Circular economy’ have been buzz words in the resource sector for a few years now, with the Ellen MacArthur Foundation putting the topic on the agenda.
But back in 1976, in a research report for the European Commission, Walter Stahel and Genevieve Reday sketched out their vision of a circular economy and its effect on jobs, competitiveness, resource savings and waste prevention. Almost 40 years later, appetite seems to be ripe for making their vision a reality.
This summer the Environmental Audit Committee (EAC) published a report suggesting that the Government should increase its support and intervention to help move the UK to a more circular economy (see box below on Stahel’s views on the recommendations). So who does he think should be driving the move towards a circular economy?
“I think we need to find synergies of the big levers, basically where the state can incite economic actors to do the right thing,” he says. “And one of the biggest of these levers is sustainable taxation.
“The present [system] of taxing mostly labour, wages and very little material consumption is fuelling the industrial economy. If we stop taxing labour altogether and get all the tax income from non-renewable resources, then immediately economic actors would think about the way they would change their profit structure.”
But does the circular economy require an international approach to make it work? “I don’t think so because the circular economy is an issue of competitiveness. If we change the framework conditions so that companies are more efficient by using more labour or by using more reuse and repair and remanufacturing, then the country that does it first will have a competitive advantage. So the international problem basically goes back to the environmental movement and the Kyoto Protocol, [which said] that doing these things increases the cost and so either we do it together or nobody will do it.
“If we do it right, by changing the framework conditions, then the country that goes ahead will profit from it, economically and in a holistic sense, by providing jobs and by using fewer resources. For me, that is the central point – they have to try to get away from trying to turn small wheels and have the courage to turn the big wheel.”
Stahel knows that his ideas are “a complete change in the mindset”.
He says: “Politicians think that if you want to create wealth you have to produce, you have to manufacture. And the idea of preserving value, and not emitting greenhouse gases, as an economic activity is something that slowly dawns on politicians. But many of them don’t trust it – I mean the whole industrial revolution was based on industrial throughput and the more throughput you have, the richer the nation is.”
At the suggestion that such radical changes to the taxation system would take a very brave government, Stahel reveals that he had a discussion with the Scottish Government last year on that very subject. While Scotland would be well positioned to implement such a radical change if it breaks away from the UK, he concedes that “in a business-as-usual situation it is difficult for any party to justify any change”.
Stahel cites the French Government as the best example of this. When the socialists took over and simply continued doing what had always been done – encouraging higher taxes on rich people and corporations – hundreds of companies moved their headquarters from France to Switzerland to avoid the taxes. “It is a complete illusion to think you can simply increase taxes and people will accept it,” says Stahel. “But the idea of not taxing labour at all, especially with the socialist parties, is a big problem because they consider taxation as a way to take money away from the rich and give it to the poor. But the poor don’t really care where the money comes from.”
So does he see a gap between theory and reality with the circular economy? “The knowledge of reuse, repair and remanufacturing is with the fleet managers, people like the railways and hotels – all those that have big volumes of waste,” he says. Such organisations are already altering the way they operate to reduce waste and costs. Hotels, for example, lease textiles and use drinks systems that avoid packaging waste, such as having drinks on tap.
“But the knowledge today is with fleet managers and other big companies, and not with the universities,” he says, adding that this technological and economic knowledge needs to be passed to students in economics and technology. Then companies could also recruit more easily from university leavers.
As an example of the circular economy in action, Stahel cites the growing trend in industrial countries of Repair Cafés, where people regularly meet to help each other repair goods.
“This, in a very short time, has almost become mainstream now in urban centres,” he says. The reason, he believes, is that the idea of ‘make and mend’ appeals to the young and elderly who have time but little money. It also helps older members of society fulfil their roles within the community by sharing their tools and skills.
One reason such groups have sprung up is that goods, particularly electrical and electronic ones, are often difficult to repair. Some manufacturers have argued that designing goods using circular economy principles does not always work across the board, and may inadvertently create other sustainability issues.
“This is where the WEEE Directive went wrong because it did not close the liability loop. The easy way out of that discussion is for every manufacturer to take back its own products and then recycle them according to legislation,” says Stahel. “If we had the courage to impose this, the discussion would very quickly stop because it would then be cheaper for manufacturers to do the design for reuse or whatever.
“If they have to take back their own goods and pay for the take-back and the waste recycling, they would simply change their strategy for many products. There would be an internalisation of the costs which today is only the case for people that are selling performance, selling goods as services or renting goods. It would very quickly become a necessity.
“The question is: do the politicians have the courage to withstand the lobbying and simply say, ‘we don’t want to know how you do it, but you produced the product so you are the best placed to get rid of the same product as waste’? “And, of course, for every manufacturer, that is the last thing it wants to do. But the problem is that even if politicians accept that they will have to find ways to do it, unfortunately politicians haven’t got a clue about the technology involved and the opportunities of upgrading or of modular design.”
He adds that even where “real technological quantum leaps are happening”, such as the switch from typewriters to PCs, there are still many places in the world without electricity which would offer a reuse market for redundant typewriters. And he cites the success of eBay and similar businesses which have shown that “if you provide a market for reuse goods, people will use it in a market way”.
But inextricably linked with goods going into reuse and those that are no longer wanted is our desire for new things.
Stahel says: “How do we overcome this desire for new stuff? By developing a relationship with goods, what I call the ‘teddy bear’ effect. I am surrounded by teddy bears: I have a watch that is 50 years old which I received from my godfather on a special occasion. I use cars that date from 1969. And, in the meantime, these things also have a value: the retail value today is higher than the price I paid in 1969 to buy the cars.
“What a lot of people are only discovering now is that their relationship with goods is not only a personal one but it also has an economic impact.”
He explains that if you use goods for a long time, they go through a zero value phase. But then goods of the same type get recycled or thrown away, so those left become rare and more valued, with reuse markets developing in line with supply and demand. Owners of vintage cars, for example, are prepared to pay a higher price for parts than owners of new cars.
What does Stahel see as the future for waste managers and recyclers?
“In what I call the ‘performance economy’, where managers that sell performance and goods as services and retain ownership of the goods and their embodied materials, very often the recyclers now have a new type of client that retains the ownership but still needs somebody to recycle, say, copper cables or other materials.
“So the recyclers no longer have a market where they will buy the scrap, recycle the products and sell the new resources, but instead will offer their capability of recycling resources to the owners of that retained ownership.”
He sees those in the waste and recycling sector still having a role in collecting and sorting the material: “Except that now the recyclers will very often develop non-destructive ways of collecting material, and then move upstream to repair or remanufacture these and put them into the market. Recyclers will often find new ways to make money by selling remanufactured goods or resources such as copper wire.”
He believes that many industrialised countries have a market for remanufacturing.
He says: “Recycling is normally materials focused whereas the remanufacturing industry is product-focused, so it needs new skills and you need people who have the capability to do it. For any manufactured goods, there is always a market for secondary or remanufactured products. But you have to develop it or the waste managers have to move upmarket to catch the product while it is still used goods and before it becomes waste.”
This neatly sums up the shift that is needed: ensuring that, as far as possible, waste is avoided by retaining the value and useful lives of our goods and products for as long as possible.
Profile: Walter Stahel
Walter Stahel graduated from the Swiss Federal Institute of Technology in 1971 in Zurich with a diploma in architecture. He is the founder-director of The Product-Life Institute in Geneva, established in 1983.
He defined the circular economy in 1976 in a report to the European Commission on The Potential To Substitute Manpower For Energy; proposed selling goods as services in the 1990s as the most sustainable business model of the circular economy; and coined the phrase ‘performance economy’ in 2000, also defining its nature in his 2006 book of the same name.
Stahel will be speaking in the Circular Economy Connect theatre at RWM on 17 September at 10.40
Recommendations made by the Environmental Audit Committee report ‘Growing a circular economy: Ending The Throwaway Society’
- Differential VAT rates based on lifecycle analysis of the environmental impact/ recycled content of products
Stahel: “A better solution is to not tax labour. This would encourage people to be productive and creative, especially the unemployed and those on low incomes. To compensate for the loss of state revenue, non-renewable resources should be taxed and the huge subsidies given for fossil fuel production should be stopped.
“By not levying VAT on ‘value maintaining’ activities, such as repairing, remanufacturing and reuse, you immediately have a big financial incentive to do it, rather than throw things away and sell new ones.”
- Tax allowances for businesses that repair goods or promote reuse
Stahel does not agree that tax allowances should be on the businesses that repair the goods. But he thinks that such businesses should be exempt from VAT.
- Include an offset/lower charges for products with higher recycled content in packaging
He disagrees with this and is in favour of reusable packaging. His main concern about incentivising recycled content in packaging is the idea ending up the same as biofuels, where subsidies encouraged farmers to grow crops for fuel rather than food.
Stahel adds that governments should “provide the conditions for economic actors to do the right thing but they shouldn’t tell the economic actors what the right thing is”.
- Standardise collection systems across England to enable more reliable delivery of compatible sorted material to recyclers
“One of the most efficient waste management systems for household furniture and all the bigger items that was developed in Switzerland is simply to provide a place in the centre of the town where people can deposit items they no longer want.
“In the beginning there was a big outcry that the area would end up as a waste dump. But if you visit any of these sites now they are empty because there are more people passing by to see if there is something they can use [it is free to take]. The exceptions are electrical and electronic goods which have to be taken back to the shops that sell them.”
- Banning food waste to landfill
“By banning landfill, you create all kinds of new activities linked to recycling and reuse. At the start there may not be an economic incentive, but the incentive is that you simply have to do it – and people then decide to make money out of it.”
The Swiss Way
Householders do the right thing
In Switzerland, householders must buy residual waste sacks from their municipalities. For example, in Zurich one 60-litre bag costs CHF3.10 (£2.05), so the incentive is for residents to separate out recyclates to cut the amount of residual waste they put out for collection and therefore the number of sacks they must purchase.
Recyclables can be taken to centres, located in each village, which house 10 or 20 containers for materials such as textiles, bottles, paper, PET bottles and so on.
Stahel believes that to succeed, such systems have to link education with financial incentives: “If you are rich and want to spend a lot of money on plastic bags [for residual waste], you can still do so. But there is a financial incentive to behave and most people adhere to it.”
The only materials collected at kerbside are green waste and residual waste in the paid-for sacks, with collections once or twice a week. Stahel believes the model is a good one, but works in Switzerland where there a “civic understanding” that people must adhere to such a system: “You need some kind of cultural pressure or cultural synergy that people believe in the common good.”
Switzerland banned landfill in 2000, and uses incineration for residual waste. But its incinerators do import some waste and find there is little calorific value in the residual material after all the high calorific materials such as plastics and paper have been removed for recycling.