In a Circular Economy, Product-as-a-Service has Social and Environmental Benefits
In 2012 the Ellen MacArthur Foundation published its first report analyzing the circular economy’s opportunities for business. This research focused on complex-medium-lived products and demonstrated that a circular economy scenario could represent a net material cost-saving opportunity of $520 billion to $630 billion a year in the EU in 2030.
Analysis on washing machines indicated that — by rethinking product design and business models — the circular economy could yield significant benefits to both users and manufacturers. For example, top-quality washing machines would be affordable to most households if they were provided through a “product-as-a-service” model, rather than sold, with customers saving around a third per wash cycle and the manufacturer earning around a third more. It also would save huge amounts of materials and carbon emissions. Over a 20-year period, replacing the purchase of five low-quality machines with one high quality machine accessed through a pay-per-wash agreement would save almost 180 kg of steel and more than 2.5 metric tons of CO2e.
Eight years on, the story continues and a new study examines in greater detail the same iconic example.
Specifically looking at washing machines, recent research from Linköping University in Sweden (PDF) tries to solve part of the puzzle about how to shift business models to find more traction when it comes to being circular, as well as adding a social element.
It highlighted the importance of considering economic, environmental and social factors together. For example, if a greater number of low-income households are able to afford access to high quality machines through a pay-per-wash model, they would be able to save more money through the reduced energy costs associated with a more efficient high quality machine. This in turn would mean lower greenhouse gas emissions.
Other social benefits highlighted by the new study include possible job creation through remanufacture and repair, which would be required as part of a product-as-a-service business model.
As might be expected, the research clearly shows that products designed without reuse of components and materials in mind will have a more limited lifetime. At the end of this lifetime, the materials are the responsibility of the customer, and finally local authorities, as the product becomes waste. This problem with a traditional ownership model is compounded by low income groups using cheaper washing machines that are less energy efficient and last even fewer years.
Conversely, product-as-a-service offers a whole new approach, with responsibility remaining with the manufacturer. A number of interconnected benefits are associated with this model. Leasing or renting has not much to do with a circular economy on its own. Add in, however, reuse or remanufacture of components and better design of the machine — for extended product life and re-selling or re-leasing of refurbished units into secondary markets such as housing associations — and the story looks more interesting. This is how the benefits and cost savings mentioned above are achieved. Better quality pays for itself from the manufacturer’s point of view, while generating lower costs per use for the customer who doesn’t have to take on the upfront purchase cost.
Increasing the life of the machine from a traditional 12 years to more like 18 years overall — under a system where maintenance and refurbishment of vulnerable parts is included — leads to a better chance of managing the machine into a second life (see Figure). And if collection rates are better than those achieved by municipalities, the chance of hanging onto some critical raw materials present in the electronics and control boards of the machine increases.
These approaches with durable products are given a boost with the digital revolution as it increasingly offers a way to monitor their performance and makes intervention to maintain performance easier to manage and at a lower cost.
This study paints only part of the picture around resource efficiency and materials circulation, but also considers the issue of social sustainability as quality machines save energy and lower costs per wash within low income contexts. The direction of travel is clear even if enabling conditions, such as real or full cost pricing that includes the cost of carbon emissions, are not yet in play. Just imagine if they were — a circular economy becomes the default business choice for these types of products. The extended product life allows a better cost and revenue outcome for both the user and the manufacturer, while the latter — who has the best knowledge of the product — maintains control of the machine and its embedded resources.
When it comes to full/real cost pricing, government action can be crucial (such as carbon pricing). The researchers also note that some legislation around lease periods should be changed. For example, in the Netherlands, a leasing period must be less than 75 percent of a product’s lifetime, which for a washing machine is set at eight years, meaning the maximum lease term is only six years.
Too many people look at a circular economy from a pure materials point of view. But the circular economy has both social and environmental benefits. As the author of “The Circular Economy, A Users Guide,” Walter Stahel, says, it “manages stocks of manufactured objects with the objective to maintain their value and utility as high as possible for as long as possible. (…) In the saturated markets of industrialised countries, doubling the service life of goods halves both production and waste volumes.” Researchers of the new study add: “To shift towards a sustainable society, lifecycle engineering methodologies addressing the social dimension need to be advanced.”