Since the start of the Industrial Revolution, the global economy has been based on a specific economic model, one so pervasive that we often don’t even realise it is there – this is the model of the linear economy, which can be summed up as a “take, make, use, dispose” chain of activity.
We take raw materials, process them to make them into products, which are then sold to consumers who use them until they no longer need them and then dispose of them. This model applies to everything we consume, from petrol to pasta to the plastic packaging the pasta comes in and the cars that use the petrol.
And underpinning it all is a set of invisible assumptions – the first is that there is an unlimited supply of raw materials that can be mined, along with the other inputs used to make the products we use, including energy, water, and skilled labour on top of resources such as steel, copper and aluminium.
The second is that the key to future prosperity is unending economic growth and the corresponding consumption of resources that implies. And finally, it is assumed that the planet can cope with all of the waste that we produce at every stage of this process.
However, it is becoming increasingly clear that these assumptions no longer hold true. Two and a half centuries of untrammelled growth have improved drastically the quality of life of billions of people, there is no doubt, but they have created immense problems too, and it is clear that we are approaching the limits of the earth’s ability to support us.
Earth Overshoot Day is coming earlier and earlier
The Global Footprint Network calculates the day each year when we have used up that year’s store of the earth’s resources, which it calls Earth Overshoot Day. We first went into overshoot in 1971, the group says, and the day at which overshoot arrives has been getting earlier every year. In 2018, that day arrived on August 1, meaning that we “exhausted nature’s budget for the year” in just seven months.
We can see the effects of this overconsumption all around us – in the mountains of plastic waste polluting our oceans and killing marine animals, the thousands of deaths caused by pollution from cars and factories around the world and in the steadily rising temperatures that are causing our climate to change drastically, bringing with it problems ranging from extreme droughts and floods to rising sea levels.
Nowhere is this overuse of the planet’s resources more obvious than in the energy sector. Our reliance on energy is one of the main challenges that we have to face as a result of our pursuit of growth through the linear economy. Energy has been the driver of our economies’ development, and until recently almost all of that energy came from burning fossil fuels – coal, oil and gas. We now know that these fuels, while they are fantastically efficient stores of energy, come with side effects. The pollutants they release are harmful to human, animal and plant life at a local level, while on a global scale the greenhouse gases (GHGs) they release are causing climate change that is starting to have profound effects on people around the world – flooding them out of their homes, ruining crops and driving people out of their homes.
In order to leave a planet fit for future generations, we have to change the way we do things – we need to decouple economic growth from resource use and GHG emissions. In the language of the linear economy, we need to take less, make less, use less and waste less. We also need to pollute less. In order for that to happen, everyone needs to become smarter about how they use energy.
The most obvious step – on a global scale – is to switch from fossil fuels to using renewable energy to produce power and heat, and to replace petrol and diesel in vehicles. This is happening all over the world as wind and solar power become more affordable, while electric vehicles are also rapidly moving into the mainstream. Bloomberg New Energy Finance reports that from 2009 to 2018, the global benchmark levelized cost of energy (LCOE) for solar PV has tumbled by 77%, and that for onshore wind by 38%, while the cost of lithium-ion batteries fell from $1,000 per kWh in 2010 to $209 per kWh in 2017. Meanwhile, the total number of electric vehicles (EVs) hit 4 million in August 2018 and sales are accelerating fast. It took five years for EV sales to hit 1 million, while the fourth million took just six months.
But beyond the straightforward replacement of fossil fuels with renewable sources of energy, there is a path that all businesses can take that will help to create a more sustainable world without plunging the world back into poverty – by implementing circular economy principles.
The circular economy model focuses on creating closed loop systems that minimise waste and resource use by recycling and reusing materials and products once they have reached the end of their useful lives. In some instances, this is just about making small, even obvious changes, such as reducing waste. In other cases, it requires companies to completely change their mindset and the way they do business, and consumers to make major behavioural changes as well.
Projects for clean energy
Even as the world moves towards a more renewable energy system, there is much that energy companies can do, both in their day-to-day operations and at a more strategic level. In a recent report, Circular Economy in the Energy Industry, Deloitte Finland said that “energy is an essential part of a sustainable economic system, as it enables the re-use of materials. Circular economy in the energy industry is promoted by co-operation between industries and companies, as well as by services that decrease the overall consumption of energy.”
Applying circular economy principles in the energy system will “maximise the efficient use of natural resources for energy production, end use of energy, excess energy and side streams,” it added.
This can start at the point of production with initiatives such as increasing the use of renewable energy in the production process – for example, Norway’s Equinor, formerly Statoil, is looking at building a new floating wind farm to supply power to some of its North Sea oil and gas fields, while Glasspoint has pioneered the use of solar power to produce steam for enhanced oil recovery (EOR) in heavy oil fields, cutting the use of natural gas and reducing emissions.
There is also an industry-wide initiative to reduce gas flaring, under the aegis of the World Bank, which points out that oil production sites around the globe flare billions of cubic meters of natural gas annually. “Flaring gas wastes a valuable energy resource that could be used to support economic growth and progress. It also contributes to climate change by releasing millions of tons of CO2 to the atmosphere,” the Bank says.
In a classic example of turning a waste into a resource, the World Bank’s Global Gas Flaring Reduction Partnership (GGFR) is working to reduce natural gas wastage through flaring – and it is starting to have an impact. The partnership’s Zero Routine Flaring by 2030 Initiative, whose signatories include governments ranging from the US to Kazakhstan and Nigeria as well as companies such as Eni, BP, ExxonMobil and Total, have committed to limit routine flaring in new oil field developments and to find ways to end it at existing sites by 2030 at the latest. The initiative has been endorsed by 27 governments, 35 oil companies and 15 development institutions.
New satellite data shows that gas flaring at oil production sites around the world fell by 5 percent in 2017, even though oil production rose by 0.5 percent, with the largest declines seen in Russia, Venezuela and Mexico.
Further up the value chain, the huge amount of heat produced by thermal power plants (both fossil-fuelled and nuclear) can be recovered and used either to improve the efficiency of the power plant itself or to provide energy for other uses such as heating swimming pools, hospitals, schools or even entire districts, as happens with Scandinavia’s district heating schemes.
Power plants can also make use of the waste produced by other parts of the economy, such as agriculture and industry – materials such as crop residues, wood chippings and bagasse from the sugar production industry can all be burnt to produce electricity or processed and turned into biofuels. This not only helps reduce waste in other sectors but increases the efficiency and cleanliness of power production. Power generators and waste companies can also co-operate in developing dedicated waste-to-energy plants that use household waste as a feedstock, helping to reduce the need for landfill.
And alongside the rapid development of the renewable energy sector, energy storage is expanding at a similar pace, allowing generators to use energy that otherwise would be wasted, at a time of their choosing.
There are also a number of projects that capture the carbon emissions from power stations (and other industrial facilities) and use them to make new products, in a process known as carbon capture and utilisation. These products include hydrogen, syngas, methane and methanol, as well as construction materials, polymers, carbonates and urea, a key ingredient in fertilisers, says a report from the European Union’s group of chief scientific advisers.
Sharing, services and zero waste
But the true value of the circular economy – and the consultancy Accenture has calculated that it could unlock $4.5 trillion of economic growth – will come from its application throughout the economy as a whole. There are three key trends that are driving the adoption of the circular economy model – the sharing economy, product-as-a-service and a focus on driving out waste from production processes.
The sharing economy has given rise to entirely new economic sectors as people rent out their spare rooms, turn their cars into taxis and sell the energy they generate from solar panels to their neighbours. It has also helped create new competitors to traditional industries, such as AirBnB (hotels), Uber and Lyft (taxis). As CoinTelegraph explains, the concept can be applied to almost every aspect of the economy. “You can share someone’s garden if you live in a bustling city, strike up job shares, team up with other travellers to share a tour, swap books, and even take someone’s dog out for the day,” it explains. The services offered in JustPark’s Sharing Economy Index start with “I can lend you some money” and include everything from “You can borrow my parachute” to “You can dock your boat at my marina”.
Closely related to this, but at a business level rather than a personal one, as-a-service models give people access to goods and services that in the past they might have bought but on a rental basis. As-a-service models have emerged across the economy, in businesses including software, lighting, medical scanners, carpet tiles, jeans and aircraft engines.
The company offering the product retains ownership and control of it, and in return provides all the necessary maintenance and upgrades. This enables companies to take back products and ensure that they are properly reused, remanufactured or recycled, improving resource efficiency and reducing waste.
This focus on waste is another key theme of the circular economy. Companies such as GM, the US carmaker, are looking to send no waste at all to landfill. This has required a considerable change in how employees think about waste and having to adopt what the company calls a “zero mindset”. “To us, waste is simply a resource out of place,” says John Bradburn, General Motors Global Waste Reduction manager.
Commitments from governments
To date, most circular economy efforts have been driven by individual companies and NGOs, but the concept is starting to find its way into the regulatory sphere as well. The European Union this year introduced a Circular Economy Package that sets stricter targets for recycling and cutting the amount of waste sent to landfill. It also puts the onus on producers to contribute to the cost of recovering materials at the end of a product’s life and encourages new business models that design out waste, increase product lifespans and promote reuse. This will be bolstered by specific legislation to tackle plastics waste, the EU Plastics Strategy.
The EU has signed a memorandum of understanding with China, which has had its own circular economy regulation, the Circular Economy Promotion Law, in place for 10 years. The MoU could see the two economies aligning circular economy mechanisms, paving the way for them to develop common policies and product standards. Given the size of the two economies, this could have a global impact.
Japan, because of its relative resource scarcity, has long had a focus on circular economy and resource efficiency. “Devised around the concept of ‘establishing a sound materials-cycle society,’ Japan’s system of policies focuses on waste management and resource depletion,” according to the World Economic Forum. Examples include the Law for the Promotion of Efficient Utilization of Resources, ratified in 2000 and the Law on Re-utilization of End of Life Automobiles, which came into force in 2002.
In North America, Canada’s Waste Free Ontario Act includes a section on Resource Recovery and Circular Economy, and while the US, as the European Circular Construction Alliance notes, “has not been a trend setter in the circular economy field”, the US chapter of the Ellen MacArthur Foundation’s Circular Economy 100 (CE100) programme includes brands such as Google, Cisco, Coca-Cola, eBay, Apple, Novelis and IBM.
Many countries in the developing world have in the past prioritised economic growth over sustainability concerns because of the need to move people out of poverty, but there is a growing realisation that unconstrained growth causes serious problems including resource scarcity, air and water pollution and climate change. The circular economy, however, can help to tackle many of these problems at the same time as lifting people out of poverty. As a result, “there is growing optimism about the potential of the circular economy (CE) as a new model for sustainable growth in developing countries,” says the think tank Chatham House.
Governments in Rwanda, Nigeria and South Africa, for instance, are working with the World Economic Forum and the EU and have recently launched the African Alliance on Circular Economy. Multilateral development banks are exploring the potential of CE approaches with Colombia and Turkey, it adds, while the Indian Resource Panel recently unveiled an action agenda on resource efficiency highlighting the CE. “This reflects increasing optimism about the potential for the CE to help lower-income countries ‘leapfrog’ to more sustainable development pathways,” the think tank says.
As the circular economy gathers momentum around the world, the energy sector will be both a key target of changing business models and a key enabler of the transformation of the rest of the economy.
The advent of renewable electricity and storage, in tandem with technologies such as the internet of things, machine learning and big data analytics. help to make customers producers of energy as well as consumers. The new energy system will be decentralised, distributed and multi-directional. Energy companies will need to respond by introducing energy-as-a-service (EaaS) business models, where energy companies will take responsibility for a building’s future energy costs and then introduce various efficiency measures to reduce the amount of power needed to run them.
A comprehensive EaaS approach “will include a combination of saving energy, producing energy, and storing energy, in addition to the conventional buying and using of energy with such entities as Solar and/or wind power procurement, onsite or remote; Onsite generation such as combined heat and power (CHP) or fuel cells; Microgrids and storage; Retro-commissioning and energy retrofits; Time-of-day demand peak shaving; Demand response; Fuel-switching; and Fossil fuel and electricity procurement,” according to CX Associates’ Building Energy Resilience blog.
From the oil field to office lighting, circular economy principles look set to transform the energy sector and the wider economy, making them more sustainable in the process. This circular revolution will cause a major upheaval in the industry, but there are huge opportunities, too, for companies that accept the challenge.
A freelance journalist Mike Scott has written for a range of titles including the FT, Bloomberg New Energy Finance, the Guardian, the Daily Telegraph as well as for think tanks such as Friends of Europe and corporate clients including Siemens, Rabobank, PwC, Deloitte and AkzoNobel.