Economic benefits of circular economy

Linear consumption is reaching its limits. A circular economy has benefits that are operational as well as strategic, on both a micro and macro-economic level. This is an opportunity with huge potential for innovation, job creation and economic growth.

The industrial evolution has been dominated by a one-way, or linear, model of production and consumption in which goods are manufactured from raw materials then sold, used and discarded. In the face of increasing signs of resource depletion, the call for a new model is getting louder. The quest for substantial improvement in resource performance across the economy has led businesses to explore ways to reuse products or components, and to restore more of the precious material, energy and labour inputs. A circular economy is an industrial system that is restorative or regenerative by intention and design. The economic benefit of transitioning to this new business model is estimated to be worth more than one trillion dollars in material savings.

In a linear model of resource consumption, companies harvest and extract materials, use them to manufacture a product, and sell the product to a consumer, who then discards it when it no longer serves its purpose. Recently, many companies, such as Coca Cola and Philips, have begun to notice that this linear system increases their exposure to risk – most notably higher resource prices and supply disruptions. More and more businesses feel squeezed between rising and less predictable prices in resource markets on the one hand, and high competition and slowing demand for certain sectors on the other.

There is strong evidence that, by achieving circularity, there are not only benefits for companies but also for society. For example, in 2015 the Institute of Race Relations found that there is huge potential in South Africa to create circular economies that generate wealth from waste. The circular economy approach could successfully be used to recover and recycle plastic waste, along with waste from agriculture, organic chemical processes and mining operations, to name a few. This would generate major socio-economic benefits, going far beyond what has already been achieved in the waste tyre sphere. In addition, according to the McKinsey report on Managing waste in emerging markets by 2020, REDISA (Recycling and Economic Development Initiative of South Africa) is expected to deliver an aggregated economic benefit of approximately $6 million to South Africa thanks to its circular economy approach. When REDISA reaches its planned objectives, it is estimated that the system will also generate an annual environmental benefit of $22 million.

With waste comes opportunity and, by looking at waste differently through a circular lens, there can be sustainable businesses and economic growth. With economic benefits of the circular economy already apparent, achieving circularity in the future will no longer be an option but vital to social and economic stability.