page1
briefing paper
A Global Redesign? Shaping
the Circular Economy
Felix Preston
Energy, Environment and Resource Governance | March 2012 | EERG BP 2012/02
Summary points
zz A fundamentally new model of industrial organization is needed to de-link rising
prosperity from resource consumption growth – one that goes beyond incremental
efficiency gains to deliver transformative change.
zz A ‘circular economy’ (CE) is an approach that would transform the function of
resources in the economy. Waste from factories would become a valuable input
to another process – and products could be repaired, reused or upgraded instead
of thrown away.
zz In a world of high and volatile resource prices, a CE offers huge business
opportunities. Pioneering companies are leading the way on a CE, but to drive
broader change it is critical to collect and share data, spread best practice, invest
in innovation and encourage business-to-business collaboration.
zz Policy-makers should focus on accelerating transition to a CE in a timescale
consistent with the response to climate change, water scarcity and other global
challenges. Smart regulation can reward private-sector leadership and align
incentives along the supply chain – for example, to deliver a step-change in
remanufacturing rates.
zz Resource consumption targets that reflect environmental constraints should be
considered at a global level. Coordination of national policies would help create
a level playing field across major markets, easing competitiveness concerns and
reducing the costs of implementation.
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A Global Redesign? Shaping the Circular Economy
Introduction
In the run-up to the United Nations Conference on
Sustainable Development (Rio+20) in June 2012, there
has been a renewed focus on pursuing meaningful action
to reduce resource and environmental pressures. Even
though many countries, including emerging economies,
can point to impressive environmental improvement in
the past two decades, the overriding global patterns of
production, consumption and trade remain dangerously
unsustainable.
There is increasing recognition that resource efficiency
and security are critical to future economic competitiveness
and resilience – for countries and companies alike.
This requires a fundamental rethink on the role and function
of resources in the economy. According to McKinsey,
cheap resources underpinned economic growth for much
of the 20th century, but in the last eight years prices have
returned to heights not seen since the 1900s – and barring
a major macroeconomic shock, they are expected to
remain high and volatile for at least the next 20 years.1
To
meet this new resource price reality, new forms of value
creation must be developed if the world is to maintain and
increase prosperity.
This paper explores the potential of a circular economy
(CE) as a model for industrial organization that will
help de-link rising prosperity from growth in resource
consumption. Central to the CE is the idea that open
production systems – in which resources are extracted,
used to make products and become waste after the
product is consumed – should be replaced by systems that
reuse resources and conserve energy. The paper explores
the concept of a CE, its key components, challenges and
opportunities, and the importance of international coop-
eration.
Moving towards the CE will require a paradigm shift
in the way things are made – putting sustainability and
closed-loop thinking at the heart of business models and
industrial organization. This has profound implications
for society, since ‘how we make things dictates not only
how we work but what we buy, how we think, and the way
we live’.2
The 20th century witnessed two great shifts in
systems of production. After the First World War, Ford
Motor Company and General Motors led global manufacturing
away from centuries of craft production into
the age of mass production. After the Second World
War, Toyota and other Japanese firms pioneered ‘lean
manufacturing’ systems and the just-in-time business
model: the ‘flexible production’ approach that rapidly
became a defining characteristic of the globalized
economy.3
One lesson from the shift to mass and flexible
production is that companies – and countries – can reap
enormous first-mover advantages. Mass production is
closely associated with the rise of the US economy in
the early 20th century, and flexible production with
the emergence of Japanese companies in the 1970s. A
second lesson is that systemic changes in the economy
can happen much faster than expected, once the benefits
	 1	 Dobbs, R., Oppenheim, J., Thompson, F., Brinkman, M. and Zornes, M. (2011), ‘Resource Revolution: Meeting the World’s Energy, Materials, Food, and Water
Needs’, McKinsey Global Institute, www.mckinseyquarterly.com/Energy_Resources_Materials/Environment/A_new_era_for_commodities_2887.
	 2	 Womack, J., Jones, D. and Roos, D. (1990), The Machine That Changed the World (Sydney: Simon and Schuster), p. 9.
	 3	 Ibid., p. vii.
‘At the global level, a CE
could help enable developing
countries to industrialize
and developed countries to
increase wellbeing and reduce
vulnerability to resource price
shocks – but without placing
unsustainable pressure on
natural resources and breaching
environmental limits
’
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A Global Redesign? Shaping the Circular Economy
of a new approach are successfully demonstrated by
pioneering firms. A third lesson is that a wide range
of factors influence – and are affected by – changes
in production systems: from technological pathways,4
resource prices and regulatory frameworks to the
reshaping of norms and values.5
At the global level, a CE could help enable developing
countries to industrialize and developed countries to
increase wellbeing and reduce vulnerability to resource
price shocks – but without placing unsustainable pressure
on natural resources and breaching environmental
limits. For companies, it offers a model of sustainable
growth fit for a world of high and volatile resource prices.
The economic potential is huge; a McKinsey analysis for
the Ellen MacArthur Foundation shows that if a subset
of the EU manufacturing sector adopted CE business
models, it could realize net materials cost savings worth
up to $630 billion per year by 2025.6
Defining a ‘circular economy’
The notion of a circular economy has its roots in industrial
ecology, a theory first developed by environmental
academics in the 1970s and still used today.7
It involves
remodelling industrial systems along lines of ecosystems,
recognizing the efficiency of resource cycling in the
natural environment.8
In today’s economy, natural resources are mined and
extracted, turned into products and finally discarded.
While the recycling of waste and measures to improve
efficiency can both help to reduce the need for extraction
of raw materials, this remains a fundamentally open, linear
system, and one likely to place unsustainable demands on
the environment in the medium term.
In a CE, the resource loop would be closed,9
so that
large volumes of finite resources (metals and minerals, for
example), are captured and reused.10
Other products can
be made from plant-based materials that biodegrade into
fertilizer at end of their life. Extending this logic across
the economy means a deep change in the basic structures
of industrial systems. In terms of energy, redesigning
industry at the system level would enable efficiency
improvements that ‘far outweigh potential savings from
improving the energy efficiency of industrial processes’.11
The remaining energy needed for a CE would be provided
by renewable sources.
Despite growing interest in the link between resource
efficiency and competitiveness, the term ‘circular
economy’ is applied inconsistently by governments and
companies – and awareness of the concept is relatively
low. Developing a common understanding of CE and its
key components would help to lay the groundwork for
wider take-up of the concept, encourage cooperation and
avoid confusion.
For example, in China, the CE is defined in legislation
as a generic term for reducing, reusing and recycling activities
conducted in the process of production, circulation
and consumption.12
In the 12th Five-Year Plan (2011–15),
the priority is a shift from the resource (primarily energy
	 4	 Arthur, W.B. (2011), ‘The Second Economy’, McKinsey Quarterly, October, www.mckinseyquarterly.com/The_second_economy_2853.
	 5	 For example, economic historians and institutional economists have emphasized the differences in the organization and dynamics of social systems of
production in the United States, Germany and Japan. See Hollingsworth, J.R. and Boyer, R. (eds) (1997), Contemporary Capitalism: The Embeddedness of
Institutions (Cambridge University Press).
	 6	 Ellen MacArthur Foundation (2012), ‘Towards the Circular Economy: Economic and Business Rationale for an Accelerated Transition’, www.thecircu-
lareconomy.org.
	 7	 These academics also drew on parallel developments in ecology, systems theory and the nascent global environment movement in that period. The systems
theory dimension to CE has even earlier roots, going back to the 1950s. For example, Von Bertalanffy noted that ‘a system is characterized by the interactions
of its components and the nonlinearity of those interactions’: Von Bertalanffy, L. (1950), ‘An Outline of General System Theory’, British Journal for the
Philosophy of Science, Vol. 1, pp. 139–64.
	 8	 See, for example, Graedel, T.E. and Allenby, B.R. (1995), Industrial Ecology (Englewood Cliffs, NJ: Prentice Hall).
	 9	 The terms ‘closed loops’ and ‘cradle to cradle’ were used as early as 1976 by Walter Stahel, considered one of the key industrial ecology thinkers. See for
example Stahel, W. (1981), Jobs For Tomorrow: The Potential for Substituting Manpower for Energy (New York: Vantage Press).
	 10	 Huber, J. (2000), ‘Towards Industrial Ecology: Sustainable Development as a Concept of Ecological Modernization’, Journal of Environmental Policy and
Planning, October–December 2000, Vol. 2, No. 4, pp. 269–85.
	 11	 Clift, R. and Allwood, J. (2011), ‘Rethinking The Economy’, The Chemical Engineer, March.
	 12	 This translation is via the China Environmental Law website, www.chinaenvironmentallaw.com/wp-content/uploads/2008/09/circular-economy-law-cn-en-final.pdf.
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A Global Redesign? Shaping the Circular Economy
and water) efficiency of heavy industries to recycling of
metals and minerals and remanufacturing of products,
especially the exchange of materials between companies.13
This is intimately linked to the upgrading and reorganization
of China’s industry to boost competitiveness, and to
its wider development strategy.14
Other countries have generally not used CE terminology
to date, but it is important to note that China’s approach
is partly derived from policies and approaches adopted
in other countries, notably Germany and other European
countries, as well as Japan. For example, China puts
‘cleaner consumption and production’ principles and the
‘3Rs’ of reduce, reuse and recycle at the heart of its CE
policy. These terms are widely applied in other countries.
Implementingcirculareconomyconcepts
Three decades on, several factors lie behind the resurgence
of optimism around the circular economy. First, as
noted above, the CE offers new forms of value creation
appropriate for a world of high and volatile resource
prices. Second, innovation in key areas such as information
technology and advanced materials have opened up
avenues that were previously unavailable, including the
ability to track and optimize the use of resources along
global supply chains. Third, many governments have
become more active in their support for high-tech manufacturing
industries and in policies related to resource
efficiency.
Yet in practice, scaling up the concept of a CE raises
political economy questions that were not historically
the focus of thinking in this arena and are only starting
to be explored. For example, which types of firms,
sectors and regions stand to gain from the shift to a
circular economy? Crucially, what are the immediate
opportunities for countries seeking to stimulate their
economies in a time of crisis? And how can countries
ensure that the circular economy remains open and
competitive?
The EU has agreed a strategy for ‘a resource-efficient
Europe’ under its ‘Europe 2020 Strategy’15
and introduced
an initiative to address raw-materials security.16
Relevant country strategies include the National
Resource Efficiency Programme in Germany17
and the
proposed ‘materials roundabout’ – a hub for the highgrade
recycling of materials and products – in the
Netherlands.18
In the United Kingdom, the environmental
think tank Green Alliance has produced one of
the most detailed studies of the CE to date, focusing on
economic instruments and raw-materials security. It
proposes, for example, product standards and a ‘recovery
reward’ for metals.19
	 13	 See the report of the Low Carbon Industrialization Task Force (2011), established under the China Council for International Cooperation on Environment and
Development.
	 14	 See Guo Qimin, Circular Economy Development Division, Department of Resource Conservation and Environmental Protection, NDRC China, ‘The Ideas of
the Development of a Circular Economy in the “Twelfth Five-Year Plan” of China’, presentation given at the United Nations Centre for Regional Development
(Third Meeting of the Regional 3rd Forum in Asia), www.uncrd.or.jp/env/spc/docs/3rd_3r/PS5-2_NDRC-China_Guo%20and%20Li-new.pdf.
	 15	 European Commission (2011), ‘A Resource-efficient Europe – Flagship Initiative under the Europe 2020 Strategy’, http://ec.europa.eu/resource-efficient-
europe/pdf/resource_efficient_europe_en.pdf.
	 16	 See European Commission website, http://ec.europa.eu/enterprise/policies/raw-materials/.
	 17	 Press release on BMU website: ‘Röttgen: Germany aims to become world champion in resource efficiency’, 12 October 2011, www.bmu.de/english/current_
press_releases/pm/47870.php.
	 18	 Han van de Wiel (2011), ‘The Netherlands as materials roundabout’, Waste Forum special edition, January, http://www.wastematters.eu/uploads/media/
The_Netherlands_as_materials_roundabout.pdf.
	19	 Hislop, H. and Hill, J. (2011), ‘Reinventing the Wheel: A Circular Economy for Resource Security’, Green Alliance, www.green-alliance.org.uk/grea_p.aspx?id=6044.
‘Developing a common
understanding of a CE and its key
components would help to lay
the groundwork for wider take-up
of the concept, encourage
cooperation and avoid confusion
’
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A Global Redesign? Shaping the Circular Economy
The use of the term ‘circular economy’ by companies has
naturally tended to emphasize the engineering and design
challenge for the relevant industry. For example, it is widely
adopted by large waste-management companies based in
the EU, including SITA UK,20
Veolia Environment21
and
the van Gansewinkel Groep.22
Many companies and organizations
have implemented policies that are consistent with
a CE, often using different terminology.
The next three sections set out the components that
will help shape progress towards the CE. The first tackles
the redesign of industrial systems at the system level, and
particularly the role of heavy industries. The second covers
the principle of ‘cradle to cradle’ production, focusing on
the need to redesign products. The third considers how
changing patterns of consumer behaviour might help
determine future resource pathways.
Redesigning industrial systems
A major reorganization of global industrial systems will
not happen overnight. In the meantime it is critical to
avoid further lock-in to resource-intensive industrial
systems and infrastructure. Owing to the size and scope of
economic transformation in emerging economies, choices
made in these countries in the next few years will help
shape global resource and carbon pathways for decades.23
There is a window of opportunity to avoid replicating
the resource-intensive production models of developed
countries and ‘leapfrog’ to a more sustainable mode of
development.
To reach higher levels of resource productivity, the
deployment of efficient technology needs to be
complemented by systemic and structural changes in
industry.24
For heavy industry, part of the solution is to use
the ‘waste’ stream from one factory as a resource for other
companies or consumers,25
resulting in a local system
based on multiple closed loops – sometimes called the
‘waste equals food’ principle.26
For this to work, physical co-location of factories is
often required so that linking infrastructure becomes
practical. For example, using waste heat for district
heating systems is most cost-effective where the heat
source is close to the customer, minimizing the cost
of pipes and insulation as well as heat loss. Proximity
can also produce significant positive effects on the
rates of formation of new firms and firms’ productivity,
innovation, profitability and growth, according
to the Organisation for Economic Co-operation and
Development (OECD).27
	 20	 SITA UK (2011), ‘Achieving the vision of no more waste: engaging in the circular economy’. www.sita.co.uk/downloads/SITAUK-nmw-vision-web.pdf.
	 21	 Veolia Environment (2010), ‘Recycling: between market regulations and environmental imperatives’, www.veolia-environmentalservices.com/veolia/ressources/
files/1/912,Galileo5_Anglais_KQ-1.pdf.
	 22	 Van Gansewinkel Groep (2011), Company press release: ‘CEO Ruud Sondag: Give products a raw materials passport’, 1 October, www.vangansewinkelgroep.
com/en/company/news/sonda_scarcity_recycling.aspx.
	23	 Lee, B., Froggatt, A. et al. (2007), Changing Climates: Interdependencies on Energy and Climate Security for China and Europe (Chatham House/E3G).
	24	 See the report of the Low Carbon Industrialization Task Force (2011), established under the China Council for International Cooperation on Environment and
Development, www.cciced.net.
	 25	 Frosch, R. A. and Gallopoulos, N. E. (1989), ‘Strategies for Manufacturing’, Scientific American, Vol. 189, No. 3, p. 152, www.is4ie.org/resources/Documents/
Strategies_For_Manufacturing_Sci_American_1989.pdf.
	 26	 Hawken, P. (1994), The Ecology of Commerce (New York: HarperCollins).
	 27	 Davis, C., Arthurs, D. et al. (2006), ‘What Indicators for Science, Technology and Innovation Policies in the 21st Century?’ (Ottawa: OECD), www.oecd.org/
dataoecd/22/18/37443546.pdf.
‘There is a window of
opportunity to avoid replicating
the resource-intensive
production models of developed
countries and “leapfrog” to
a more sustainable mode of
development
’
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A Global Redesign? Shaping the Circular Economy
Along these lines, eco-industrial parks were developed
in North and South America, Southeast Asia, Europe and
southern Africa during the 1990s, often drawing on the
example of Kalundborg in Copenhagen.28
At Kalundborg,
heat and other waste from a coal power station is used
as a feedstock for fertilizer and plasterboard as well as
heating local homes. The economic, resource, cultural and
regulatory environment that led to success at Kalundborg
has been much studied but has often proved difficult to
replicate.
Today, China is giving a renewed boost to the ecoindustrial
park concept. The 12th Five-Year Plan states
that China will ‘plan, construct and renovate various kinds
of industrial parks according to the requirements of the
circular economy.’29
Figure 1 shows how steel companies
in Tianjin have formed an intricate network with other
local companies ranging from cement to automobile
manufacturing.
Some aspects of integrated process design are already
well established in large process industries such as petrochemicals
and integrated iron and steel works. In these
circumstances, the process design, although complex
from an engineering perspective, is relatively simple from
an organizational perspective because the processes are
often on a single (albeit large) site, and often under the
ownership of one or only a few companies. Spreading this
type of practice to a more diverse set of industrial sectors
involving many different companies may in principle
be only slightly more challenging from an engineering
point of view, but can be much more challenging from an
organizational perspective.30
Up to now, most eco-industrial parks have exhibited
energy and resource efficiency savings, but they have
rarely challenged the fundamental patterns of production
and consumption. The next generation of eco-industrial
parks could move beyond industrial symbiosis towards a
	 28	 Lowe, E. (2001), Eco-industrial Park Handbook for Asian Developing Countries (Asian Development Bank); Desrochers, Pierre (2001), ‘Eco-Industrial Parks:
The Case for Private Planning’, The Independent Review, vol. V, no. 3, pp. 345–71.
	 29	 Guo, Q. and Li, J. (2011), ‘The Ideas of the Development of a Circular Economy in the “Twelfth Five-Year” Plan of China’ (Department of Resource
Conservation and Environmental Protection, NDRC, China), www.uncrd.or.jp/env/spc/docs/3rd_3r/PS5-2_NDRC-China_Guo%20and%20Li-new.pdf.
	 30	 Blyth, W. (forthcoming), ‘Systems Change and Innovation for Low-Carbon Industrial Transformation’, Chatham House.
Cement company
Coke chemical
company
Tianjin iron and
steel company
Tianjin steel pipe
company
Construction
material company
Toyotsu resource
management
company
Auto part
manufacturer
Concrete company
Dongli WWTP
Construction
material company
Blast furnace slag
WastewaterSteam Steam
Steel billets
Wastewater
Iron scraps
Iron
scraps
Iron scraps
Steel-making slag
Steel slag
Fly ash
Slag
Red ash
Figure 1: Industrial ecosystem in Tianjin
Source: China Joint Research Center for Industrial Ecology (2008), ‘Uncovering Industrial Symbiosis in Tianjin Region’ (Yale University), http://is4ie.org/
resources/documents/tianjin%20IS%20Spring%202008.pdf.
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A Global Redesign? Shaping the Circular Economy
broader vision of green industrialization, incorporating
global supply chains and a network of industrial zones.
These parks could also demonstrate the shift away from
fossil fuels and towards sustainably sourced inputs. The
opportunities for heavy industries in the CE could be
demonstrated not just through efficiency savings, but
through providing high-value products for use in cleantechnology
manufacturing and associated infrastructure.
Cradle-to-cradle production
In their book Cradle to Cradle, William McDonough and
Michael Braungart make the case for turning the industrial
economic model that ‘takes, makes and wastes’ into
a sustainable system that can be a ‘creator of goods and
services that generate ecological, social and economic
value’.31
The aim of cradle-to-cradle approaches is highly
ambitious: to create products that make money and not
only avoid harming the environment and society but have
a positive impact on both.
The CE would mean a radical shift in how materials
are used throughout the economy. With the right incentives,
innovation will deliver more sustainable materials
– plastics, for example, would increasingly be derived from
plants rather than fossil fuels. Nanotechnology and biotechnology
have the potential to deliver materials with increased
strength, reduced weight and other useful properties. At the
end of the product’s life these materials would biodegrade
or could be easily separated so that they could be reused.
Key strategies for increasing the ‘circularity’ of resource
flows include switching to longer-lasting products, modularization
and remanufacturing, component reuse, and
designing products with less material.32
Under these
processes, products can undergo a variety of changes.
Table 1 presents the options for reuse and recycling.
	 31	 Mcdonough, W. and Braungart, M. (2002), Cradle To Cradle: Remaking The Way We Make Things (San Francisco, CA: North Point Press).
	 32	 Allwood, J., Ashby, M., Gutowski, T. and Worrell, E. (2011), ‘Material Efficiency: A White Paper’, Resources, Conservation and Recycling 55, pp. 362–81,
www.fraw.org.uk/files/economics/allwood_2011.pdf.
Structural Change Description of recycling process Examples Type of recycling
No change The product is transferred from
one application to another.
Reuse of bottles, second-hand sales of books and clothing,
modular construction/deconstruction.
Direct reuse
Superficial Changes are made to the surface
of the product only.
Toner removal from paper, refurbished cardboard boxes
(label/print/tape removal), molten-salt processing, thermal
cleaning, ultrasonic sound waves, non-abrasive blasting media.
Deformative Alterations are made to the form
of the product without addition or
subtraction of material.
Bending metal beams, reforming steel columns, re-folding
of cardboard boxes, re-rolling of steel plate (Indian ship
salvage).
Non-destructive recycling
Subtractive Material is removed from the
original product.
Dye-cutting of used cardboard, removal of oxide coating,
cutting new shapes from used steel plate.
Additive Products are joined together e.g.
by welding or gluing.
Cold bonding of aluminium, welding processes (selective
recasting, friction welding, laser cladding, wire-arc spraying),
gluing of plastics/paper.
Destructive Breaking down a material so
it can be used as feedstock in
conventional production processes.
Melting of plastics and metals, re-pulping of paper/board. Conventional recycling
Table 1: Types of material reuse
Source: Allwood, J., Ashby, M., Gutowski, T. and Worrell, E. (2011), ‘Material Efficiency: A White Paper’, Resources, Conservation and Recycling 55, Table 3.3,
www.fraw.org.uk/files/economics/allwood_2011.pdf.
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A Global Redesign? Shaping the Circular Economy
Making a radical change to product design and business
models is a big step for any company, and one that
will only be widely replicated if it leads to commercial
success. There are few examples of companies that have
fundamentally shifted their approach to value creation,
but many firms are experimenting with cradle-to-cradle
practice, some examples of which are provided in Box 1.
The private sector provides the majority of investment
in innovation in many countries, but the policy environment
set by governments can be critical in accelerating the
time it takes for breakthroughs in materials science and
product design to reach the mass market. More evidence
is also needed on how the transition to CE practice affects
company performance, investment decisions, innovation
and employment. McKinsey have argued that the most
profitable opportunities lie in products with a medium life
span – longer than a single use but short enough for reuse
and remanufacturing to be attractive.33
Desso, a major Dutch carpet manufacturer, announced
in 2010 that it would transform itself into a cradle-tocradle
company by 2020 – meaning that all the raw
materials it uses should be free of toxic chemicals, designed
for easy disassembly and capable of being recycled or
composted. According to Desso’s CEO, the strategy has
delivered increased profit margins despite the global
economic crisis, indicating that customers are already
willing to pay a premium for the greener product lines.
Moreover, in three years the price premium will be no
more than 5% over the traditional approach, down from
15% today.34
The Japanese electronic firm Kyocera was an early
pioneer of refillable toner cartridges. The company says
that conventional cartridges can have over 60 parts made
from numerous materials – and are typically thrown away
at the end of their life. Instead, it produces much simpler
cartridges that can be easily refilled. Over the lifetime
of the product this saves money because the materials
cost is reduced by 50% (while waste is down by 90%).
However, despite its efforts over the past two decades,
Kyocera admits it has struggled to displace the conventional
business model. The reason is that buying decisions
are often determined by the retail price of a printer and
not the lifetime cost, which includes the cost of toner and
maintenance.35
Such approaches require systemic changes that go
beyond the individual firm. They must be embedded in
partnerships and networks of companies operating at
different points in the supply chain.36
Collaboration can
be important because companies need to synchronize
investments in innovation or new machinery and logistics
infrastructure, or because knowledge and skills need to be
brought together. It is not uncommon for companies to
have a clear understanding of how their direct suppliers
and customers operate, but a much weaker understanding
of points further down or above in the supply chain. To
address this key challenge, full use of new and emerging
technologies that enable information collection, analysis
and sharing between companies will be required.
	 33	 Ellen MacArthur Foundation (2012), ‘Towards the Circular Economy’ (note 6 above).
	 34	 Desso website, http://www.desso.com/Desso/EN; The Guardian, ‘Cradle to cradle: how Desso has adapted to birth of new movement’, 1 September 2011,
www.guardian.co.uk/sustainable-business/cradle-to-cradle-desso-carpet-tiles-innovation.
	 35	 Rawling-Church, T., Director of Brand at Reputation at Kyocera, talk given at conference on ‘Building Resilience: Resource Security and the Role of the
Circular Economy’, held at CBI, London on 12 December 2011.
	 36	 Socolow, R. et al. (1994), Industrial Ecology and Global Change (Cambridge University Press).
‘McKinsey have argued that
the most profitable opportunities
lie in products with a medium
life span – longer than a single
use but short enough for reuse
and remanufacturing to be
attractive
’
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A Global Redesign? Shaping the Circular Economy
Major global companies have considerable influence over
their suppliers, sometimes thousands of them, who can be
affected by a change in policy. If such companies took a
serious step towards cradle-to-cradle approaches the impact
would be felt across the economy. Walmart, for example, has
over 100,000 suppliers and has a long term goal of creating
zero waste, selling products that sustain people and the environment,
and being supplied 100% by renewable energy.37
	 37	 Walmart website, http://walmartstores.com/Sustainability/.
Box 1: Companies and products engaged in cradle-to-cradle activities
Electronics: Philips has a target for 2012 that 30% of its revenue should come from green products. The next phase
of its innovation programme aims to ‘close the materials loop’, with a target of doubling global collection, recycling
amounts and recycled materials in products by 2015 compared with 2009.
Carpets: Desso is aiming to fully implement cradle-to-cradle processes by 2020. The company already processes old
tiles, separating the yarn, which goes to one of its suppliers. This supplier has itself invested in a de-polymerization
facility and then makes new yarn from the waste. For tiles that still include bitumen, that material is separated and
goes into road repairs and cycle paths, or serves as raw material for the cement industry.a
Construction: The industrial equipment provider Caterpillar has for 30 years offered remanufacturing for a range of
industrial products from earth-moving machines to water pumps. The company claims that remanufacturing saved
59,000 tonnes of steel, 91 metric tonnes of cardboard and over 1,500 tonnes of wood products in 2010. End-of-life
parts have a return rate of over 90%.b
Automobiles: Renault vehicles with the eco² mark are designed so that 95% of their mass can be recovered at
end-of-life to be reused or recycled. In 2004, Ford introduced a concept car called the Model U that showed the
opportunities for modular, layered design, simplified engineering processes and other techniques that help enable
remanufacturing and repairs.
Clothing: Patagonia has established its ‘common threads initiative’. The company promises to make durable
products and to repair faults quickly but also enables customers to fix minor damage. Franz Koch, CEO of clothing
manufacturer Puma, says that his company will be the first to bring to market training shoes, T-shirts and bags that
are either compostable or recyclable.
Waste: Waste management companies Veolia Environment, SITA UK and the van Gansewinkel Groep have introduced
strategies that aim to enhance source-separation of materials. TerraCycle, a company that organizes the collection of
waste from households and ‘upcycles’ them into more valuable products, grew by over 100% per year since its inception
in 2001 to $16 million revenue in 2010, the year in which it also started to turn a profit.c
a 	 Centre for Remanufacturing and Reuse, www.remanufacturing.org.uk/reuse-repair-recycle.lasso?-session=RemanSession:3EFDC4B21b3fb0D8DCoSY32D3BF1.
b 	 Caterpillar (2010), ‘Sustainability Report’, http://www.caterpillar.com/cda/files/2838620/7/2010SustainabilityReport.pdf.
c 	 Szaky, T. (2011), ‘Choosing between profits and growth’, New York Times, 25 August, http://boss.blogs.nytimes.com/2011/08/25/choosing-between-
profits-and-growth/.
Sources: company websites.
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Although in general it makes sense to prioritize the
reduction in the use of resources and the reuse of products,
in some cases it will remain more practical and
efficient to recycle or compost the product after one or
more uses. Experience in China suggests that using waste
steel in steelmaking requires 60% less energy than making
primary steel from iron ore.38
One key issue is how to
extract relatively small amounts of key materials such as
metals and minerals from electronic goods. Even if the
component containing this material cannot be directly
reused, with good product design and an appropriate
waste stream it can be extracted and recycled without
significant degradation of its material quality.
The opportunities are huge if technical barriers could
be overcome. For example, a tonne of ore from a gold
mine produces just five grams of gold on average, whereas
a tonne of discarded mobile phones can yield up to
150 grams.39
Tailings ponds (containing the waste from
metal processing) and landfill sites are similarly rich in
useful material.
Today, the recycling of many materials does not occur
because it is uneconomical relative to the production of
virgin material. With incentives that encourage careful
planning all the way from the product design stage to the
consumer, the economics of recovery and reuse could be
transformed. Jane Jacobs predicted in 1969 that ‘cities will
become huge, rich and diverse mines of raw materials’.40
Such approaches could allow companies to sustain large
high-grade ore deposits in the ‘urban mine’ practically
indefinitely – a fact that is highly relevant in a world where
the discovery of large ore bodies is becoming increasingly
rare and ore grades have been declining for decades.
Towards collaborative consumption
According to the UN Environment Programme, the
amount of minerals, ores, fossil fuels and biomass
consumed globally per year could triple between
today and 2050 unless a way is found to decouple
economic growth from the rate of consumption of
natural resources.41
Global energy consumption doubled
between 1800 and 1900 but grew over twenty times in
the 20th century, according to BP;42
it is set to grow by a
further 50% by 2030 under business-as-usual scenarios,
according to the according to the International Energy
Agency. Global growth in water demand is also set to
increase by 50% over the same period compared with
current demand.43
While developed countries remain responsible for
the lion’s share of global consumption, the increases in
demand in recent years have been fuelled by changing
lifestyles and population growth in industrializing countries.
In addition, these countries are going through a
highly resource-intensive phase of infrastructure devel-
opment.
There is growing interest in changes to consumption
patterns that could help shift global resource trajectories
away from ‘business as usual’. In terms of the
CE, a key demand-side issue is the extent to which
resource efficiencies can be achieved by the sharing and
recycling of products by consumers. Concepts such as
‘collaborative consumption’ or the ‘sharing economy’44
are based on the observation that conventional ownership
is being replaced in some parts of the economy
by ‘sharing, bartering, lending, trading, renting [and]
gifting’.45
Companies such as Ebay and Craigslist and
	 38	 See the report of the Low Carbon Industrialization Task Force (2011), established under the China Council for International Cooperation on Environment and
Development, www.cciced.net.
	 39	 Yoshikawa, M. (2008), ‘Urban miners look for precious metals in cell phones’, Reuters, www.reuters.com/article/2008/04/27/us-japan-metals-recycling-
idUST13528020080427.
	 40	 Jacobs, J. (1969), The Economy of Cities (New York: Random House).
	 41	 Fischer-Kowalski, M. et al. (2011), ‘Decoupling Natural Resource Use and Environmental Impacts from Economic Growth’, UNEP, www.unep.org/resource-
panel/decoupling/files/pdf/decoupling_report_english.pdf.
	 42	 BP (2011), Energy Outlook 2030.
	 43	 2030 Water Resources Group (2009), ‘Economic Frameworks to Inform Decision-making’, available at www.mckinsey.com/App_Media/Reports/Water/
Charting_Our_Water_Future_Exec%20Summary_001.pdf.
	 44	 Benkler, Y. (2004), ‘Sharing Nicely: On Shareable Goods and the Emergence of Sharing as a Modality of Economic Production’, 114 Yale Law Journal 273, http://
yalelawjournal.org/the-yale-law-journal/content-pages/sharing-nicely:-on-shareable-goods-and-the-emergence-of-sharing-as-a-modality-of-economic-production/.
	 45	 Botsman, R. and Rogers, R. (2010), What’s Mine is Yours: The Rise of Collaborative Consumption (New York: Harper Business), p. xv.
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A Global Redesign? Shaping the Circular Economy
organizations such as Freecycle were early enablers of
these processes, but now thousands of organizations and
companies are involved. Collaborative approaches are
also emerging in the design and production of products,
posing a potential challenge to orthodox manufacturing
practices (see Box 2).
According to Lisa Gansky:
For now, most businesses… stick to various twists on a
single tried and tested formula: create a product or service,
sell it and collect money... [but] a new model is starting to
take root – one in which consumers have more choices,
more tools, more information, and power to guide those
choices… [Such approaches] deploy physical assets more
efficiently. That boosts the bottom line, with the added
advantage of lowering pressure on natural resources.46
A switch away from standard ownership models can
fundamentally alter the relationship between producer
and consumer. Rental or pay-as-you-go contracts are now
an option for customers in sectors and activities where
a few years ago they barely existed. The ‘Collaborative
Consumption’ website47
provides hundreds of examples
in music and other media, household DIY equipment,
toys, textbooks, fashion and art. The proliferation of these
approaches is enabled by the internet, but it is also driven by
the desire to save money, by convenience, and by environmental
and social awareness. The model can be for-profit,
non-profit or a mixture of the two. These approaches are
also often associated with a specific community or location
even if they are part of a larger network.
Car-sharing is one example: there are now half a million
members of car-sharing schemes in North America (up
from 2,500 in 2000), who drive about 30% less than when
they owned a personal vehicle. In addition to dedicated
car-sharing companies such as Zipcar, automobile manufacturers
BMW, Volkswagen and Peugeot have launched
pilot schemes directly with consumers.48
In addition, the shift to digital services in some sectors
is creating many opportunities for savings in resources
and energy. Examples include the streaming of music and
films, teleconferencing and remote working.
A major incentive for companies to engage in all these
novel approaches is that they have the opportunity to
build a much closer and direct relationship with the
consumer. Customers may have a single account with a
company that allows them to access services, or they may
sign long-term contracts on a repair-or-replace basis (for
example, for a washing machine). In the latter case, this
creates a set of incentives for the company to supply more
reliable, durable and repairable goods.
Despite these interesting developments, resource
consumption continues to grow rapidly in areas that
may prove resistant to sharing models, especially where
these are linked to lifestyle, status and consumer fashion.
For example, personal electronic devices – which have
a key role in the sharing economy by facilitating online
exchange – themselves require ever-growing volumes of
metals and minerals to produce and energy to operate.
	 46	 Gansky, L. (2010), The Mesh: Why the Future of Business is Sharing (New York: Portfolio Penguin), p. 6.
	 47	 The examples used here are set out in detail on Rachel Botsman’s Collaborative Consumption website, http://collaborativeconsumption.com/.
	48	 Ibid.
‘A switch away from
standard ownership models
can fundamentally alter the
relationship between producer
and consumer. Rental or
pay-as-you-go contracts are
now an option for customers in
sectors and activities where a few
years ago they barely existed
’
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Measuring progress
Measuring progress towards a circular economy will involve
much more detailed mapping of how resources move within
the economy than there is now. Just as important are the
economic impacts of the CE along value chains at company
and sector level. Information technology has significantly
enhanced the ability to track both resource and value
flows, enabling companies to identify wasteful processes
along the supply chain and model new approaches. But
at national level – and for many smaller companies and
Box 2: A shift to collaborative production?
Sitting at the interface of information technology, machining and advanced materials-related innovation, ‘collaborative
design and production’ approaches have the potential to change the relationship between designers, producers and
consumers – and challenge the dominance of production-line manufacturing.
In the last few years it has become possible to ‘crowd-source’ the design process, harnessing the input of multiple
contributors in arrangements that can be relatively informal. A range of technologies and systems has emerged to
support crowd-sourcing, such as collaborative virtual environments, online software design tools and open-source
forms of intellectual property. Open innovation approaches that were first developed in software are now being applied
to the design of physical products.
Breakthroughs in digital design, automated manufacturing and materials innovation have opened up the landscape
of sustainability for designers, but they are part of an ongoing process. The linked evolution of digital and information
technology, computer-aided design and automation of machine tools revolutionized production processes in the
1960s, as the costs of computing started to fall. Rapid prototyping became possible in the 1980s, accelerating the
design process. Photography, scanning and other forms of remote sensing have enabled designers to model, mimic
and reshape designs observed in the environment more quickly and with greater accuracy. Automated machining today
allows complex 3D structures to be produced with relative ease.
3D printing, which produces physical objects by laying down multiple layers of powder, is one technology that could
take collaborative design to the next level. Already, it is being used by businesses for a range of applications – for
instance, to produce parts for Formula 1 racing vehicles, architectural models and surgical instruments. In the near
future it will be affordable to print objects in a matter of hours in the home or small enterprises – the most inexpensive
models are now priced at under $2,000. As the technology moves into the mainstream over the next few years, the
time and cost of prototyping and production at small volumes is likely to fall dramatically, accelerating and increasing
the scope for collaborative design. Goods could also be produced on demand in near real time and with much greater
flexibility than a conventional production line. A change in product size and colour, for example, requires only a couple
of clicks on a computer.
Much more work is needed on the broader implications of these new forms of production. Are they destined to be
a niche market, to produce parts that slot into existing lean manufacturing systems, or to pose a genuine challenge
to just-in-time mass production in the medium term? What are the implications for employment and competitiveness
if they start to gain traction? How should innovation policy evolve to reflect the new challenges and opportunities –
and what does collaborative production mean for intellectual property rights? The environmental implications of mass
uptake of 3D printing versus traditional approaches, in terms of resource, water and energy use, are currently unclear.
The additive approach of 3D printing wastes very little material compared with traditional methods, but it lacks economy
of scale and involves a switch in raw materials.
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A Global Redesign? Shaping the Circular Economy
organizations – poor availability, quality and consistency of
resource-related data remain significant obstacles.49
For heavy industry, adopting (and going beyond) best
available standards for resource consumption would
achieve huge savings. Energy intensity standards have been
proposed for China, for example, that would bring the
country in line with the most efficient developed countries
over the next ten years in key sectors.50
Similarly, one way
to capture progress towards a circular economy is the use
of ‘resource intensity’ targets: the total flows of resources
and total inputs and waste (adjusting for imports and
exports) divided by GDP.51
The link with GDP recognizes
that developing countries face different challenges as they
industrialize. However, one issue is how to reflect patterns
of consumption and production across different countries.
A number of key questions on the CE should be considered
when developing indicators at the national level.
First, what is the maximum volume of resources that can
be circulated sustainably – i.e. within safe environmental
limits? What are the key resources to focus on? How fast
should circulation occur? Slower resource flows – with
very durable products – might have a lower environmental
impact in the short term, but faster flows might enable
growth and encourage green innovation. Does a CE imply
an ultimate limit to growth in the economy, or can value
addition continue indefinitely? In some cases circulation
would occur at the local and regional scale, while in other
cases the optimization of global systems may be necessary.
Towards international cooperation
At the 2002 World Summit on Sustainable Development in
Johannesburg, the world’s leaders recognized that ‘changing
consumption and production patterns, and protecting and
managing the natural resource base for economic and social
development are overarching objectives of, and essential
requirements for sustainable development.’52
Since then,
the resource intensity of the global economy has decreased,
but rising population and changing lifestyles mean that
overall resource consumption continues to rise.53
What is
now required is transformative and systemic change, rather
than just incremental efficiency gains.
Negotiations on a 10-Year Plan of Action on Sustainable
ConsumptionandProduction(SCP)didnotproduceanagreement
at the meeting of the UN Commission on Sustainable
Development in May 2011, despite significant areas of agreement
on SCP between key countries and a number of useful
proposals.54
There remains an appetite for practical action
and cooperation on resources that can demonstrate the
economic benefits and growth potential of SCP.
Governments in crucial countries have already introduced
policies and strategies on resource efficiency
– driven by concerns over energy and resource security,
but also by escalating problems in managing waste and
pollution. The shared roots of policy frameworks for
resource efficiency in many countries suggest that a degree
of common understanding of some of the key principles
may already exist. China became the first country to adopt
specific legislation on the CE in 2002 and the concept
features prominently in its 12th Five-Year Plan. China’s
approach was in turn greatly influenced by Japanese and
German legislation on the ‘recycling economy’ in the last
two decades, such as Japan’s Basic Law for Establishing the
Recycling-based Society in 2000,55
and Germany’s Closed
Substance Cycle Waste Management Act of 1994.56
	 49	 For more on different types of critical information flows, see Tierry, M., Salomon, M., Van Nunen, J. and Van Wassenhove, L. (1995), ‘Strategic Issues in
Product Recovery Management’, California Management Review, Vol. 37, No. 2, Winter.
	 50	 See the report of the Low Carbon Industrialization Task Force (2011) (note 38 above).
	 51	 See Fischer-Kowalski et al. (2011).
	52	 Johannesburg Declaration on Sustainable Development, adopted at the 17th plenary meeting of the World Summit on Sustainable Development,
4 September 2002, www.un.org/esa/sustdev/documents/WSSD_POI_PD/English/POI_PD.htm.
	 53	 See Fischer-Kowalski et al. (2011).
	54	 According to analysis by IISD: ‘differences over references to new financial resources or rights of peoples under foreign occupation’ were responsible for the
lack of agreement on SCP. ‘Earth Negotiations Bulletin, Monday 7th March 2011’, p. 13, http://www.iisd.ca/download/pdf/enb05304e.pdf.
	55	 Japan’s Basic Law for Establishing the Recycling-based Society, an update of an earlier 1991 law, www.env.go.jp/recycle/low-e.pdf.
	56	 Gordon Davis, G. J. D. and Hall, J. A. (2006), ‘Circular Economy Legislation: The International Experience’ (Washington, DC: World Bank), http://siteresources.
worldbank.org/INTEAPREGTOPENVIRONMENT/Resources/CircularEconomy_Legal_IntExperience_ExecSummary_EN.doc.
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A Global Redesign? Shaping the Circular Economy
In the wake of the international financial crisis and
economic downturn there is also renewed interest in
green manufacturing as a driver of economic growth. This
is reflected in strengthened industrial strategies in, for
example, the United States, the EU, Japan and China.57
The EU’s resource efficiency strategy states that it should
be a central element of EU external relations. It also notes
that key partners are making major steps in this area and
that the EU must further increase its work to bolster its
competitive advantage.58
For its part, China has proposed
cooperation with South Korea and Japan on the green
economy and CE.59
These could be the building blocks for
developing a way forward.
Further international cooperation is important for
progress on the CE because trade in waste and resources
is rising and supply chains for many products today
involve multiple countries, so that separate domestic
policies can only address part of the problem. Key
technologies will need to spread across borders and
be adapted to local needs. Coordination of national
policies in key areas and standardization could help
to create a level playing field across major markets,
easing competitiveness concerns and reducing the costs
of implementation for business. It would also create
larger markets and investment opportunities.
Barriers to implementation
Widespread implementation of circular-economy
approaches would require profound changes in industrial
practice and patterns of consumption. This will inevitably
create winners and losers, not least in areas where heavy
industries and resource production are concentrated.
Some of the greatest barriers to implementing a circular
economy are set out below.
Lock-in to resource-intensive infrastructure and
development models
The traditional development model is driven by heavy
industrial growth and resource-intensive infrastructure.
While governments in the emerging economies recognize
that a less resource-intensive model of development
is needed, there are no off-the-shelf models for them
to follow. The physical infrastructure of international
production, consumption and trade is highly dependent
on fossil fuels and geared to once-through manufacturing
models.
Political obstacles to putting an appropriate price on
resource use
For the market to respond effectively, subsidies that
encourage excessive use of resources will need to be
removed and all ‘externalities’ should be incorporated into
the price of resources and energy.60
China, for example,
is introducing a range of measures on resource pricing
under its 12th Five-Year Plan. But experience from
environmental policy-making over decades suggests that
regulations with deep systemic impacts – notably carbon
pricing – can be frustrated and weakened by specialinterest
groups.
	57	 The United States launched a ‘Strategy for American Innovation: Driving Towards Sustainable Growth and Quality Jobs’ in September 2009; the EU adopted
‘Europe 2020: A Strategy for Smart, Sustainable and Inclusive Growth’ in June 2010; Japan announced details of its ‘New Growth Strategy by 2020’ in June
2010 and approved it in January 2011; China’s 12th Five-Year Plan was launched in 2011.
	58	 European Commission (2011), ‘A Resource-efficient Europe’ (note 15 above).
	59	 Xinhua (2011), ‘Wen presents proposal for economic cooperation with Japan, S. Korea’, 23 May, http://news.xinhuanet.com/english2010/china/2011-
05/23/c_13888422.htm.
	 60	 Hawken, P., Lovins, A. and Lovins, L.H. (1999), Natural Capitalism: Creating the Next Industrial Revolution (New York: Little, Brown and Company).
‘International cooperation is
important for progress on the
CE because trade in waste and
resources is rising and supply
chains for many products today
involve multiple countries
’
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A Global Redesign? Shaping the Circular Economy
High up-front costs
At the macro level, a successful CE would foster growth
and reduce vulnerability to resource-price shocks. But in
the short term, there will inevitably be significant up-front
investment costs and risks for businesses – e.g. retooling
machines, relocating whole factories, building new distribution
and logistics arrangements, and retraining staff.
Attempting to transform a company’s core business model
is a risky task in itself and a strong business case will be
needed. Clear, strong and predicable policy frameworks
will be crucial to encourage investment and experimenta-
tion.
Complex international supply chains
Production and consumption often take place in different
countries with inputs from multiple companies around
the world. In a CE, supply chains may have to be
reorganized so that information and material flow in both
directions to facilitate reuse and remanufacturing. A key
question is how to align incentives throughout the supply
chain so that, from the design stage to customer engagement,
companies actively consider the use of sustainable
materials and features such as durability and reparability
at the core of their product strategy.
Lack of consumer enthusiasm
For companies to benefit from the green premium associated
with cradle-to-cradle products, consumers will need
to understand and value what the concept represents. To
reach the mass market, a product certification or labelling
system may be needed, like those which have been introduced
for energy and carbon. Key barriers include the lack
of standardization of methodologies applied in different
countries, the cost of assessing resource consumption
for individual firms, and the absence of a widely recognized,
independent organization to award certification on
resource efficiency or a CE.
Challenges for company-to-company cooperation
Incorporating CE practices can require multiple
companies to adjust their operations. This may entail
a complicated network in which suppliers are ready to
provide all the necessary inputs and ensure that infrastructure
requirements are in place for logistics, with a
diversified set of end markets for recovered materials.61
Companies face several hurdles in going down this
route. There are potentially large transaction costs and
delays in negotiating with partner companies. Some
larger retailers are already well-practised in pushing
norms and standards down supply chains; in other
cases companies have longer-term relationships with
suppliers.
These cooperative arrangements may touch on fundamental
commercial concerns such as the choice of
business models, market intelligence and brand positioning.
Paradoxically, these pressures could become
more acute in the transition to a CE, since the resource
would increasingly be associated with the core business
model. As John Barton has observed, businesses are
more likely to collaborate where they do not directly
compete (for instance, electricity distribution companies
that operate in separate areas) or if they focus on
different sectors.62
The innovation challenge
Technology has been at the centre of the dramatic change
in manufacturing and industry in the 20th century.63
It is
critical that new breakthroughs in materials science labs
and product design studios rapidly find their way into the
mass market, so that transition to the CE can contribute
to tackling climate- and water-related goals in the necessary
timeframe. To optimize global supply chains, smart
infrastructure and tracking technology will need to spread
across the emerging economies and other developing
countries.
	 61	 WRAP (2010), ‘Realizing the Value of Recovered Paper: An Update’, www.wrap.org.uk/downloads/WRAP_Paper_market_situation_report_Feb2010.352
64b17.8440.pdf.
	 62	 Barton, J. (2007), ‘IP and Climate Technology’ (Chatham House), www.chathamhouse.org/sites/default/files/public/Research/Energy,%20Environment%20
and%20Development/161107_ipclimate.pdf.
	63	 Arthur (2011), ‘The Second Economy’, McKinsey Quarterly.
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A Global Redesign? Shaping the Circular Economy
Information-sharing along the supply chain and with
other companies can raise questions about information
security and competitiveness. In a world with sustained,
high resource prices, the management of resource flows
is likely to increase the importance of protecting intellectual
property related to resource efficiency. In addition,
practical arrangements will be needed for the shared intellectual
property arising from multi-partner activities.
Practical steps forward
There are several practical steps that could be taken by countries
and companies in the pursuit of a circular economy.
Best practice and knowledge-sharing
Companies with commitments to the CE or related
concepts are already explaining the benefits to the industry
and investors. Industry bodies can play a key role in
facilitating dialogue between leaders on a CE and other
companies that stand to gain from making the transition.
Cross-sectoral hubs and networks are likely to be important
since systemic CE solutions, almost by definition,
involve multiple sectors. As yet there is little evidence, for
example, of discussions between online companies at the
cutting edge of collaborative consumption and the major
heavy industries.
Companies will take the lead on translating CE concepts
into practical and profitable business models, but may
need practical support in key areas. For example, clear
metrics that are affordable to implement would help to
encourage the participation of small and medium-sized
businesses. Small businesses will also need guidance in
areas such as the recovery, reuse and remanufacture of
goods and materials.
Table 2: Smart regulations
a 	 A reward scheme was proposed by the Green Alliance. See Hislop. H. and Hill, J. (2011), Reinventing the Wheel: A Circular Economy for Resource
Security (Green Alliance).
b 	 Examples include the EU’s Waste Electrical and Electronic Equipment Directive and End-of-Life Vehicles Directive, Japan’s Home Appliance Recycling
Law and End-of-Life Vehicles Recycling Law, and South Korea’s 2007 Act for Resource Recycling of Electrical and Electronic Equipment and Vehicles.
c 	 According to the European Commission (2011), ‘a major policy issue is the need for legal clarity for defining when reprocessed waste can be
reclassified as a product’: ‘Communication: Tackling the Challenges in Commodity Markets and on Raw Materials’.
Fiscal measures Pricing in the externalities associated with resources and encouragement of minimal resource use, waste and pollution.
Incentives for owners to put materials back into circulation – e.g. land-value taxes, value-extracted taxes and ‘recovery
rewards’.a
Removal of distorting subsidies on resources, energy and land.
End-of-life regulations These are already applied in countries including the EU, Japan and South Korea, especially for consumer electronics,
electrical equipment and vehicles. The focus should be on rates of remanufacturing and reuse.b
Just as important will be the removal of any unnecessary regulatory obstacles to the use of ‘waste’, remanufacturing and
new business models.c
‘Top runner’ standards Used in Japan since the 1970s and now proposed for China, the ‘top runner’ policy sets minimum average energy
performance standards for different product categories that tighten over time, encouraging innovation by manufacturers
and removing inefficient goods from the market. For a CE, this approach could be broadened across other resources and
adapted to ensure that the reuse and remanufacturing of products are incentivized.
Public procurement Obligations on public-sector agencies and government departments to purchase resource-efficient and cradle-to-cradle
products. In many countries this is a powerful lever for creating markets for more sustainable goods and encouraging
innovation.
Public support for
innovation
Policy is crucial in setting the framework to encourage private-sector investments in innovation, for example in new
materials or supply-chain resource tracking.
Addressing legal
frameworks
Review of the legal implications of company-to-company cooperation – e.g. anti-trust frameworks and data protection and
security.
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A Global Redesign? Shaping the Circular Economy
More data and analysis on the impacts of transition to a
CE are needed. Most of the academic and technical literature
on the CE focuses on environmental sustainability
rather than on value creation. To develop a powerful
business case requires analysis of the economic impact
of CE practice and business models at product and firm
level. Just as important, failures should be documented as
well as successes, to better understand the determinants of
company success.
Smart regulation
While much of the investment, innovation and practice
related to a CE will be led by the private sector, governments
have a crucial role to play in areas such as support
for innovation, setting the conditions for investment, and
encouraging business-to-business and business-to-university
linkages. The right mix of policies will vary according
to country and economic conditions – in particular, the
extent of market liberalization.
Some of the key options for smart regulation in the CE
are set out in Table 2.
Standardization
Technology standards can play an important role in
accelerating innovation in an industry, by removing
bottlenecks and encouraging economies of scale.
Standardization could be important in a number of
areas, from common protocols on smart infrastructure
to the replaceability of parts. There may be scope for the
formation of industry-level technology standards bodies
to set increasingly high standards, bring in the laggards
and accelerate diffusion.64
Technology standards bodies are industry associations
administering key technology standards on behalf
of the market. Typically the entrants will contribute
intellectual property for mutual use, which means
cross-licensing agreements are often part of these
associations. All members can use intellectual property
within agreed boundaries and may be required to
pay royalties into a common pool. Examples of such
technology standards bodies include the European
Telecommunications Standards Institute, which has
had an important role around the management of
GSM, GPRS, 3G, WiMax and other related standards;
and the Continua Alliance, which develops common
inter-compatibility standards for medical diagnostics
devices.65
The next generation of ideas
The innovators of the next decades are today’s school
pupils and university students, so ensuring they are given
the opportunity to learn technical and creative skills
required is essential.
The Centre for Low Carbon Futures, a university
membership organization based in the UK, has recently
launched an international Circular Economy Business
School Network. The aim is to inform curriculum development
in business schools around the world as they seek
to educate students in the new thinking surrounding the
CE, creating stronger links with the science and engineering
technologies required to address the business
challenges. One of the network’s members, the University
of Leeds, will provide a new executive MBA programme in
2012 focused on the CE.66
	 64	 Lee, B. et al. (2009), Who Owns Our Low Carbon Technology? (London: Chatham House), p. 61.
	 65	 Ibid., p. 7.
	66	 For a description of the Circular Economy Business School Network, see the Centre for Low Carbon Futures website, www.lowcarbonfutures.org/
projects/circular-economy.
‘A certification or labelling
system for CE products would
help to build awareness among
consumers, encourage rapid
uptake by companies and
reward leading companies
’
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A Global Redesign? Shaping the Circular Economy
Raising public awareness
A certification or labelling system for CE products would
help to build awareness among consumers, encourage
rapid uptake by companies and reward leading companies
(by allowing them to capture a green premium). A key
challenge is how to encourage adoption of consistent or
similar methodologies across countries.
Setting credible benchmarks
Targets on resource use could be established at global,
national and city levels. At the global level this could be
an absolute target. Resource intensity targets may be more
appropriate in the short term for the emerging economies.
As has been seen with carbon emissions, accounting for
resources used in imported and exported products is a key
political and methodological challenge when developing
national targets.
Countries and companies need metrics for processes
that go beyond incremental resource efficiency improvements
and capture more transformative actions,
including designing out waste and using sustainable
materials. While a credible technical approach is
crucial, international experience of developing ecoindicators
at national and city levels suggests that
the process for agreeing approaches will be equally
important to encourage widespread adoption of a
methodology.67
Support for developing countries
Many developing countries will need help with the
transition to a CE. Generating ‘new and additional’
resources from public funds may be challenging given
current economic conditions in developed countries,
but a range of existing environmental and low-carbon
funding facilities could support transformative actions
towards a CE. In addition, multilateral development
banks could target additional support towards CE
investments. Practical cooperation on technology,
systems and innovation in emerging markets should
be a priority. To this end, demonstration projects on
the CE could be established in key production centres
involving emerging-market and OECD companies,
with complementary regulatory actions in developed
countries.
Conclusion
The circular economy offers a transformational agenda
that aims to redesign global production and consumption
systems. Many of the ideas are decades old, but a combination
of environmental and resource price pressures,
technological advancements and changes in consumer
demand is finally building momentum. Both the private
sector and governments increasingly recognize that future
competitiveness will depend on leadership in resourcerelated
innovation.
Governments, cities and businesses could put action
on moving towards a CE at the centre of their Rio+20
agendas, including considering targets at the global and
national levels. The circular economy offers a strategy
for value creation, growth and competitiveness that will
become increasingly compelling against a backdrop of
high and volatile resource prices.
	67	 Pintér, L. (2006), International Experience in Establishing Indicators for the Circular Economy and Considerations for China: Report for the Environment
and Social Development Sector Unit, East Asia and Pacific Region (Washington, DC: World Bank), www.iisd.org/pdf/2006/measure_circular_economy_
china.pdf.
‘If circular economy practices
are to be rapidly scaled up, a
major push will be needed to
overcome barriers, not least
the dominance of the existing
resource- and energy-intensive
growth models
’
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A Global Redesign? Shaping the Circular Economy
Individual companies are showing the way by redesigning
the way that products are made and what they
are made of – and the public is also starting to embrace
new forms of consumption. But if circular economy
practices are to be rapidly scaled up, a major push will
be needed to overcome barriers, not least the dominance
of the existing resource- and energy-intensive growth
models. Governments have a key role to play in reshaping
obstructive regulations and setting a smarter regulatory
framework that incentivizes the reuse of resources.
Energy, Environment and Resource Governance
The Energy, Environment and Resource Governance research area (EERG) at Chatham House plays an
important role analysing and informing international processes, carrying out innovative research on major
policy challenges, bringing together diverse perspectives and constituencies, and injecting new ideas into the
international arena.
As the largest research area at Chatham House, EERG seeks to advance the international debate on energy,
environment and development policy and to influence and enable decision-makers – governments, NGOs and
business – to take well-informed decisions that contribute to achieving sustainable development.
EERG regularly hosts workshops and meetings which provide a neutral and non-confrontational forum where
experts from different perspectives are able to network and meet to freely exchange views and experiences.
Meetings are often held under the Chatham House Rule of confidentiality to encourage a more open exchange
of views. The impact of EERG’s work is recognized internationally and its research output is widely read
throughout the ‘policy community’.
If you would like further information about EERG or to join the email list for notifications of publications and
events, please email eedp@chathamhouse.org.uk or visit the Institute’s website at www.chathamhouse.org/eerg.
www.chathamhouse.org
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A Global Redesign? Shaping the Circular Economy
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Felix Preston is a Research Fellow with the Energy,
Environment and Resource Governance team at
Chatham House. He is currently working on low carbon
development, industrial transformation and the role of
disruptive technology.
The author would like to thank Bernice Lee, Jaakko
Kooroshy and Antony Froggatt for their inputs to the
paper, and Margaret May and Nick Bouchet for their
editing and advice. Thanks also to Jon Price, Rowena
Young, Alan Murray, Glada Lahn, Gemma Green,
David Grant and Jamie Butterworth for their valuable
comments and ideas, based on earlier drafts of the
paper and related meetings. In particular, the paper
draws on the rich discussions at a Chatham House
dinner on ‘New thinking around the circular economy’,
held on 26 October 2011 and attended by a range
of experts from the private sector, government and
academia. Further insights were generated by participants
in a session on competitive advantage and the
circular economy, chaired by the author at a conference
on ‘The Circular Economy: Innovative Thinking for a
Sustainable Future, held at the University of York on 6
October 2011. Funding for both the preparation of the
paper and the dinner, generously provided by the Centre
for Low Carbon Futures, is gratefully acknowledged.