Towards a circular economy value creation opportunities in the next industrial (r)evolution. Dr. Markus Zils Porto, June 17 th 2014

Transcription

1 Towards a circular economy value creation opportunities in the next industrial (r)evolution Dr. Markus Zils Porto, June 17 th 2014

2 agenda The resource revolution Circular economy the next industrial (r)evolution How to crate and capture value 1

3 A series of mega trends are constraining traditional linear growth 1. Resource Constraints A trend of more expensive commodities and greater volatility 2. Demand Shock An increased demand from 3 billion additional middleclass consumers by The User Revolution An evolution in how we buy, own and consume towards more usage/sharing based models 4. Technology Advances in materials, manufacturing and information technology McKinsey Commodity Price Index World War I s oil shock World War II Postwar depression Great Depression Turning point in price trend

4 Incomes are rising in developing economies faster and on a greater scale than at any previous point in history Years to double per capita GDP 1 Year Country United Kingdom 154 United States 53 Population at start of growth period Million 9 10 Germany Japan 33 South Korea China 12 1,023 India Time to increase per capita GDP (in PPP terms) from $1,300 to $2,600. SOURCE: Angus Maddison; University of Groningen; McKinsey analysis 3

5 agenda The resource revolution Circular economy the next industrial (r)evolution How to create and capture value 4

6 Circular design could deliver resource performance far beyond incremental efficiency improvements Linear system Resource intensity Annual average change Carpet Fridge Furniture +3% -2% -2% Market growth +7% +8% +5% Annual average Circular system Assumed no. of lifecycles Material intensity Reduction potential 2-50% % -75% SOURCE: German System of Integrated Environmental and Economic Accounting; Euromonitor (2011); Centre for Industrial Studies (2011); Freedonia (2011); Ellen MacArthur Foundation circular economy team 5

7 The circular economy framework provides many opportunities for closing the loop on products, components and materials Biological materials Mining/materials manufacturing Technical materials Restoration Biogas Farming/ collection 1 Anaerobic digestion/ composting Biochemical feedstock Cascades Parts manufacurer Product manufacturer Service provider Collection Collection Maintenance Recycle Refurbish/ remanufacture Reuse/redistribute Extraction of biochemical feedstock 2 Energy recovery Landfill Leakage to be minimized 1 Hunting and fishing 2 Can take both postharvest and postconsumer waste as an input SOURCE: Ellen MacArthur Foundation circular economy team drawing from Braungart & McDonough and Cradle to Cradle (C2C) 6

8 Four main value drivers are at the core of any circular business model The power of the inner circle circling longer cascaded use across industries pure/non-toxic/easier-toseparate inputs and designs $ $ $ SOURCE: Ellen MacArthur Foundation circular economy team 7

9 The Ellen MacArthur Foundation wanted to find out whether a circular system is economically viable Does it really solve the resource question? Is it profitable for business? Is it good for the economy? SOURCE: Ellen MacArthur Foundation circular economy team 8

10 A circular economy would not just "buy time" it would reduce the amount of material consumed to a lower set point Effect of circular system on primary material demand in widget market Volume of annual material input required 1,500 1, Demand BAU ILLUSTRATIVE Virgin material substituted by circular material Demand under circularity Effect of circular system on material stock and landfills Cumulative volume of material used 25,000 20,000 15,000 10,000 5, In use BAU material stock BAU landfilled Material stock under circularity Landfill under circularity SOURCE: Ellen MacArthur Foundation circular economy team 9

11 Based on that, we analysed selected product markets in detail, discovering high potential for reusing of resources mobile phones End-of-life product flows based on 2010 EU figures Percentage of total end-of-life devices Status quo Transition scenario 1 ESTIMATES Mining Mining Parts manufacturer Parts manufacturer Product manufacturer 9 Recycle Product manufacturer 10 Recycle Service provider 0 Remanufacture 2 Service provider 21 Remanufacture 2 6 Reuse 19 Reuse Unaccounted and landfill Collection Unaccounted and landfill Maintenance Maintenance Collection 1 Transition scenario: conservative assumptions on improvements in circular design and the reverse cycle, within today's technical boundaries 2 Remanufacturing, here refers to the reuse of certain components and the recycling of residual materials SOURCE: Gartner; EPA; Eurostat; UNEP; Ellen MacArthur Foundation circular economy team 10

12 Reuse Design changes and investments in reverse infrastructure could greatly improve the circular business case mobile phone example USD per device Remanufacture Recycle materials Do the right thing (effectiveness) Status quo Improvement Transition scenario Cost improvement 22.8 Value improvement Recoverable value Treatment costs Do it right (efficiency) Net benefit status quo Circular design Treatment process Net benefit improved ESTIMATES SOURCE: Geyer & Doctori Blass (2008); Neto & Bloemhof-Ruwaard (2009); Neira et al. (2006); EPA; Umicore; LME; Metal Bulletin; recellular.com; amazon.com; recyclemobilephones.co.uk; Ellen MacArthur Foundation circular economy team 11

13 There are thriving circular business models, which attack critical points in scaling CE up quickly Building blocks Example Points of attack A Skills in circular product design and production Modualised phones Allowing for ease of disassembly and components exchange Premature obsolescence Limited degree of modularisation Materials chemically contaminated B New business models Vodafone Red Hot Providing customers access to devices on a yearly basis Low customer incentives to return products after usage Limited control of manufacturers/retailers over post-sale value chain C Skills in building cascades/ reverse cycle ecoatm Return ATMs letting customers bringing in used devices in exchange for cash Subscale and thus expensive reverse operations Lack of quality (lots of dead on arrivals) D Enablers to improve cross-cycle and cross-sector performance Standardised USB Providing power supply for most mobile phones in Europe Misaligned incentives Lack of standards Lack of investments Lack of capabilities SOURCE: Ellen MacArthur Foundation circular economy team 12

14 Substantial savings are already possible with minor changes to the current setup TRANSITION SCENARIO Example Profit change in circular activity for USD 1 mn in sales 000' USD Net material cost savings for USD 1 mn in sales 000' USD Mobile phone remanufacturing Light commercial vehicle refurbishment Washing machine refurbishment An economic opportunity worth billions For medium-lived complex goods, cost savings of up to $630 billion in Europe Smartphone refurbishment Note: Transition scenario: Conservative assumptions, focusing on changes in product designs, reverse cycle capabilities Advanced scenario: Assuming more radical change especially in terms of further developed reverse-supply-chain competencies, and other enabling conditions like customer acceptance, cross-chain and cross-sector collaboration and legal frameworks SOURCE: World Economic Forum and Ellen MacArthur Foundation circular economy team 13

15 Shifting to inner loops creates significant economic benefits in excess of 1 trillion US-Dollars annually Biological materials Mining/materials manufacturing Technical materials Restoration Farming/ collection 1 Biochemical feedstock Parts manufacurer Product manufacturer Biogas Cascades Service provider Maintenance Recycle Refurbish/ remanufacture Reuse/redistribute Anaerobic digestion/ composting 2 Collection Collection Extraction of biochemical feedstock 2 For fast moving consumer goods: cost savings potential of $700 bn p.a. globally Energy recovery Landfill Leakage to be minimized For medium-lived complex goods: cost savings of up to $630 bn in Europe 1 Hunting and fishing 2 Can take both postharvest and postconsumer waste as an input SOURCE: Ellen MacArthur Foundation circular economy team drawing from Braungart & McDonough and Cradle to Cradle (C2C) 14

16 Employment effects vary across primary, secondary, and tertiary sectors of a circular economy Primary sector Secondary sector Tertiary sector Restoration Biogas Farming/ collection Anaerobic digestion/ composting Biochemical feedstock Mining/materials manufacturing Cascades Parts manufacturer Product manufacturer Collection Service provider Collection Maintenance Effect on employment activity (directional) Recycle Refurbish/ remanufacture Reuse/redistribute Extraction of biochemical feedstock Energy recovery Landfill Leakage to be minimized SOURCE: Ellen MacArthur Foundation circular economy team 15

17 Revamping industry, reducing material bottlenecks and creating tertiary sector opportunities would benefit labour, capital, and innovation Labour intensity Labour spending per unit of GDP output, EU-27 economies Innovation index¹ IBM/Melbourne Institute Index Capital intensity Total expenditure/labour expenditure, EU-27 economies Primary Secondary Tertiary Primary Secondary Tertiary Primary Secondary Tertiary 1 Components of index include: R&D intensity; patent, trademark and design intensity; organizational/managerial innovation; and productivity Note: Primary sector (extraction), secondary sector (manufacturing) and tertiary sector (services) SOURCE: Labour intensity calculated using data taken from Eurostat input-output tables for EU-27; innovation data from the IBM/Melbourne Institute Innovation Index (covering Australian industry),

18 agenda The resource revolution Circular economy the next industrial (r)evolution How to create and capture value 17

19 Desso gaining market share and boosting Ebit margin by offering better, circular products CE - TRANSFORMER Market share in percent 23 Desso systematically redesigned it s business along Cicrular Economy building blocks Design Business model C2C backing, fully recycleable and saleable to 3rd party applications (e.g. bitumen to road construction) Use of nylon 6 which is 100% recycleable in coopetation with Aquafil Reduction of coloring dies to few non-toxic versions Co-development of carpets with customers for special needs e.g. Airmaster carpet, aircrafts and marine applications) Pilot cases for leasing of carpets Enabling value creation Reduced material costs Reduced complexity costs Innovation as market differentiator Better value proposition Increase in market share Price premium Profit margin in percent 9 Reverse Cycle Established take back scheme Invested in own recycling facility integration of supply chain partners (e.g. Better economies of scale and scope Decoupling of resource prices Reduced collection and treatment costs SOURCE: Desso; Ellen MacArthur Foundation circular economy team, press clippings, University case studies, Amadeus 18

20 ifixit provides a platform for growing repair services in consumer products Circular Business Model CE - ENABLER Impressive growth trajectory in bootstrap mode 223% n/a Core idea Crowed-source repair manuals Create platform and video tutorials for exchanging manuals Create revenues and funding from Sales of parts Sales of tool-sets Current Footprint Operational since 2003 ~ 50 employees in two main hubs San Louis, CA (headquarter, fullfillment Americas) Stuttgart, Germany (fullfillment center rest of world) Privately owned, no outside investors Impressive reach and enabler for circula business model More than 3 Mio. unique users per day Enabled launch of repair shops and chains (e.g. UBreakItIFixIt) Frequent coverage in leading media, e.g. Business Week, BBC SOURCE: ifixit Webpage 31/10/13; Ellen MacArthur Foundation circular economy team, Amadeus, Press clippings, CEO interview 19

21 The Plant in Chicago is a good example for collaboration in regenerative, local networks CE - NETWORKS SOURCE: government web site 20

22 Points of attack for a new industrial revolution an opportunity for early adopters New materials and noleakage industry design Impact on economy New materials economy E.g., bio-based, 3D Collaborative action Shared resources in global supply chains Regional material regeneration New shared resource economy E.g., PE, PP, "clean paper" New regional economy E.g., CO 2 / food waste valorization Company specific Closed loop solutions Time to impact SOURCE: Ellen MacArthur Foundation circular economy team 21

23 -Herman Mulder, Chairman of the Global Reporting Initiative 22

24 Thank You 23

25 The Ellen MacArthur Foundation sponsored three reports to evaluate the economic impact of a circular economy at scale Davos 2012 Davos 2013 Davos 2014 SOURCE: Ellen MacArthur Foundation circular economy team 24