Pay all the costs, get all the benefits: Why industry should own their products for good
By Martin Stuchtey , Founder and Managing Partner SystemiQ Ltd, former Director, McKinsey Center for Business and Environment
A recent McKinsey report called “Growth within: A Circular Economy Vision For a Competitive Europe” has made it clear: we are at the crossroads. Not only are we overusing planetary resources, we are also neglecting resource productivity as a powerful lever to generate wealth and growth. We are hugely wasteful operating systems: we are using cars less than 92% of the time, we are wasting 40% of our food, and we are using offices – even during day time – less than 45% of the time. The structural waste is indicative of a system that has lost sight of resources as a means of wealth creation.
Changing the dynamic might be easier than we think
Taking end-to-end responsibility builds on well-established legal practice. What if any producer had to take the full responsibility of the second and third order effects that a product has? A very easy entry into such a paradigm would be to require any producer to take back their product. Take-back provisions are part of any purchase contract for durable as well as consumable products. And no compensations are permitted. Producers would be allowed to contract third party aggregators (for old cars, mobile phones, tires, building materials, food waste) to run the return systems, but liabilities remain with producers. This system is able to accelerate the transition towards a circular economy in several ways.
Creating the Right Incentives to Pull All ReSOLVE Levers
Each of these ReSOLVE levers represents a major circular business opportunity.
Re generate: Shift to renewable energy and materials; reclaim, retain, and regenerate health of ecosystems; and return recovered biological resources to the biosphere.
S hare: Keep product loop speed low and maximize utilization of products by sharing them among users, reusing them throughout their technical lifetime (second-hand), and prolonging their life through maintenance, repair, and design for durability.
O ptimize: Increase performance/efficiency of a product; remove waste in production and the supply chain (from sourcing and logistics to production, use, and end-of-use collection) without changing the product or technology.
L oop: Keep components and materials in closed loops and prioritize inner loops. For finite materials, this means remanufacturing products or components and as a last resort recycling materials. For renewable materials, this means anaerobic digestion and extracting bio-chemicals from organic waste.
V irtualize: Deliver utility virtually: e.g., books or music, online shopping, fleets of autonomous vehicles, and virtual offices.
E xchange: Replace old materials with advanced materials; apply new technologies or choose new products and services.
In different ways they all increase the utilization of physical assets, prolong their life and shift resources from finite to renewable resources.
Putting the Product’s Life Time into Focus
A take-back system fully internalizes all the costs linked to the products life time, including the cost of end-of-use treatment and environmental impact (e.g., CO2 cost) – again creating incentives to incorporate all these elements in product design, production, and use.
It would help aggregate material volumes to create the scale necessary to profitable circulate these materials at the highest utility at all times. Where the takeback does not work physically (e.g., CO2 emitted is hard to bring back), it can be bought from society against an agreed price (e.g., carbon price) during a transition phase until waste is reduced significantly or new technologies become available.
You can read the complete solution as part of the GES 2015 Selected Solution Proposals (PDF, 3.7 MB)