Maximizing Value in a Circular Economy

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Maximizing Value in a Circular Economy

Over the next several decades, global economic growth faces a serious threat: a catastrophic shortage of natural resources, which have become increasingly hard to find and extract. Cheap natural resources helped drive economic growth for much of the 20th century, but now, inflation-adjusted prices for many commodities have climbed back to where they were a century ago.

These costs are not rising because we are running out of raw materials in an absolute sense — a point Trends has highlighted repeatedly. Instead, costs are rising for the following reasons:

  • The raw materials are being harvested from new sources that are much farther from the places of manufacture and consumption, which leads to higher transportation costs.
  • Political instability and poor infrastructure in resource locations are making these new resources more expensive to exploit.
  • The new sources of materials are often poorer quality than the sources developed earlier, which means more work is required for the same amount of raw material.

At the same time that the supply costs are soaring, the rapid growth occurring in emerging markets is causing an increase in demand for natural resources.

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As demand has risen, so has cost, making it harder for providers to turn a profit. Inevitably, this means that consumer prices rise and large segments of consumers are priced out of the market. If this pattern continues, it will have a chilling effect on the growth of global GDP, as well as the potential for lifting billions out of poverty.

Already, manufacturers are feeling the effects of rising commodity prices, causing their variable costs to increase. From 2000 to 2010, for example, one steel company saw its variable costs rise from 50 percent to 70 percent, due mostly to increases in commodity prices.1

Prices are rising because of escalating demand.

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This demand isn’t just keeping pace with population growth; it’s accelerating at a faster rate than at any time in history:2

  • Between 1800 and 1900, global consumption of energy doubled.
  • From 1900 to 2000, it grew over 20 times.
  • According to the International Energy Agency, energy use is expected to increase by an additional 50 percent by 2030.

In our increasingly affluent economy, there is another growing challenge at the other end of the product life-cycle. It’s the question of how to deal with a growing mountain of waste. On a global basis, we have plenty of space that can accommodate all of this trash...

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