The Circular Economy: Butterflies and the Fourth Industrial Revolution

The Circular Economy: Butterflies and the Fourth Industrial Revolution

photo: Ellen MacArthur Foundation

A butterfly sums it up: It can be a symbol of biodiversity, fragility, the capacity for transformation, ora diagram of the type of economy that we should aim for.

Just over half (54%) of the world’s population of 7.3 billion people live in urban areas, a proportion that is expected to increase to 66% by 2050. The population is growing, and with it increased amounts of waste. If that is not managed well, it can produce serious environmental, health, and economic problems.

We discard too much because we consume too much, and how those products are manufactured does not allow for their best reuse or recycling. It is necessary to control both ends (production and disposal).

According to Armin Reller (University of Augsburg) and Tom Graedel (Yale University), if we continue with the average global usage rate of metals and other materials (aluminum, copper, nickel, phosphorus, etc.) that are manufactured into products that we use daily (electronics, vehicles, fertilizers, etc.), there are resources available for only another 58 years. If we consumed globally at half the rate of consumption in the United States today, we would have resources for only 20 years. This situation is not sustainable, and scary, to say the least. We need to rethink our model of linear economy—take, make, dispose—and transform it into a model of circular economy—reduce, reuse, and recycle, or the three Rs.

These three Rs are the basis for the circular economy. It aims to use renewable energy, to eliminate the use of toxic chemicals (which prevent reuse and re-entry into the biosphere), and to minimize waste through a redesign of materials, products, systems, and business models. The potential goes far beyond recycling of materials: the value is in reuse, maintenance, and remanufacturing. Therefore, it is essential to rethink and strengthen all aspects of the economy so these processes can happen. According to the World Economic Forum, the economic benefit of a transition to this circular model is estimated at one trillion dollars in savings of materials alone.

Innovation, the Sustainable Development Goals, and the role of the public sector 

In this context, innovation plays an important role. It is necessary to innovate in the design of new materials and products, global value chains, networks of reverse logistics, and business models in which, for example, companies no longer sell products but provide services.

The circular economy combines economic development with environmental protection and the efficient use of available resources. The food and beverage industries, construction, industrial manufacturing, mining, and waste management have great potential to benefit from this model, but there are also pioneering companies in other sectors. Dell, Philips, eBay, HP, Nike, IBM, Veolia, Tetrapak, GM, Caterpillar, Unilever, and even WalMart are examples, each one with its own approach and in its own sphere.

In the context of the UN’s Sustainable Development Goals (SDGs), where much of the role and commitment lies with the private sector, companies see the circular economy as a stimulus for equitable economic growth, efficiency, and innovation, and an opportunity to face social and environmental sustainability challenges—all aligned to the SDGs.

The public sector and civil society will play an important role in the circular economy because of its implications for economic growth, job creation, and impact on the environment. The European Union saw its potential, and the European Commission approved a package of measures in December 2015 to stimulate global competitiveness, promote sustainable economic growth, and create new jobs. The study “Growth from within: A view of circular economy for a competitive Europe” quantifies the benefits that should result by 2030:

  • an increase of 11% in GDP
  •  an increase of up to €3,000 ($3,434) per household in annual disposable income
  •  a reduction by half of CO2 emissions
  •  net job creation

All these benefits also could be applicable to developing regions, such as Latin America and the Caribbean. It is home to 630 million people, 80% of whom are concentrated in urban areas. However, the region would need to quantify its potential benefits, as the EU did, and change its patterns of production, consumption, and use.

Circular cities: Rethinking urban planning and infrastructure

Cities can benefit, but should integrate the circular concept into policymaking and urban planning. It is an opportunity to create more competitive, sustainable, equitable, and livable cities. And if the private sector has a key role in innovation in materials, processes, and business models, the public sector also has a role in updating and adapting policies, sharing knowledge, and fostering innovation.

Cities are more naturally able to host circular economy models because they have concentrations of businesses, workforce skills, and consumers of high tech. In cities, waste management is very important, but so are transport and mobility, the use of water and energy, and the need to rethink aspects such as infrastructure. What is the infrastructure that will allow a city (region or country) to move into the future? There are some examples of cities from all continents that are incorporating circular patterns in their urban planning: Amsterdam, Singapore, Melbourne, Detroit, and Brussels.

Although the urban environment seems best suited to host circular economy models, if we look at the “left wing” of the butterfly, it shows how the three Rs also are important in rural areas and agriculture.

The circular economy and the Fourth Industrial Revolution

While we talk about the Fourth Industrial Revolution, with the current linear model, we have reserves for only a few years more of many of the materials on which technology is built. If we want to fully reach a Fourth Industrial Revolution, we must first pass through a circular economy model, and this requires reflection about issues ranging from industrial policy, to investment criteria, to new business models.

As the “diamond” model developed by Michael Porter was widely used in past decades, I hope that we will soon refer as naturally to the “butterfly” model created by the Ellen MacArthur Foundation. It will be a good sign. This butterfly represents the economic model we should be aiming for, which includes aspects of innovation, competitiveness, growth, employment, and environmental protection, plus public and private and urban and rural environments. A butterfly sums it up.

From the Multilateral Investment Fund Trends blog