Service, Performance or Goods by Walter Stahel
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Service, Performance or Goods ?
Circular Economy selling functional services
and performance rather than goods
EMF Amsterdam 21. 05. 12
Walter R. Stahel
Visiting Professor, University of Surrey
Founder-Director, The Product-Life Institute, Geneva
www.product-life.org, productlife.org@gmail.com
The principle of sustainability
Sustainability = holistic, systemic, future-creating
solutions, following the Iroquois motto:
In all your endeavours, consider the impact
on the coming seven generations.
“Simple, convincing solutions, based on the
principles of sustainability in order
to gain long-term validity”
Three parts of the puzzle
1 Objectives 2 Business model C.E.
Steuern sind zum steuern da, Stahel, 23.03.2012
Growth
$
kg mh
Resource Jobs
3 Sustainable taxation – creating incentives
consump-tion
Objectives :
decouple economic growth
and resource consumption
while increasing regional jobs
Objectives: decoupling wealth and resource
consumption while creating regional jobs
wealth up
Agenda 21 $ Rio 1992 ch. 8
kg mh
resource- jobs up consumption down Agenda 21 ch. 9
Stahel, The Performance Economy, 2006/2010
A resource efficient low-carbon
Europe 2011 (EU Commission)
EU agenda 2008
for future growth
every election campaign
Principles of sustainable taxation
Set clear political
framework
conditions,
consumers follow
economic logic.
«strange that
we can deduct
more for our car
in the tax
declaration than
for our child»
Principles of sustainable taxation
a do not tax renewable resources,
tax consumption of non-renewable
resources
b accept that work – human labour –
is a renewable resource Note
• a shift to a Circular Economy needs no subsidies
(unlike renewable energies),
• not-taxing work creates virtuous loops (self-rein-
forcing job-creation catalysts).
The government (labour) angle
• Govs should give priority to human labour in resource use because a barrel of oil or a ton of coal left in the ground for another decade will not deteriorate, nor will it demand social welfare,
• People at work are a desire for govs, which invest more than 10 years in the education and vocational training of young people to bring them to market,
• Unemployed people present a high cost for govs and a lost opportunity for the national economy,
• Not taxing labour reduces incentives for black labour in the shadow economy and reduce the costs for govs to monitor and punish abuses.
9
The business model to achieve the
objectives: a Circular Economy
Today’s linear industrial economy
more growth means more throughput
resources materials manufacturing distrib. P.O.S. use waste
micro-economic profit optimisation P.O.S. CONSUMER STATE
The manufacturer’s liability for industrial goods concerns the manufacturing quality. Property and liability are transferred to the CONSUMER at the P.O.S. and the State BUT: asbestos, tobacco, GHG emissions class action suites
zero-life products
21st C
12
Economics of the Circular Economy to manage stocks locally, not flows globally, today
remanufacturing goods
Source: Product-Life Institute, 1976
X X
renovating buildings, reman capital goods, maintain/upgrade infrastructure
renting goods, refilling bottles, second-hand goods, e-bay
re-using goods
the large loop (recycling)
labour-intensive
resource-miser
reman activities
the small loops
resource security
13
1 Wealth preservation instead of wealth substitution,
Re-use is the prime strategy for markets near saturation
number of scrapped cars
1960 1995
new car registrations
destroyed stock flow
21st C
Local is beautiful in a C.E.
the smaller the loops, the more sustainable
The principles of a C.E.:
• The smaller the loop (geographically and loop) the
more profitable and resource efficient
• Stock optimisation replaces flow optimisation (except
for goods with innovative technology, destructions),
bathtub calculation: utilisation value replaces exchange
value, maintaining wealth ‘completes’ value added
• Loops have no beginning and no end
• Slow loop speeds are crucial for high material efficiency
(coke cans, reversed accumulated interests)
Five key impacts of CE
on economy and society
Small loops
1 use human labour instead of energy and
materials, at lower costs,
2 create local jobs of all qualifications,
3 promote caring: maintaining stock is based
on maintaining existing values and qualities,
4 reduce resource consumption and
environmental impairment,
5 create resource security (national and
corporate)
Impacts of a C.E. on economy and society:
labour, jobs
1 The small loops of a CE substitute
manpower for energy
Fritz Schumacher (1973) Small is beautiful, economics
as if people mattered, Chapter 2.1: Education
Walter R. Stahel (1976) The potential for substituting
manpower for energy, report to the EU Commission
Bruce Hannon, Faye Dutchin and other U.S. professors
17
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0 10 20 30 40 50
Nutzungsjahr
Veränderung der Kostenanteile über 50 Jahre
Abschreibungen
Öl und Kleinteile
Ersatzteile
non-renewable resources
renewable ressources
Local job creation through longer service life – skilled workers replace material and energy in manufacturing
spare parts
A C.E. uses and trains the highest
quality resource
Work—human labour
• Is the most adaptable, innovative but also the
most vulnerable of all resources,
• Has a major qualitative component (capabilities,
satisfaction, caring)
• Is the only resource with such learning
capabilities as creativity and innovation
• BUT: human capabilities degrade if not used and
continuously educated – continued employment
and education are key
Impacts of a C.E. on economy and society:
jobs, caring, quality
The small loops of a Circular Economy
2 create local jobs of all qualifications,
3 promote caring: maintaining stock is
based on maintaining existing values and
qualities,
The small loops of a C.E. promote caring
which is key to any stock management
• Stock management involves caring – preserving manufactured capital (buildings,
infrastructure, equipment, goods) preserves the
embedded energy, water, GHG emissions,
– fostering people’s quality of life (skills, education
and health services, knowledge),
– maintaining culture and cultural heritage capital
(incl. technology), museums,
– making best use of natural capital (e.g.
producing bio food from organic agriculture,
wooden furniture, leather shoes, wool textiles)
The quality angle of a C.E.
The circular economy is
• regional, meaning less transport volumes and shorter distances in the processing chain,
• more labour-intensive than manufacturing because economies of scale are limited,
• a high-quality world: Stradivari instruments and expensive watches do not live forever by design, but through periodic remanufacturing,
• the knowledge and know-how of past technologies are necessary for retrofitting infrastructure and equipment (i.e. employing silver workers)
21
Impacts of a C.E. on economy and society:
higher economic competitiveness and
material efficiency, reduced environmental
impairments
4 a C.E. reduces costs and
resource consumption and environmental
impairments
Sustainable competitiveness:
material efficiency means profits
• A circular economy (better design and more
efficient use of material) could save European
manufacturers US$630bn a year by 2025,
according to a 2012 report by the Ellen MacArthur
Foundation, London.
• The report, produced by consultancy McKinsey,
only covers five sectors that represent a little less
than half of the GDP contribution of EU manufac-
turing, but still calculates that greater resource
efficiency could deliver multi-billion Euro savings
equivalent to 23 per cent of current spending on
manufacturing inputs.
The environmental impairment angle
The small loops of a C.E. promote a circular regional economy instead of a linear global one, energy- and material-wise:
• transport distances of reuse and reman are a fraction of those in manufacturing chains,
• reuse and reman activities need less energy than manufacturing processes (produce less CO2),
• reuse and reman activities use a fraction of resources of manufacturing the same good,
• REE in nanotechnology applications might only be recovered by reusing the components.
24
25
The resource / environment angle
A 2004 sectoral study on restoring used automotive engines
compared to a like-new condition showed lower economic costs (30-53%) and much lower environmental costs compared to manufacturing engines:
• raw material consumption down by 26-90%, • waste generation down by 65-88%, • energy consumption down by 68-83%, • 73-78% fewer carbon dioxide (CO2), • 48-88% less CO, • 72-85% less NOx, • 71-84% less SOx, • 50-61% less non-methane hydrocarbons emissions.
Source: Smith, VM and Keolian, GA (2004) The value of remanufactured engines, life-cycle
environmental and economic perspectives, Journal of Industrial Ecology, 8(1-2) 193-222
26
mio t GHG emissions
Lifetime
optimisation
Goods as
services
Circular
Economy
(restorative)
Source: WRAP
(2009)
GHG reduction
Geman EEG 100 mio t
800 mio t
Impacts of a C.E. on economy and society:
economic competitiveness and material
efficiency
5 Selling goods as services means
maintained resource ownership by
manufacturers and creates resource
security
Walter R. Stahel (2010) The Performance Economy,
Tim Jackson (2011) Prosperity without growth,
economics for a finite planet
New wisdom?
True wealth lies in utilisation,
not in ownership
Aristotle
• is the most profitable and competitive business model of the Circular Economy,
• is sustainable and preventive as manufacturers internalise the cost of risk and of waste,
• leads to radical and rapid new product design for take-back and reuse of goods and components,
• achieves the highest resource efficiency and security as it maintains ownership of material,
• exploits sufficiency and prevention as profit strategies
29
The Performance Economy - selling
performance--goods as services
Source: Stahel, W.R. (2010) The Performance
Economy, p. 102.
Key business strategies of the Performance Economy
su
ffic
iency
The shift from sinking to rising resource prices
21st C
‘Paradigm shift’ of the Millennium
• Rising commodity prices indicate that
continued ownership means future profits
and a higher resource security
The goods of today are the
resources of tomorrow at the
resource prices of yesterday
The Performance Economy: sustainable profits with an
internalisation of the costs of risk and waste
manufacturer consumer waste
industrial economy dispersed
selling goods warranty consumer State carries
carries all waste costs risiks
manufacturer/fleet manager consumer waste
Performance Economy concentrated
selling system manufacturer/
utilisation fleet manager
carries all risks strong economic incentive for
loss and waste prevention
The Performance Economy uses absolute
decoupling indicators to monitor more wealth and
jobs from less resource consumption
wealth up
$
kg mh
resource- jobs up consumption down
$/kg up
mh/kg
up
Stahel, The Performance Economy, 2006/2010
35 The mh/kg ratio of remanufacturing a car engine is 270 times that of manufacturing a new engine
using absolute decoupling indicators
Example: Private Finance Initiatives (PFI) are increasingly used for the construction and long-term opera-tion of infrastruc-tures by a single economic actor. Le Viaduc de Millau, a 2001 78-year contract to design, finance, build and operate the bridge (to 2079), with a maintenance contract until 2121
Le pont de Millau, France
The role of sustainable taxation
The art of incentives
If you want to build ships, do not assemble
men to procure timber, to define tasks and
delegate work, but teach people the
longing for the sea
“Créer la pente vers la mer”
Antoine de Saint-Exupéry, Citadel
The role of the three puzzle pieces
1 Objectives 2 Business model
Steuern sind zum steuern da, Stahel, 23.03.2012
Growth
$
kg mh
Resource Jobs
3 Sustainable taxation creates incentives for success
consumpt
22/05/2012 The Performance Economy 40
Where to find more information: The Performance Economy Walter R. Stahel published by Palgrave Macmillan London March 2010 translated into Simplified Mandarin productlife.org@gmail.com http://product-life.org
41 41 1
Thank you for your attention
Sustainable
taxation is a
booster to
increase:
resource
security,
and jobs
prevent
GHG
emissions
Copyright/author: Walter R. Stahel 2011
RESOURCE SECURITY
JOB
CREATION
GHG EMISSION REDUCTION
SUSTAINABLE
TAXATION
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