Since the rise of circular economy as a priority policy topic in Europe, approaches that look to keep resources in use for as long as possible instead of the linear take-make-dispose logic, have gained significance. With the ETC report ‘Business models in a circular economy’ VITO provides an analytical perspective on the circular business model concept that allows the assessment of mechanisms by which business models can help the adoption of circularity in an economically feasible way.

In the report for the European Environment Agency, VITO and CSCP introduce an analytical framework regarding necessary social, technological and business innovations for circular business models, and identifies appropriate actions for different actors and stakeholders to implement circular business models. 

This analytical framework for business models in the circular economy (Figure below) is built on the following key elements: 

  • The framework shows the innovation needs and enabling actions at each stage of the product life cycle (raw materials/design/production/use/end-of-life) for a given circular business strategy. 
  • Business models are determined by a combination of strategies for value creation, value proposition  and value capture. 
  • Business model innovation is seen as an important means to achieve circular goals. 
  • Business model innovation is placed in the context of two other important dimensions: technical and social innovation (blue circle). 
  • Finally, actions in the areas of policy, behaviour and education are indicated as important levers to enable business innovation (yellow circle).

The 'Analytical framework for business models in a circular economy' applied here for recycling and upcycling business models in the textile sector.  

Applying the framework to the different life cycle phases of products 

Applying the framework to the different life cycle phases of products provides some useful general insights into the role of business model innovation in relation to technical, social and system enablers, like policy and  behavioral change.  

In the raw materials phase, circular business models may seem challenging as the sector’s main business models are driven by incentives contrary to the circular economy vision. The analysis, however, shows that it is possible for companies in the raw materials part of value chains to adopt circular goals. Reducing production waste, using recycled materials or even reducing the use of specific materials altogether can be integrated into a working business model, provided that the right boundaries are in place. 

Product design is a key factor for the implementation of all circular goals, as the design of products determines their potential for reducing, reusing, remanufacturing or recycling materials. The implementation of circular design critically depends on technological solutions to put the principles into practice, on business model innovation to align business incentives with the costs and benefits of circular design practices, and on social innovation to align the intentions behind a product’s design with the actual way it is used. 

In the use phase, it is the behaviour of users that plays a key role in determining how products are managed during and at the end-of-use phase. Consequently, business model innovation and social innovation are key to increasing circularity in the use phase, for example by introducing access-based business models. To ensure that these effectively contribute to increased circularity, however, the degree of resource reduction and avoidance of rebound effects needs to be assessed, and consumers need to remain critical about their sustainability.  

The end-of-life phase is crucial in enabling reuse and remanufacturing. Appropriate incentives are needed to ensure the efficient take back of products that can be reused, or from which parts can be salvaged. This can be enforced by policy measures, and companies can provide economic incentives as well, by offering discounts on new products, such as smartphones and laptops, when old ones are returned. Effective return logistics are a challenge, often requiring the cooperation of retailers, as well as ensuring that the handling of goods for reuse or remanufacturing during transport does not destroy their value.

Want to know more about the contribution of innovative business models to the transition towards a circular economy? Read the full ETC report ‘Business models in a circular economy’.

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