Circular Economy; framing a new economic system
As introduced on the ‘Circular Economy’ webpage of the Swiss Federal Office for the Environment (FOEN; https://www.bafu.admin.ch/bafu/en/home/topics/economy-consumption/info-specialists/circular-economy.html), today’s economy is a linear economic system.
Sample picture, © M.Semadeni
The value chain points from raw material extraction towards final consumer products as related to the real economy, while financial flows originally reflect the true and increasing value of the chain of generating products and services. Services are important elements of the value chain guiding the pathway to more value supporting information exchange and know-how, metering and reporting, productivity and process improvements, financial allocation and business investment strategies. On the pathway from raw material extraction to final products and services more and more social and environmental externalities were produced over time distorting the true value of a product or service. Ultimately, these costs have to be carried by societies and their individuals. At the end of the value chain stays the transformation of products and services to waste (i.e. including ‘services’ in terms of social rejects, as old and/or obsolete services can mean loss of work and home (migration drivers) and well-being to a service provider). Through the eyes of a linear unidirectional value chain this is simply looked at as burden, agony and unwanted load hampering the profitability of the capital. Especially here, the waste is being pushed out of the system as an externality as far as law and regulations allow.
The increasing social and environmental awareness through the last decades has improved the linear economic system in trying to internalize the externalities through tightening legal economic frameworks. For instance, companies as central economic elements of running the value chain, have introduced - for compliance reasons - strong health, safety and environmental standards in their business processes. Also, sustainability consideration have led them to record, evaluate and report on the social and environmental performance of their company. And now, it is about ‘Circular Economy’ being key in the sustainability discussions with one of the promises in becoming more independent on natural resources - especially considering the vast impacts of reawakened geopolitical resource power plays on humanity. But how can ‘circularity’ be achieved in this very complex economic system? This has recently been discussed at the Swiss Green Economy Symposium “Together with more Impact” (in German only; https://sges.ch/programm-2023/).
The system of a circular economy can give great hopes for humanity to find a sustainable way of living on this planet - prosperously as the linear value chain transforms into a bidirectional value chain; – one, from natural resources to products and the other, from waste/secondary resources back to natural resources. Both pathways are therefore being part of a much, much greater value chain with many new business interactions between them. If the economic framework is being set properly, economic growth can be achieved without having to constantly increase the conversion of natural resources to feed a unidirectional value chain. The mechanisms of circular economy can generate value through thinking about waste as being a secondary resource. With appropriate legal frameworks – e.g. asking to fully internalize externalities through incentivizing corresponding efforts and in parallel with incentives for following up on the 4Rs - repair, reuse, recycle, reduce - of sustainable operations - a bidirectional value chain could develop.
Importantly, extending incentivizing instruments for improving the quality of environmental compartments and regenerate or even increase natural resources, for instance through augmenting the effectiveness of ecosystem services, would ultimately lead to an increase of natural capital. Monitoring the different elements of natural capital and monetizing it along the bidirectional value chain, e.g. using market-based instruments, would allow for direct monetary returns from investments into the environment and natural capital. The inevitable consumption of natural resources could be balanced with an incentivized increase of natural capital. For the transition to a self-running green economy, undoubtedly a firm international regulatory framework would be needed regarding incentives, which should relate on nationally agreed, realistically achievable targets within a given timeframe.
The challenge to monetize elements of natural capital can only be successful if internationally agreed and ‘indicative’ metrics would be applied in certified manners; – ‘indicative’, because otherwise the complexity of the metrics would simply be incomprehensible and much too expensive. One example of a simple indicative metric or parametric is the CO2-equivalent to monetize climate protection measures against the carbon market. Indicative metrics of natural capital will most probably have to be more elaborate. The basis for it should come from research on how to monetize the regenerative power of nature through monitoring ecosystem services and/or to monetize biodiversity as part of healthy and resilient ecosystems; both delivering value of these essential services of nature to mankind.
Gaining value from waste/secondary resources – stepwise all the way back to regeneration of natural resources - would stimulate the way of economic systems towards a sustainable future – without jeopardizing economic growth or in other words the prosperity of humanity.
Marco Semadeni, Dr. Sc. nat. ETH
12.12.2023