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
www.product-life.org, productlife.org@gmail.com
1
1

2. 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”

3. Three parts of the puzzle
1 Objectives 2 Business model C.E.
Growth
$
kg mh
Resource Jobs
consump-
tion
3 Sustainable taxation – creating incentives
Steuern sind zum steuern da, Stahel,
23.03.2012

4. Objectives :
decouple economic growth
and resource consumption
while increasing regional jobs

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. Principles of sustainable taxation

7. 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»

8. 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).

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. The business model to achieve the
objectives: a Circular Economy

11. Today’s linear industrial economy
more growth means more throughput
zero-life products
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
21st C P.O.S. and the State
BUT: asbestos, tobacco, GHG emissions class action suites

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 goods
the large loop renovating buildings, renting goods,
(recycling) reman capital goods, refilling bottles,
maintain/upgrade second-hand
infrastructure
Source: Product-Life Institute, 1976 goods, e-bay 12

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 C
1960 1995
13

14. 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)

15. 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)

16. 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. Local job creation through longer service life – skilled workers
replace material and energy in manufacturing
Veränderung der Kostenanteile über 50 Jahre
100%
90% non-renewable
80% resources
70%
60%
spare parts Abschreibunge
n
Öl und
50% Kleinteile
Ersatzteile
40%
30%
20%
10% renewable ressources
0%
0 10 20 30 40 50
Nutzungsjahr
17

18. 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

19. 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,

20. 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)

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. 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

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. 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 25

26. GHG reduction
mio t GHG emissions
Circular
800 mio t Economy
Lifetime
optimisation
(restorative)
Goods as
services
100 mio t Geman EEG
Source: WRAP 26
(2009)

27. 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

28. New wisdom?
True wealth lies in utilisation,
not in ownership
Aristotle

29. The Performance Economy - selling
performance--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. Key business strategies of
the Performance Economy
sufficiency
Source: Stahel, W.R. (2010) The Performance
Economy, p. 102.

31. The shift from sinking to rising resource prices
21st C

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. 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

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 down
Stahel, The Performance Economy, 2006/2010

35. using absolute decoupling indicators
The mh/kg ratio of remanufacturing a car engine is 270 times that 35
of manufacturing a new engine

36. 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

37. The role of sustainable taxation

38. 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

39. The role of the three puzzle pieces
1 Objectives 2 Business model
Growth
$
kg mh
Resource Jobs
consumpt
3 Sustainable taxation creates
incentives for success
Steuern sind zum steuern da, Stahel,
23.03.2012

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
22/05/2012 The Performance Economy 40

41. Thank you for your attention
1
41
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42. Sustainable
taxation is a RESOURCE SECURITY
booster to
increase:
resource SUSTAINABLE JOB
security,
and jobs TAXATION CREATION
prevent
GHG
emissions GHG EMISSION REDUCTION
Copyright/author:
Walter R. Stahel
2011