repaired and new parts.

Remanufacturing can save up to 80 per cent of carbon emissions compared to making new products by not requiring significant additional material inputs.

Cost structures for remanufacturing and re-conditioning of products are much lower making products more affordable to a wider market, thus helping to drive economic growth. Examples include the Caterpillar Reman programme, and other refurbished plant and machinery providers.

  • Shared/rental-based consumer models

Commentators have noted a trend to consumers placing less reliance on product ownership and embracing shared or rental based usage models.

Examples include clothing rental services with clothing made from renewable sources, or on demand tooling supply businesses for the construction sector.

Business models for the circular economy

The Carbon trust and partners have outlined the key business models which enable success in the circular economy, the key ones being:

  • Co product recovery- residual outputs from one process become inputs in another process
  • Circular sourcing- sourcing recycled or renewable materials that can be returned to the biological cycle
  • Resource recover- materials or products at end of life are incorporated into different products or used as feedstock/inputs for another process
  • Recondition and remaking. Either with or without additional warranty on product life.
  • Providing end users with access to the functionality of products/assets, instead of ownership (examples being the clothing rental/tooling rental businesses above)

Technological change and the circular economy

Coupled with the above, other disruptive technologies such as the Internet of Things (IoT), artificial intelligence are key enablers of the circular economy. Notable examples include:

  • GE has also automated its wind turbines and solar panels, ensuring they automatically adjusting to the wind and angle of the sun.
  • San Francisco and London have installed solar-powered automated waste bins that alert local authorities to when they are full; creating ideal routes for trash collection and reducing operational costs by 70 percent.

The scale of the challenge to reduce and manage waste suggests there are, and will be significant opportunities for businesses to take advantage of.

Taking advantage of these opportunities will require businesses to re-examine their business and financial models, with an increased focus on reducing waste, and looking at opportunities to take advantage of opportunities to derive income from waste/production by products.

For many businesses funding will be needed to take provide working capital and infrastructure support. It will be important for businesses to involve their advisors at an early stage to guide them through the range of funding options currently available.

If you would like to discuss business models based around the circular economy, or you would like to speak with a member of our team, please contact Ian Waddingham or call 01772 821021 to be put in touch with a member of our Corporate Finance team.