USA TODAY - New York's decision last November to ban food waste from dumping grounds may turn out to be one of the city's smartest decisions ever. Massachusetts, Connecticut and Vermont are already doing the same, as are Seattle, San Francisco and Portland. The United States could finally be waking up to the benefit of the "circular economy," or taking what you throw away and finding as much value in it as possible.
Do you throw away clothes you no longer wear? They can be used to create insulation or upholstery stuffing, or simply recycled into yarn to make fabrics that save raw materials. The United States is already exporting used clothing worth over $12 billion per year. That could grow much higher, as currently only 15% of clothing is being collected.
What have you done with your old iPhone 4? Each smartphone we throw away holds $100 worth of materials we could easily use again. Right now only 20% of this material is being recycled globally, which means $100 billion worth of material is lost to the ground just a year after purchase. The cost of manufacturing mobile phones could be halved if industry made them easier to take apart, so new phones could come from the refurbishment of outdated phones. Given the speed at which we now upgrade our phones, one can easily do the math.
The basic idea behind the circular economy is to derive the maximum value out of any used goods that can be partially reused from food waste and iPhones to paper and clothing. But that's just recycling right? In fact, it's several streets ahead. In a circular economy, instead of assuming that products will be thrown away, companies think at the design stage about how parts of new products could eventually be extracted and used again.
Once that happens, the rest of the supply chain will respond to the potential value of reuse and recycling. Renault has a remanufacturing business that is already earning $300 million in revenue, and boasts the highest profit margin in the group.
The near-tripling of commodity prices in the last decade has already sharpened the incentive for businesses to reduce cost and manage risk by rethinking their material inputs. With the global population expected to grow by 2 billion before 2030, that incentive will only increase.
Other regions are much more advanced in developing the circular economy. In Europe, job creation in the recycling sector has been growing at more than twice the industrial average. China's recycling sector is so lucrative that one of its industry leaders reportedly says he wants to buy TheNew York Times. The overall economic opportunity could be as large as $1 trillion per year globally by 2025.
The United States is lagging far behind Europe and Asia in recovering resources. It recovers about 8% of all plastics (Europe recovers almost twice as much), 15% of textiles (the United Kingdom's rate is four times higher) and 20% of aluminium (Japan recovers 98% of its metals).
But the United States has the potential to catch up. Disassembling parts from products including motor vehicles, IT and medical devices already earns $43 billion in revenue and employs close to 200,000 Americans. Growth in the remanufacturing sector is outstripping growth in gross domestic product.
The United States has also already pioneered the concept of a "sharing economy," illustrated by Zipcar, a membership-based car sharing company, and Airbnb, which allows people to rent out assets when they're not using it. The sharing economy now encompasses a plethora of start-ups in everything from sharing video games to running errands. It is a great example of circular business, as people realize that paying for usage of something they need for only a limited time can make more sense than outright ownership.
Inevitably, unlocking the potential of the circular economy will require collaboration among government and companies. Governments can shape behavior through initiatives like New York's on food waste, while companies can work together to establish common standards for reusable materials, along the lines of the PET numbers you see on plastics bottles to help recyclers to sort them.
In this endeavor, the World Economic Forum's Annual Meeting in Davos this week will rally political and corporate leaders to align incentives behind the circular economy revolution - a new industrial revolution which will also be good for the environment.
This revolution will require rethinking the way we live, eat and work. But as shown by Zipcar's sale last year to the Avis Budget Group for $500 million in cash, the rewards for figuring out new circular economy business models are vast.
Richard Samans is managing director and member of the Managing Board of the World Economic Forum. He is formerly director-general of the Global Green Growth Institute, an international organization headquartered in Asia, and special assistant to the president for international economic policy during the Clinton Administration.
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