Business models for a closed loop economy?

Sustainability experts have been predicting or hoping for a closed-loop society – where waste over here is an input for something else – for some time. What economic forces might make it happen? Could an asset fleet management model be applied to the consumer market?

I was part of a recent Business in the Community workshop that was part of their ‘vision of a sustainable future’ project. The first fruits will be launched at the Responsible Business Convention in March. My task was to kick the tyres of some possible  sustainable business models that previous workshops had thrown up. I found myself attracted to the ones that would deliver a closed-loop economy.

Today’s economy is basically ‘take-make-waste’ – stuff is grown or taken out of the ground, made into something, used for a bit and then thrown away. At least, this is true in the rich North, where the costs of inputs and waste are low by historic standards. (I’m writing this in a cafe where I can only drink my coffee in a throw away cup.) It wasn’t always the case. My grandparents grew up in the Great Depression and they would eek out every penny of value from something. Jam jars became containers and so on. They would be horrified at how disposable things have become.

Take-make-waste creates problems at both ends. We may be taking above the replacement rate of the resource, whether that is fish or forests or ferrous metal. There may well be no way for the natural world to deal with the waste. The most obvious example is pollution. It is worth remembering that carbon emissions are waste that the natural world cannot process quickly enough, which is why they persist and cause the climate to change.

Hence the need for a ‘closed-loop’ economy, where waste=food. Here are William McDonough and Michael Braungart explaining the idea in 1998.

If people are to prosper within the natural world, all the products and materials manufactured by industry must after each useful life provide nourishment for something new. Since many of the things people make are not natural, they are not safe “food” for biological systems. Products composed of materials that do not biodegrade should be designed as technical nutrients that continually circulate within closed-loop industrial cycles—the technical metabolism.

In order for these two metabolisms to remain healthy, great care must be taken to avoid cross-contamination. If the things people make are to be safely channelled into one or the other of these metabolisms, then products can be considered to contain two kinds of materials: biological nutrients and technical nutrients.

Biological nutrients will be designed to return to the organic cycle—to be literally consumed by microorganisms and other creatures in the soil.

Technical nutrients will be designed to go back into the technical cycle… The reuse of technical nutrients in closed-loop industrial cycles is distinct from traditional recycling, because it allows materials to retain their quality: high-quality plastic computer cases would continually circulate as high-quality computer cases, instead of being downcycled to make soundproof barriers or flowerpots.

Customers would buy the service of such products, and when they had finished with the products, or simply wanted to upgrade to a newer version, the manufacturer would take back the old ones, break them down, and use their complex materials in new products.

A closed-loop economy comes up in the scenarios I work on all the time. First, in most of the scenarios the input costs and concerns over security of supply go up. Then the senior business people say something like “and of course you would want to take control of the product at the end of its life to get the material back.” And behold, a closed-loop economy is imagined!

If this so obvious, why hasn’t happened already? I think there are several things that would need to be in place for closed loop business models to become (more) viable:

– the relative price of ‘take’ and ‘waste’ must rise dramatically compared to the costs of sending things around the loop again – crucially tracking, collection and re-manufacture – and of servicing, which probably means the cost of labour.

– this will need a collective infrastructure which makes those steps easy.

– consumers will need to let of go of their current need to own things. They will need to be comfortable using something which has had a long life before it gets to them. They will also need to be comfortable with getting the service from something but not owning it.

In the middle of the BITC workshop I remember a intriguing  book called The Performance Economy by Stahel. It is a bit of tough read, and could have been translated a little better from the original German. But he has explores all this in great depth. One key claim he makes is that there will be a shift from labour productivity (getting the most value out of each unit of person time) to resource productivity (get the most value out of each unit of material or energy).

He then has lists (and lists and lists – he loves bullet points) of the types of business models that will emerge. It would be impossible to list them all, but one I’d just highlight is asset fleet management.

In the big industrial sector it is increasingly common for the manufacturer to monitor and service the fixed asset continuously. This Economist article on Rolls Royce engines illustrates the point nicely:

HIGH above the Pacific, passengers doze on a long flight from Asia to America. Suddenly a bolt of lightning cleaves the air. Those startled by the flash and bang soon settle back into their dreams. But on the other side of the world, in Derby, in the English Midlands, engineers at Rolls-Royce get busy.

The same is true of many gas-turbine electricity generators (which are in some ways jet engines that are nailed to the ground) and so on.

What would it take for this model to be applied to consumer markets for things like washing machines or fridges or cars, or even light bulbs? Thanks to the ICT revolution, the costs of monitoring are plummeting. There would need to be a dramatic fall in the relative cost of servicing, replacing and re-manufacturing when compared to just making once and shipping out. So, a massive hike in raw material commodity prices and energy, plus concerns on where to get the materials you need combined with greater costs of disposal through landfill taxes and/or producer responsibility legislation would do the trick.

But what about consumer attitudes to having a service instead of owning the product. Here is where the rise in digital downloading and cloud computing services are forging ahead. People are increasingly used to paying for access to a service rather than having an exclusive and physical object.

So, look out for asset fleet management business models aimed at consumers, over a ten year time frame.

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2 thoughts on “Business models for a closed loop economy?

  1. Pingback: Tweets that mention Business models for a closed loop economy? | business and sustainability – a work-in-progress -- Topsy.com

  2. Z

    Interesting to read this post from 5 years ago and realizing how “– consumers will need to let of go of their current need to own things. They will need to be comfortable using something which has had a long life before it gets to them. They will also need to be comfortable with getting the service from something but not owning it.” has become real with the advent of shared economy (UBER, AirBNB, etc). Great topic!

    Reply

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