Circular economics could add sustainable billions to Dutch economy

12 June 2019 Consultancy.eu

Shifting to a circular economy could create a plethora of new jobs in the Netherlands, while allowing the country to significantly reduce its material use intensity, according to studies by Rabobank and Oliver Wyman. As sustainability replaces globalisation as the key driver of the economy, a reversal from global to local supply chains is expected, something the Netherlands is well positioned to take advantage of.

Real concerns around the future the environment have been voiced for some time, particularly on the high-waste nature of consumer economics, with scientists warning of the impact of human activity on the environment. While such warnings have often incorrectly been taken by detractors as being an issue solely concerning other species, a UN report from last month found that human society is also in jeopardy from the accelerating decline of the Earth’s natural life-support systems.

The study painted a picture of a planet-wide tragedy, as a small range of cash crops and high-value livestock are steadily replacing forests and other nature-rich ecosystems, at a rate more in keeping with the needs of economic growth than with the actual needs of the world’s human population. The world’s leading scientists warned that, following the most thorough planetary health check ever undertaken, should human activity fail to change course, the consequences will be dire.

Yearly net resource consumption in terms of ecological footprint vs. biocapacity for earth / Netherlands

According to a growing number of business think-tanks, the solution to these woes is the adoption of circular economics. A circular economy (often referred to simply as "circularity") is an economic system aimed at minimising waste and making the most of resources. This regenerative approach is in contrast to the traditional linear economy, which has a 'take, make, dispose' model of production – and the idea is being championed by a growing cross-section of the world’s largest businesses and organisations, including the World Economic Forum and the European Union, which see it as a way of circumventing a climate catastrophe without having to shift away from growth-focused capitalism.

To that end, analysis from management consulting firm Oliver Wyman shows that a shift to circular economics would allow consumption to become “sustainable” – with fewer virgin resources required, limiting environmental harms, while creating a host of new industries to repair and repurpose goods. Not only that, the shift could actually improve the performance of the economy in the long-term.

Circular arguments

The state of play would see humanity need the equivalent resources of approximately 1.7 earths to continue in this manner, while economic booms in the developing world mean a change in global consumption behaviour to more Western lifestyles will see natural resource exploitation increase three-fold by 2050. In the Netherlands, consumption has already reached this unsustainable level, and if this was replicated across the globe, it would take 3.4 earths to sustain.

From a linear to a circular economy

However, exploring the possible benefits to the Dutch economy from a transition to a circular economic model, Oliver Wyman found that not only could the nation’s consumption become sustainable, it could create a number of (unforeseen) economic benefits. The negative impact of a shift from high-value first hand goods to a broader first and second-hand goods market, would be offset by increased spending in other parts of the economy as more money is made available for different types of goods and services. Meanwhile, GDP additions to the country’s economy would range between from €5.7 billion to €31 billion, while between 14,000 and 83,000 new jobs could be created.

The shift would also insulate the economy from commodity price shocks as demand for resources increases global resource scarcity – something which is expected to create a volatile commodity landscape. The study further found that the Dutch Government’s goal of €0.1 material intensity kg/GDP could be achieved by 2030 through an accelerated shift to circular economic models across the consumption spectrum.

Driving a shift to circular economic models will need a collaborative effort, requiring broad uptake from current market leaders, government and consumers. Financial institutions play a key role in unlocking various models with high initial investment costs, but long-term savings, as well as creating buffers against the risk of shifting to new business models are a key factor hampering SME innovation in the segment.

Material intensity in the Netherlands

The authors conclude; “As sustainability replaces globalisation as the key driver of the economy, a reversal from global to local supply chains is expected. Given the Netherlands is well placed to be an early mover in this space, the accrued benefits of the circular economy would be amplified by exporting circular technology and processes.”

A magic fix?

While the report illustrates the major potential which businesses see in the idea of circular economics, not everyone however is convinced. A 2017 study published in the Journal of Industrial Ecology concluded that circular economy activities can actually increase overall production, “partially or fully offset[ting] their benefits,” in that the circular economy seems to suffer from a similar rebound effect to energy-efficiency strategies. As more efficient coal plants sometimes lead to lower coal prices and therefore higher demand for coal, more efficient use of materials seems to lead to cheaper products, which are more appealing to a large number of consumers.

An article following up on the report by The Guardian meanwhile claimed that architect and thinker Walter Stahel had proposed a shift from taxing labour to taxing non-renewable resources, as a method of mitigating this rebound effect, while offering a solution to structural unemployment. However, as big business remains collectively hostile to new taxes and higher material costs, the approach has not been encouraged by the key advocates of the circular economy.

This led Smart CSOs Lab founder Micha Narberhaus and Innaxis Research Institute programme manager Joséphine von Mitschke-Collande to conclude that without a holistic framework of systemic change, and the production of “a less growth-dependent and more sustainable economic system”, circular economics would not “be worthy of the buzz it is generating.”