Visualized: The Circular Economy 101
The principles of a circular economy trace back as far as 3,000 years.
Archeological evidence shows that Romans recycled trash following the eruption of Mount Vesuvius in 79 AD. Roughly 200 years later, people recycled glass during the Byzantine Empire. Fast-forward to today and circular economy strategies are projected to generate trillions in economic output by 2030.
But how does the circular economy work? This infographic from MSCI provides a guide to circular economies—from circular business models to circular technologies.
No Time to Waste
First, let’s start at the root of the problem, our current consumption trends:
- Raw Materials: Global extraction is projected to double by 2060.
- Textiles: 85% of clothing and textiles are discarded.
- Waste: Global waste is projected to rise 70% by 2050.
- Water: 80% of global wastewater is untreated or reused before returning back to the ecosystem.
To change consumption patterns and reduce waste, consumer behaviors, business models, and policies will need to change. But the big question is how?
To answer this problem, the concept of a circular economy is gaining traction.
What Is a Circular Economy?
A circular economy is centered on the idea of resources being kept as long as possible within the economic system, where materials that have undergone an entire lifecycle, from production to end stage, are returned to the economic system as an input.
Above all else, a circular economy is based on sustainable life cycles.
Circular Economy Growth
In 2019, BlackRock launched an inaugural Circular Economy fund. Since then, it has attracted $2.1 billion in investment. A number of the world’s largest asset managers have followed suit.
Policy-driven agendas are also focused on the circular economy shift:
- Paris Climate Agreement
- UN Sustainable Development Goals (SDG 12, 11, 9, 13)
- European Green Deal Circular Economy Action Plan
- 2019 African Durban Declaration
- China’s 5-Year Circular Economy Plan
- Circular economy strategies across Latin American countries
Given the steep cost of linear economic models, governments are beginning to pay attention to the merits of a circular economy.
The Upside of a Circular Economy
Circular economy principles aligned with sustainability offer the following advantages:
- Reducing GHG emissions: 9.3 billion tonnes of CO₂e could be prevented by 2050 if circular economy strategies are applied across the steel, aluminum, cement, food, and plastic sectors.
- Preserving long-term biodiversity: ~50% decrease in harmful effects on farm-level biodiversity through applying circular strategies.
- Improving ocean health & water quality: 80% reduction in plastics entering the ocean globally by using reclamation, recycling, and reduction strategies, among others.
- Economic growth & job creation: $4.5 trillion global economic opportunity by 2030 through spurring innovation in waste reduction.
Importantly, circular strategies, technologies, and transition companies are looking beyond traditional economic models.
5 Business Models in a Circular Economy
From alternative energy to bio-based and recyclable materials, the most effective circular business models are ones that create obvious value.
Let’s consider five circular economy business models and where they can be applied in the supply chain. Additionally, some of the models can be adapted to any part of the supply chain.
|Business Model||Supply Chain Example|
|1. Circular supplies/Circular design||Product design/R&D
Procurement/raw materials acquisition
|2. Resource recovery|
(Recycle, Waste as a resource)
Material & product manufacturing
|3. Product life extension |
(Remanufacture, Resell, Upgrade)
Sales & marketing
|4. Share||Product use
Material & product manufacturing
|5. Product as a service||Logistics
Today, circular models present opportunities in fashion, food systems, mining and metals, among others.
How are Circular Economy Indexes Created?
A circular economy theme is built on two key dimensions:
1. Smarter technologies: Providing circular technologies
- Single-use plastics alternatives
- Digital technologies that replace resource-intensive products
2. Resource efficient processes: Maximizing materials and minimizing impacts (e.g. emissions)
- Improved package materials
- Efficient processes that reduce land degradation and promote diversity
Then, MSCI identifies areas of innovation that support a circular model. Consider the following circular technologies, which are produced by companies that contribute to a circular economy theme “end-state” through their products and services.
|7 Circular Technologies||Example|
|1. Renewables & energy efficiency||Replacing oil-based plastic with compostable materials
|2. Sharing economy||Peer-to-peer accommodation
|3. Future mobility||Electric vehicles
|4. Internet economy||Online markets|
|5. Water sustainability||Wastewater treatment systems|
|6. Plastic sustainability||Companies using only one type of polymer for packaging|
It also looks at circular transitions, which are companies that enable the shift to a circular economy through their management of related issues.
|3 Circular Transitions||Example|
|1. Natural resources management||Deforestation
|2. Water resources management||Smart metering devices|
|3. Plastic transition||Biodegradable plastics|
As a result MSCI has created a range of Circular Economy related indexes:
- Natural Resources Stewardship
- Sustainable Water Transition
- Plastics Transition
- Renewables & Energy Efficiency
- Sharing Economy
It’s worth noting that what is measurable today will likely only expand, considering the evolving regulatory frameworks and thinking around a circular economy,
The Value of a Circular Economy
Through looking at circular economy innovation, we yield three important insights:
- Competitive earnings
- New economic models
- Sustainable solutions
For a growing number of investors, companies, and researchers, a circular economy provides a wide scope of opportunities ranging from single-use plastics alternatives to water sustainability.
Ranked: Emissions per Capita of the Top 30 U.S. Investor-Owned Utilities
Roughly 25% of all GHG emissions come from electricity production. See how the top 30 IOUs rank by emissions per capita.
Emissions per Capita of the Top 30 U.S. Investor-Owned Utilities
Approximately 25% of all U.S. greenhouse gas emissions (GHG) come from electricity generation.
Subsequently, this means investor-owned utilities (IOUs) will have a crucial role to play around carbon reduction initiatives. This is particularly true for the top 30 IOUs, where almost 75% of utility customers get their electricity from.
This infographic from the National Public Utilities Council ranks the largest IOUs by emissions per capita. By accounting for the varying customer bases they serve, we get a more accurate look at their green energy practices. Here’s how they line up.
Per Capita Rankings
The emissions per capita rankings for the top 30 investor-owned utilities have large disparities from one another.
Totals range from a high of 25.8 tons of CO2 per customer annually to a low of 0.5 tons.
|Utility||Emissions Per Capita (CO2 tons per year)||Total Emissions (M)|
|Berkshire Hathaway Energy||14.0||57.2|
|American Electric Power||9.2||50.9|
|Florida Power and Light||8.0||41.0|
|Portland General Electric||7.6||6.9|
|Pacific Gas and Electric||0.5||2.6|
|Next Era Energy Resources||0||1.1|
PNM Resources data is from 2019, all other data is as of 2020
Let’s start by looking at the higher scoring IOUs.
TransAlta emits 25.8 tons of CO2 emissions per customer, the largest of any utility on a per capita basis. Altogether, the company’s 630,000 customers emit 16.3 million metric tons. On a recent earnings call, its management discussed clear intent to phase out coal and grow their renewables mix by doubling their renewables fleet. And so far it appears they’ve been making good on their promise, having shut down the Canadian Highvale coal mine recently.
Vistra had the highest total emissions at 97 million tons of CO2 per year and is almost exclusively a coal and gas generator. However, the company announced plans for 60% reductions in CO2 emissions by 2030 and is striving to be carbon neutral by 2050. As the highest total emitter, this transition would make a noticeable impact on total utility emissions if successful.
Currently, based on their 4.3 million customers, Vistra sees per capita emissions of 22.4 tons a year. The utility is a key electricity provider for Texas, ad here’s how their electricity mix compares to that of the state as a whole:
|Energy Source||Vistra||State of Texas|
Despite their ambitious green energy pledges, for now only 1% of Vistra’s electricity comes from renewables compared to 24% for Texas, where wind energy is prospering.
Based on those scores, the average customer from some of the highest emitting utility groups emit about the same as a customer from each of the bottom seven, who clearly have greener energy practices. Let’s take a closer look at emissions for some of the bottom scoring entities.
Utilities With The Greenest Energy Practices
Groups with the lowest carbon emission scores are in many ways leaders on the path towards a greener future.
Exelon emits only 3.8 tons of CO2 emissions per capita annually and is one of the top clean power generators across the Americas. In the last decade they’ve reduced their GHG emissions by 18 million metric tons, and have recently teamed up with the state of Illinois through the Clean Energy Jobs Act. Through this, Exelon will receive $700 million in subsidies as it phases out coal and gas plants to meet 2030 and 2045 targets.
Consolidated Edison serves nearly 4 million customers with a large chunk coming from New York state. Altogether, they emit 1.6 tons of CO2 emissions per capita from their electricity generation.
The utility group is making notable strides towards a sustainable future by expanding its renewable projects and testing higher capacity limits. In addition, they are often praised for their financial management and carry the title of dividend aristocrat, having increased their dividend for 47 years and counting. In fact, this is the longest out of any utility company in the S&P 500.
A Sustainable Tomorrow
Altogether, utilities will have a pivotal role to play in decarbonization efforts. This is particularly true for the top 30 U.S. IOUs, who serve millions of Americans.
Ultimately, this means a unique moment for utilities is emerging. As the transition toward cleaner energy continues and various groups push to achieve their goals, all eyes will be on utilities to deliver.
The National Public Utilities Council is the go-to resource to learn how utilities can lead in the path towards decarbonization.
The Road to Decarbonization: How Asphalt is Affecting the Planet
The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills.
The Road to Decarbonization: How Asphalt is Affecting the Planet
Asphalt, also known as bitumen, has various applications in the modern economy, with annual demand reaching 110 million tons globally.
Until the 20th century, natural asphalt made from decomposed plants accounted for the majority of asphalt production. Today, most asphalt is refined from crude oil.
This graphic, sponsored by Northstar Clean Technologies, shows how new technologies to reuse and recycle asphalt can help protect the environment.
The Impact of Climate Change
Pollution from vehicles is expected to decline as electric vehicles replace internal combustion engines.
But pollution from asphalt could actually increase in the next decades because of rising temperatures in some parts of the Earth. When subjected to extreme temperatures, asphalt releases harmful greenhouse gases (GHG) into the atmosphere.
|Emissions from Road Construction (Source)||CO2 equivalent (%)|
|Excavators and Haulers||16%|
Asphalt paved surfaces and roofs make up approximately 45% and 20% of surfaces in U.S. cities, respectively. Furthermore, 75% of single-family detached homes in Canada and the U.S. have asphalt shingles on their roofs.
Reducing the Environmental Impact of Asphalt
Similar to roads, asphalt shingles have oil as the primary component, which is especially harmful to the environment.
Shingles do not decompose or biodegrade. The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills, the equivalent of 20 million barrels of oil.
But most of it can be reused, rather than taking up valuable landfill space.
Using technology, the primary components in shingles can be repurposed into liquid asphalt, aggregate, and fiber, for use in road construction, embankments, and new shingles.
Providing the construction industry with clean, sustainable processing solutions is also a big business opportunity. Canada alone is a $1.3 billion market for recovering and reprocessing shingles.
Northstar Clean Technologies is the only public company that repurposes 99% of asphalt shingles components that otherwise go to landfills.
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