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A circular economy tackles the root problems of overconsumption

Ellen MacArthur, The Guardian
It was inevitable that the World Economic Forum’s annual meeting in Davos would concentrate on the current global economic crisis, and there were numerous discussions regarding the best way to help drive economic growth. However, there was also an increasing focus on the fundamental way that the wider economy works.

The past decade has seen rapid technological evolution across all major industry sectors, yet strangely, despite recent events, very little change within the economic model itself. The economy is still based on a linear “take, make and dispose” model. We take minerals, oils and metals out of the ground, make something with them using fossil fuels and then throw them away. This is all well and good until a mixture of market drivers – including security of supply, price volatility and cost of disposal – come into play. It is increasingly apparent that attempting to tinker with the existing system, and simply managing the extent of our consumption, does not tackle the root cause; it will merely delay the inevitable. We need a new way of doing things.

Towards the Circular Economy, commissioned by the Ellen MacArthur Foundation, is the first report to analyse the international business case behind the idea of shifting from a linear to circular economy.

The circular economy offers a different business model, and a different way of looking at the system as a whole. The essence of the circular economy lies in designing goods using technical materials to facilitate disassembly and re-use, and structuring business models so manufacturers can reap rewards from collecting and refurbishing, remanufacturing, or redistributing products they make. In this model all things are made to be made again, ultimately using energy from renewable sources. Companies shift to focusing on selling performance in the place of product, and consumers now become users. While technical materials are cycled in perpetuity at the highest possible value chain, biological materials, within a circular economy, are designed by intention to be non-toxic, and can safely cycle through agricultural systems building capital in the form of phosphates and other valuable nutrients.

Crucially in these tough economic times, the report highlights that there is an opportunity for companies to realise immediate and long-term economic growth within this model.
(31 January 2012)

The End of Elastic Oil

Tom Konrad, Forbes
The last ten years have brought a structural change to the world oil market, with changes in demand increasingly playing a role in maintaining the supply/demand balance. These changes will come at an increasingly onerous cost to our economy unless we take steps to make our demand for oil more flexible.

We’re not running out of oil. There’s still plenty of oil still in the ground. Oil which was previously too expensive to exploit becomes economic with a rising oil price. To the uncritical observer, it might seem as if there is nothing to worry about in the oil market.

Unfortunately, there is something to worry about, at least if we want a healthy economy. The new oil reserves we’re now exploiting are not only more expensive to develop, but they also take much longer between the time the first well is drilled and the when the first oil is produced. That means it takes longer for oil supply to respond to changes in price…

If what we care about are the effects on the economy, it does not matter how much oil is in the ground. Over the last ten years, we have see a structural change in the oil market which will continue to have far-reaching effects on the economy even if we manage to increase the amount of oil produced.

Before 2000, oil supply did the heavy lifting when it came to balancing supply and demand in the oil market. That is no longer the case, and the oil price signal has grown significantly stronger in order to elicit a response in demand.

With 2% of the world’s oil reserves, changes in the US supply of oil will remain insignificant in the world oil supply demand picture, developments in the Bakken shale and cheer leading from political leaders notwithstanding..
(26 January 2012)

When you are betting on shale gas, watch the dealer’s eyes

Steve LeVine, Foreign Policy
When someone invites you to a party but leaves before dessert, it might be time to locate your own coat and hat. Such are the suspicions generated by Chesapeake Energy, which after selling numerous billion-dollar pieces of its vast shale gas holdings to the world’s largest energy companies has abruptly announced that it is drawing down.

A Chesapeake-led rage in shale gas has gone on for some four years, ignited by advances in a drilling method called hydraulic fracturing. In the beginning, Oklahoma-based Chesapeake, run by a wildcatter named Aubrey McClendon, was among the most aggressive acquirers of shale gas leases in the United States. A Forbes writer described McClendon as perhaps “reckless,” but also “charming” and “erudite,” not to mention youthful, ingenious and even heroic. (At O&G, we have found McClendon temperamental and ideologically self-destructive to a degree that risked the entire shale-gas bonanza, but that’s just us.)

Altogether, drilling by Chesapeake and other companies has since then transformed the U.S. from a natural gas importer into a country so awash in gas that it may spend decades as an exporter. Russia has been rendered less secure in Europe, and China may shake things up further by opening up an even larger shale-gas frontier.
(30 January 2012)