Optimizing Circular Value

Ensuring Circular Economy Projects and Solutions delivers on Genuine Value Creation

Published on Linked In on May 16, 2017

Part 1 — Internalizing Externalities

The Economy we Want

Too often the Circular Economy is portrayed as a frugal or an advanced recycling economic model. It is not so. The Circular Economy is based on the abundance of flows generated from our alignment with ecosystemic metabolisms. Put simply, we should be imitating natural cycles as closely as we possibly can.

The Circular Economy holds the keys of positive perspectives about the future of business, the future of the environment and about our future as people. It depicts a world without waste, where unused resources will find a function in an economy that will regenerate itself while growing within our systemic boundaries. Yet, one needs to understand the:

• Why do we want to achieve this versus another model?
• The what for? Is it worth the investment?
• Where is this all going?
• What about the “Circular rebound”?
• How are we going to prove the Circular Economy is better than our current linear model?
• And the When do we know “solutions” are considered “circular” or not?

So let us align ourselves on assumptions and definitions to avoid any confusion:

1. We assume that the Circular Economy is the “Future We Want” given the exposure and the work done so far on this topic, the expected decoupling of economic growth versus our current needs in resources as well as the probable CO2 emissions decrease;
2. Optimization is about finding an alternative with the highest achievable performance under given constraints, by maximizing desired factors and minimizing undesired ones. In this definition, “under given constraints” is our critical component here as we recognize the many systemic challenges we will be facing. And we should be able to overcome them by deciding on ways to reduce their negative impact by means of a draconian process;
3. Value is important or lasting beliefs shared by the members of a culture about what is desirable or undesirable. What is the perceived and recognized value of some communities or a group of people with its specificity might not be the same as the one perceived by another group of people. This point also highlight the fact that the way a circular economy is designed in Canada might not be the same, and/or perceived the same way, as a circular economy designed in Brazil ;

Therefore, something has value when people are involved, given that value is essential to people. This is the reason why we must to understand people’s role in this next economy.

The need to integrate Human Flows

We all know the “Butterfly Diagram” from the Ellen MacArthur Foundation:

On one hand we have the biological nutrients flowing either in cascade or be used as biochemical feedstock, bioenergy or with the purpose of regenerating our soils.

On the other hand we aim at circulating our technical nutrients the longest time possible either using sharing models, redistributing or remanufacturing ones. And if we have no other option, we then continue using advanced recycling until such time we find a better option.

Yet, there is the need to integrate human flows as part of this diagram to comprehend whether we are creating Circular Value or not.

By integrating these flows within the “Butterfly Diagram” we have a better understanding of the role of humans in our next economy and ways to preserve a balance between the natural capital, the human capital and the remanufactured capital.

On one hand our relation with the BioSphere should evolve. We — as humans — need to adapt by seeing ourselves as endless sources of energy and matter. Using innovative approaches we could thus help the BioSphere grow and regenerate itself. The feedback loop from the BioSphere is here about providing better living conditions and food.

On the other hand, humans should be considered endless energy and services to maintain the value of the technosphere by seeing ourselves as highly skilled and knowledgeable labour. The feedback loop from the technosphere provide us with accesses to a world of experiences ensuring our own development and real progress.

The above graph is explained in details here.

Internalizing externalities

Now that we visualise our human roles in-between these two spheres, we are able to grasp the value generated by these spheres. But the question is, when do we start creating Circular Value? Is there any tipping point to pass by? Any guidance to follow to be able to claim that our solution is truly circular, creating regenerative value?

Claiming that we start creating value most probably comes with successfully internalizing externalities (pollution, waste, chemical hazards and the likes).

Let us take an example: an electric car.

Our input is “We invest in an electric car production unit”.

Our activity is “producing electric cars”.

Our output could therefore be “CO2 avoided when cars are on the move”.

Our aim of reducing CO2 emissions is happening. Yet we could also claim that we are on our way to achieve zero emissions (only when driving).

The question is: is this good enough? Is this output enough to prove that a specific situation has changed thanks to our electric cars?

To prove a situation is changing for the better, outputs are usually not enough. They can be measured using Circularity Indicators, Indexes and/or Guidelines issued recently. Still, should we wish to prove that change is happening, we need to go beyond outputs into proving outcomes. This helps aiming at the wider goal, like our helicopter view from where we view our progress and keep updating our path so that we stick to our vision.

A potential outcome would be here “improved air”. To achieve long-lasting “improved air” as a real outcome, we might need many other partners and stakeholders. Indeed, focusing on outcomes as a way to measure our circular progress often requires additional skills and partners to ensure its successful achievement, hence collaboration should take the lead over competition.

“Improved air” could then lead to “improved environment”, to “improved health”, and so on… […]

Part 2 — The Regenerative Stage

The Constructive Collaboration

[…] And so on, in such a way that we would keep internalizing externalities — represented in the below graph by red crosses — since we start to realize that the more externalities are embedded, the better for the business: growing organically, gaining new collaborative partners, constantly innovating. The more we embed externalities, the merrier for our business collaborative advantages.

Graph: Internalizing externalities help companies grow organically in close cooperation with a diversity of tailored stakeholders.

Stakeholders become interlinked within specific clusters where they play a critical role, while they play a different role in other clusters (adapting to other stakeholders’ activities and roles, and according to the externality to internalize).

Graph: Grasping the next externality (in red crosses here) will be soon seen as the best way to increase corporate resilience while “growing within”.

Embedding more externalities will spur innovations. This would lead to the creation of many clusters building on each other’s previous circular service(s) or solution(s). Most probably, many involved stakeholders may no longer be known to a specific company. As a result, direct competition will diminish over the search for a “Constructive Collaboration” as drivers-to-survive will be about the provision of solution-based innovations.

A natural move towards “For-Purpose” Businesses

This could translate into a natural move towards more and more “for-purpose” types of businesses.

In a linear world, businesses evolve in a narrow-minded profit maximization objective: we invent a product in exchange of concentrated flows of revenues. Whereas from a circular perspective, we would evolve in systemic thinking. Here businesses would be measured according to their abilities to grow while rebuilding its ecosystemic foundations to create rooms for the subsequent growth opportunity/ies (a restorative approach i.e. you will not be able to grow if you do not recreate sustainable foundations). Revenues and profits will be paid according to your ability to solve problems while advancing your economic model.

Graph: moving from a linear model where profit maximization was the sole purpose of existence of companies, into a circular model where companies will have to bring in systemic added-value to prepare for their next growth. Proving that a company will be able to create such Circular Value will increase its resilience.

The Regenerative Stage

In many fields today we are innovating and aiming at reaching the “zero” emission stage, the “zero” waste stage and so on.

When we produce a car, we might be reaching the zero emission stage within one specific activity of the production unit while many other activities still generate lots of negative emissions. Yet, on-going progresses are being made towards this “zero” path, or so-called “Zeronauts” by John Elkington.

Graph: The next decade is about reaching the “zero” or “tipping point” in all segments of our public and private activities.

Back to our electric car: once the many “zero emission” stages are reached, we would position ourselves to not only produce goods into services at zero CO2 emissions but, we would start filtering and absorbing the excess of CO2 while producing cars and/or while the car is on movement. We would have thus reached the “Regenerative Stage” where your company could claim to Optimize Circular Value (OCV):

Graph: “Beyond Zero” is the stage at which you will start Optimizing Circular Value (OCV) by reversing the current trends (growing ecosystems to be allowed to growth socially thus economically).

Part 3 — Our Circular Outcomes

Focusing on Priorty Outcomes

[…] If we look back at the modified Butterfly Diagram, we could then list some of the priority outcomes to be achieved should we be claiming to Optimize Circular Value (OCV).

With these proposed outcomes, any business today would find at least one — if not most or all — role(s) to play here:

Graph: proposed Circular Outcomes any company could be aiming at attaining — with collaborative partners. They are aligned with the several objectives the “Butterfly Diagram” is asking us to reach out to, in the years to come.

In front of each of these proposed outcomes, companies will have to come up with qualitative and quantitative indicators proving their upcoming innovations will be matching or are matching with these ultimate objectives:

Abundant energies is about creating products-of-services aiming at relying on renewable energies thanks to our understanding of abundance of flows;

Recycling phased out is confirming whether the solution provided is on its path to be using smaller loops so that recycling will no longer be needed since it is using too much energy and is often about down-cycling materials;

Decoupled tech-nutrients confirms whether our business models are using less or in different ways our technical nutrients so that decoupling and rebound avoidance (Zinc & Geyer, 2017) are a reality;

Valued manpower is about the assurance that humans-as-endless-energy (W. R. Stahel) are involved in a service based economy while maintaining the value of our technosphere;

Improved human development demonstrates that humans are taking advantages of what the technosphere is providing them with i.e. improved access and better experiences (advancement over growth);

Reused resources is ensuring that we are re-using and valuing all resources in effective and efficient ways according to the Principles and Concepts of the Circular Economy (Secondary production replaces Primary production);

Decoupled bio-nutrients confirms whether our business models are cascading biological nutrients or returning them back safely to the biosphere;

Valued human role is about using humans-as-endless-energy and/or -as-resources to rebuild our ecosystem via restorative activities;

Regenerated lands confirms that we grow more rich soils with our innovation than it was previously the case;

Improved life, health & food is about ensuring our biosphere is well-balanced so that it preserves life on Earth for all;

Applying these Priority Outcomes

Therefore we can apply these outcomes to the electric car market which is currently booming.

Without naming a specific brand, the below graph depicts what could be current results of producing, driving and managing the lifecycle of an electrical car. Obviously, this slide is mainly about showing you the areas of progresses (indicators with a “green check”) or concerns (indicators with a “red cross”) from our quest for circular value creation. Outcomes are reminded at the bottom of each list, starting with the “green arrow” (indicative here, not confirming that these outcomes are being reached).

Precise data are missing.

Graph: many indicators show that we are not on the path towards achieving the desired circular outcomes. This non-exhaustive list is shown as an example as to which directions we should strive to aim at in our daily business activities.

Abundant energies: electric cars are using — for most of them — lithium-ion based batteries. These are available in limited volumes and in specific — mainly arid — geographies. Costs are expected to increase exponentially in the future as the market grows. The use of truly renewable energies to recharge the batteries remains very limited today.

Decoupled tech-nutrients: in some cases batteries are recycled (used to store renewable energy production in the best cases) and cars are at times ordered on-demand. Both are positive progress towards our “tipping point” — as explained previously — but far away from our main objective of decoupling technical nutrients from economic growth. The capacity of lithium batteries to be reused to power a new car remains too weak today. Emphasizing on distributed product-of-services and eco-design so that parts can be disassembled for reuse and/or remanufacture is here critical should we wish to aim at and go beyond the tipping point.

Valued manpower: at production level, robots are often preferred over humans or humans come as complementing the robot tasks. Possibly here robots should accompany humans in the production of the cars, not the other way around. One needs to start considering robots as limited resources, hence, they need to be used carefully while giving the priority to humans (desired given that they are endless energy, Prof. Stahel). A fiscal approach to this dilemma should be discussed to ease manpower tax-wise while recognizing the real footprint of using robots and future expected pressures linked to using them in abundance (political, ecological, social, financial, fiscal, etc).

Improved life, health & food: driving while emitting no emission is a definite progress. Yet very far from claiming to have reach the “tipping point” i.e. moving beyond it into improving life and health. From a biosphere point of you, we are not achieving the desired outcome here. If you add the extractive and manufacturing activities, producing an electric car is twice as much polluting than producing a conventional car (Source: the Norwegian Institute of Science & Technology). An electric car will thus have to compensate (i.e. drive between 30,000 and 50,000 kilometers) to reduce its footprint when compared with conventional cars. Yet, the complete picture — from extraction to end-of-life — is slightly better with an electrical car: charge with coal based energy (120–140 g. CO2e/km) or charge with nuclear based energy (15–30 g. CO2e/km) whereas conventional cars are at an average of between 140–210 g. CO2e/km.

Regenerated land: to produce this car, we extract sizable amounts of resources leading to huge ecological footprints (as explained above). The speed at which we intend to reach out to the tipping point for regenerated land will also depend on our choice of energy to charge the car: coal, nuclear or fully renewable? As you can see, we are far from any regeneration of land.

Decoupled bio-nutrients: here too this is not happening here. As an example among others, the volumes of water needed to extract the lithium needed for the batteries in arid areas are extremely high.

If we look at the market of electric cars from our circular lenses, there is still a long way to go to not only move towards any clearly identified “tipping point” prior to be reaching the Regenerative Circular Stage. Yet, we now have a better comprehension as how we should go about attaining it by rethinking its design and use.

Setting up a framework recognizing positive circular outcomes of your upcoming solutions is definitely the critical step to more well-being for all of us.

The understanding of how to move towards more circular value optimization is what will be driving our businesses in the years to come, should we wish to achieve this future we most certainly want.

We can help you choose the right indicators/indexes/guidelines to measure your business advancement towards these Circular Outcomes. Feel free to email us at LetsTalk@Wizeimpact.com