Service, Performance or Goods by Walter Stahel


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Service, Performance or Goods by Walter Stahel

  1. 1. 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, 1 1
  2. 2. The principle of sustainabilitySustainability = holistic, systemic, future-creatingsolutions, following the Iroquois motto:In all your endeavours, consider the impacton the coming seven generations. “Simple, convincing solutions, based on the principles of sustainability in order to gain long-term validity”
  3. 3. Three parts of the puzzle 1 Objectives 2 Business model C.E. Growth $ kg mh Resource Jobs consump- tion3 Sustainable taxation – creating incentives Steuern sind zum steuern da, Stahel, 23.03.2012
  4. 4. Objectives :decouple economic growth and resource consumptionwhile increasing regional jobs
  5. 5. Objectives: decoupling wealth and resource consumption while creating regional jobs EU agenda 2008 wealth up for future growth Agenda 21 $ Rio 1992 ch. 8 kg mh resource- jobs up consumption down Agenda 21 ch. 9 A resource efficient low-carbon every election campaign Europe 2011 (EU Commission)Stahel, The Performance Economy, 2006/2010
  6. 6. Principles of sustainable taxation
  7. 7. Set clear politicalframeworkconditions,consumers followeconomic logic.«strange thatwe can deductmore for our carin the taxdeclaration thanfor our child»
  8. 8. Principles of sustainable taxationa do not tax renewable resources, tax consumption of non-renewable resourcesb accept that work – human labour – is a renewable resourceNote• a shift to a Circular Economy needs no subsidies (unlike renewable energies),• not-taxing work creates virtuous loops (self-rein- forcing job-creation catalysts).
  9. 9. 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
  10. 10. The business model to achieve theobjectives: a Circular Economy
  11. 11. Today’s linear industrial economy more growth means more throughput zero-life productsresources materials manufacturing distrib. P.O.S. use wastemicro-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 21st C P.O.S. and the State BUT: asbestos, tobacco, GHG emissions class action suites
  12. 12. Economics of the Circular Economy to manage stocks locally, not flows globally, today labour-intensive the small resource-miser loops reman activities resource security X remanufacturing goods X re-using goodsthe large loop renovating buildings, renting goods,(recycling) reman capital goods, refilling bottles, maintain/upgrade second-hand infrastructureSource: Product-Life Institute, 1976 goods, e-bay 12
  13. 13. 1 Wealth preservation instead of wealth substitution, Re-use is the prime strategy for markets near saturation new car registrations flow destroyed stock number of scrapped cars 21st C1960 1995 13
  14. 14. Local is beautiful in a C.E.the smaller the loops, the more sustainableThe 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)
  15. 15. Five key impacts of CE on economy and societySmall loops1 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)
  16. 16. Impacts of a C.E. on economy and society:labour, jobs 1 The small loops of a CE substitute manpower for energyFritz Schumacher (1973) Small is beautiful, economicsas if people mattered, Chapter 2.1: EducationWalter R. Stahel (1976) The potential for substitutingmanpower for energy, report to the EU CommissionBruce Hannon, Faye Dutchin and other U.S. professors
  17. 17. Local job creation through longer service life – skilled workers replace material and energy in manufacturing Veränderung der Kostenanteile über 50 Jahre100%90% non-renewable80% resources70%60% spare parts Abschreibunge n Öl und50% Kleinteile Ersatzteile40%30%20%10% renewable ressources 0% 0 10 20 30 40 50 Nutzungsjahr 17
  18. 18. A C.E. uses and trains the highestquality resourceWork—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
  19. 19. Impacts of a C.E. on economy and society:jobs, caring, qualityThe small loops of a Circular Economy2 create local jobs of all qualifications,3 promote caring: maintaining stock is based on maintaining existing values and qualities,
  20. 20. The small loops of a C.E. promote caringwhich 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)
  21. 21. 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
  22. 22. Impacts of a C.E. on economy and society:higher economic competitiveness andmaterial efficiency, reduced environmentalimpairments4 a C.E. reduces costs and resource consumption and environmental impairments
  23. 23. 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.
  24. 24. The environmental impairment angleThe 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. 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-cycleenvironmental and economic perspectives, Journal of Industrial Ecology, 8(1-2) 193-222 25
  26. 26. GHG reduction mio t GHG emissions Circular 800 mio t Economy Lifetime optimisation (restorative) Goods as services100 mio t Geman EEGSource: WRAP 26(2009)
  27. 27. Impacts of a C.E. on economy and society:economic competitiveness and materialefficiency5 Selling goods as services means maintained resource ownership by manufacturers and creates resource securityWalter R. Stahel (2010) The Performance Economy,Tim Jackson (2011) Prosperity without growth,economics for a finite planet
  28. 28. New wisdom?True wealth lies in utilisation, not in ownership Aristotle
  29. 29. The Performance Economy - sellingperformance--goods as services• 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
  30. 30. Key business strategies of the Performance Economy sufficiencySource: Stahel, W.R. (2010) The PerformanceEconomy, p. 102.
  31. 31. The shift from sinking to rising resource prices 21st C
  32. 32. ‘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
  33. 33. The Performance Economy: sustainable profits with an internalisation of the costs of risk and waste manufacturer consumer wasteindustrial economy dispersedselling goods warranty consumer State carries carries all waste costs risiks manufacturer/fleet manager consumer wastePerformance Economy concentratedselling system manufacturer/ utilisation fleet manager carries all risks strong economic incentive for loss and waste prevention
  34. 34. The Performance Economy uses absolute decoupling indicators to monitor more wealth and jobs from less resource consumption wealth up $/kg up $ kg mh mh/kg resource- jobs up up consumption downStahel, The Performance Economy, 2006/2010
  35. 35. using absolute decoupling indicatorsThe mh/kg ratio of remanufacturing a car engine is 270 times that 35of manufacturing a new engine
  36. 36. Example: PrivateFinance Initiatives(PFI)are increasingly usedfor the constructionand long-term opera-tion of infrastruc-tures by a singleeconomic actor.Le Viaduc de Millau, a2001 78-year contractto design, finance,build and operate thebridge (to 2079), witha maintenancecontract until 2121 Le pont de Millau, France
  37. 37. The role of sustainable taxation
  38. 38. The art of incentivesIf you want to build ships, do not assemblemen to procure timber, to define tasks anddelegate work, but teach people thelonging for the sea “Créer la pente vers la mer” Antoine de Saint-Exupéry, Citadel
  39. 39. The role of the three puzzle pieces1 Objectives 2 Business model Growth $ kg mhResource Jobsconsumpt 3 Sustainable taxation creates incentives for success Steuern sind zum steuern da, Stahel, 23.03.2012
  40. 40. Where to find more information: The Performance Economy Walter R. Stahel published by Palgrave Macmillan London March 2010 translated into Simplified Mandarin http://product-life.org22/05/2012 The Performance Economy 40
  41. 41. Thank you for your attention 1 41 41
  42. 42. Sustainabletaxation is a RESOURCE SECURITYbooster toincrease:resource SUSTAINABLE JOBsecurity,and jobs TAXATION CREATIONpreventGHGemissions GHG EMISSION REDUCTIONCopyright/author:Walter R. Stahel2011