It is true that
over 65 billion tones of raw material entered the economic system in the year
2010 and the estimates are that over 80 billion tones of material will be
consumed by year 2020. For more than a century now we have been harvesting and
consuming raw material through a linear consumption model which has lead to
unprecedented rise in the commodity prices. This “Take-Make-Disposal” model of
business across economies will hit the tipping point as it will be
unsustainable to extract material from finite sources.
Lets look at some
interesting data’s
- India and Chine has 40% of World Population and both will become big consumers as they keep growing at the pace at which they are growing
- The median age of India being less than 30 years and half of it population being young and resourceful, the consumption pattern will go through a dramatic change.
- Over 3 to 4 billion more people will become middle class consumers globally within a decade leading to further fuelling of consumption demand
- China’s shift in policy from being Investment economy to Consumption economy will add fuel to the fire in the coming years.
All these things
point to the single greatest risk “Inflation”. The demand side becoming more
and more infinite and supply side becoming more and more finite. We have seen
commodity prices moving sharply by 150% in less than a decade.
World Economic
Forum in Davos has discussed in length on this issue and many leaders in the
forum have talked in length on “Circular Economy” as the solution to the impending
crisis that is building. Some of the key observations are
“Linear
consumption is reaching its limits. A circular economy has benefits that are operational
as well as strategic, on both a micro- and macroeconomic level. This is a trillion-dollar
opportunity, with huge potential for innovation, job creation and economic
growth”
Recently,
many companies have also begun to notice that this linear system increases
their exposure to risks—most notably higher resource prices and supply
disruptions. More and more businesses feel squeezed between rising and less predictable
prices in resource markets on the one hand and high competition and stagnating
demand for certain sectors on the other. The turn of the millennium marked the
point when real prices of natural resources began to climb upwards, essentially
erasing a century’s worth of real price declines
A
circular economy is an industrial system that is restorative or regenerative by
intention and design. It replaces the end-of-life concept with restoration, shifts
towards the use of renewable energy, eliminates the use of toxic chemicals,
which impair reuse and return to the biosphere, and aims for the elimination of
waste through the superior design of materials, products, systems and business
models.
Re manufacturing,
reuse, recirculation, recycling and access against ownership are all new thought
process which are fast emerging. Larger brands like Renault, Vodofone and Consumer durables
business have also started getting into
circular economic model to have a control over the raising material cost. The
input cost through circular business model can go down to as much as 50% creating
a $1 trlln savings across the world which is substantial.
Renault’s reengineers different
mechanical subassemblies, from water pumps to engines, to be sold at 50 to 70%
of their original price, with a one-year warranty. The remanufacturing
operation generates revenues of US$ 270 million annually.
Renault became the first car
maker to lease batteries for electric cars to help retain the residual value of
electric vehicles (to encourage higher consumption) and make batteries fully traceable,
ensuring a high collection rate for closed-loop reengineering or recycling.
Ricoh company established the
GreenLine label as a concrete expression of its commitment to resource
recirculation, with an emphasis on inner-loop recycling. The company is on
track to reach their targets to reduce the input of new resources by 25% by
2020 compared with 2007 levels, and by 87.5% by 2050, and to reduce the use of—or
prepare alternative materials for—the major input materials for products that
are at high risk of depletion (e.g. crude oil, copper and chromium) by 2050
Philips has a track record in
the collection and recycling of lamps. For example, in the EU, Philips has a
stake in 22 collection and service organizations that collect 40% of all
mercury-containing lamps put on the market and with a recycling rate greater than
95%
Vodafone is one of the first
movers in the ICT industry to capture the benefits of the ‘access over
ownership’ business model with its Vodafone New Every Year/Red Hot and Buy Back
programmes, which allow the company to strengthen their relationship with
customers
H&M launched a global
in-store clothing collection programme to encourage customers to bring in
end-of-use clothes in exchange for a voucher, an initiative also taken by Marks
& Spencer with Oxfam in the UK
Trina Solar ,one of the largest
solar panel manufacturers in the world based in China, have started developing technologies
and standards for recycling end-of-use photovoltaic modules in anticipation of
the obsolescence of first-generation panels. The reverse logistics operation will
mostly be located in end-usage countries. Glass will be extracted from the
modules and used for other glass applications, while the electronic control
systems will be treated as waste of electrical and electronic equipment (WEEE).This
will allow the company to reap the benefits of secondary material value as well
as remain compliant with regulations
Courtesy
: World Economic Forum
Elimination of
waste through recycling and re generation can lead to phenomenal gains through
control over commodity prices, reduction of supply shocks and further
innovation over the same can add up to new job creations across the globe.
The major benefit
can be in terms of preserving the finite natural resources to the successive generations
for their consumption.
The greatest
challenge will be for the adoption of such a concept across the world. A unified
mission across the globe to practice circular economic model can become the
answer to the monstrous inflation trying to eat away the wealth of the nations
at large.
According to
Mckinsey, the resource markets will be shaped in coming years by a race between
emerging-market demand and the resulting need to increase supply from a more
challenging geology and the twin forces of supply-side innovation and resource
productivity.
While Innovations
such as the use of 3-D and 4-D seismic technologies for energy exploration can
improve access to resources but the long term sustainability on resource prices
can be achieved through circular economic model. Productivity gains can reduce
the wastage of food and water and make buildings more energy efficient. The
question is whether technology and resource productivity can improve fast
enough to counter the impact of emerging-market demand and a more challenging
geology
Can this be the
next revolution which can distribute prosperity across the world……
No comments:
Post a Comment