A new report by Wood Mackenzie emphasises the need for revolutionary business models to establish a solid foundation for the circular economy, a strategy critical for achieving a lower-emission and more sustainable future.
The July Horizons report, titled Waste to wealth: Unlocking circular value chains, highlights the disappointing progress of the circular economy in key energy transition manufacturing industries such as plastics, electronics, and biofuels over the past decade.
Despite increasing corporate commitments and regulatory targets, the report notes that the circular economy model has struggled to navigate traditional value chains and business practices.
Guy Bailey, Vice President of Oils & Chemicals Research at Wood Mackenzie, points out that while there are profits to be made in circular value chains, the challenge lies in ensuring these profits are shared fairly across complex and fragmented value chains.
“The circular economy model has not made the impact many plastics industry observers predicted when it was first mooted, but there are some exciting initiatives underway that could change that,” Bailey stated.
He emphasises that the successful negotiation and introduction of the United Nations Plastic Treaty, a legally binding agreement aimed at ending plastic pollution, is a necessary starting point.
However, the adoption of new business models to drive coordination across the value chain is crucial for real change.
The report reveals that global material consumption is on the rise, while the share of secondary materials is falling.
Petrochemical companies, technology firms, and waste management entities currently operate with different assumptions about what constitutes a ‘fair’ allocation of value.
This misalignment has resulted in slower technological adoption and investment in necessary waste infrastructure.
To address these issues, the report suggests that commodity-producing firms, particularly in the petrochemicals sector, must drive coordination and collaboration through novel business relationships.
These frameworks include:
- Partnerships: Suitable for less complex projects, allowing companies to retain autonomy.
- Joint Ventures: Ideal for strategic projects requiring specialist market knowledge.
- Vertical Integration: Involves acquiring suppliers and distributors to maintain complete control of a project.
The report concludes with several recommendations to ensure the circular economy model overcomes its initial challenges and fulfils its potential as a viable economic system.
Key recommendations include:
- Changing strategic thinking to facilitate value chain transformation.
- Encouraging investors to recognise the long-term benefits of first-mover status in circularity, despite short-term profit dilution.
- Building stronger relationships with brands to create the complex value chains required for success.
Bailey concluded: “The journey to full circularity has not got off to an ideal start. But with clear and consistent regulation and creative collaboration, the circular economy model can still provide an effective solution to reducing waste and lowering carbon emissions.”
