In this report, the World Economic Forum and the Ellen MacArthur Foundation, with analytics provided by McKinsey & Company, acting as project adviser, joined forces to reconcile the concept of scaling a circular economy within the reality of a global economy and complex multi-tier supply chains. The key objective is to propose a very specific joint plan of action for industry leaders.
The challenge of closing materials loops and regenerating natural assets is an exponential function of product complexity and supply chain length. While more localized production is experiencing a robust renaissance in some economies, we cannot ignore nor fail to tap the power of global division of labour, specialization and economies of scale. This report sets out to emphasize that the circular economy must hold its promise not merely to the village economy, but also to a globalized economy of nine billion.It presents the concept of circularity as a tangible driver of industrial innovations and value creation for the 21st century global economy. In addition, it positions the concept for today’s global CEO as a practical business strategy to “hedge” against the complex and interconnected risks of resource competition, commodity price volatility, new materials technologies and changing consumer demands. A number of key messages stand out:
1. The circular concept fosters wealth and employment generation against the backdrop of resource constraints. Circular business models will gain an ever greater competitive edge in the years to come because they create more value from each unit of resource than the traditional linear ‘take-make-dispose’ model. Accelerating the scale-up promises to deliver substantial macroeconomic benefits as well as open up new opportunities for corporate growth. The materials saving potential alone is estimated at over a trillion dollars a year. The net employment opportunity is hard to estimate, and will largely depend on the labour market design. But even today, the job creation potential of remanufacturing globally and recycling in Europe already exceeds one million.
2. Circular supply chains are up and running— and they’ve gone global. The global secondary fibre stream for paper and cardboard is one example. The economics of such arbitrage opportunities are expected to improve as raw materials prices rise and the costs of establishing reverse cycles decline. Trends favouring lower costs and making it possible to close the reverse loop include urbanization, which concentrates demand, allowing tighter forward and reverse cycles. Advanced tracking and treatment technologies also boost the efficiency of both forward and reverse logistics. Governments have started to provide stimuli, too: higher charges for landfill increase the competitiveness of circular products, and thus the arbitrage opportunities of setting up reverse cycle options.
3. Supply chains are the key unit of action, and will jointly drive change. In its most extreme manifestation, the global economy is a massive conveyer belt of material and energy from resource-rich countries to the manufacturing powerhouse China, and then on to destination markets in Europe and America where materials are deposited or—to a limited degree—recycled. This is the opposite of a loop. The materials leakage points and barriers to mainstreaming the new model of circular material flows in a globalized economy must now be addressed and overcome. This requires better understanding of the archetypes into which supply chains fall, and the three main barriers to change: geographic dispersion, materials complexity, and linear lock-in. Analysing the most advanced business cases confirms that a supply chain management approach that balances the forward and reverse loops and ensures uniform materials quality is critical to maximizing resource productivity globally. The transition can begin once the hinge points are identified and acted upon in a concerted effort—across companies, geographies, and along the supply chain.
4. Defining materials formulations is the key to unlocking change. The materials list is exploding. A wide range of new additives are added each year, making post-use valorization ever more demanding. The key is to tame materials complexity by defining and using a set of pure materials stocks at scale, designing out the leakages that hamper classification from the start. Reorganizing and streamlining flows of pure materials will create arbitrage opportunities that generate economic benefits and make investments in reverse cycle setups profitable.
5. Four materials categories are prime candidates for demonstrating viability.The potential building blocks for flagship projects are materials that are already sizeable and well understood, where a concerted effort by a few large players can create markets large enough to surpass the threshold value for viable circular arbitrage models. Each category is at a different stage of maturity in terms of circular setup and development, offering scope for credibly demonstrating viability across a wide spectrum.
- ‘Golden Oldies.’ These are well-established, high-volume recylates with a remaining purity challenge. Paper and cardboard as a high-volume materials stream has high collection rates, but suffers from quality loss and ink contamination during the reverse cycle, resulting in an estimated US$ 32 billion in value lost annually. PET, glass, and steel also fall into this category.
- ‘High Potentials.’ Materials used in high volumes that currently lack systematic reuse solutions are polymers, for example. Collection rates are limited and separating out the materials/maintaining their quality and purity is hard due to the high fragmentation of formulas, supply chains and treatment technologies.
- ‘Rough Diamonds.’ These are large-volume by-products of many manufacturing processes, such as carbon dioxide and food waste. A broad set of valorization technologies is emerging, however, that could provide additional value and displace virgin materials intake.
- ‘Future Blockbusters.’ A number of innovative materials have breakthrough potential, either from enabling substantial improvement of materials productivity (e.g. 3D printing), or having usage cycles that are fully restorative by design and intention (bio-based materials).
6. Catalysing a series of “Trigger Projects” is the most effective way to reach tipping points for each category faster. Choosing a signature material from each category as an example will facilitate practical collaboration on the study of specific materials by different players across industries and geographies. Findings for one signature material at a systems level will often be highly transferable to other materials in the same category. With proof of concept and initial flagship successes, stakeholders can roll out the solutions to other materials in that category much faster than trying to cover an entire category in one go. The proposed signature materials by category are paper and cardboard, polypropylene, carbon dioxide, and bio-based and 3D printing materials. Agreement on their preferred formulations will in itself fast-track the scale-up of the circular economy, as well as opening up exciting business opportunities.
7. Tangible outcomes can be achieved in two years through joint action. A group of leading companies drawn from the combined networks of the World Economic Forum and the Ellen MacArthur Foundation acting in this collaborative agenda can speed up transition to the circular economy and achieve tangible outcomes within two years. The initiative aspires to enable its participants to realise the rewards of becoming first-movers: capturing the value of the circular economy. For example, the four to five waves established in this project will aim to reap net benefits of at least US$ 500 million and 100,000 new jobs, as well as to avoid/valorize 100 million tonnes of materials waste within 5 years. A further goal is to form a group of pioneers who will jointly build the ability to tap resource productivity as a new source of 21st century competitiveness. The initiative will require coordination across multiple stakeholders to facilitate systemic change, which is where the Forum and Foundation will have the most impact. In 24 months, the initiative should be able to create a preferred list of pure, high-quality materials with cross-industry applications to aggregate volume and enhance stock valorization. It should also be possible to arrive at a proof-of-concept result within 24 months for two or more selected materials. In parallel, the initiative will define methods and systems enablers for achieving sustainable change in the medium and long term.
Together, the Forum and the Foundation will provide companies, governments, civil society and academic experts with a multi-stakeholder platform for collaboration across industry, regions and sectors on this crucial global project. Delivering on this agenda will reap huge rewards for businesses, individuals, and our planet. The downside of continuing on our current linear course is daunting, but the upside of making a switch now will be huge, for every one of us.
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