Circular economy: the shape of the sharing economy to come?

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As far as startup innovations go, the sharing economy is all but a household name. With some of the most successful startups in the world operating in the space and even some governments backing the initiative (UK included), it is hard to argue with its disruptive momentum. However, there is an aspect to the sharing economy that has been overlooked by the public eye despite its potential profound social and environmental impact – its affiliation with the circular economy.

From a consumer perspective, the circular economy is a model whereby value from material assets is recaptured at multiple points in a product’s lifecycle. In simpler terms, it’s an efficient way to make the best use of materials throughout a product’s lifespan through means of maintenance and repair, redistribution, refurbishment and recycling (principally in that order). The ultimate goal is to optimise the use of resources and minimise systematic waste in the product cycle. The model is perhaps best illustrated in the Ellen MacArthur Foundation’s diagram of the circular economy. However, in order to clarify the concept a little bit, I would like to elaborate with an example that focuses on the stock management side of this diagram.

Imagine you owned a drill that stopped working a year after purchase, and for whatever reason you don’t want to see the effort of repairing it. In the absence of a circular economy infrastructure, the way to dispose of the drill in an environmentally conscious way is to recycle it and allow its raw materials to be collected for reuse. Recycling generally requires a lot of additional resources and does little to offset the material and environmental cost of manufacturing the product. In other words, it’s a relatively inefficient way to recapture value from the defective drill that is only one year into its lifecycle.

In an efficient and fully realised circular economy, however, recycling comes into play only as the final effort to scrape what’s left of the drill after there is no further value to extract from it but the raw materials. For example, even with our simplified illustration which jumps over many “cycles” of the model, there is still the option to return the drill to the manufacturer where it’s refurbished for a second life. This process generally retains a lot of the value of the drill by returning it to a “like-new” state with relative cost-efficiency. So, instead of reducing the defective product into a hunk of metal and plastic, it gets turned into a perfectly functional drill while using a fraction of the resources. The drill will still be recycled eventually, but by going the circular route, it has provided much more value during its extended lifecycle than if it were recycled straight away. In a functional circular economy, this ultimately translates into less resources put into the manufacturing of that product which provides an evident economic and environmental benefit.

So what does the circular economy have to do with the sharing economy? In short, the sharing economy can be seen as a small part of the circular economy. It feeds into to the model by tapping into the idling capacity of consumer products, thereby extracting more value from them by making more efficient use of existing material assets. In other words, sharing a drill – which would otherwise sit collecting dust – with your neighbour recaptures value from it by maximising the time that it’s in use (assuming that the lifespan of the product is not determined solely by how much use it gets, which is rarely the case). Referring back to the earlier diagram, this kind of sharing economy activity fits within the first stage of the technical product’s lifecycle. Although the diagram labels this as the “maintain/prolong” cycle, we could just as easily call this the “usage” stage. Bearing in the mind the overwhelming idling capacity of most of our belongings, we can see that the sharing economy activity has enormous capacity to support the transition into a more circular economy by feeding into this stage.

Beyond this, there is also a case to be made for the changing consumer sentiment that followed the sharing economy breakthrough as a potential catalyst for this transition. Namely, there is an increasingly enthusiastic attitude towards sustainable consumption alternatives that could help overcome some of the friction of getting people to consume in an environmentally conscious manner. However, this is hindered somewhat by the fact that, unlike the exclusively peer-to-peer transactions of the sharing economy, the circular economy also holds a strong institutional element. Therefore, getting any meaningful headway will require a dual-effort from both consumers and producers. However, consumer preferences drive corporate change, and with the likes of Mud Jeans and Fairphone pioneering this space, we should remain hopeful that the momentum of the sharing economy could also help us transition closer to a more sustainable circular economy.

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