Gearing the
value of
externalities
in low-income
countries
Waste reuse business models
Presentation by Jasper Buijs
Resource Recovery & Reuse, IWMI
October 2013
So what’s the problem?
Roughly 2.6 billion people lack access to adequate sanitation
That’s almost
half…
…the entire
global
population
Why is that a problem?
Because about 24% of the global disease
burden and 23% of all deaths can be
attributed to environmental factors related
to lacking sanitation
Besides causing pain
and discomfort, that is
a huge cost to society
Some more numbersCa. 20 million ha. of
worldwide farmland
are irrigated with
poorly treated
wastewater, producing
crops consumed by an
estimated 10% of the
world’s people!
Current sanitation
systems annually
dump waste into water
bodies with a nutrient
value euivalent to 50
million tons of
fertilizer, worth ca. 15
billion USD!
Ecosystems provide a
worth of 33 trillion
USD per year. 60% of
this value correlates
with nutrient
cycling, pollution
control and waste
management
So bring a solution!
Wait! There are additional factors that complicate finding
solutions. Let’s examine:
People are tired of
seeing public money
wasted.
Development
initiatives need to
create more impact
per dollar spent
Also, making sure there is a market mechanism for the
development solution is a good way to create more impact
per dollar invested, but:
Sanitation
improvements
take high
investments, an
d…
…low incomes
often don’t
support
product-
market
combinations
that drive cost
recovery or
profits
And… due to
this, the sanitation
sector is
characterized by
heavy
subsidization, maki
ng market-based
solutions still harder
to achieve
So what IS a solution?
To bring marketable solutions, more value has to be freed,
so as to carry the cost of sanitation developments.
The central idea is that
exploiting positive social –
and environmental
effects, though often not
directly monetized in a
business model, generates
indirect value that can be
used in business models to
create additional opportunities
Waste reuse business sorts a double value-add effect:
1) Social and environmental burden already present is reduced.
Since a burden is a cost, it thus saves money.
2) It generates additional value by producing products from waste
that have value in the market (e.g. irrigation
water, compost, soil conditioner, biogas, carbon credits, etc.)
Waste reuse business
Total value pool
Existing value pool
(value lost to neg.
externalities)
(loss averted)
Added value
Waste reuse business
Waste is a wrong word. It is a resource that can
be supplied. It is not a problem but a
possibility. Not a potential cost, but a potential
revenue. It should be reused instead of
disposed.
Waste reuse options
Faecal
sludge
Municipal solid
waste
Nutrients (org.
fertilizer, soil
conditioner)
Water
(irrigation, aquifer,
drinking water)
Waste streams Resource Reuse
Agro-waste
EnergyUrine
Wastewater
Agriculture
ElectricityFuel
Aquaculture
Aquifer
recharge, drinking
water
Landscaping, h
orticulture
Industry
1) Reducing burden already present, e.g.
a. Reduced pollution of water bodies lowers treatment
bills, reducing water-borne diseases morbidity
b. Reduced presence of municipal solid waste in
cities, reducing transport costs, reducing foul odors
c. Reduced emission of greenhouse gasses
Value propositions
2) Useful products, e.g.
a. Irrigation water in otherwise water-scarce areas
b. Biogas-produced electricity for industries and farming
that cuts down M&O costs
c. Low-cost organic fertilizers and soil conditioners that
improve long-term productivity of soil
Let’s look at several business models that are currently being used
or are conceivable to succeed in low-income countries*
How to realize such value?
*Using the business model canvas as developed by
Y. Pigneur, A. Osterwalder et al.
For our assessment of the value of the externalities, we will
add the third bottom line.
How to realize such value?
City-scale phyto-remediative wastewater
treatment & fish production
Wastewater + duckweed Quality-checked consumption fish + clean water
External financierFinance
Land
Ww
Expertise, finance
Export & domestic markets
Fish (QC’d)
Clean water
Private enterprise$Farmers $ Municipality $
Wastestabilization
Public-Private Partnership
Key Partners
• Central
government
& external
financier
• Farmers
• Municipality
Key Activities
• Treat wastewater • Grow, process & sell fish
Value Propositions
• Processed & packaged fish for domestic & export markets.
• Partnered wastewater treatment (free) saves treatment costs for municipality & saves fresh water.
Customer Relationships
Customer Segments
• Municipality • Domestic &
export markets for packaged fish
Key Resources
• Free wastewater
• Farmer land and
communal labour
• Expertise duckweed-fish system
• Capital
Channels
Cost Structure
• Capital investment • O&M • Debt repay & equity
Revenue Streams
• Sale of processed & packaged fish to domestic & export
markets
Social & environmental costs Social & environmental benefits
• Reduced pollution of water bodies. • Increased water availability • Reduction of water-borne diseases morbidity, and
reduced associated health & economic costs in the locality
• Increased value of the area
City-scale phyto-remediative wastewater
treatment & fish production
Internalization
of externality
value
Externality
value
Actual direct
value
Lessons
1. Non-monetary, potential value of environmental stress relief
& water stress relief are internalized into the business model
by means of municipal interest.
2. Non-monetary value is tranlated into monetary value by municipality’s
profitable participation in PPP arrangement for which they supply for
free, city’s wastewater.
3. Translation of non-monetary value into real value (cost saving and product
realization) and significant upside justifies capital investment for
infrastructure under loan conditions.
4. Distribution among different stakeholders of key resources for joint venture
enables innovative form of benefit sharing (equity for farming
communities, municipality and private company).
Low-cost fuel briquettes from agricultural
waste and organic municipal solid waste
Organic solid waste Clean-burn fuel briquettes + CO2 emissionsreduction
Waste Agro industry, municipal
ity
IndustryDistributors $Briquettes
Logistics company$ $
Waste
Micro-retailers
Kilns, training
Private enterprise
Farmers$
Micro-franchiseesPresses, training
Briquettes
Charcoal powder
$$
$
HouseholdsBriquettes
$
$Briquettes
Key Partners
Key Activities
• Briquettes trading (buy – package
-resell) and production
• Training franchisees & farmers
• Production & sale/lease of kilns,
pressing machines
Value Propositions
• Cheap and clean-burning
fuel briquettes
• Simple, steady income
generation by franchising
charcoal pressing machine
• Kiln lease to farmers for
income generation through
sale of charcoal powder
Customer Relationships
• Personal help at
direct sales
Customer Segments
• Households
• Industry
• Micro-
franchisees
• Farmers
Key Resources
• Know-how low-cost technology • Network of franchisees and
retailers • (External factors = Government
incentives pro alternative energy; rising charcoal prices)
Channels
• Distributors
• Micro retailers
• Micro franchisees
Cost Structure
• Investment
• O & M
Revenue Streams
• Sale of briquettes
• Franchising fees
• Lease of Kilns
Social & environmental costs
Social & environmental benefits
• Reduced rate of deforestation
• Reduced GHG emissions (reduced solid waste to CO2, reduced
fire wood burning, ‘good charcoal substitutes bad charcoal’
• Better solid waste management
Low-cost fuel briquettes from agricultural
waste and organic municipal solid waste
Externality
value in light of
gov’t policy
Translates into
competitive value
offer (low-
cost, clean)
Low-margin but
steady value for 3
different types of
actors
Growing network
ensuring steady
income, enabling
reinvestment and growth
Lessons
1. The potential value of externalities is internalized by capitalizing on the
development of (low-cost) technology that complies with gov’t regulation
and takes advantage of charcoal price increase.
2. Externalities’ non-monetary value is captured within the character of the
product and the production processes, claiming cost leadership and cleaner
burning, as well as waste removal.
3. Direct value is, beside the enterprise itself, also distributed among 3 other
value chain actors by means of business strategy (kiln leasing, press
franchising, distribution by distributors and micro-retailers
4. Locally well-integrated, the business system allows small, but steady
margins for a network of different stakeholders, enabling company’s mild
but steady growth, and steadily growing positive externalities.
Livestock waste for carbon credits
and biogas-based energy
Livestock waste Biogas-based energy + carbon credits
Enterprise’s sustainability
branch
Farms
SupplierEquipment
Meat products enterprise
Carbon credits market
Finance
slaughter animals
CO2 emission reductions
Bio-digesters on BOT
Meat marketsMeat products
$ $
Energy
Manure
Biogas$
$
Bio-digesters pay-back on BOT
Share of carboncredit value
$
$$$
Key Partners
• Livestock farmers
• External financier
• Equipment suppliers
Key Activities
• Installation of biodigester on farms on BOT basis
• Managing CDM processes & obtaining
carbon credits
• Processing, and selling meat
• Branding & marketing
Value Propositions
• Environmentally sustainably
produced meat.
• Tradable carbon credits to meet
carbon emission reduction
commitments
• Improved environmental health through GHG emission reductions, reduced pollution of water bodies and soils
Customer Relationships
• Personal • Registered as CDM at
UNFCCC •
Customer Segments
• ‘Green’ meat consumers
• Annex 1 countries
Key Resources
• Bio-digesters, gas volume measurement equipment& technical know-how
• Brands, green reputation • Investment capital • Farms’ supply loyalty • (External factors = Regulation and/or
perception of good waste management)
Channels
• Meat chain distributors • Carbon credit trading
platforms
Cost Structure
• Capital investment cost • Equipment supplies • On-farm training
•
Revenue Streams
• Meat sales to ‘green’ consumers
• Carbon credits from sales of GHG emission reduction.
Social & environmental costs
Social & environmental benefits
• Reduced GHG emissions from associated farms.
• Reduced pollution of water bodies and soils
• Improved animal waste management system and better working conditions,
less odor.
• Improved social and economic sustainability of swine farms.
Livestock waste for carbon credits
and biogas-based energy
Internalized by
incorporation of
company’s
sustainability
branch
Externality
value in light of
gov’t policy
Translation into
real value
through multiple
revenue lines
Lessons
1. The potential value of externalities is internalized by capitalizing on
compliance with gov’t regulation and the incorporation of a company branch
focusing on an optimized compliance business strategy
2. Externalities’ non-monetary value is captured within the character of the
product and the production processes, claiming quality leadership as well as
GHG emission reduction and waste removal.
3. Actual direct value is translated from externalities’ indirect value through
accessing additional (green) markets and fetching associated premium
prices, and through credits for GHG emission reductions
4. Benefits are shared with other value chain actors: Farms’ M&O reduction;
Farms’ income diversification and increase; Increased network and revenue
for materials suppliers.
Compilation of externality value
mechanismsInternalization
because
Internalization
by
Translation into
direct value by
Other direct
value generated
Benefits
distribution,
because
Community interest 1
Municipal interest 2-3
Industry and/or farming interest 2-3
Gov’t regulation 1
Community mobilization 1
Industry branching 1
Adapted product, value offer 2-3
Partnership arrangement 2-3
Products sold 3
Price fetched 1
Costs averted 1-2
Investment outlook improved 2
Network & partnerships growth 2
Business risk reduction 1
Partner/customer cost reduction 3
+ productive capacity community 1
Partner/customer income increase 3
Network/partnership value 2-3
Prior distribution key resources 3
Geographical characteristics 1
* 1 = Sometimes, 2 = Regularly, 3 = Very often
Observation
The value that waste reuse business generates for itself and its customers, in low-
income countries, is very much bound by high
Interdependencyamong different value chain actors. Sufficient value is often generated only when
they all take part in receiving direct benefits
Analyze business ecosystems
This implies finding the most salient factors throughout the business
ecosystem (i.e. those factors with highest repetition, and/or of highest
value or impact). It could imply developing a new way to use the business
model canvas.
Because business
settings feature high
stakeholder inter-
dependencies, we need
to analyze business
opportunities based on
the entire business
ecosystem.
Conclusions
1. Waste reuse business models have great development potential, because they
sort both effects of reduction of current problems (and associated costs) as
well as effects of increase of productivity (and income).
2. The indirect value of externalities can be internalized into waste reuse
business models and subsequently translated into generation of additional
direct value, increasing the financial viability of a larger variaty of
development opportunities.
3. A variety of routes to internalization and translation exist, but the most
common are: Internalization by munipal interest, through adapted products
and value offers, and through enabling partnership arrangements. Translation
through products sold, and to slightly lesser extent through improved
investment outlook and averted costs.
Conclusions - continued
5. Business settings in low-income countries exhibit high interdependency
among different value chain actors. The value that businesses generate for
themselves and their customers, as well as the additional value that can be
won from internalizing and translating externality value, can often
materialize only when business settings enable the distribution of direct
benefits among (many) different value chain actors.
4. Direct value benefits are distributed among different stakeholders in the
waste reuse value chain for a variety of reasons, but most commonly because
of the multiple benefits-character of the businesses that appeals to different
stakeholders, because of the value of the networks and partnerships, and
because of the prior distribution of key resources.
Credits
• Building on joint work with:
• Other team members of the RRR group at IWMI in Sri lanka and
IWMI-Ghana office (Pay Drechsel, Miriam Otoo, Krishna C. Rao,
George Danso, Solomie Gebrezgabher)
• International Centre for Water Management Services, Switzerland
Top Related