A Call for Hope: Circular Economy

Carissa Hanjani | Staff Kajian Kanopi 2015 | Ilmu Ekonomi 2014

Aren’t we all tired of listening to seminars and reading articles about how nations should be able to raise its productivities in order to increase their overall growth, how leaders all over the world should take environment issues into account, and how resource price are increasing way beyond the global economic output, while on the other hand the solutions proposed are always too general and vague? These issues demand precise integrated collective actions; furthermore, a shift in our perspectives towards what industries should be like. A new economic model called the Circular Economy provides it all: higher productivity for higher growth, less dependency on volatile resources market, and less–even close to zero–harm to the environment. It does sound utopian, but it can be done.

The Fallacy of Flow of Goods Paradigm

Let us take a moment to reflect what we have today and what we will have tomorrow. Each day industries have been extracting raw resources and processing it to be final goods to be used and consumed on a daily basis. Final goods are ready to be “thrown away” to the market and it’s a bye to those goods. Consumer will come to buy these goods, consume and use it, and they would discard the outstanding or broken ones and they will never see these goods again. Tomorrow, industries would extract more and produce new goods. Consumers will buy new ones, and this linear cycle continues. What can be concluded then is that these goods, since the very beginning, are meant to be one-way productions.

This mindset of both producers and consumers that goods are meant to flow through the economy once is a fallacy that has to stop, now. The fact that we actually discard the value of goods to what it is actually worth shows that we are neglecting the opportunities of goods regeneration that will benefit us all. Instead of taking it linear, let us picture a better image in a more circular way; goods are meant to go back in the economy where goods do not go to the initial phase of extracting resources but rather come at the middle phase of production.

Circular Economy: How It Works

Circular economy replaces the assumption of disposability to a new one: restoration (McKinsey Quarterly Report, 2014). It provides a complete plot of the flow of goods clearly; from how and where the manufacturing process goes, distribution chain to consumers, and instead of going to disposal, the used goods would be collected to be either put in maintenance, remanufactured, or fully recycled. It designs product optimization for numerous cycles of disassembly and reuse, systematically.

The one important thing that distinguish circular economy from the conventional ones is that since the very beginning it strictly distinct two different function of one goods: the part of goods that is consumable and the part of goods that is still durable. The consumable part is intended to be environmentally friendly once it is consumed; on the other hand, the durable ones will be designed in a way that enable producers to reuse or separate them in parts and reassemble.

[caption id="attachment_412929" align="aligncenter" width="525" caption="Scheme of Circular Economy (Source: Ellen McArthur Foundation, 2012)"][/caption]

To give a bit of visualization, Renault is a real example that has already experienced significant effect in implementing Circular Economy. A plant located near Paris that operates in remanufacturing automotive engines, and several other components for resale is redesigning certain components to be able to disassemble and reuse, so that after they are worn out it will be inputs for new ones. This operations result in the use of 80 percent less energy and 90 percent less water compared to the new productions. Although by now the company only implement the system partially, it can be said that the effect generated surpass the expectation.

It makes huge difference in overall cost and use of energy between products that come from resource extraction and used goods disposal. This is substantial for manufacturers as they are either partially or fully dependence on natural resources. Two things for sure: the stock of natural resources won’t last that long and thus the price of resources is highly volatile. Circular Economy assures a more stable and independent state towards this issue; furthermore, the cost of production could be pressed down, leaving firms more space to grow.

The impacts for the consumer then will be the stability and affordability of the price of goods in the long term. And since the products are specifically designed to be upgradable and maintainable, the quality of products will considerably increase that will result in higher satisfaction.

Opportunities for Indonesia

Experts and neighbors have been calling for Indonesia to gradually shift from the resource-driven growth to productivity-driven growth. Productivity here includes not only on the human resource, but also in benefiting natural resources as well as the use of energy. The government has been trying to form integrated regulations in making this real but it seems like the result is not as tangible as it is expected.

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The two graphs above reflect the projection of increasing trend towards our consumption in the next 20 to 25 years. Not only the whole population is going to grow–at least 19 percent–but also the purchasing power will double up in 2030. How domestic production is going to fulfill this gap is the question that we have to plan out as soon as possible. The call for systematic change then is even louder.

Circular economy will provide real framework towards these issues. It is heading towards the same direction: taking resources to the highest values and using the least use of energy as it could. Moreover, the government will finally have the ability to integrate everything –from manufacturers to society- to one system and thus have the feasibility to control this collective action.