A value based approach to measure resource efficiency and circular economy

In order to move towards a more sustainabledevelopment and at the same time create opportunities for economic growth, afundamental transformation in producer and consumer behaviour is needed. It iscrucial to increase the... [ view full abstract ]

In order to move towards a more sustainabledevelopment and at the same time create opportunities for economic growth, afundamental transformation in producer and consumer behaviour is needed. It iscrucial to increase the resource efficiency of production optimizing the use ofmaterials in the design stage and to find new materials as alternatives to non-renewableones. It is well established that increasing the efficient use of resourcescreates economic value (at firm, national and European level) and that theproduction of secondary materials is inherently more labour-intensive and lessenergy intensive than the production of primary materials. To achieve thistarget, it is necessary to stimulate resource efficiency through properlegislation and effective financial incentives. To this extent, a newvalue-based indicator to assess the performance of actors in the supply chainin terms of resource efficiency and circular economy has been developed. Thisindicator represents a decision making tool which will help management andpolicy makers to steer decision towards value creation and technologicalinnovation and therefore it can help society to achieve the social,environmental, economic and strategic goals it pursues.

An important factor which facilitate thedissemination and use of circular economy and resource efficiency conceptsamong decision makers and is the unit in which they are measured. This willinfluence the direction in which green policy will change our society.

While the most common approaches to assess resourceefficiency and circular economy use mass, the proposed indicator measures bothresource efficiency and the circular economy in terms of the market value of“stressed” resources, since this value incorporates the elements of scarcityversus competition as well as taxes representing urgent social andenvironmental externalities. The market value of resources is well-documentedand responds automatically to the locality and time at which resources areused.

Applying this unit, circularity is defined as thepercentage of the value of “stressed” resources incorporated in a service orproduct that is returned after End-of-Life. Resource efficiency is the ratio of(added) product value divided by the value of “stressed” resources used in (aprocess of) production. It is argued that precisely the concept of a freemarket, in which materials, parts and components are exchanged purely on thebasis of their functionality and cost, allows for distinguishing the resourceefficiency of a process (KPI for industry and governance) from the resource efficiencyof a product (KPI for consumers and governance).

Using standardized industry data from StatisticsNetherlands, the resource efficiency of several Dutch industries are evaluatedusing the new methodology and compared with a traditional mass-based approach.