A circular economy (often referred to simply as "circularity") is an economic system aimed at minimising waste and making the most of resources. In a circular system resource input and waste, emission, and energy leakage are minimized by slowing, closing, and narrowing energy and material loops; this can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling. This regenerative approach is in contrast to the traditional linear economy, which has a 'take, make, dispose' model of production.
Proponents of the circular economy suggest that a sustainable world does not mean a drop in the quality of life for consumers, and can be achieved without loss of revenue or extra costs for manufacturers. The argument is that circular business models can be as profitable as linear models, allowing us to keep enjoying similar products and services.
- 1 Sustainability
- 2 Towards the circular economy
- 3 Industries adopting a circular economy
- 4 Strategic management and the circular economy
- 5 Impact in Europe
- 6 Related concepts
- 7 See also
- 8 References
- 9 External links
Intuitively, the circular economy would appear to be more sustainable than the current linear economic system. Reducing the resources used, and the waste and leakage created, conserves resources and helps to reduce environmental pollution. However, it is argued by some that these assumptions are simplistic; that they disregard the complexity of existing systems and their potential trade-offs. For example, the social dimension of sustainability seems to be only marginally addressed in many publications on the circular economy. There are cases that might require different or additional strategies, like purchasing new, more energy efficient equipment. By reviewing the literature, a team of researchers from Cambridge and TU Delft could show that there are at least eight different relationship types between sustainability and the circular economy.
The circular economy can cover a broad scope, findings from the literature show that researchers have focused on different areas such as industrial applications with both product-oriented and services, practice and policies to better understand the limitations that the CE currently faces, strategic management for details of the circular economy and different outcomes such as potential re-use applications and waste management.
The circular economy includes products, infrastructure, equipment and services, and applies to every industry sector. It includes 'technical' resources (metals, minerals, fossil resources) and 'biological' resources (food, fibres, timber, etc). Most schools of thought advocate a shift from fossil fuels to the use of renewable energy, and emphasize the role of diversity as a characteristic of resilient and sustainable systems. It includes discussion of the role of money and finance as part of the wider debate, and some of its pioneers have called for a revamp of economic performance measurement tools.
One example of a circular economy model is the implementation of renting models in traditional ownership areas (e.g. electronics, clothes, furniture, transportation). Through renting the same product to several clients, manufacturers can increase revenues per unit, thus decreasing the need to produce more to increase revenues. Recycling initiatives are often described as a circular economy and are likely to be the most widespread models.
Beginning of the Circular Economy
As early as 1966 Kenneth Boulding raised awareness of an "open economy" with unlimited input resources and output sinks, in contrast with a "closed economy", in which resources and sinks are tied and remain as long as possible a part of the economy. Boulding's essay "The Economics of the Coming Spaceship Earth" is often cited as the first expression of the "circular economy", although Boulding does not use that phrase.
The circular economy is grounded in the study of feedback-rich (non-linear) systems, particularly living systems. The contemporary understanding of the Circular Economy and its practical applications to economic systems evolved incorporating different features and contributions from a variety of concepts sharing the idea of closed loops. Some of the relevant theoretical influences are cradle to cradle, laws of ecology, looped and performance economy, regenerative design, industrial ecology, biomimicry and blue economy.
The circular economy (CE) was further modelled by British environmental economists David W. Pearce and R. Kerry Turner in 1989. In Economics of Natural Resources and the Environment, they pointed out that a traditional open-ended economy was developed with no built-in tendency to recycle, which was reflected by treating the environment as a waste reservoir.
In the early 1990s, Tim Jackson began to pull together the scientific basis for this new approach to industrial production in his edited collection Clean Production Strategies, including chapters from pre-eminent writers in the field, such as Walter R Stahel, Bill Rees, and Bob Costanza. At the time still called 'preventive environmental management', his follow-on book Material Concerns - Pollution, Profit and Quality of Life synthesised these findings into a manifesto for change, moving industrial production away from an extractive linear system towards a more circular economy.
Emergence of the idea
In their 1976 research report to the European Commission, "The Potential for Substituting Manpower for Energy", Walter Stahel and Genevieve Reday sketched the vision of an economy in loops (or circular economy) and its impact on job creation, economic competitiveness, resource savings, and waste prevention. The report was published in 1982 as the book Jobs for Tomorrow: The Potential for Substituting Manpower for Energy.
Considered as one of the first pragmatic and credible sustainability think tanks, the main goals of Stahel's institute are to extend the working life of products, to make goods last longer, to re-use existing goods and ultimately to prevent waste. This model emphasizes the importance of selling services rather than products, an idea referred to as the "functional service economy" and sometimes put under the wider notion of "performance economy". This model also advocates "more localization of economic activity".
Promoting a circular economy was identified as national policy in China's 11th five-year plan starting in 2006. The Ellen MacArthur Foundation has more recently outlined the economic opportunity of a circular economy, bringing together complementary schools of thought in an attempt to create a coherent framework, thus giving the concept a wide exposure and appeal.
Most frequently described as a framework for thinking, its supporters claim it is a coherent model that has value as part of a response to the end of the era of cheap oil and materials, moreover contributing to the transition for a low carbon economy. In line with this, a circular economy can contribute to meeting the COP 21 Paris Agreement. The emissions reduction commitments made by 195 countries at the COP 21 Paris Agreement, are not sufficient to limit global warming to 1.5 °C. To reach the 1.5 °C ambition it is estimated that additional emissions reductions of 15 billion tonnes CO2 per year need to be achieved by 2030. Circle Economy and Ecofys estimated that circular economy strategies may deliver emissions reductions that could basically bridge the gap by half.
Moving away from the linear model
Linear "take, make, dispose" industrial processes, and the lifestyles dependent on them, use up finite reserves to create products with a finite lifespan, which end up in landfills or in incinerators. The circular approach, by contrast, takes insights from living systems. It considers that our systems should work like organisms, processing nutrients that can be fed back into the cycle — whether biological or technical — hence the "closed loop" or "regenerative" terms usually associated with it. The generic circular economy label can be applied to or claimed by several different schools of thought, but all of them gravitate around the same basic principles.
One prominent thinker on the topic is Walter R. Stahel, an architect, economist, and a founding father of industrial sustainability. Credited with having coined the expression "Cradle to Cradle" (in contrast with "Cradle to Grave", illustrating our "Resource to Waste" way of functioning), in the late 1970s, Stahel worked on developing a "closed loop" approach to production processes, co-founding the Product-Life Institute in Geneva. In the UK, Steve D. Parker researched waste as a resource in the UK agricultural sector in 1982, developing novel closed-loop production systems. These systems mimicked and worked with the biological ecosystems they exploited.
Towards the circular economy
In January 2012, a report was released entitled Towards the Circular Economy: Economic and business rationale for an accelerated transition. The report, commissioned by the Ellen MacArthur Foundation and developed by McKinsey & Company, was the first of its kind to consider the economic and business opportunity for the transition to a restorative, circular model. Using product case studies and economy-wide analysis, the report details the potential for significant benefits across the EU. It argues that a subset of the EU manufacturing sector could realize net materials cost savings worth up to $630 billion annually towards 2025—stimulating economic activity in the areas of product development, remanufacturing and refurbishment. Towards the Circular Economy also identified the key building blocks in making the transition to a circular economy, namely in skills in circular design and production, new business models, skills in building cascades and reverse cycles, and cross-cycle/cross-sector collaboration.
On the other hand, implementing a circular economy in the United States has being presented by Ranta et al. who analyzed the institutional drivers and barriers for the circular economy in different regions worldwide, by following the framework developed by Scott R. In the article, different worldwide environment-friendly institutions were selected, and two types of manufacturing processes were chosen for the analysis (1) a product-oriented, and (2) a waste management. Specifically, in the U.S., the product-oriented company case in the study was Dell, a US manufacturing company for computer technology, which was the first company to offer free recycling to customers and to launch to the market a computer made from recycling materials from a verified third party source. Moreover, the waste management case that includes many stages such as collection, disposal, recycling in study was Republic Services, the second largest waste management company in the US. The approach to measure the drivers and barriers was to first identify indicators for their cases in study and then to categorize these indicators into drivers when the indicator was in favor of the circular economy model or a barrier when it was not.
Platform for Accelerating the Circular Economy (PACE)
In 2018, the World Economic Forum, World Resources Institute, Philips, Ellen MacArthur Foundation, United Nations Environment Programme, and over 40 other partners launched the Platform for Accelerating the Circular Economy (PACE). PACE follows on the legacy of WEF's CEO-led initiative, Project MainStream, which sought to scale up circular economy innovations. PACE's original intent has three focal areas: (1) developing models of blended finance for circular economy projects, especially in developing and emerging economies; (2) creating policy frameworks to address specific barriers to advancing the circular economy; and (3) promoting Public–private partnership for these purposes.
PACE members include global corporations like IKEA, Coca-Cola, Alphabet Inc., and DSM (company), along with governmental partners and development institutions from Denmark, The Netherlands, Finland, Rwanda, UAE, China, and beyond. Initiatives currently managed under PACE include the Capital Equipment Coalition with Philips and numerous other partners and the Global Battery Alliance with over 30 partners. In January 2019, PACE released a report entitled "A New Circular Vision for Electronics: Time for a Global Reboot" (in support of the United Nations E-waste Coalition.
Circular economy standard BS 8001:2017
To provide authoritative guidance to organizations implementing circular economy (CE) strategies, in 2017, the British Standards Institution (BSI) developed and launched the first circular economy standard "BS 8001:2017 Framework for implementing the principles of the circular economy in organizations. Guide". The circular economy standard BS 8001:2017 tries to align the far-reaching ambitions of the CE with established business routines at the organizational level. It contains a comprehensive list of CE terms and definitions, describes the core CE principles, and presents a flexible management framework for implementing CE strategies in organizations. Little concrete guidance on circular economy monitoring and assessment is given, however, as there is no consensus yet on a set of central circular economy performance indicators applicable to organizations and individual products.
Circular business models
While the initial focus of academic, industry, and policy activities was mainly focused on the development of re-X (recycling, remanufacturing, reuse,...) technology, it soon became clear that the technological capabilities increasingly exceed their implementation. To leverage this technology for the transition towards a Circular Economy, various stakeholders have to work together. This shifted attention towards business-model innovation as a key leverage for 'circular' technology adaption.
Circular business models can be defined as business models that are closing, narrowing, slowing, intensifying, and dematerializing loops, to minimize the resource inputs into and the waste and emission leakage out of the organizational system. This comprises recycling measures (closing), efficiency improvements (narrowing), use phase extensions (slowing), a more intense use phase (intensifying), and the substitution of products by service and software solutions (dematerialising). As illustrated in the Figure, these five approaches to resource loops can also be seen as generic strategies or archetypes of circular business model innovation.
Circular business models, as the economic model more broadly, can have different emphases and various objectives, for example: extend the life of materials and products, where possible over multiple ‘use cycles’; use a ‘waste = food’ approach to help recover materials, and ensure those biological materials returned to earth are benign, not toxic; retain the embedded energy, water and other process inputs in the product and the material for as long as possible; Use systems-thinking approaches in designing solutions; regenerate or at least conserve nature and living systems; push for policies, taxes and market mechanisms that encourage product stewardship, for example ‘polluter pays’ regulations.
Industries adopting a circular economy
A circular economy within the textiles industry refers to the practice of clothes and fibers continually being recycled, to re-enter the economy as much as possible rather than ending up as waste.
A circular textiles economy is in response to the current linear model of the fashion industry, “in which raw materials are extracted, manufactured into commercial goods and then bought, used and eventually discarded by consumers” (Business of Fashion, 2017). 'Fast fashion 'companies have fueled the high rates of consumption which further magnify the issues of a linear system. “The take-make-dispose model not only leads to an economic value loss of over $500 billion per year, but also has numerous negative environmental and societal impacts” (Business of Fashion, 2018). Such environmental effects include tons of clothing ending up in landfills and incineration, while the societal effects put human rights at risk. A revolutionary documentary about the world of fashion, “The True Cost” (2015), explained that in fast fashion, “wages, unsafe conditions, and factory disasters are all excused because of the needed jobs they create for people with no alternatives.” This shows that fast fashion is harming the planet in more ways than one by running on a linear system.
It is argued that by following a circular economy, the textiles industry can be transformed into a sustainable business. The Ellen MacArthur Foundation is at the top of the list as it focuses on the benefits of a circular economy. Their 2017 report, “A New Textiles Economy”, states the four key ambitions needed to establish a circular economy: “phasing out substances of concern and microfiber release; transforming the way clothes are designed, sold and used to break free from their increasingly disposable nature; radically improving recycling by transforming clothing design, collection, and reprocessing; and making effective use of resources and moving to renewable input.” While it sounds like a simple task, only a handful of designers in the fashion industry have taken charge, including Patagonia, Eileen Fisher, and Stella McCartney. An example of a circular economy within a fashion brand is Eileen Fisher’s Tiny Factory, in which customers are encouraged to bring their worn clothing to be manufactured and resold. In an interview on The Glossy Podcast (2018), Fisher explains, “A big part of the problem with fashion is overconsumption. We need to make less and sell less…you get to use your creativity but you also get to sell more but not create more stuff.” The Tiny Factory proves that it is possible to practice a circular economy in the textiles industry. Both China and Europe have taken the lead in pushing a circular economy. The Journal of Industrial Ecology (2017) states, the “Chinese perspective on the circular economy is broad, incorporating pollution and other issues alongside waste and resource concerns, [while] Europe’s conception of the circular economy has a narrower environmental scope, focusing on waste and resources and opportunities for business.” These practices are important for citizens to understand and realize the opportunity and benefits of a circular economy in the textiles industry.
The textiles industry has a long way to go to reach a sustainable future. A circular economy could be the answer to the social and environmental issues that the current linear, fast fashion model has created.
A construction sector is one of the world’s largest waste generators. The Circular Economy appears as a helpful solution to diminish an environmental impact of the industry.
Construction is very important to the economy of the European Union and its state members. It provides 18 million direct jobs and contributes to about 9% of the EU's GDP. The main causes of the construction's environmental impact are found in the consumption of non-renewable resources and the generation of contaminant residues, both of which are increasing at an accelerating pace.
Decision making about the Circular Economy can be performed on the operational (connected with particular parts of the production process), tactical (connected with whole processes) and strategic (connected with the whole organization) levels. It may concern both construction companies as well as construction projects (where a construction company is one of the stakeholders). As a good case that fits the idea of Circular Economy in construction sector on the operational level, there can be pointed walnut husks, that belong to hard, light and natural abrasives used for example in cleaning brick surfaces. Abrasive grains are produced from crushed, cleaned and selected walnut shells. They are classified as reusable abrasives. A first attempt to measure the success of Circular Economy implementation was done in a construction company.
The logistics industry plays an important role in the Dutch economy because the Netherlands is located in a specific area where transit of commodities takes place on a daily basis. The Netherlands is an example of a country from the EU that has increasingly moved towards incorporating a circular economy given the vulnerability of the Dutch economy (as well as other EU countries) to be highly dependable on raw materials imports from countries such as China, which makes the country susceptible to the unpredictable importation costs for such primary goods.
Research related to the Dutch industry shows that 25% of the Dutch companies are knowledgeable and interested in a circular economy; furthermore, this number increases to 57% for companies with more than 500 employees. Some of the areas are chemical industries, wholesale trade, industry and agriculture, forestry and fisheries because they see a potential reduction of costs when reusing, recycling and reducing raw materials imports. In addition, logistic companies can enable a connection to a circular economy by providing customers incentives to reduce costs through shipment and route optimization, as well as, offering services such as prepaid shipping labels, smart packaging, and take-back options.
Several statistics have indicated that there will be an increase in freight transport worldwide, which will affect the environmental impacts of the global warming potential causing a challenge to the logistics industry, however, the Dutch council for the Environment and Infrastructure (Dutch acronym: Rli) provided a new framework in which it suggests that the logistics industry can provide other ways to add value to the different activities in the Dutch economy, such as, an exchange of resources (either waste or water flows) for production from the different industries, in addition, to change the transit port concept to a transit hub. Moreover, the Rli studied the role of the logistics industry for three sectors, agriculture and food, chemical industries and high tech industries which can be found detailed in "Towards a Circular Economy: The Role of Dutch Logistics Industries and Governments" .
Strategic management and the circular economy
The CE does not aim at changing the profit-maximization paradigm of businesses. Rather, it suggests an alternative way of thinking how to attain a Sustained Competitive Advantage (SCA), while concurrently addressing the environmental and socio-economic concerns of the 21st century. Indeed, stepping away from linear forms of production most often leads to the development of new core competencies along the value chain and ultimately superior performance that cuts costs, improves efficiency, meets advanced government regulations and the expectations of green consumers. But despite the multiple examples of companies successfully embracing circular solutions across industries, and notwithstanding the wealth of opportunities that exist when a firm has clarity over what circular actions fit its unique profile and goals, CE decision-making remains a highly complex exercise with no one-size-fits-all solution. The intricacy and fuzziness of the topic is still felt by most companies (especially SMEs), which perceive circular strategies as something not applicable to them or too costly and risky to implement. This concern is today confirmed by the results of ongoing monitoring studies like the Circular Readiness Assessment.
Strategic management is the field of management that comes to the rescue allowing companies to carefully evaluate CE-inspired ideas, but also to take a firm apart and investigate if/how/where seeds of circularity can be found or implanted. The book Strategic Management and the Circular Economy defined for the first time a CE strategic decision-making process, covering the phases of analysis, formulation, and planning. Each phase is supported by frameworks and concepts popular in management consulting – like idea tree, value chain, VRIE, Porter’s five forces, PEST, SWOT, strategic clock, or the internationalization matrix – all adapted through a CE lens, hence revealing new sets of questions and considerations. Although yet to be verified, it is argued that all standard tools for strategic management can and should be calibrated and applied to a CE. A specific argument has already been made for the strategy direction matrix of product vs market and the 3 × 3 GE-McKinsey matrix to assess business strength vs industry attractiveness, the BCG matrix of market share vs industry growth rate, and Kraljic’s portfolio matrix.
Impact in Europe
On 17 December 2012, the European Commission published a document entitled "Manifesto for a Resource Efficient Europe". This manifesto clearly stated that "In a world with growing pressures on resources and the environment, the EU has no choice but to go for the transition to a resource-efficient and ultimately regenerative circular economy." Furthermore, the document highlighted the importance of "a systemic change in the use and recovery of resources in the economy" in ensuring future jobs and competitiveness, and outlined potential pathways to a circular economy, in innovation and investment, regulation, tackling harmful subsidies, increasing opportunities for new business models, and setting clear targets.
The European environmental research and innovation policy aims at supporting the transition to a circular economy in Europe, defining and driving the implementation of a transformative agenda to green the economy and the society as a whole, to achieve a truly sustainable development. Research and innovation in Europe are financially supported by the programme Horizon 2020, which is also open to participation worldwide.
The European Union plans for a circular economy are spearheaded by its 2018 Circular Economy Package. Historically, the policy debate in Brussels mainly focused on waste management which is the second half of the cycle, and very little is said about the first half: eco-design. To draw the attention of policymakers and other stakeholders to this loophole, the Ecothis, an EU campaign was launched raising awareness about the economic and environmental consequences of not including eco-design as part of the circular economy package.
The various approaches to ‘circular’ business and economic models share several common principles with other conceptual frameworks:
Janine Benyus, author of "Biomimicry: Innovation Inspired by Nature", defines Biomimicry as:
- "a new discipline that studies nature's best ideas and then imitates these designs and processes to solve human problems. Studying a leaf to invent a better solar cell is an example. I think of it as 'innovation' inspired by nature".
Initiated by former Ecover CEO and Belgian entrepreneur Gunter Pauli, derived from the study of natural biological production processes the official manifesto states, "using the resources available...the waste of one product becomes the input to create a new cash flow".
Cradle to cradle
Created by Walter R. Stahel and similar theorists, in which industry adopts the reuse and service-life extension of goods as a strategy of waste prevention, regional job creation, and resource efficiency in order to decouple wealth from resource consumption.
Industrial Ecology is the study of material and energy flows through industrial systems. Focusing on connections between operators within the "industrial ecosystem", this approach aims at creating closed loop processes in which waste is seen as input, thus eliminating the notion of undesirable by-product.
Resource recovery is using wastes as an input material to create valuable products as new outputs. The aim is to reduce the amount of waste generated, therefore reducing the need for landfill space and also extracting maximum value from waste.
The ability to understand how things influence one another within a whole. Elements are considered as 'fitting in' their infrastructure, environment and social context.
"The Biosphere Rules"
The Biosphere Rules is a framework for implementing closed loop production processes. They derived from nature systems and translated for industrial production systems. The five principles are Materials Parsimony, Value Cycling, Power Autonomy, Sustainable Product Platforms and Function Over Form.
- Algorithmic regulation
- Appropriate technology
- Durable good
- Green economy
- Life cycle assessment
- Life cycle thinking
- List of environment topics
- Loop analysis
- Path analysis
- Regenerative design
- Resource efficiency
- Sharing economy
- Social metabolism
- Sustainable development
- Waste & Resources Action Programme
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- Tonelli Marcello and Nicolo Cristoni (2018). Strategic Management and the Circular Economy. https://www.amazon.com/Strategic-Management-Circular-Routledge-Research/dp/1138103632 New York: Routledge.
- "Manifesto for a Resource Efficient Europe". European Commission. Retrieved 21 January 2013.
- See Horizon 2020 – the EU's new research and innovation programme: http://europa.eu/rapid/press-release_MEMO-13-1085_en.htm
- "What is Biomimicry?". Biomimicry Institute. Retrieved 2013-11-20.
- "Blue Economy : Green Economy 2.0". Blueeconomy.de. Retrieved 2013-11-20. (see: www.theblueeconomy.org)
- Zhong, Shan (2018). "Tightening the loop on the circular economy: Coupled distributed recycling and manufacturing with recyclebot and RepRap 3-D printing". Resources, Conservation and Recycling. 128: 48–58. doi:10.1016/j.resconrec.2017.09.023.
- Cooper, Tim (2005). "Slower Consumption Reflections on Product Life Spans and the "Throwaway Society"". Journal of Industrial Ecology. 9 (1–2): 51–67. doi:10.1162/1088198054084671.
- "International Society for Industrial Ecology – Home". Is4ie.org. Retrieved 2013-11-20.
- Platform for Accelerating the Circular Economy (PACE)
- EU Circular Economy Strategy
- The Ellen MacArthur Foundation
- The Circle Economy
- The Product Life Institute
- The Resource Event
- McDonough Braungart Design Chemistry website
- Biomimicry Institute
- Towards the Circular Economy report
- WRAP supports a circular economy
- turntoo website
- On the New Economy website
- Moon Stone International
- Circular Society