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Service, Performance or Goods ?

Circular Economy selling functional services

and performance rather than goods

EMF Amsterdam 21. 05. 12

Walter R. Stahel

Visiting Professor, University of Surrey

Founder-Director, The Product-Life Institute, Geneva

www.product-life.org, productlife.org@gmail.com

The principle of sustainability

Sustainability = holistic, systemic, future-creating

solutions, following the Iroquois motto:

In all your endeavours, consider the impact

on the coming seven generations.

“Simple, convincing solutions, based on the

principles of sustainability in order

to gain long-term validity”

Three parts of the puzzle

1 Objectives 2 Business model C.E.

Steuern sind zum steuern da, Stahel, 23.03.2012

Growth

$

kg mh

Resource Jobs

3 Sustainable taxation – creating incentives

consump-tion

Objectives :

decouple economic growth

and resource consumption

while increasing regional jobs

Objectives: decoupling wealth and resource

consumption while creating regional jobs

wealth up

Agenda 21 $ Rio 1992 ch. 8

kg mh

resource- jobs up consumption down Agenda 21 ch. 9

Stahel, The Performance Economy, 2006/2010

A resource efficient low-carbon

Europe 2011 (EU Commission)

EU agenda 2008

for future growth

every election campaign

Principles of sustainable taxation

Set clear political

framework

conditions,

consumers follow

economic logic.

«strange that

we can deduct

more for our car

in the tax

declaration than

for our child»

Principles of sustainable taxation

a do not tax renewable resources,

tax consumption of non-renewable

resources

b accept that work – human labour –

is a renewable resource Note

• a shift to a Circular Economy needs no subsidies

(unlike renewable energies),

• not-taxing work creates virtuous loops (self-rein-

forcing job-creation catalysts).

The government (labour) angle

• Govs should give priority to human labour in resource use because a barrel of oil or a ton of coal left in the ground for another decade will not deteriorate, nor will it demand social welfare,

• People at work are a desire for govs, which invest more than 10 years in the education and vocational training of young people to bring them to market,

• Unemployed people present a high cost for govs and a lost opportunity for the national economy,

• Not taxing labour reduces incentives for black labour in the shadow economy and reduce the costs for govs to monitor and punish abuses.

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The business model to achieve the

objectives: a Circular Economy

Today’s linear industrial economy

more growth means more throughput

resources materials manufacturing distrib. P.O.S. use waste

micro-economic profit optimisation P.O.S. CONSUMER STATE

The manufacturer’s liability for industrial goods concerns the manufacturing quality. Property and liability are transferred to the CONSUMER at the P.O.S. and the State BUT: asbestos, tobacco, GHG emissions class action suites

zero-life products

21st C

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Economics of the Circular Economy to manage stocks locally, not flows globally, today

remanufacturing goods

Source: Product-Life Institute, 1976

X X

renovating buildings, reman capital goods, maintain/upgrade infrastructure

renting goods, refilling bottles, second-hand goods, e-bay

re-using goods

the large loop (recycling)

labour-intensive

resource-miser

reman activities

the small loops

resource security

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1 Wealth preservation instead of wealth substitution,

Re-use is the prime strategy for markets near saturation

number of scrapped cars

1960 1995

new car registrations

destroyed stock flow

21st C

Local is beautiful in a C.E.

the smaller the loops, the more sustainable

The principles of a C.E.:

• The smaller the loop (geographically and loop) the

more profitable and resource efficient

• Stock optimisation replaces flow optimisation (except

for goods with innovative technology, destructions),

bathtub calculation: utilisation value replaces exchange

value, maintaining wealth ‘completes’ value added

• Loops have no beginning and no end

• Slow loop speeds are crucial for high material efficiency

(coke cans, reversed accumulated interests)

Five key impacts of CE

on economy and society

Small loops

1 use human labour instead of energy and

materials, at lower costs,

2 create local jobs of all qualifications,

3 promote caring: maintaining stock is based

on maintaining existing values and qualities,

4 reduce resource consumption and

environmental impairment,

5 create resource security (national and

corporate)

Impacts of a C.E. on economy and society:

labour, jobs

1 The small loops of a CE substitute

manpower for energy

Fritz Schumacher (1973) Small is beautiful, economics

as if people mattered, Chapter 2.1: Education

Walter R. Stahel (1976) The potential for substituting

manpower for energy, report to the EU Commission

Bruce Hannon, Faye Dutchin and other U.S. professors

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 10 20 30 40 50

Nutzungsjahr

Veränderung der Kostenanteile über 50 Jahre

Abschreibungen

Öl und Kleinteile

Ersatzteile

non-renewable resources

renewable ressources

Local job creation through longer service life – skilled workers replace material and energy in manufacturing

spare parts

A C.E. uses and trains the highest

quality resource

Work—human labour

• Is the most adaptable, innovative but also the

most vulnerable of all resources,

• Has a major qualitative component (capabilities,

satisfaction, caring)

• Is the only resource with such learning

capabilities as creativity and innovation

• BUT: human capabilities degrade if not used and

continuously educated – continued employment

and education are key

Impacts of a C.E. on economy and society:

jobs, caring, quality

The small loops of a Circular Economy

2 create local jobs of all qualifications,

3 promote caring: maintaining stock is

based on maintaining existing values and

qualities,

The small loops of a C.E. promote caring

which is key to any stock management

• Stock management involves caring – preserving manufactured capital (buildings,

infrastructure, equipment, goods) preserves the

embedded energy, water, GHG emissions,

– fostering people’s quality of life (skills, education

and health services, knowledge),

– maintaining culture and cultural heritage capital

(incl. technology), museums,

– making best use of natural capital (e.g.

producing bio food from organic agriculture,

wooden furniture, leather shoes, wool textiles)

The quality angle of a C.E.

The circular economy is

• regional, meaning less transport volumes and shorter distances in the processing chain,

• more labour-intensive than manufacturing because economies of scale are limited,

• a high-quality world: Stradivari instruments and expensive watches do not live forever by design, but through periodic remanufacturing,

• the knowledge and know-how of past technologies are necessary for retrofitting infrastructure and equipment (i.e. employing silver workers)

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Impacts of a C.E. on economy and society:

higher economic competitiveness and

material efficiency, reduced environmental

impairments

4 a C.E. reduces costs and

resource consumption and environmental

impairments

Sustainable competitiveness:

material efficiency means profits

• A circular economy (better design and more

efficient use of material) could save European

manufacturers US$630bn a year by 2025,

according to a 2012 report by the Ellen MacArthur

Foundation, London.

• The report, produced by consultancy McKinsey,

only covers five sectors that represent a little less

than half of the GDP contribution of EU manufac-

turing, but still calculates that greater resource

efficiency could deliver multi-billion Euro savings

equivalent to 23 per cent of current spending on

manufacturing inputs.

The environmental impairment angle

The small loops of a C.E. promote a circular regional economy instead of a linear global one, energy- and material-wise:

• transport distances of reuse and reman are a fraction of those in manufacturing chains,

• reuse and reman activities need less energy than manufacturing processes (produce less CO2),

• reuse and reman activities use a fraction of resources of manufacturing the same good,

• REE in nanotechnology applications might only be recovered by reusing the components.

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The resource / environment angle

A 2004 sectoral study on restoring used automotive engines

compared to a like-new condition showed lower economic costs (30-53%) and much lower environmental costs compared to manufacturing engines:

• raw material consumption down by 26-90%, • waste generation down by 65-88%, • energy consumption down by 68-83%, • 73-78% fewer carbon dioxide (CO2), • 48-88% less CO, • 72-85% less NOx, • 71-84% less SOx, • 50-61% less non-methane hydrocarbons emissions.

Source: Smith, VM and Keolian, GA (2004) The value of remanufactured engines, life-cycle

environmental and economic perspectives, Journal of Industrial Ecology, 8(1-2) 193-222

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mio t GHG emissions

Lifetime

optimisation

Goods as

services

Circular

Economy

(restorative)

Source: WRAP

(2009)

GHG reduction

Geman EEG 100 mio t

800 mio t

Impacts of a C.E. on economy and society:

economic competitiveness and material

efficiency

5 Selling goods as services means

maintained resource ownership by

manufacturers and creates resource

security

Walter R. Stahel (2010) The Performance Economy,

Tim Jackson (2011) Prosperity without growth,

economics for a finite planet

New wisdom?

True wealth lies in utilisation,

not in ownership

Aristotle

• is the most profitable and competitive business model of the Circular Economy,

• is sustainable and preventive as manufacturers internalise the cost of risk and of waste,

• leads to radical and rapid new product design for take-back and reuse of goods and components,

• achieves the highest resource efficiency and security as it maintains ownership of material,

• exploits sufficiency and prevention as profit strategies

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The Performance Economy - selling

performance--goods as services

Source: Stahel, W.R. (2010) The Performance

Economy, p. 102.

Key business strategies of the Performance Economy

su

ffic

iency

The shift from sinking to rising resource prices

21st C

‘Paradigm shift’ of the Millennium

• Rising commodity prices indicate that

continued ownership means future profits

and a higher resource security

The goods of today are the

resources of tomorrow at the

resource prices of yesterday

The Performance Economy: sustainable profits with an

internalisation of the costs of risk and waste

manufacturer consumer waste

industrial economy dispersed

selling goods warranty consumer State carries

carries all waste costs risiks

manufacturer/fleet manager consumer waste

Performance Economy concentrated

selling system manufacturer/

utilisation fleet manager

carries all risks strong economic incentive for

loss and waste prevention

The Performance Economy uses absolute

decoupling indicators to monitor more wealth and

jobs from less resource consumption

wealth up

$

kg mh

resource- jobs up consumption down

$/kg up

mh/kg

up

Stahel, The Performance Economy, 2006/2010

35 The mh/kg ratio of remanufacturing a car engine is 270 times that of manufacturing a new engine

using absolute decoupling indicators

Example: Private Finance Initiatives (PFI) are increasingly used for the construction and long-term opera-tion of infrastruc-tures by a single economic actor. Le Viaduc de Millau, a 2001 78-year contract to design, finance, build and operate the bridge (to 2079), with a maintenance contract until 2121

Le pont de Millau, France

The role of sustainable taxation

The art of incentives

If you want to build ships, do not assemble

men to procure timber, to define tasks and

delegate work, but teach people the

longing for the sea

“Créer la pente vers la mer”

Antoine de Saint-Exupéry, Citadel

The role of the three puzzle pieces

1 Objectives 2 Business model

Steuern sind zum steuern da, Stahel, 23.03.2012

Growth

$

kg mh

Resource Jobs

3 Sustainable taxation creates incentives for success

consumpt

22/05/2012 The Performance Economy 40

Where to find more information: The Performance Economy Walter R. Stahel published by Palgrave Macmillan London March 2010 translated into Simplified Mandarin productlife.org@gmail.com http://product-life.org

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Thank you for your attention

Sustainable

taxation is a

booster to

increase:

resource

security,

and jobs

prevent

GHG

emissions

Copyright/author: Walter R. Stahel 2011

RESOURCE SECURITY

JOB

CREATION

GHG EMISSION REDUCTION

SUSTAINABLE

TAXATION