Building Sustainable Circular Economy With Blockchain
By: Deepa Ramachandra
Tags: Blockchain, Supply Chain, Sustainability, Environment, Esg

Source: Circular Economy via Shutterstock

Since the industrial revolution began, the world has focused on the production and consumption of products. Little or no attention is paid to where the materials are sourced from, the conditions in which the products are manufactured, and how they are finally disposed of. However, the toxic effects that the current processes are having on the environment, coupled with the rapid depletion of natural resources, have necessitated everyone to switch to a sustainable and environment-friendly circular economy. But, what are the hurdles in shifting to a completely different paradigm? Can technologies such as Blockchain address these challenges?

Why Is Circular Economy the Need of the Hour?

Source: Linear vs. Circular Economy via Shutterstock

What Are the Challenges With the Current Linear Economy?

Today’s linear economy adopts a take-Make-Dispose model of resource consumption. Raw materials are either extracted (metals and minerals) or harvested (agricultural products). They are then procured and used in manufacturing other products. These finished products are then purchased by consumers who dispose of them at the end of the product life. These products are eventually found in some landfills or are incinerated. Some of these materials are even toxic, and releasing them back to the biosphere has a dire impact on climate.

Such linear systems result in the depletion of those natural resources used as raw materials. This depletion results in high prices and supply disruptions of these resources. All these factors have added a sense of urgency to finding alternate models and have prompted businesses to explore ways to recycle and reuse products and conserve precious natural resources.

How Does the Circular Economy Address These Challenges?

Circular economy creates a closed-loop ecosystem that extends the current take and make model. It adds processes such as repossess, reprocess, resell, and reuse, repeated multiple times before the materials are disposed of. This model emphasizes the use of renewable energy and reduced consumption of toxic chemicals. It also focuses on improving the design of products and systems. Additionally, businesses are also working on responsible waste management and industrial waste minimization.

Today, an increasing number of businesses are transitioning to the sustainable, circular economy model. Ricoh was one of the pioneers in this space when they started their recycled copiers and printers GreenLine series back in 1997. Today, this model has extended to other industries such as textiles, electronics, tires, and automobiles.

Circular economy is a trillion-dollar opportunity with the potential for innovation, job creation, and economic growth. This economy opens up new business opportunities that are also beneficial to the environment and the society. was able to reduce 80% of energy, 88% of water, 77% of waste, and a substantial amount of capital expenditure by transitioning to the green model. As per the Automotive Parts Remanufacturers Association (APRA), thousands of companies in the remanufacturing sector have created over 500,000 jobs in the US alone.

What Are the Essential Requirements for the Success of the Circular Economy?

Source: Circular Economy Via Ellen MacArthur Foundation

Innovative Product and System Design

Designing products that are durable and eliminating those that are not is vital for a sustainable economy. The consumables in the circular economy have to use non-toxic materials. Additionally, the energy required to fuel this cycle should be renewable by nature to reduce the attrition of the fossil fuels and increase system resilience.

Materials Management and Provenance

In its lifetime, a particular material changes its shape ever too often — from raw material, it becomes a component of a finished product. In the circular economy, the finished products of the forward chain get recycled into another product in the reverse chain. For instance, cotton clothing is transformed first as another apparel, then moved to the furniture industry as fiber-fill, and later reused in stone wool insulation in construction.

Material management is a very involved process. First, the movement of materials spans across multiple industries and geographies. Second, not all materials have the same recycling values. Materials such as glass and paper have a high collection rate but also higher quality loss. On the other hand, polymers have lower collection rates and lack a systematic reuse solution. Third, the corresponding supply chains are highly fragmented. Finally, the products are recycled multiple times.

For the success of the sustainable ecosystem, it is essential to establish an irrefutable chain of custody of the material throughout its journey from being a raw material to a finished good and a recycled product till its responsible disposal.

Manage Complex Supply Chains

The global value chains include several entities such as suppliers, logistics companies, governments, regulators, and consumers. The supply chain network will need a strong collaboration with the incumbent value chain partners and the auxiliary chain partners such as waste management. Companies have so far focused on the inbound supply chain, orchestrating the complex supply chain networks involving procuring the raw materials from suppliers and manufacturing the products. Now, they need to extend this focus to involving several reverse cycle partners. Hence, a credible, transparent, traceable, and secure information reverse supply chain and manage the post-usage value chain exchange system is essential for a circular economy.

Create New Business Model and Markets

In order to streamline the circular economy, it is necessary to foster new business models such as a sharing economy. In the sharing model, end consumers lease products instead of buying them. It leaves the ownership of the products with the manufacturers and retailers, making the reclaiming and recycling of these products at the end of their life more streamlined.

Similarly, if the circular economy has to be made mainstream, it is vital to establish trustworthy secondary markets for the recycled products. Assuring the quality and provenance of the secondary products is crucial for the success of the secondary markets.

Encouraging Companies and Consumers to Go Green

Rewards are a constructive means to foster good behavior. Tax benefits and discounts to the businesses and consumers when they produce and use sustainable materials or when they repurpose and recycle products will spur them to adopt this environment-friendly mindset.

How Blockchain Bolsters the Circular Economy?

Tracing Materials in the Complex Forward and Reverse Value Chains

Blockchain presents a viable solution to track the flow of the products in both forward and reverse value chains. Blockchain provides a reliable trace of the material flow in the multi-tier supply chain networks. Along with IoT, Blockchain can also give accurate information regarding the product condition, its location, its quality, and all the processing the material has undergone.

Product Provenance

The immutable nature of Blockchain gives assurance to the consumers about the authenticity of the product information they get from Blockchain. The technology also adds enhanced transparency about the origins of the product — how and where they are sourced. This increased scrutiny will steer the companies to change what and how they procure. It will drive ethical sourcing and fair employment. All these features help customers make informed decisions, thus enabling them to buy sustainable products and services.

Incentivization

Rewards for adopting eco-friendly practices will help drive the circular economy. Companies can issue digital tokens that are supported by Blockchain to their customers when they buy recycled products or responsibly return the end-of-life products. Similarly, the technology can be used to create and manage energy credits that the businesses earn for going green.

Decentralized Marketplace

There are several advantages of using a Blockchain-powered platform for materials and energy marketplaces. First, Blockchain upholds trust among the consumers of recycled products. The customers get accurate and authentic information about the goods they are buying. Second, the buyers and sellers can connect without any intermediaries, thereby reducing the transaction costs.

Finally, decentralized energy markets can leverage Blockchain to issue unique digital identities to the natural resources in the form of tokens. Furthermore, people can sell, buy, and trade these tokens, thereby creating an open market for the energy they generate using renewable sources.

Tracking Energy Consumption

Regulators can track energy consumption and carbon emissions using Blockchain. They can then use this information to monitor whether the businesses and consumers are compliant with environmental goals.

Smart Contracts to Encourage Recycling

Smart contracts generally reflect the agreement between multiple parties. They initiate actions based on certain predefined conditions. They can play a vital role in accelerating the adoption of the sustainable circular ecosystem.

First, smart contracts can automatically trigger payments to the consumers returning the products, based on the condition and quantity of the material. With automatically executing smart contracts, the consumers are better guaranteed of the incentives, thereby encouraging them to adopt a recycle and reuse mindset. Second, using smart contracts to calculate the incentives based on the type of products can foster a holistic recycling approach. For instance, companies can use smart contracts to award higher incentives when consumers return materials that they far more frequently discard than others.

A Precompetitive Environment Fostering Collaboration

Blockchain provides a trustworthy platform where all participants, including competitors, can collaborate. When all the members of the ecosystem can make joint decisions, conflicts and challenges are significantly reduced.

The circular economy offers several benefits for both businesses and end consumers. It reduces costs, adds new jobs, and improves the existing processes. Blockchain technology can significantly contribute to creating a collaborative, trustworthy, and secure platform for building this sustainable ecosystem.