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So now we know a little about the circular economy and its potential to transform our current wasteful linear economic model into one that mimics nature in its cycles. But how does this work in the real world? How does one take circular principles and apply them to business? And how might this affect the types of businesses we create and operate?
The term circular business models might sound confusing, but they are based on simple ideas: providing a service, sharing what we have and making the most of our resources. Not to mention, you are probably already benefitting from circular businesses in your community without even realising it.
How business fits into the circular economy
Fundamentally, the circular economy requires businesses operating within it to operate in a circular manner. The ideal circular economy is made up of a network of circular businesses operating within the wider circular system. In order to better understand how business models may function within a circular economy it is helpful to understand value chains, and how these can be circular.
Networks between producers and consumers are known as value chains. In a linear economy, these chains are straight lines directing the flow of resources one way: from natural resource extraction, to manufacturing, to retail, to landfills. In a circular business model, these chains become circles as materials used are reused, reprocessed or recycled back into the economy. This can create a perpetual cycle of material value with limited waste, mimicking the cycles of nature.
So, what are the circular business models that keep material value within our economy?
Understanding circular business models
The linear economy is based on a model of ‘take, make, dispose’. After we extract raw materials from the environment, we make products to sell which, at the end of their life, are thrown away. The primary issue with this: our planet is a closed system, there is no away. In a circular model, materials needed to create products are sourced from within the chain, and reused, repurposed or recycled, adding value to the original materials through the creation of a new product.
There are already a number of these circular business models in operation in Australia and around the world, often without even calling themselves circular businesses. The Uber you caught on the weekend, the toys you borrowed for the kids from the local community centre, the empty bottle you dropped at the return point for a 10c discount, the team who manages the fire alarms in your office; all examples of circular business without you or perhaps even the business owners knowing it. All are characterised by principles of the circular economy such as incentivised return, managing and tracking assets and designing longer lifespans into products. These circular business models generally fall under five broad categories: circular supplies, resource recovery, product life extension, sharing and product service systems.
1. Circular supplies models
Circular supply models replace traditional material inputs derived from virgin resources with bio-based, renewable or recovered materials. By doing so these businesses can create a closed loop system in which materials are kept in circulation, reducing the demand for virgin resource extraction.
Perhaps the most widespread example of this can be seen in the rise of renewable energy sources around the world. Harnessing renewable energy sources reduces our reliance on traditional fossil fuel extraction, closing the loop on energy generation. Our partner organisation and ACE Hub sponsor Planet Ark Power is one example of a business working towards renewable energy in Australia.
2. Resource recovery models
Resource recovery businesses are those that reprocess, repurpose or recycle waste into secondary raw materials, thereby diverting waste from landfill and keeping materials in circulation. This has the additional benefit of minimising the extraction and processing of virgin natural resources. This model is often further facilitated by incentivising the return of ‘used’ products so that they can be refurbished and resold.
Beyond our domestic kerbside recycling industry, an Australian example of this can be seen in container deposit schemes, which are now available or planned in every state. Not only do these schemes recover the materials used to create the various accepted containers, they also incentivise the return of those containers by offering a small refund for consumers. Another example is ACE Hub sponsor BINGO Industries, which has an industry-leading recycling rate for construction and demolition waste.
3. Product life extension models
Businesses operating under this circular business model extend the use period of existing products, slow the flow of constituent materials through the economy and reduce the rate of resource extraction and waste generation. Besides exploring options for ensuring the longevity and use of products, decreasing our reliance on single-use items is also an option to further product life.
A fantastic Australian instance of product life extension is ACE Hub sponsor KeepCup, which rejected disposable coffee cups in favour of reusable alternatives. KeepCup projected that usability, low-impact manufacturing and design aesthetics could drive behaviour change and make a difference to how people think about convenience culture. As a result, they estimate they have saved as many as 3.5 billion disposable coffee cups from entering landfill.
4. Sharing models
Businesses that operate in sharing models facilitate the sharing of under-utilised products and can therefore reduce demand for new products and their embedded raw materials. An example of a sharing model is the hiring or leasing of a product as an alternative to purchasing. The sharing economy has exploded in Australia in recent years and is now estimated to be worth up to $15 billion with over two thirds of Australians participating.
There are countless examples in Australia of businesses operating under a sharing model, including giants such as GoGet, Airbnb, Airtasker as well as smaller operations such as community tool and toy libraries.
5. Product service system models
In businesses working to the product service model, products are replaced with on-going services including product delivery. Not only does this create an implicit level of producer responsibility for the end-of life of products, it also creates incentives for green product design and more efficient product use, thereby promoting a more sparing use of natural resources.
Businesses operating under this model provide a service based on delivering products where the manufacturer retains ownership, has greater control over the production of a product and therefore has more interest in producing a product that lasts. Asset management can maximise product lifetime and minimise the need for new product purchases through tracking an organisation’s assets and planning what can be re-used, repaired or redeployed at a different site.
Global flooring manufacturer Interface is one organisation providing a product service system through its schools leasing program. Through the leasing project the company provides schools the option to upgrade their flooring without initial capital outlay and with the knowledge that Interface will manage the full life cycle of the flooring.