Circular Economic Model can feed Infinite Demand with Finite Resources

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……

Shale Revolution : Share all when in doom, Care not when in boom - Not a fair deal Mr America

Innovations had been the driving force for major economic growth and also for major economic recoveries. US, post the global meltdown in 2008 has staged a smart recovery in year 2013 and Shale gas exploration has been the key driver of this transformation. 

According to Deloitte , recent breakthroughs in horizontal drilling and hydraulic fracturing technologies have resulted in tremendous access to vast domestic energy reserves at a relatively low cost; and, thus contributing to one of the most important trends in the United States today.

The transformation of being a major natural gas importer until few years back to becoming self sufficient, has lead to 100’s of billions of dollar savings for the US economy on its annual imports. Interestingly this could be one major driving factor for US to bounce back on manufacturing too.

  

With Natural gas prices surging in the recent decade, the need for alternative energy source was  felt largely across the world and US has succeed in finding a right technology to source abundant availability of Shale gas and Tight oil. 

This unconventional revolution in oil and gas did not come quickly. Hydraulic fracturing—known as fracking—has been around since 1947, and initial efforts to adapt it to dense shale began in Texas in the early 1980s. But it was not until the late 1990s and early 2000s that the specific type of fracturing for shale, combined with horizontal drilling, was perfected. And it was not until 2008 that its impact on the US energy supply became notable.

The rise of US shale energy is also having a broader global economic impact: American shale gas is changing the balance of competitiveness in the world economy, giving the US an unanticipated advantage. Indeed, inexpensive natural gas is fuelling a US manufacturing renaissance, as companies build new plants and expand existing facilities.

The rest of the world is at disadvantage in exploring shale gas due to regional factors, economic policies and domestic infrastructure constraints. A global level collaborative strategy is required to tap the shale reserve across the world, which can alter the energy security of different regions thereby reducing the cost of energy substantially. 

Today countries are taking independent initiatives on exploration and are struggling to succeed on account of lesser techno capabilities besides their internal constraints. 

Natural gas, being clean source of energy compared to coal and crude has the potential to mitigate the global warming risk and environmental degradation. Global consensus and unified mission to replace shale gas with crude oil will be the greatest service mankind can give to the nature and developed nations should take the technology and the resources across the globe to replace Natural gas to make the earth greener and cleaner. 

The impact is already creating ripple effects in other parts of the world. China having major shale reserve, is struggling hard to drill and Europe is finding it expensive to explore while Russia is worried on their export prospects and the third world has hardly made their first move.

It becomes the responsibility of US to enable the entire world enjoy the benefit of the energy revolution through knowledge transfer which will help the rest of the world become energy secured. Not only there is risk of ever increasing global warming on account of conventional energy, but also the availability of the same is continuously under threat as the next generation will have to face the risk of energy security with depleting oil assets. 

The rest of world had aligned to the take the throbbing if US dooms, then they should also get the delights if US booms. 

Let Fairness Prevail…..