This week I interviewed Dr Anne Velenturf (download the mp3 here). We talked about the practical elements of the Circular Economy, and how this could affect decision-making going forward. There are some radical ideas covered in this interview, that I think should be given serious consideration in investment decision-making in a Post-Covid lockdown world.
What is the circular economy and why is it a problem?
The unsustainable use of a linear economic model has caused pollution and extreme global inequality. This has caused physical and mental health problems. The circular economy is a viable solution that allows sustainable growth through better use of resources (by minimising the use of new resources and maximising the reuse of “waste”).
Circular economy changes the decision making process
Organisations tend to focus on short term economic goals. In a linear economy a company is forced into short term thinking because of the way they are governed (investors want quick returns for example).
Similarly, new policy decisions tend to be supported by the Government Green Book. The key indicators for investment decision making are still the financial payback, and a qualitative or fuzzy number related to social or environmental value. Changes are needed to make these indicators more meaningful, to incorporate CE principals.
CE thinks more long term, taking a whole system optimisation approach, incorporating the environment, society, technical function value as well as the economy. CE promotes an equitable society that maintain environment and economic viability for future generations.
Costing Social Value
Should we monetise social value? The price of healthy air to breath, the price of clean water, the cost of maintaining good soil to grow food. Is there an issue with the natural capital accounting approach?
What we should be doing in a CE is using economy as a tool to organise the resources for wellbeing and environmental quality – GDP has gone from a means to an end. The CE is growth agnostic, and is not about reducing or growing GDP. It’s not impossible. New Zealand have a wellbeing budget.
Social Value is not just about producing more jobs and linking this to GDP growth. But, a transformative CE approach can deliver over half a million jobs post-Covid and post Brexit.
Individuals, organisations and Governments need to make decisions. If we can buy and use less stuff or use it more efficiently, we would reduce carbon significantly just from the reduction in energy used to produce the goods.
Reducing water usage through decision making – 1 cup of tea from growing tea to process into your tea is 30 litres. Coffee is 140 litres. The average shower is 12 litres per minute. Your choice – shower for 3 minutes less, have a cup of tea or reuse the bag. It’s a choice, and people need to be aware of the choices they have – lifestyles will have to change – but people have to change themselves. A participatory change is required to make this happen, not enforced through policy.
Making The Circular Economy More Meaningful
The indicators we currently use are important, but will need to incorporate other indicators to have more rounded decision-making. We measure CO2 reductions for example. We can measure the reduction of waste. But, these indicators (a lot of which CE delivers as key benefits) are not measured consistently.
To measure these benefits requires us to develop data systems to know what resources are coming in to the system and when they will stop being used for their current function – this is a massive challenge. But this is happening now. A National Materials Data Hub, showing stocks and flows of materials is being produced by the Office for National Statistics.
Build Back Better
Implementing CE principals into a sustainable business model is a fun and innovative way of creating change – but our economic recovery plan is the same as what was delivered in the early 1930s.
To create transformation a radical approach is required. If we look at the 2008 financial crisis, some economies used this to change their approach. Ireland created a digital service economy – now they have one of the top digital economies in the world – moment of crisis are times we can use for positive change.
The UK govt have not gone that way – it’s taken the approach of buy more stuff to revive economy. This approach fuelled planned obsolescence – a product development requirement that sped up consumption by deliberately bringing products onto the market that will lead to faster and faster consumption.
It would be better to recover and support businesses that are attempting to bring in sustainable CE practices. This could be made to be a criteria for obtaining business support. We have everything to deliver this approach.
For a CE we need harmonised change at different parts of the system.
1. Change the parameters by which we define success and progress – these require change from the political and economic system we are operating in.
2. Start to pay the real price of natural resources – we are not currently paying for the impact of mining, manufacturing and waste. When we start to pay for these, it will create a demand for more durable and reliable goods.
3. We have to create better data infrastructure – to understand in real time what resources are coming in to the system and out, and their quality.
Dr Anne Velenturf
All Anne’s research is open access.
Her Research Gate profile here.
Let me know what you think of the epsiode! Comment Below
Well written. As an economist, it drives me crazy when my non econ friends use cost and price interchangeably.
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