Circular economy could deliver €1.8tn for Europe

The circular economy is Europe’s next big thing, according to a new study, and EU policy-makers are keen to get in on the act.

"Circular Economy is becoming a viable option for Europe - for the first time", Martin Stuchtey, director of the McKinsey Center for Business and Environment, last week told a packed Brussels audience, including three EU commissioners.

"The model would yield annual benefits of up to €1.8 trillion by 2030", according to the report, 'A Circular Economy: vision for a competitive Europe' from McKinsey.

The study predicts that fully implementing a circular economy will bring €3,000 extra to all European households and make Europe meet its climate commitments ahead of time.

"We are not discussing the if - but the when and how," environment commissioner Karmenu Vella i said.

Uber and Airbnb

The interest in the report’s findings reflects a gradual recognition by business that it make more economic sense to consider product recycling and resource efficiency throughout the whole life-time of a product.

The current economic model has not changed much since the industrial revolution. Nature's resources are used, goods are produced at the lowest cost possible and waste is thrown away. This is the linear economy.

But resources are limited and there is a growing global demand for them.

Europe imports 60 percent of its fossil fuels and metal resources and the EU has already listed 20 materials resources as critical in terms of security and supply. These imports cost €766 billion a year.

In the future the cost of resources will play a bigger role than the cost of labour, forcing a change in business models towards a circular economy.

Private ownership will give way to leasing and sharing products - the new car-sharing service Uber and private lodging service Airbnb are early examples of this.

"If somebody had said four years ago they were going to build the biggest hotel chain in the world? Who would have thought that possible? But it has happened with Airbnb", said Dame Ellen MacArthur, whose eponymous foundation raised the money to pay for the McKinsey study.

Statistics showing where economies and society could be made more efficient and less wasteful are eye-opening.

Almost a third (31%) of food produced is lost or wasted. As much as 50 percent of most city land is dedicated to roads, parking and alike.

A typical European car is parked 92 percent of time, it sits in traffic 1 percent of the time and is looking for a parking space 1.6 percent of the time. It is only used for driving 5 percent of time.

One obvious way forward would be to focus EU regional aid and the EU’s new €315bn investment fund on the circular economy.

Systemic change

The European Commission is due to come with proposals on the circular economy later this year.

It is currently gathering ideas from stakeholders in a process that will last until 20 August.

But there are questions about how it should approach the issue, such as whether it is just about better implementing existing legislation or should binding targets be set.

The McKinsey report suggests that a more fundamental change is needed, however.

"Shifting to a new model starts with acknowledging the systemic nature of the change", it says.

But this longterm approach contradicts the short-termism of politics.

"To survive in democratic politics your perspective is four sometimes five years, while in business to survive your perspective must be 20-25 years", EU commission vice-president Frans Timmermans i acknowledged.

"Politicians can only survive if people keep voting for them. Democracies have difficulties in doing this. If you could impose what you have to do without fearing of winning the next elections, it would be easier. We need to convince our constituencies in democracies that we need to take long term steps,” he added.

But there is already widespread support for the idea of being less wasteful. Eighty percent of respondents to a 2014 Eurobarometer poll believed resource efficiency to be highly important for economic growth.

"There is something in this for all companies", McKinsey's Stuchtey said. "Only the laggards are the losers. It's a question of being fast or slow".