The circular economy
Redefining business models for sustainability and resource efficiency
Economic systems are all about extracting value and moving it around. That’s been the case ever since we invented bartering. But one thing most of these systems have in common is that they’re finite. They’re exhaustible. And they don’t really care what happens next.
Circular economics is different. It’s the idea that materials and products never – or at least very rarely – become waste. In a circular economy, resources are used for as long as possible, allowing society to squeeze out the maximum value, then they’re re-used, or recovered, or regenerated into something else. And the circle starts again. It’s recycling on an existential scale.
You can track this idea of circularity back to early 20th century economists like David Ricardo and John Stuart Mill, both of whom recognized the importance of resource efficiency, but the model has been gaining significant traction in recent years as society comes face-to-face with looming environmental collapse.
More and more businesses, and governments, are starting the recognise the benefit of circular economics. And not just from a survival-of-the-species point of view. A 2020 KPMG report found that a circular economy in just three areas – food, transport and the built environment – could net Australia an extra $23 billion in GDP by 2025. That’s cash that’s currently sitting in landfill.
And Australia, unfortunately, is lagging behind on this trend. According to a new report from the CSIRO, Australia’s circularity rate – the efficiency with which resources are re-used within a closed system – is about 4%. That’s half of the global average (8%).
“Over the last decade, Australia has successfully reduced its material footprint, increased its circularity rate, and curbed air emissions, however, the Australian economy uses four times the materials to fulfil each person's needs compared with the world average. Australia’s circularity rate has increased marginally, from 3.5 per cent in 2015, to now closer to 4 per cent. However, it remains at half the global average.”
In 2019 alone, Australia extracted and harvested 2,587 million tonnes of raw materials. We supplemented those with 119 million tonnes of imports and 39 million tonnes of domestically recycled materials. That 39 million is a good start, but it means that over half of what we produce ends up in landfill. That’s both an environmental calamity and a huge loss of opportunity. As the saying goes: it’s only waste if you waste it.
The Australian government is aware of this issue, and has taken some steps to address it. As part of its transition to Net Zero, Australia has set a goal of 80% average resource recovery by 2030. That would represent an extra 15 million tonnes of material diverted from landfill, and pumped back into the economy, every year. As part of this plan, state and federal governments have committed to progressively stop the export of key waste streams, including plastic, paper, glass and tyres, slash food waste in half, and institute national packaging targets for industry.
For this movement to be successful, we’ll need a few things. The first is technology. With Blockchain, supply chains become more transparent and traceable, helping to ensure the authenticity and sustainability of products and materials. By leveraging AI, we can crunch huge data sets and predict demand for products and services, helping to optimise our resource use. Advanced manufacturing technologies, like 3D printing, allow for on-demand production of parts and products, reducing the need for big inventories and significantly extending product lifecycles.
The second is more nebulous, and arguably much harder, and that’s a top-down redesign of traditional business models. Instead of building finite products – or, even worse, products with planned obsolescence – we’ll need to shift our mindset towards refurbishment and remanufacturing. Building things that are more modular, easier to repair and replace, inherently recyclable, investing in skills training and jobs, and building communities where products can be shared or exchanged.
Our current business model is linear: we take materials from the earth, make products from them, and eventually throw them away. Value moves in one direction. It’s an inefficient process. To re-shape the world, we first need to re-shape our fundamental economic model. As singer Pete Seeger famously said, “If it can’t be reduced, re-used, repaired, rebuilt, refurbished, resold, recycled or composted, then it should be restricted, redesigned, or removed from production.” Full stop.
Want to learn more about circular economics? Check out RMIT Online’s Sustainability and Social Impact short course.