Circular economy: Concepts and barriers to transit

Nội dung text: Circular economy: Concepts and barriers to transit

1. CIRCULAR ECONOMY: CONCEPTS AND BARRIERS TO TRANSIT Master. Le Thi Thai Ha1 Abstract: Circular economy is considered as a way toward sustainable economic model and save our planet. For few decades, several key concepts have been contributed to develop circular economy such as Industrial ecology, Cradle–to–Cradle and Blue economy. This paper will dig deeper understanding about the key concepts behind this model. However, lack of reliable data, high up- front costs and complex multinational supply chains, power of consumer and regulation and legislation are four of these main barriers challenging companies to move to circular economy. Keyword: strategic management, circular economy, recycle, open-ended economy. 1. INTRODUCTION Circular economy has gained much attention from scholars around the world due to human-caused environmental changes. United Nation predicts that world population will reach 8.5 billion by 2030, 9.7 billion in 2050 which mean that global economy will require a huge number of resources as well dispose an appropriate volume of waste. According to report of World Bank (2020), the world generates 2.01 billion tonnes of municipal solid waste annually and it is expected to grow to 3.4 billion tonnes by 2050. The East Asia and Pacific region is generating most of the world’s waste, at 23%. As shown in chart 1, only 19% of waste is recovered through recycling and compositing. On the other hand, the huge volume of dumped waste not only place a heavy burden on the earth but also waste a valuable resource. Chart 1: Global treatment and disposal of waste (percent) Source: World Bank, 2020 In recent years, environment and pollution matter are more serious, which result from open-ended linear production strategic approach or wasteful “take, make, dispose” economy model which has been applied in economy for a long time. Su et al. (2013) emphasised that “a traditional open-ended 1 Trường Đại học Kinh tế Quốc dân. Email: haltt@neu.edu.vn. 179
2. economy model developed with no built-in tendency to recycle, which is reflected by treating the environment as a waste reservoir”. Circular economy is considered as a way toward sustainable economic model and save our planet. For few decades, several key concepts have been contributed to develop circular economy such as Industrial ecology (Frosch & Gallopoulos, 1989), Cradle–to–Cradle (McDonough & Braungart, 2002) and Blue economy (Pauli, 2010). However, “should our company be toward circular economy?” and “how we apply the concept to our business?” are common question rose from company managers. They seem to hesitate switch from traditional open-ended economy model to new circular economy model due to the fact that implementation of circular economy to business has been still limited. There are some common reasons to explain why organisation hesitates to switch toward circular economy model which are high costs, customers’ loyalty, political barriers and so on. Thought the number of companies transiting to such business model is minor, some of them gain successes in applying this model to their businesses. Desso – an eighty-year-old carpet company, Philips – a famous Dutch multinational technology company and Michelin – a tire and mobility producer are three organisations successfully managing toward circular economy. In order to have broader view about CE, this paper will dig deeper understanding about the key concepts behind this model. Moreover, these main barriers challenging companies to move to CE will be discussed. Finally, the paper shall provide real examples on successful companies implementing CE approach in order to reaffirm that CE have positive effect into not only environment but also the economy as a whole. 2. LITERATURE REVIEW ON CIRCULAR ECONOMY 2.1. Origins of circular economy concept Economics and environment has a close relationship; however, for a long time, this relationship has not been gained appropriate attention. The concept of circular economy was first introduced by Boulding (1966), which stated that the earth is limited reservoirs either for extraction or for pollution so human beings must change to cyclical ecological system. In consistence with Boulding’s argument, Stahel and Reday-Mulvey (1976) and Pearce and Turner (1990) agree that businesses must transit from dead-ended economy to circular economy in order to guarantee sustainable livings on earth. Circular economy is developed based on the increase awareness about environment and transition to renewable sources to save our planet. According to Ellen Macarthur Foundation, three key principles of circular economy are designing out waste and pollution, keeping products and materials in use, regenerating natural system. Among many definitions about circular economy, the most accepted one is that. “A circular economy is one that is restorative and regenerative by design and which aims to keep products, components and materials at their highest utility and value at all times, distinguishing between technical and biological cycles.” (Ellen MacArthur Foundation, 2016). Hence, circular economy interpreted as a new business model for sustainable developing economy which put emphasis on balance industrial economics, ecology and society. Since 1970s, several concepts have been introduced and developed to contribute to circular economy schools of thought, each of them approaches circular economy by different ways and has their own characteristics. These concepts will be scrutinised in this section, especially their principles and characteristics. 180
3. Source: Ellen MacArthur Foundation, 2020 2.2. Circular economy school of thoughts and debates * Cradle-to-Cradle Cradle-to-Cradle was developed by Braungrat and McDonough (2002). One of the most striking features about Cradle-to-Cradle is “nutrient metabolism” which is not covered by circular economy. This concept includes “biological nutrients” products for consumption and “technical nutrients” for products for services (the processes below show Cradle-to-Cradle designs). The concept design perceives the “biological metabolism” and tries to translate into “technical metabolism” flow of industrial materials (McDonough et al., 2003). It can be understood that product components can be designed for continuous recovery and reutilisation as biological and technical nutrients within these metabolisms. As the result, waste is treated as resource for new product and the concept of waste is eliminated completely (Lovins, 2008). Moreover, Cradle-to-Cradle supports for using renewable materials and energy. Last but not least, such concept embraces the ideal of diversity and respect natural and human systems. Healthy ecosystems are promoted to encourage companies and operations using social responsibility. Cradle-to-Cradle can be implemented not only in manufacturing and design processes but also infrastructure and technology (Geisendorf and Pietrull, 2017). To summarise, Cradle-to-Cradle is often used as synonym of CE (Esposito et al., 2017) and both have been developing long side each other to manage waste and provide guidelines and tools for industrial ecology systems. 181
4. * Performance economy In 1994, architect and industrial analyst Stahel introduced his works about “functional service economy”, which now is referred as Performance economy. This concept focuses on four main goals: product-life extension, long-life goods, reconditioning activities, and waste prevention. Performance insists on the importance of product-service systems in order to decrease negative impact to environment through related production and consumption (Mont, 2002). One of the most distinguish features of Performance Economy is that put emphasis on selling services rather than products, thereby improving product service sales and performance over time and minimising energy consumption and resource input (Product life, 2018). Thus, Performance economy overlaps CE in the part of environment and social responsibilities and product development. * Biomimicry Biomimicry was introduced by Janine Benyus in 1990s which is defied that “biomimicry is learning from and then emulating nature’s forms, processes, and ecosystems to create more sustainable designs.” Janine emphasised that in this era, instead of extracting from nature, human should learn from her. In other words, Biomimicry is the way we imitate nature’s creation to product and develop new products and goods without negative impacts to environment (Benyrus, 1997). For example, we can design sustainable foams and plastics based on nature’s chemical recipes. This concept focuses on product level to create new designs and develop sustainable materials. To compare to circular economy, Biomimicry does not mention social aspects as well as business model and operation perspectives. * Industrial ecology Industrial ecology is initiated by Frosch and Gallopoulos in 1989 in their work “strategies for Manufacturing”. They insist on the ideal ecosystem in which waste and pollution are minimised and the use of energy and materials is optimised (Frosch and Gallopoulos, 1989). This concept model aims at creating closed-loop processes in which waste of an industrial product serves as input for another. Waste management plays an important role (Ghisellini et al., 2016). This framework can implement on the local, regional and global scoop by analysing the usage and flow of materials and energy during product life cycle in order to reduce environment damage (Geisendorf and Pietrull, 2017). Industrial ecology also provides ideas for governments and companies to take place sustainable economy. * Blue economy Blue Economy is introduced by a Belgian businessman, Gunter Pauli. The “blue” in “Blue Economy” refers as the colour of sky, ocean and the Earth seen from the universe (Pauli, 2011). Based on 21 core principles, the Blue Economy focuses on ecology systems in which local environment and its physical characteristics is the root for solution and puts gravity is main source of energy (The Blue Economy, 2018). The Blue Economy also provides a source of case studies to encourage innovations which aims to protect nature as well as create new job opportunities. It can be said that Blue Economy and CE is interchangeable because of their purposes for better environment and human lives. * Regenerative design John T.Lyle developed the concept of regenerative design based on process-oriented systems theory. The word “regenerate” stands for “to create again” which mean all materials and energy input can be renewed and zero waste discharged. Regenerative design is in consistent with biomimicry and closely related to permaculture to seeks for sustainable designs and create eco-friendly human inhabitants (Lieder & Rashid, 2016). Such concepts highlight the role of humans in environment as a symbiotic rather than a destructive one. The implementation of regenerative design can be seen in 182
5. agriculture and energy industries such use multiple crops instead if a single one based in natural biodiversity or wind energy. Regenerative design interconnects to CE for innovations and sustainable development aspects. These concepts above have been contributing to Circular Economy schools of thought by different ways. Most of them aims to create closed-loop economic model to minimise impact of industrial processes to environment and healthy livings. Instead of extracting from the Earth and dispose waste to her, CE encourages us to learn from the nature and mimic its flow and designs to apply into our sustainable development. 3. BARRIERS TO THE IMPLEMENTATION OF CIRCULAR ECONOMY IN BUSINESSES Circular economy with many concepts behind it is considered as a solution for sustainable development; however, there is a small number of companies pursue this model. Main reasons for limited implementation are lack of business awareness and barriers challenging company to move toward circular economy. Heshmati (2017) emphasizes that a number of challenges and barriers have been recognised in literature. For example, Su et al. (2013) stress some barriers constrain companies toward CE such as shortage of advantage technologies, lack of reliable data and information, poor enforcement of legislations, lack of public awareness about the necessity of CE and so on. Moreover, Uslu et al. (2015) in their research on transition to green economy in Turkey point out lack of green capacity, less incentive programs, implementation and control deficiencies and financial burdens are also common barriers. The first problem is rooted from enterprises who lack of reliable data and information and hesitate to transit their business to CE. Manufacturing companies do not recognise that we are at the era of cheap fossil fuel and finite natural resource. As a result, they still rely on resource intensive infrastructure. Moreover, in CE, manufacturers have to create new renewable materials and recycle waste in a closed loop process while in linear economy they just need to produce goods and recycle them if necessary (Sauve, Bernard and Sloan, 2016). Due to competitive pressure, they focus on profit and economic benefits and ignore environmental impacts (Lieder and Rashid, 2016). Iyigun (2015) highlight enterprises face various form of risks and barriers including socio-cultural and institution realities when moving to CE. Thus, they lack of incentive to overcome these challenges and trade-off between their benefits and resources degradations. Secondly, transition to CE requires high up-front costs and complex multinational supply chains which can be considered as barrier for new entrants. To create closed loop like CE, entrepreneur has to spend a lot of money for developing R&D and management skills as well as invest into advantage technologies, infrastructure. Sauve, Bernard and Sloan (2016) stated that manufacturing a durable long lasting good is more expensive than an equivalent quick and disposable one. Moreover, driving into CE requires cooperation in entrepreneurship to develop multinational supply chains and renewable energy. The formation and development entrepreneurship culture and the creation of required mechanisms are challenges (Vaghefpour and Zabeh, 2012). In addition, in closes loop supply chains is too complex because forward supply chain includes the entire flow of material from supplier to manufacturer, distributors, retailers and finally consumer as well as reverse supply chain for used products (Souza, 2013). One more challenge is power of consumer. The awareness about pollution and climate change among people is still storage, thus, consumers lack of enthusiasm with green products. At the moment, due to producing costs and advance technology, green products often have higher price than normal ones while they have the same functions and serve the same level of satisfactory. Customers may try new kind of products few times but keeping their enthusiasm for longer period is quite challenging. Sauve, Bernard and Sloan (2016) argued another example about customers barrier is in “functional 183
6. service”. Based on “functional service”, company tend to selling services rather than product which mean they keep product ownership. This model benefits from increasing the use of available resources and equipment and durability of products. However, many products are only partially used and needs for maintenance reduce because customers often want to have their own equipment in order to be independent. Thus, lack of public awareness and socio-cultural barriers prevent companies toward new sustainable concept. Last but not least, regulation and legislation are also a barrier to stop business transit to circular economy. Until now, only small number of countries have appropriate incentive programs for finance, technology and issue effective regulations to encourage companies transferring to CE (Heshmati, 2017). China is one of the earliest countries has regulation and administrative support enterprise developing and implementing CE since 1990s. However, after nearly 20 years, a number of companies toward CE is insignificant due to insufficient developing conditions and a few incentive programs (Shi et al., 2008). This example emphasises that inadequate regulations and policies is a big constrain for sustainable development. To sum up, it is not easy for enterprises moving to CE because of many barriers and challenges. These barriers and challenges are initiated not only from company perspectives but also from macro- economic environment. 4. CONCLUSION The intention of the paper was to bring an overview about Circular Economy and its implementations to businesses. A sustainable development for future generations will demand system- based thinking that balance society, economics and environment. These three pillars of sustainable development present in most conceptualisation and applications of Circular Economy in both explication and implication. Thus, Circular Economy is an important and noteworthy school of thought in sustainable developing. This concept encourages ethics in business in which any economics activities must have responsibilities to environment and healthy society. However, such concept still lacks of implementation to business due to some barriers of costs, resources and regulations. From the point of managers’ view, it is hard for them to overcome these challenges and they do not get enough incentives to move into new economical concept. On the other hands, some companies and manufacturers successfully driving their businesses into Circular Economy demonstrate positive impacts of the credible concept on environment, society and economy. They can be good and reliable case studies to support global industries to develop ethical and sustainable business practice. REFERENCE 1. Benyus, J.M., 1997. Biomimicry: Innovation inspired by nature. 2. Boulding, K.E., 1966. The Economics of the Coming Spaceship Earth’. In: H. Jarrett (ed.): Environmental Quality in a Growing Economy. Johns Hopkins University Press. 3. Braungart, M. and McDonough, W., 2002. Cradle to cradle: Remaking the way we make things. 4. EMF (Ellen MacArthur Foundation)., 2015. Towards a circular economy—Business rationale for an accelerated transition. 5. Esposito, M., Tse, T., & Soufani, K., 2017. Is the circular economy a new fast-expanding market? Thunderbird International Business Review, 59(1), 9–14. 6. Frosch, R.A. and Gallopoulos, N.E., 1989. Strategies for manufacturing. Scientific American, 261(3), pp.144-153. 184
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