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The circular economy

On 8 September the ECCT hosted a Special Lunch on the topic "The circular economy - Future policy direction and how businesses can benefit from the global drive towards a circular economy" with guest speaker Charles Huang, Founder of the Taiwan Circular Economy Network.

 

The speaker began by explaining that the term circular economy is often misunderstood or misinterpreted. It is not a new sector of the economy promoting environmental protection but an entirely new way of looking at the economy. It entails a paradigm shift from the traditional linear economy, which has been the dominant form globally since the industrial revolution.

The concept has received greater focus in recent years in the European Union and many other countries and was even mentioned in President Tsai's inauguration speech. Not surprisingly countries with limited resources tend to take the concept more seriously than those with plentiful resources.

The linear economic model of "take (extract raw materials), make, use and dispose" remains dominant today. Huang cited the example of a typical mobile phone. While the end product weighs just 150 grams, it takes 30 kilograms of raw materials, enormous amounts of electricity, water and labour to create the product, which is used for a short time and then discarded.

The linear economy assumes that resources are unlimited and depletes them at a rapid rate and generates an enormous amount of pollution (of the air, water and soil). To address the issue of the depletion of resources (raw materials and energy) and pollution requires a completely new economic model. A circular economy is one in which the value of products and materials is maintained for as long as possible, waste and resource use are minimised and resources are kept within the economy to be used again and again to create further value.

The circular economy requires a paradigm shift in the following areas:

  • Resources: A shift from thinking about resources as abundant to a recognition that they are finite and being depleted at an ever-increasing rate, driving by the growing demands of the rising middle class globally.
  • Waste: A shift from seeing waste as normal to regarding waste as simply misplaced resources to be used for the same or another purpose. In nature, nothing goes to waste and we need the economy to mimic natural ecosystems in the same way.
  • Consumers: The mindset of consumers needs to shift from ownership (the need to own objects) to that of "performance users", being able to use objects without owning them. For example, one does not need to own a drill to drill a hole in the wall or own a car to get from A to B.
  • Manufacturers need to shift from being processors to owners. Manufacturers in the linear economy just care about producing and selling products for the lowest possible cost at the highest possible price. In a circular economy, manufacturers redesign their processes and products to make them easy to disassemble for reuse and refurbishment. Knowing that the products will come back for reuse or refurbishment also encourages them to produce better products in the first place. This is beneficial to them and their customers.

The circular economy also requires a shift in thinking in culture and values from doing less bad (the traditional CSR approach) to doing more good.

The circular economy goes beyond the 3Rs (reduce, reuse and recycle) with a focus on products only to add two more Rs and include service. The two additional Rs are: 4) Redefine needs and 5) Redesign products. A good example is provided by Philips, which has adopted a completely new business model for Schiphol Airport in The Netherlands. Instead of selling light bulbs to the airport, the company sells a lighting service. The company owns the light fixtures and bulbs, which it is required to maintain and replace to provide constant lighting for a fixed annual fee.

In terms of efficiency, the circular economy goes beyond sustainability, which is a linear concept, to regeneration. While sustainability does less harm, it does not address the issues of resource depletion, pollution and loss of biodiversity. The whole economic process must be a closed loop where products are made, used and, instead of being discarded, regenerated.

In terms of the business model, there needs to be a shift from independent competition to interdependent collaboration. In cities like Copenhagen in Denmark, companies are already collaborating whereby one company's waste is used by another company as a resource, thereby eliminating waste.

Huang made the point that the circular economy is not just the right approach for the environment. It is also a matter of national security for countries like Taiwan that have limited natural resources and are highly dependent on imports for fuel, fertilizer and food. For national security reasons, economic output needs to be decoupled from resources.

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