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What I Talk About When I Talk About Indonesia’s Circular Economy
What
Circular Economy
Looking beyond the current ‘take-make-dispose’ extractive industrial model, Ellen MacArthur Foundation highlights that the circular economy aims to redefine growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from consuming finite resources and designing waste out of the system. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital. It is based on three principles: design out waste and pollution; keep products and materials in use; regenerate natural systems.”
The Circular Economy concept is visualized into an interesting shaped diagram well-known as the Butterfly Diagram.
This diagram shows that a product can be re-designed to last longer in the system through a circular approach. The smaller the loop through which the product passes the afterlife, the more efficient it is in using resources and meeting its energy needs. There are 3 main principles of Circular Economy: minimize systematic leakage and negative externalities, maintain the stock management, and ensure the renewables flow management.
The circular economy put 3R behind. There is a 9R approach consisting of Refuse, Rethink, Reduce, Reuse, Repair, Refurbish, Remanufacture, Repurpose, Recycle, and Recover. The 9R is implemented at every stage of the production chain and product life cycle. Another advantage of 9R is that the division of multi-stakeholder roles is more visible, and the potential for collaboration becomes clearer.
Why
Backgrounds and significance
According to the Circularity Gap Report (2022), in the last 50 years, the global use of materials has increased almost four times, exceeding population growth. Therefore, a take-make-dispose linear economic system consumes 100 billion tonnes per year and wastes more than 90%.
When
Minutes before midnight
The IPCC (2021) states that there is a possibility that global temperatures will increase by 1.5 C between 2021–2040. If we take very ambitious action to control emissions from now on, then the potential for global warming can be limited.
Urged by time, the paradigm shift in the economic system must change towards a system that prioritizes sustainability. The world and Indonesia in particular, have to look and prepare to accelerate the transition from a linear economy to a circular economy. The circular economy is more than just waste management. In addition to the environmental impact, the implementation of a circular economy has the potential to increase GDP and create green jobs. The circular economy is a vehicle for implementing low-carbon development towards a green economy because the circular economy also includes a wide range of interventions in all sectors of the economy, such as resource efficiency and carbon emission reduction.
The circular economy agenda in Indonesia is formulated by analyzing relevant existing policies and conducting preliminary studies to obtain sectoral and non-sectoral focus areas. Furthermore, the transition to a circular economy is supported by the preparation of action plans, platform development, pilot project implementation, and monitoring and evaluation systems so that development targets will be achievable.
How
Transformative Development
Modernization is an unavoidable civilization that moves in certainty along with improvement and change. Jeffrey D. Sachs and Ban Ki-moon (2015) define modernization as a process of socio-economic-cultural transformation from a traditional society condition, living in rural areas, and having an agrarian livelihood to a secular, urban society, and having a livelihood in the agricultural sector industry. In the process of modernization and the development of the industrial revolution, the growth of the population with high-income levels will put a strong influence on the global demand for goods and services. This also influences economic development (Kharb, 2018).
Modernization is in line with the growth of the global economy and world population. In 2021, the global population reached 7.8 billion and is predicted to continue to increase and reach 30 billion by 2100. The increasing population raises issues regarding food, water, housing, health, employment, transportation, natural resources, welfare, education, and governance. In short, all achieved economic developments by extracting natural resources have consequences in the form of environmental degradation.
The trend of extraction and consumption of natural resources globally is increasing. The Circularity Gap Report (2022) states that in the last 50 years, global material consumption has almost quadrupled, exceeding the growth of the world’s population. In 2019, consumption figures have reached more than 100 billion tons of material per year. More precisely at COP 26 Glasgow, this figure reached 101.6 billion tons of material per year. In 2020, from the consumption of more than 100 billion tons of this material, only 8.6% will be reused in the economic cycle.
In Indonesia, despite increasing industrialization, economic activity still relies heavily on material extraction and processing. Meanwhile, environmental degradation in various sectors is getting more massive, including degradation of natural resources, decreased water quality, reduced forest area, waste problems, and GHG emissions. These conditions are most likely to continue if the effort to extract natural resources is far greater than their reproduction. The linear economic system implemented today is one of the core causes of resource degradation.
Regarding current conditions, it is essential to act efficiently and consider the sustainability of the environment and existing resources. Thus, the transition/transformation of a linear economy to a circular economy is one of the ways. In a circular economy, the true value of the product can continue to be utilized in a cycle to extend the life of the product through the reuse and efficiency of all renewable resources and to the maximum, thereby minimizing the amount of resource use and waste materials that are eventually disposed of in the landfill. A circular economy is a path to a regenerative economy.
System Thinking
Talking about transformation and transition will involve the system discussion respectfully. A precise system analysis will produce a clear focus and purpose to advance. A system can basically be analyzed and understood by examining various focuses in depth. The analyzing system will help us distinguish between symptoms and root causes that will determine what response or action is required for each stage of focus. Stroh (2015) cites that systems are made of circular causal relationships among variables that change over time.
The implementation of a circular economy requires systems thinking so that every step taken moves in harmony. A circular economy that runs well will increase the stock of resources (Laurenti, et al. 2018).
Life Cycle Analysis
While evaluating the impacts of the circular economy is necessary, applying a life cycle approach is highly beneficial. LCA can strengthen the propositions of the circular economy and the other way around. LCA is a robust and science-based tool to measure the impacts of the new circular economy products and business models. It is a powerful methodology that can complement a powerful vision. Contreras, S. (2020), mentioned that we could use LCA to complement the circular economy in three practical steps:
test the assumptions of the circular economy business models,
recognize the limitations of the circular model and explore new, alternative approaches,
set objectives and continuously improve the circularity for practical implementation at the business level.
Through LCA, it is possible to test the impacts of the circular business models, validate their assumptions and get feedback for improvement. In addition, it can help define targets and indicators to measure and foster circularity over time.
Despite its benefits, there are several reasons to be cautious with the life cycle analysis mentioned by Ellen Macarthur Foundation. Since:
it favors short-term gain over systemic change
When thinking about a circular economy transition, it is important to remember that while LCA is good at pointing to the best option based on a specific metric at a specific time, it can sometimes lead us to seek short-term, individual benefits at the expense of long term, collective ones.
it ignores hard-to-measure impacts
LCA can only measure metrics that we can quantify, such as carbon emissions, and therefore weighs decisions more heavily towards these metrics. LCA can often ignore impacts that are harder to measure or less well understood, such as plastic in the environment or the long-term effects of landfill runoff.
it only measures what you tell it to measure and relies on assumptions
LCA is also limited in the sense that they will only measure the parts of the system or the metrics that you have asked them to look at. Anything that isn’t defined within the boundaries of the LCA will not be accounted for. On top of all that, LCAs, just like all models, are dependent on the data you feed into them and the assumptions you make. There are many examples of different studies looking at the same question but arriving at different conclusions because of different data sources, system boundaries, and assumptions.
To successfully use LCA to support and inform the transition to a circular economy, it is important to be mindful of its limitations. We could highlight areas of improvement, test against changing external factors, compare similar solutions, and use LCA in later stages of innovation.
Where
Low Carbon Development and Green Economy
Indonesia has integrated circular economic policies in the 2020–2024 RPJMN demonstrating a commitment to sustainable resource management. The commitment floored by the National Priority Program 1 Strengthening economic resilience for quality growth; Priority 3 Low carbon development; Priority 6 Increasing value-added, employment, and investment in the real sector and industrialization; and priority 8 Strengthening the pillars of economic growth and competitiveness. Furthermore, the mainstreaming of the circular economy in achieving development targets in Indonesia is aligned with the SDGs and the Paris Agreement in Indonesia’s Vision 2045, Net Zero Emission 2060, and RPJP 2025–2045.
A study conducted by Bappenas shows the potential for implementing a circular economy in Indonesia in the economic, social, and environmental sectors. Co-benefits from a circular economy can increase GDP in the range of Rp. 593–638 trillion, create 4.4 million green jobs by 2030, reduce waste generation by 18–25% compared to business-as-usual in 2030, and reduce greenhouse gases emission by 126 million tons of CO2e. On the other hand, the findings of the food loss and waste (FLW) study reveal that the loss due to FLW generation in 2000–2019 was 115–184 kg/capita/year, which was estimated at Rp. 213–551 trillion (4–5% of GDP) that can be fed from the loss of nutrition (energy) due to FLW in 200–2019 is 61–125 million people or 29–47% of Indonesia’s population, and the potential total emissions from FLW in 2000–2019 are estimated at 1,702 Mt CO2e.
Circular economies can reduce Micro Small and Medium Enterprise (MSME) production costs with greater production efficiency and waste reduction, and develop new business models such as a focus on recycling.
While the implementation of a circular economy requires clarity of stakeholder roles, amoeba analysis can be used to map stakeholders. The Amoeba of Cultural Change shows the complex characteristics of various categories of adopters of innovation through the analogy of an amoeba. There are 9 interest groups based on their response to the circular economy concept. The triggering part that needs to be considered is the Early Adopters group that gets the most benefits as a pioneer in implementing the circular economy.
In the context of Indonesia, Bappenas has a role in planning national development by involving development innovation policies that adopt a circular economy and synchronizing and synergizing circular economic policies. However, its implementation in the context of low-carbon development requires collaboration from all parties including the government (central and local), business actors (including MSMEs), academics and practitioners, media, NGOs, and the public as consumers
Who
Business Model
While 9R is a circularity strategy, ReSOLVE is a business strategy that is further embodied in a circular business model. The circularity strategy is translated into business with ReSOLVE activities.
ReSOLVE Framework consists of 6 points (business strategy): Regenerate, Sharing, Optimise, Loop, Virtualise, and Exchange. Each action of the points strengthens and accelerates the performance of each other. ReSOLVE can increase the utilization of physical assets, extend the life of assets, and shift the use of resources from limited sources to renewable sources. The ReSOLVE framework offers businesses and countries a tool to generate circular strategies and growth initiatives.
Some concrete examples of this ReSOLVE implementation include:
Regenerate
Kimberly-Clark Softex (PT Softex Indonesia) collaborated with Xurya Daya Indonesia to build a rooftop solar power plant to save energy and minimize the impact of climate change.
Share
Gojek maximizes product use by sharing vehicle utilization with other users.
Optimize
Great Giant Food & Great Giant Pineapple maximize all parts (resources as well as waste) from one stage of the production process (e.g. pineapple) to become energy or resources in other stages of production.
Loop
PT Komatsu Reman Indonesia (KRI) remanufactured the main components, namely Engine, Power Train, Piston Pump & Motor into products in the same condition as new products.
Virtualize
Ruangguru, Zenius, and Pahamify replace the face-to-face learning experience with virtual classes..
Exchange
Coca-Cola Indonesia adopts the latest technology, namely ASSP (Affordable Single Serve Packaged), and produces high-quality and lighter plastic bottles.
De Angelis (2018) reveals that in the circular business model there is a proportion of new value, value creation and delivery, and wider value capture besides financial value. Businesses must contribute to positive outcomes from a broader perspective i.e. for the benefit of the planet, the people, and the business. Lewandowski (2015) mentions that 4 requirements must be considered in developing a circular business model, namely 1) Value Proportion (what); 2) Supply Chain and Material Cycle (How); 3) Revenue Model (Why); and 4) Customers (Who). Meanwhile, Lacy, et al. (2020) mention 4 values that are wasted or cannot be utilized in a production process, namely 1) the use of non-renewable materials and energy; 2) Products and assets that are not fully utilized during their useful lives; 3) Unrecovered components, materials, and energy from waste streams; and 4) Products that reach the end of use prematurely due to poor design or lack of other useful options. There are at least 5 circular business models that can maximize value, namely:
Circular Supply
uses renewable energy, biologically based or recyclable materials.
Sharing
increase product use through collaborative usage models.
Product as a service
offers complete products and services for long-term maintenance.
Product use extension
life extension through repair, reprocessing, upgrading, and reselling.
Resource recovery
recovery of resources or energy from waste or by-products.
The Circular Business Model Canvas (CBMC) above is an adaptation of the Business Model Canvas which conforms to the principles of the circular economy. CBMC can be used to design a circular business model through 11 building block elements: Partners, Activities, Value Proportion, Customer Relations, Key Resources, Channels, Take-Back System, Cost Structure, Revenue Streams, and Adoption Factors.
Reference
AtKisson A (2009). The sustainability transformation: how to accelerate positive change in challenging times. Routledge, London/New York
Circle Economy. (2022). The Circularity Gap Report 2022 (pp. 1–64, Rep.). Circle Economy, Amsterdam.
Contreras, S. (2020, August 3). Complementing the circular economy with LCA. PRé Sustainability. Retrieved July 17, 2022, from https://pre-sustainability.com/articles/complementing-the-circular-economy-with-lca/
De Angelis, R. (2018). Business Models in the Circular Economy: Concepts, Examples and Theory. Palgrave Macmillan, Exeter.
Ellen MacArthur Foundation (2015). Growth Within: A Circular Economy Vision for a Competitive Europe. Ellen MacArthur Foundation, Cowes.
Kharb, A. (2018). Industrial Revolution — From Industry 1.0 to Industry 4.0. Economics, Semantic Scholar.
Lacy, P., et al. (2020). The circular economy handbook: Realizing the circular advantage. Palgrave Macmillan, UK.
Laurenti, R., et al. (2018). The socio-economic embeddedness of the circular economy: An integrative framework. Sustainability, MDPI.
Lewandowski, M. (2016). Designing the Business Models for Circular Economy-Towards the Conceptual Framework. Sustainability, Elsevier.
materialflows.net. (n.d.). Retrieved July 17, 2022. from http://www.materialflows.net/material-use-in-indonesia-compiling-a-country-profile/
OECD (2019). Business Models for the Circular Economy: Opportunities and Challenges for Policy. OECD Publishing, Paris.
Potting, J. et al. (2018). Circular Economy: what we want to know and can measure. Framework and baseline assessment for monitoring the progress of the circular economy in the Netherlands. PBL Netherlands Environmental Assessment Agency, The Hague.
Sachs, Jeffrey D. 2015. The Age of Sustainable Development. New York, Columbia University Press.
Stroh, D. P. (2015). System Thinking for Social Change. Chelsea Green Publishing, UK.
