Circular Economy Roundtable Discussion Part 3
The discussion looked at whether conditions were right for new businesses to be created from scratch to exploit the opportunities of the circular economy or whether challenges lay in the way.
Today, in part 3, we look at what a new business in the circular economy might look like. The final part will be here tomorrow.
In attendance were:
Anthesis - Debbie Hitchen
Axion Consulting - Jane Gardner
CycleLink - Craig Robinson
Palm Recycling - Mandy Kelly
Prodware - John Anderson
Prodware - Mark Breeden
Prodware - Rebecca Hallworth
Recycling Association - Simon Ellin
Resource Efficient Business - Paul Sanderson
Saica - Michael Challans
Smurfit Kappa – Paul Clarke
Matthew Tickle – University of Liverpool
Forbes McDougall – Veolia
Highlights by Josh Robins and Paul Sanderson
Paul Sanderson (PS) - We have obviously talked about what the circular economy, the challenges and barriers and potential innovations. Now I would like to bring it back to reality and potential disruptions to your businesses.
As an example to start off with, I recently moved house it was an opportunity to go through loads of old CD's and stuff I haven't used in a long time. Looking back at some of those CDs I bought in the early 1990's, they were £14.99, which I can’t believe I paid that much for.
When you know when you download an album from iTunes it’s £7.99 or £8.99 or more realistically you might get Spotify for free or pay £9.99 a month for it to get all the music you want.
So the value of things is changing a lot with the proliferation of new technology and there are some people like Paul Mason, the Channel 4 economics editor that think capitalism is on its last legs and we are heading to a post capitalist age as so many things are losing value with more free information available - like the example I gave of music or whether its books or other examples where the information is free.
New technology has destroyed whole businesses like Blockbuster and lots of others as well. So from your business point of view where is the potential for destruction. Matthew mentioned drones. Amazon are trialling them at the moment and will they still use cardboard or will it have to be in a new, more protective packaging? If they are in a recyclable plastic container does that mean there will be less cardboard on the market? So that's what I would like to look at now, how the circular economy and technology could disrupt your business. Has anyone got any thoughts they would like to start with?
Forbes McDougall (FM) - Do you want me to start with the easy one? Landfill, obviously with European legislation they are already gone in Germany. We [Veolia] are down to two landfills. We are reducing landfill operations because the writing is on the wall and landfills are on the way out. Is it a disruption? No I think it's more of an evolution.
Michael Challans (MC) - I would add to that incineration, energy form waste or general incineration. The next step on from landfill, there is a possibility that incineration could affect the waste paper market. Let’s say for example incineration see all this potential capacity come on stream, if we as an economy don't generate enough non-recyclable waste then those incinerators have to be fed with something.
FM - A couple of things really. We do a lot of studies and data waste characterisation to make sure that waste and the incinerators are going to be filled. If we didn't have them at the moment then where would all the non-recyclable material go? We design them for a good 30 years to feed them, otherwise you wouldn't invest that kind of money. Fairly straightforward, but we are looking to pull more and more of the recyclable material out.
I think paper is a prime example where certainly at Leeds, which is our newest energy from waste plant, it has got optical sorters upfront, we are opening up black bag waste and we are pulling out non-recyclable paper.
So paper that has not made it in to the blue bins because you can’t clean it up and it is better as a resource and not waste, and there is a market for that. The interesting thing will be when there are a market for plastics that add a calorific value that you were alluding to, then if those markets appear then that is the only time that I think there will be conflict.
PS - And if anything at present those markets have gone backwards. In the UK plastic recycling infrastructure isn't as strong as it was even a year ago. EcoPlastics almost went under and Closed Loop could go under and there are quite a few examples of plastic companies that could go under. Part of the problem actually is, there was a big decline in the amount of materials that China is taking on the export market at the same time.
FM - And the price of raw materials.
PS - Exactly, and the price made it not worth it.
FM - We are also exporting large amounts of RDF, into Scandinavian countries, so we have got more waste than we can manage. And again I suppose it is due to the lack of infrastructure, but a lot of that waste isn't sortable or recyclable, so what can we do with it?
Craig Robinson (CR) - My concern is in some aspects is sloppy procurement. We have seen it in the past with a plant in Stoke where the local authority guaranteed x amount of waste and they were not providing that and as waste levels dropped, penalties in the contract will be higher than the cost of the recyclable material, so the temptation is let’s use recyclable materials. This may not happen, but the temptation will be there.
Paul Clarke (PC) - You are right in principle, but in practice we see it happening today. Primarily because of the contract set-up and the infrastructure set up we have today, so that is undoubtedly a risk.
FM - That's bad contracts more than anything else.
CR - I am not sure from an investor’s point of view you need guarantee volume. From a local authority point of view they need a solution. It’s marry them together so there is no risk to the recycling industry.
FM- Normally you tie it in, as there is going to be from value from a revenue stream, then moving from your revenue stream, then putting as a cost, the cost goes through an incinerator, and it costs more than that. It sounds like somebody has got a decimal point in the wrong place.
PC - I think to give credit to some folks in the way the world has changed in the last 15 years. Compared to when the contract was set up the world has dramatically changed. So there was the lack of flexibility in contracts when they were set up a long time ago. I don't think it is as simple as it’s a really bad contract.
FM - Well it is if it's not flexible enough.
PC - For who?
FM - For both parties. It's not really a win for an operator to be seen as we are penalising people for doing the right thing. That would be round the LGA very quickly and would local authorities do another waste contract with you if they feel like they have been screwed by you? So i don’t think it's in anyone long term interest.
PC – Again, I agree in principle, just that the practice can be different.
MC - There is a danger that there is poor quality streams of waste that have a lot of recyclables in them. Maybe there isn't the desire or financial desire to sort them again or a second store. The easier option is to feed them into an incinerator.
FM - I agree again. But if it's not financially viable, it's not financially viable. That's the reality of it.
It's fair enough to say it's terrible that these resources are being wasted but it's like plastic sorting - we have a plastic sorting facility. Tubs and trays you can recycle, but nobody wants to recycle them. What are we meant to do? Are we meant hold on to bales of them as it's the right thing to do? O would love to say yes, but you know it's just a huge financial burden.
PS - With the circular economy the idea of circularity is that material goes back to the people who created it in the first place. So looking at it form a realistic point of view is there a risk that new operators could come in with new business models?
For example, technically if you have a council contract you are entitled to collect it from a council bin. But there is nothing to stop somebody else collecting from their own bin at certain households.
So is there a risk that, for example a drinks can manufacturer, could decide they want all of the aluminium cans as they are the best quality and set up their own collection infrastructure. And could that undermine these local authority contracts?
CR - Certainly in Germany few years ago there were some contractors stepping in and collecting it themselves and in Finland there are different arrangements - not centralised collection systems. Local communities can tender their own, if you want to call it that, to get the best deal for their waste. There are other models around but I don't think local authorities have that much right to collect from households when you can potentially do it yourself if its perfectly legal.
PS - The way the law is set up, it’s effectively stealing if you take material from a council wheelie bin outside someone’s house. But if you provide your own bags or bin, there is nothing to stop you from doing it. If the materials become that important to businesses will they want to take it themselves?
FM - I would never target household waste because it's so spread out and there isn't enough of it.
John Anderson (JA) - What about homeowners that live in gated communities? There may be 200 properties in there, some of them put their waste into a one stop collection facility, rather than their own bins. Would there be enough strength behind that to offset against the maintenance cost?
FM - Now you are getting into sustainable cities, designing a completely new way where you take away road access and you have everyone parking their cars away, and central waste collection. I think if you radically re-designed your city that could happen - why not? If the public were prepared to do more recycling.
Debbie Hitchen (DH) - I have seen something similar to that on a field study in Canada where a high rise flat had effectively a commercial freight waste arrangement. It does work but it's reflective in their service charge for their properties.
But the challenge in the waste industry is volume, so it's all about whether or not it's economically viable, whether the commodity is good enough quality. Is there enough of it, is it commanding a good enough price in the marketplace to actually make that operate effectively? What it does offer you is great flexibility because you are not in a 15-25-year contract. But I can see it comes with its challenges as well as those opportunities.
PS - In Scotland they are looking at deposit scheme with people bypassing their own curbside collections. Whether they will actually do it, we will have to wait and see. Will people take them back to the supermarkets and put them in a reverse vending machine?
FM - What we were talking about lifecycle analysis making packaging more effective, you see a reduction in the value of what is in the bin. 20 years ago its was all tin cans and aluminium cans and lots of rigid cardboard and lots of rigid plastic. It was like great we can set up a system that can recycle this and actually pay for itself.
So recycling paid for itself. As the value of the material in the bin decreases, where is the value and who is going to pay for this? It is a service - it has to be paid for by somebody.
Mandy Kelly (MK) - I thought that there was an obligation in the local authority that they have to provide a service for all household waste. So doesn't it seem better to hold talks with the council instead of setting up independent private enterprise? If you can go straight to the local authority, it’s not that different to what Palm Recycling did back in the very, very early days when they set up their paper only cages where people put the paper in and Palm went around and collected it that way.
FM - That's cherry-picking the waste and leaving residual waste. But I think its a failed model. Do you want to cherry-pick all the value and pay for the residual or do you want it all as one service and have it all?
MK - Because it all started off as individually, then it all combined, are we just going back in a loop to where it started?
Mark Breeden (MB) - Do you think that the 10p on the glass bottles like when you were a kid picking up the glass and taking it to a bottle bank could it get back to that stage?
MK - I don't think the value is enough for kids today.
PS - Mike at lunch you were talking about motorway service station reverse logistics. Could you just talk a little bit about it please?
MC - Yeah, a few years ago we tried to put a solution in for a big motorway service chain, and they don't create as much waste as you may think.
They are geographically diverse, and we were interested in the cardboard and paper and we were trying to work with the motorway service station provider, in conjunction with a few other waste companies. We were looking at a reverse logistics service for them.
The stumbling block came when we had the opportunity logistical to backhaul but the food catering company wouldn't engage with us because of their belief, that the waste being taken back to a central place for bulking would contaminate any food going out on the same truck.
Now I do understand that, but many supermarkets do operate reverse logistics. And the argument is they only use certain vehicles including certain products to take products back.
I am not sure that's true, but this catering company were sure it would be an issue for cross contamination.
To me at the time it was a matter of cost that they wouldn't do it. I said to the motorway service people that when their contact comes to renewal they will offer a service.
The other option is that they have now gone to is if you go to any of the service stations there is a degree of backhauling, as the partner has enough infrastructure to match their geographical area.
But when we were talking to them they assumed there was a value in everything. Eventually when they tried to drive that though, it didn't work. They had to reverse and go though a system that makes it easier for their sites to handle. But it costs them a bit more.
The key point here is legislation and company and cultural perceptions of what waste can and can’t do. Does it cross contaminate food, when the food comes out all packed up safely and is the waste going back if it’s clean dry recyclable waste - does it contaminate? Open to debate, but there if it’s done properly there is an opportunity. There has to be a desire as well somebody wants that material bad enough they will put the resources in place to get it, which then goes back to culture.
Jane Gardner (JG) - I think this may be easier in B2B rather than B2C anyway because the drivers for the business sector are greater. We have worked with manufacturers who work together on backhauling. They do it because the materials have value andit will gain them more business. And within the commercial sector, most decisions are customer based. You have to be prepared to do it. It’s not easy backhauling, but then they have made it a thing to do.
PS - Mathew in your research have you found any good examples?
Matthew Tickle (MT) - Well McDonald's do it. All the old fat they use, they put in with the new deliveries, then their whole fleet runs off biofuel from the old food they used. There was also an example from Coca Cola to take stuff to Africa. They would deliver the Coca Cola and have extra space for humanitarian goods, medicine and stuff that needed to be refrigerated. It didn't work out but they were the ones using it for their brand image to say ‘look what we are doing in Africa’, but it didn't have legs at the time probably because of costs.
JG - The thing is there is no harm in doing it for brand awareness. If its a good thing to do it's not a problem.
MC - If it generally does form a need then it generally does work. With me being cynical I’ve seen a lot of rubbish in the last few years. It needs to be very simplistically tangible for me to believe they are doing it for the right reason, not for any alternative motives.
PS - So we started talking about disruptions are there any others that people think could be a risk to people’s businesses?
JA - What about manufacturers of plastic bags,?
FM – When they got rid of them in Wales and Scotland sales dropped but then levelled out. But I heard sales of black bin bags went up massively, people were walking around with them.
PS - Or people will stop using the carrier bags for bin bags and use the black bags instead.
FM - I think there might be a risk if you are a pure material broker because I think as the circular economy evolves, manufactures will look to secure material supplied by partnering with companies that have access to recyclable materials.
So if your business model is buying on the open market and then selling on the open market with no added value, getting the materials to the customer who needs it is a given - that's a value.
But I imagine more plastics and maybe metals become closed loop. I know Jaguar Land Rover closed looped all their scrap aluminium.
I think there will be more of that closed looping so there will be less materials available.
If you secure supply rather than putting bales on the open market to sell, that’s the most effective supply chain.
MC - It's happening more and more in the plastics industry as well. There is more connection between the waste producer, the person that granulates it and the bank manger effectively and it may become tighter than that. My organisation in Spain has developed a plastic extrusion plant where they turn waste straight into film, it goes circular.
FM - We have done the same thing. We have bought a company in the Netherlands so we have our own plastics manufacturing because if you don't have that capability, someone else will provide it.
PS - Isn't it part of Veolia’s mission to become a product company?
FM - I think it will be a green products company. I don't think we will end up making everything, but we will be partnering with those that do. So we will want to feed our raw materials directly into manufacturing.
We are making some stuff - we are doing detergents and other bits and pieces.
PS - So maybe now is a good time to kind of sum up the day now. What I would like to do is go around the table and get your opinion on where we will be in ten year’s time? Whether we will have achieved the dream or will we be along way from it still?
PC - I think that for circularity, logistics is key. And if we can make that more efficient, we will cut out the various people in-between the consumers and the reproducers and that ultimately has to be a good thing. In terms of everything, C02, costs, materials, ultimately we need to improve design of infrastructure as an industry. Government has also got to help make that work.
MB - Well from our side its all down to, partnerships, logistics straight through to teaming up with different people. Today you may be teaming with certain people and in the future you will team with people you may have thought you never would have to get that full supply chain.
And I think then, the drive to keep competitors out of your market space, you will have to make sure that your efficiencies are stronger than what they are today through systems. And that's the challenge for us to supply you with those systems through your supply chain to logistics all the way up to the relationships you have with your consumers.
My insight is going to be - don't care how big or small you are, it’s the ultimate partnership you connect with to lock your competition out to add value to your customer.
We have seen it in so many other industries where the competition has come in because you can’t lock them out, because you have to bigger margins. So when the contract comes around and the market is changing, you forget what was important at that time and your competitors have teamed up.
CR - I think in ten year’s time people that are doing circular economy today will do it under a different name. There will be a lot of growth in those businesses. I think the volume these guys can manage, they will control a lot of the volume and that will grow further. On the other side, there will be more innovation and more niche markets coming in and adding value. So i agree partnerships will be key. For businesses like ours exporting to packaging mills in China, we can’t do everything. We need to find partners with those skills and experience to provide solutions.
PS – Craig - can I just ask from a Chinese perspective, is it something they are interested in as well?
CR - I think my experience with working in China, is that in the last few years their businesses models and visions are changing rapidly. They realise and recognise the ways of doing business in China don't always work in Europe and the US. They have got a lot of capital to invest, they are looking to tick that box in investment opportunities, and align to businesses that they understand. So we recycling industries are looking potentially at investment into waste recycling because it's something we can sell into the individuals who have access to the capital. You have to be fully able to understand it to be invested in. I think there are a lot of opportunities and a lot going on.
Rebecca Hallworth - I was just going to say everybody just needs to be educated, then its whether or not the education comes from local authorities or businesses themselves. So you market your products in a way so that the consumer is driven to buy them and buy into the circular economy.
JG - I think that partnerships and collaborations are key. I think companies should see this as an opportunity to keep resources within their supply chain. I think that could only be a good thing and I don't think it should be seen as a threat, And if companies are willing to adapt and work with other companies within their supply chain, actually it's an opportunity. I think in the next ten years a lot more companies will be thinking like this.
MT - Probably linking partnerships and logistics. I think logistics is the key thing. I am probably being biased, but I think there will probably be an increase of third party logistics in terms of you've got to outsource your entire logistics section or an entire function. We were talking over lunch we were saying as an example of Toshiba, they don't repair any of their laptops in the UK anymore but UPS do it for them, UPS go pick the laptop up and take it to a warehouse in Midlands. UPS fixes the laptop for Toshiba and then takes it back to the customer.
Then finally 3D printing has a role to play in the next few years. Whether it takes off or not I don't know. I have heard that the plastic used in 3D printing are some of the worst that you can actually use and they are not actually recyclable. But I think if enough money goes onto it, hopefully they can find an alternative that is recyclable and is sustainable so possibly that could be a trend for the future.
JA - I think we have talked about some of the millennials coming through who will be the first generation who are truly connected consumers. We will all be connected workers and we will all be connected with our customers
I don't think networks are a new thing - we have always had networks in trade unions for example. But it's going to be easier to spin up those networks and find information and gaps and create those communities and make them solid. I think we will see more middlemen falling by the way side. My friend is an estate agent and he is worried because people put their houses up on the internet and people can buy them directly. So I think there will be some sort of gains and some disruption, so it will stop isolated thinking more joined thinking and being able to deliver quickly with the technology out there.
MC - I think following on from many of these ideas, I have four key elements that will have an effect on where we will be. These multi stake partnerships, I think they will be critical to joined up legislation with the EU to national or local government and with private industry and with other sectors - maybe the third sector.
There is going to have to be more case studies shared, transmitted and communicated with people. I think that we mentioned logistics, the supply chain. I agree with everybody here that will come together, but I think the initial drive will be an efficiency driver rather than an environmental driver. This is just potential but it is the solution that will be needed when the market culture change happens. It could be driven by the millennials.
When education has had an effect, the wider popular culture has had an effect, and hopefully if we do move into this rental, reuse, longevity focus culture and less away from consumerism, a better sense of perspective may come through. I think that will underpin everything.
MK – The one thing that is sure is that change is inevitable - it's always there. I am going to recycle something that I spotted before. I actually read this about two years ago. Collaboration is important as it shows mutual activity is done as effectively and efficiently as possible for all parties. Cost synergies are need to realise that working together in partnership is beneficial and just as importantly there are reduced administrative burdens to be had. There is a common element around all of this, we all want good quality resources. So we can produce something good at the end of it, so for me again supporting what everybody else has said partnership and collaboration are key for getting us a circular economy package.
DH - Rather depressingly I heard we have another eight years of economic slow down, so I guess 10 years from now we will be economic growth, and it also means we have ten more years of population growth and potentially increased demand for consumer goods.
And while I would love everybody to become users in this rental society, I think that will take substantial amount of time to in-bed. And so what I think we will end up seeing is a market-led approach which is perhaps underpinned by legislation where we see market leaders, and it will be different for different materials the pace at which they adopt this change. But market leaders adapting to change will invest in commodity management systems and effectively that will end up with us having more closed supply chains. Whether that's through contractual partnerships that we have talked about or whether it's through acquisition or merger and more formal structures I couldn't say. But ultimately the real driver will be around access to raw materials and the risk associated not behaving in a more circular way.
FM - I agree with what has been said around the table, really by 2025 I think the circular economy is going to building some momentum. It’s all good and well us talking about it but actually seeing it happen, the case studies we see today, are really isolated examples, not significant changes within the economy.
I think for the resource industry its a continual evolving industry anyway and I think it will play a major role in making this happen.
If we don't continue to evolve either our livelihoods will end or our businesses will go under because other people will step in.
I think there is a huge opportunity in the reuse, re-manufacturing area and I think there is a skills and capability gap at the moment, and it will be difficult to fill that in a kind of structured way. I think there is a huge challenge around manufacturing and design for circularity. I think to many big industries are locked into a linear approach, and the upheaval that is required to change that is significant and I think the driver of that could be around security of supply. As soon as materials start getting short within certain industries and bearing in mind all the critical rare earth metals we use in our tech come from Asia, as soon as China decides they want their people to have the better phones, they are getting the best phones. So that challenge of security of supply, I think a pull for materials is needed within the EU. I think the opportunity is that the sector can lead and expand and offer new circular services, because if we don't we die. We will be superseded by whoever comes in and offers the B2B solutions.
PS - I think looking at all of those comments, the key things that came up were logistics, partnership and what we talked about in terms of the closed supply chain. And it looks like that in terms of if we were going to create a new business, they would be really good areas to look at.