Can cradle-to-cradle go global?: Interview with Walter Stahel

Please tell us about the circular economy model and the principles of cradle-to-cradle

When we first started having the waste discussion in the 1970s, somebody coined the term ‘cradle to grave’, which put the emphasis on having better quality graves for waste; this to me was not really progress. As a reaction, I started using the term ‘cradle to cradle’, which emphasised that graves are the solution of last resort.

The reason why I prefer the term ‘circular economy’ to ‘cradle to cradle’ is the word economy, because it is the economics that, for me, are the most important thing. And if we look at the economics, then it’s very clear that the smallest loops – in other words, reusing, repairing, remanufacturing and remarketing goods and components in an industrial context – is where you get the biggest financial benefit.

The smallest loops also create the highest social benefits because they are labour intensive. They use very few material and energy resources, and as they are decentralised, they benefit regional economies by providing local employment. Thinking in the context of sustainability, we are always trying to optimise these three factors – economic, ecologic and social.

Some applications of the circular economy are actually quite old, and we may not realise the number of things we already do that fit into the circular economy. Take, for example, the concepts of reusing, remarketing and repairing – the biggest success story regarding these ideas is eBay and all the other national and regional websites that allow people to sell used goods consumer to consumer, or business to consumer. What exists today is a huge global remarketing platform, which is exactly what we are trying to achieve with the circular economy model.

Why do you think the circular economy model hasn’t spread further afield?

It’s simply because the problems we have been discussing, are mostly problems of industrialised countries such as in Europe and North America. Developing countries have a completely different problem. They have a scarcity of resources, including goods, skills and food. In situations of scarcity, the best strategy that we have is mass production to produce cheap goods to raise the quality of life of the population.

If you consider countries in Africa where poverty and scarcity is the rule, the circular economy is not much use to them. They first have to accumulate wealth before they can build stocks of infrastructure and goods, which they can then maintain and conserve.

Cradle-to-cradle will never be a global model. It’s already used in less developed countries, but only because of poverty. People are forced to repair and remanufacture goods but in a very ‘low tech’ way. They are also recycling in a very polluting way. So many of the less developed countries are already applying cradle-to-cradle principles, but – ironically – in a disastrous way for the environment and human health.

The traditional, linear concept of the industrial economy still has many advantages for economic actors, and one is that you externalise the cost of risk and waste. Currently there is no legislation that would force a business to internalise these costs. If you can externalise it to the nation states and consumers, then your profit margin is higher, you make more money.

What are key obstacles on government level, and what could be the solutions?

These are mostly to do with the existing frameworks conditions in the current economy. Basically, policy makers are still living in the industrial economy -, if they want to create jobs or do something to grow the economy, the only thing they can think of is a programme like ‘Cash for Clunkers’, for example. They want to scrap cars that are just eight or nine years old and make people buy new cars.

They completely ignore the alternative, which would be to remanufacture the engines of these cars, because it’s mostly in the engine where you can improve the environmental performance of the car. Remanufacturing engines would probably cost about the same as what the Cash for Clunkers initiative paid and it would maintain 80% of the material investment in the car, which is the body, and make it a better car.

However, I think the biggest impact that policy makers could make is with regard to taxation. If we had ‘sustainable taxation’, which would be a tax on non‐renewable resources (energy and materials) and no tax on renewable resources — and work, human labour, is a renewable resource — it would give activities of the circular economy an immediate incentive.

The second key aspect of sustainable taxation would be that value added tax (VAT) is only levied on activities where there was actually value added. Since all the activities of a circular economy inherently maintain value, they should not have to pay value added tax. By not levying VAT on repairs, remarketing or remanufacturing of goods, you would create a clear signal to business that it’s beneficial to get involved in the sustainable activities of the circular economy.

What can businesses do to be drivers of the circular economy?

The biggest decision businesses wanting to promote the circular economy can take is to develop business models for taking back and remarketing their own products. This involves designing products for their full lifecycle, through modular conception using standardised components, and system solutions instead of products.

The simple fact is if a business doesn’t take back its goods, then it can’t profit from its goods at the end of their life. There is little incentive to design things to be environmentally friendly if it increases your costs but doesn’t bring much in return. Why produce smart goods if somebody else will profit from them? If instead a company switches to selling the performance of its products, which means retaining the ownership of them, and logically also their embodied resources, and may substantially increase its future profits.

If a company begins selling performance instead of selling goods, and thereby retaining the ownership of the goods through rental or leasing arrangements, it then has a guarantee that it will have the resources necessary to produce new goods in five years’ or ten years’ time. It also has the option to remanufacture the components or even the entire goods themselves, instead of putting them through a recycling loop.

For some industries, it is relatively easy to implement a switch to a leasing or renting model, while for others it would involve significant investment in setting up the new processes. How can a business know when it is the right time to make the switch to such a model?

To be honest, I don’t think now is the best time. The best time may have been ten, or even five years ago when business was booming, and the pressure was less on companies to innovate because everything was booming. But in reality, any time is the right time if you have the courage to change your corporate strategy.

The ‘low‐hanging fruit’ of achieving sustainability for actors in the real estate renting business is to ensure their buildings are properly insulated and performing well for energy efficiency. Public buildings are a huge part of the total building stock of countries. Bringing these buildings up to modern insulation standards is a very labour‐intensive job, which requires relatively little energy or material input – just some insulating materials and better windows.

However, the lasting benefit would still be that the energy required to heat or cool these buildings would be greatly reduced. This relates to one of the riddles that most governments have never solved, the Kyoto protocol. They have asked how we can significantly reduce CO2 and greenhouse gas emissions, while creating local jobs. If companies in the building industry adopted this business model, and put pressure on governments to support it, then I think it would be very difficult for governments to say they couldn’t afford this.

The core issue is about incentives. Construction companies may prefer to pull down buildings and rebuild them, because that is their business. However, renovating and technologically upgrading existing buildings is a much faster, cheaper, and more efficient way to achieve energy efficiency of the building stock on a large scale.

What are some of the challenges that business could face in implementing a switch to the circular economy model?

Consider the example of carpet manufacturer Interface. Their CEO Ray Anderson championed the practice of leasing carpets for over ten years and yet the idea has still not caught on with many businesses. The problem is not the company, but their customers, who may believe that they can manage the whole system at a cheaper cost than what Interface selling ‘carpet as a service’ can do.

Public budgets, for example, are clearly earmarked for schools, roads, or the military, but when it comes to taking a binding agreement on sustainability for 20 years, as Interface proposed with their green carpet lease, then the Government’s treasury has a big problem because then they lose the ability to shift budgets between sectors.

If governments make a lease agreement they have a fixed cost per year. If they buy a carpet and make it last for 20 years with local services, but after 20 years find themselves in a difficult financial situation then they simply solve the problem by not buying new carpets. This flexibility of the treasury is lost when governments lease carpets in long‐term leasing agreements.

In the car industry, the idea of selling performance is a business model completely at odds with what they are doing today. Today they are very efficiently producing cars in centralised, globalised supply chains, and then selling them through dealerships. If a car manufacturer wants to go into car sharing or rental car schemes, it means he must have representatives or rental offices at every airport and in every town, and he can no longer really optimise his knowledge of efficiently manufacturing mass producing cars.

What often happens in the shift from selling goods to selling services is that because companies have a completely new challenge to meet, they need new skills, and have to set up new distribution channels and take‐back channels. Business people would ask themselves: why shouldn’t we simply continue the traditional business model, even if it isn’t sustainable?

So why should businesses do it?

Well, the fact is, they don’t have to do it. When I gave presentations in the 1990s about the circular economy, I would often conclude with a slide that said ‘You don’t have to do any of this, survival is not mandatory’. I gave up using it after someone told me that slide was really depressing, but it is still the case for sustainability. You can completely ignore all the concepts of the circular economy, but if one of your competitors picks it up and it’s successful, then you have solved your problem, because your company will disappear.

Today, there is still a heavy focus on the reduction of waste, rather than the ‘designing out’ of waste

I think reducing the input of materials has always been the objective of the manufacturing industry, for profit reasons. What will now change is that we move from processes where we ‘take off’ materials to processes where we ‘build up’ products, which means there is no manufacturing waste. A great example of this is the new 3D printers, which at the moment work mostly for plastics. If these could be made also to work for metals then we would really have manufacturing processes that are much more material and energy efficient, and waste-free.

Dealing with the end-of-life waste from manufactured goods is clearly an area where the circular economy is very efficient in solving the problem. I have never been a fan of what’s known as the ‘zero waste movement’, because in the western world, ‘zero’ is not really a motivating goal. A better way is turning it around so instead of talking about zero waste in a factory, you talk about 100% yield. Your shareholders expect you to turn one tonne of materials into one tonne of products that you can sell, so talk about the concept of 100% yield to any western managers and they will immediately see the challenge.

Walter Stahel is founder of the Product-Life Institute in Geneva, the oldest established consultancy in Europe devoted to developing sustainable strategies and policies

This is an edited version of the original full-length interview which can be viewed here

Daan Elffers is founder of EMG CSR Consultancy