Circular economy inventions need business model innovation
By Vishweshwar Vivek, MBA ’23
This article was written in response to a seminar given by Sandra Sassow, CEO & Co-Founder of SEaB ENERGY, in an EDGE Seminar at Duke University’s Fuqua School of Business in Fall 2022. This article voices one student’s perspective and does not necessarily represent the views of either Duke University or the seminar speaker.
We live in a linear economy. We produce, we consume, and we waste. Cities are at the center of all this. A lot of production, consumption, and waste happens in cities. In fact, modern cities contribute 85% of global GDP generation, 75% of natural resource consumption, and 60-80% of CO2 emissions.[1] Interestingly, despite their high contribution to GDP, many cities produce knowledge goods and services, while importing the things they need for day-to-day sustenance. Most of a city’s daily goods are produced elsewhere, and daily waste is shipped away. Many urban dwellers are oblivious to where “elsewhere” and “away” really are. This disconnect often contributes to city design and urban lifestyles that promotes reckless consumption and needless waste. Growing population trends (9.75 billion by 2050) and increasing urbanization (from 55% in 2021 to 80% in 2050)[2] imply that we will need many more cities by 2050. Such growth is at odds with our net zero commitments. How can we support such population centers without destroying our biosphere?
Our guest speaker, Sandra Sassow from SEaB Energy, offered an alternative that can help us address this problem: closed-loop cities. Closed-loop cities bring the concept of the circular economy to modern cities. The circular economy focuses on decoupling growth from the over-consumption of finite resources. The key idea behind closed-loop cities is to eliminate waste and pollution created by population and economic centers by designing and developing them in a way that eliminates unnecessary consumption of natural resources, uses environmentally friendly alternatives, and taps into regeneration from waste. Ms. Sassow challenged us to think about how closed-loop cities might meet the Sustainable Development Goals with consideration for building/construction, mobility, food, and products. The adoption of closed-loop cities can help balance development and sustainability perfectly. Imagine these future cities maintaining similar population densities and GDP outputs but consuming much fewer natural resources and generating significantly lower pollution. Who wouldn’t want this? It’s like a fairy tale.
However, it is also hard not to be a skeptic. To begin with, the scale of these aspirations is gigantic. We have to change everything from building regulations, architecture, construction technologies, food production patterns, eating habits, fashion, and product preferences, and the list goes on and on. We have never pulled this off. Ms. Sassow’s experience of changing a small part of this ecosystem has demonstrated the challenges of transforming our existing cities, as SEaB Energy has faced regulatory hurdles in entering the New York City market with their waste-to-energy technology. And this is in the US, where there is existing infrastructure, regulatory bodies, social awareness, and the political will to solve climate change.
Let us contrast this experience with the struggles of selling an anaerobic digester in India. In most Indian cities, households or businesses do not have to pay for waste management services, which limits private-sector incentives to invest in waste solutions. Partnering with local government is also difficult, involving red tape and slow-moving bureaucracy. With a lack of efficient regulations and existing market infrastructure, it is unclear who will foot the upfront costs of circular economy technologies in capital-starved emerging economies.
There are unique difficulties of bringing circular economy solutions to the emerging world. Emerging market economies lack capital. They lack existing market frameworks. They lack the necessary regulations. Most importantly, they lack political urgency. However, we can’t ignore them because most new cities of the future will be built in emerging economies.
Though the task may seem daunting, it should push us to think beyond Western-style business models for commercializing closed-loop solutions. Emerging economies require not just piecemeal products, but entire market creations, and a more vertically integrated approach. Instead of simply selling aerobic digesters, for instance, a company could operate as a manufacturer that sources organic waste at low to no cost, using it as raw material to generate electricity and organic fertilizers that it can sell. In this way, they would operate as a micro-utility company, selling products with established prices and demand. Several local startups, such as Recykal or Nepra, have used a similar approach, collecting solid waste free of cost, processing it to recover valuable reusable scrap, which they can sell to generate revenue.
This approach simplifies revenue generation, as the company sells products with established prices and demand. However, it also results in a more capital-intensive and inherently risky business model. Companies operating in this space will need to raise impatient venture capital or limiting impact capital. The challenge of securing sufficient funding is compounded by global trends around declining foreign investments and increasing interest rates. Therefore, the first movers in this space need not only technological inventions but also innovative business models to be successful.
In conclusion, achieving a global net-zero future necessitates the development of low-emitting cities. However, it is not clear how governments and businesses in the developing world will foot the bill for such cities. To succeed, we need to embrace new business models that offer not just technological solutions but also viable economic models. While there are significant challenges ahead, the potential benefits of closed-loop cities are too great to ignore.
[1] https://ellenmacarthurfoundation.org/cities-and-the-circular-economy-deep-dive
[2] https://www.weforum.org/agenda/2022/04/global-urbanization-material-consumption/
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