Circular economy

Circular economy, also referred to as circularity, is a model of resource production and consumption that involves sharing, leasing, reusing, repairing, refurbishing, and recycling materials and products, to extend product life cycle for as long as possible. The concept aims to tackle global challenges such as climate change, biodiversity loss, waste, and pollution by emphasizing the design-based implementation of the three base principles of the model. The main three principles required for the transformation to a circular economy are:

designing out waste and pollution,
keeping products and materials in use, and
regenerating natural systems.

Circular economy is defined in contradistinction to the traditional linear economy. The idea and concepts of a circular economy have been studied extensively in academia, business, and government over the past ten years. It has been gaining popularity because it can help to minimize carbon emissions and the consumption of raw materials, open up new market prospects, and, principally, increase the sustainability of consumption. At a government level, a circular economy is viewed as a method of combating global warming, as well as a facilitator of long-term growth. Circular economy may geographically connect actors and resources to stop material loops at the regional level. In its core principle, the European Parliament defines the circular economy as "a model of production and consumption that involves sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products as long as possible. In this way, the life cycle of products is extended." Global implementation of circular economy can reduce global emissions by 22.8 billion tons, equivalent to 39% of global emissions produced in 2019. By implementing circular economy strategies in five sectors alone: cement, aluminum, steel, plastics, and food, 9.3 billion metric tons of equivalent can be reduced.
In a circular economy, business models play a crucial role in enabling the shift from linear to circular processes. Various business models have been identified that support circularity, including product-as-a-service, sharing platforms, and product life extension models, among others. These models aim to optimize resource utilization, reduce waste, and create value for businesses and customers alike, while contributing to the overall goals of the circular economy.
Businesses can also make the transition to the circular economy, where holistic adaptations in firms' business models are needed. The implementation of circular economy principles often requires new visions and strategies and a fundamental redesign of product concepts, service offerings, and channels towards long-life solutions, resulting in the so-called 'circular business models'.

Definition

There are many definitions of and approaches to the circular economy. For example, in China, the circular economy is promoted as a top-down national political objective, meanwhile for the European Union, Japan, and the USA, it is a tool to design bottom-up environmental and waste management policies. The ultimate goal of promoting circular economy is the decoupling of environmental pressure from economic growth. A comprehensive definition could be: "Circular economy is an economic system that targets zero waste and pollution throughout materials lifecycles, from environment extraction to industrial transformation, and final consumers, applying to all involved ecosystems. Upon its lifetime end, materials return to either an industrial process or, in the case of a treated organic residual, safely back to the environment as in a natural regenerating cycle. It operates by creating value at the macro, meso, and micro levels and exploiting to the fullest the sustainability nested concept. Used energy sources are clean and renewable. Resource use and consumption are efficient. Government agencies and responsible consumers play an active role in ensuring the correct system long-term operation." More generally, circular development is a model of economic, social, and environmental production and consumption that aims to build an autonomous and sustainable society in tune with the issue of environmental resources. The circular economy aims to transform the economy into one that is regenerative. An economy that innovates to reduce waste and the ecological and environmental impact of industries prior to happening, rather than waiting to address the consequences of these issues. This is done by designing new processes and solutions for the optimization of resources, decoupling reliance on finite resources.
The circular economy is a framework of three principles, driven by design: eliminating waste and pollution, keeping products and materials in use, and regenerating natural systems.
Other definitions and precise thresholds that separate linear from circular activity have also been developed in the economic literature.
In a linear economy, natural resources are turned into products that are ultimately destined to become waste because of the way they have been designed and manufactured. This process is often summarized as "take, make, waste". By contrast, a circular economy aims to transition from a 'take-make-waste' approach to a more restorative and regenerative system. It employs reuse, sharing, repair, refurbishment, remanufacturing and recycling to create a closed-loop system, reducing the use of resource inputs and the creation of waste, pollution, and carbon emissions. The circular economy aims to keep products, materials, equipment, and infrastructure in use for longer, thus improving the productivity of these resources. Waste materials and energy should become input for other processes through waste valorization: either as a component for another industrial process or as regenerative resources for nature. The Ellen MacArthur Foundation defines the circular economy as an industrial economy that is restorative or regenerative by value and design.
Circular economy strategies can be applied at various scales, from individual products and services to entire industries and cities. For example, industrial symbiosis is a strategy where waste from one industry becomes an input for another, creating a network of resource exchange and reducing waste, pollution, and resource consumption. Similarly, circular cities aim to integrate circular principles into urban planning and development, foster local resource loops, and promote sustainable lifestyles among their citizens. Less than 10% of economic activity worldwide in 2022 and 2023 is circular. Every year, the global population uses approximately 100 billion tonnes of materials, with more than 90% of them being wasted. The circular economy seeks to address this by eliminating waste entirely.

History and aims

The concept of a circular economy cannot be traced back to one single date or author.
The concept can be linked to various schools of thought, including industrial ecology, biomimicry, and cradle-to-cradle design principles. Industrial ecology is the study of material and energy flows through industrial systems, which forms the basis of the circular economy. Biomimicry involves emulating nature's time-tested patterns and strategies in designing human systems. Cradle-to-cradle design is a holistic approach to designing products and systems that considers their entire life cycle, from raw material extraction to end-of-life disposal, and seeks to minimize waste and maximize resource efficiency. These interrelated concepts contribute to the development and implementation of the circular economy.
In the end half of the 19th century, an early major effort to promote ideas now labeled the circular economy was headed by the Society for the Encouragement of Arts, Manufactures and Commerce . As documented by economic geographer Pierre Desrochers, RSA contributors argued that the profit motive, long-distance trade, and actors now largely absent from present-day discussions promoted the creation of ever more value out of manufacturing and other residuals.
In the 1968 book General System Theory, biologist Ludwig von Bertalanffy, considers growth and energy for open and closed state systems. This theory was then applied to other areas, such as, in the case of the circular economy, economics. Economist Kenneth E. Boulding, in his 1966 paper "The Economics of the Coming Spaceship Earth", argued that a circular economic system is a prerequisite for the maintenance of the sustainability of human life on Earth. Boulding describes the so-called "cowboy economy" as an open system in which the natural environment is typically perceived as limitless: no limit exists on the capacity of the outside to supply or receive energy and material flows.
In the 1981 book Jobs for Tomorrow: The Potential for Substituting Manpower for Energy, Walter R. Stahel and Geneviève Reday-Mulvey lay the foundation for the principles of the circular economy by describing how increasing labour may reduce energy intensive activities.
Simple economic models have ignored economy-environment interrelationships. Allan Kneese in "The Economics of Natural Resources" indicates how resources are not endlessly renewable.
In the 1990 book Economics of Natural Resources and the Environment, Pearce and Turner explain the shift from the traditional linear or open-ended economic system to the circular economic system. They describe an economic system where waste at extraction, production, and consumption stages is turned into inputs.
In the early 2000s, China integrated the notion into its industrial and environmental policies to make them resource-oriented, production-oriented, waste-oriented, use-oriented, and life cycle-oriented. The Ellen MacArthur Foundation was instrumental in the diffusion of the concept in Europe and the Americas.
In 2010, the concept of circular economy started to become popular internationally after the publication of several reports. The European Union introduced its vision of the circular economy in 2014, with a New Circular Economy Action Plan launched in 2020 that "shows the way to a climate-neutral, competitive economy of empowered consumers".
The original diffusion of the notion benefited from three major events: the explosion of raw material prices between 2000 and 2010, the Chinese control of rare earth materials, and the 2008 economic crisis. Today, the climate emergency and environmental challenges induce companies and individuals in rethink their production and consumption patterns. The circular economy is framed as one of the answers to these challenges. Key macro-arguments in favour of the circular economy are that it could enable economic growth that does not add to the burden on natural resource extraction but decouples resource uses from the development of economic welfare for a growing population, reduces foreign dependence on critical materials, lowers CO₂ emissions, reduces waste production, and introduces new modes of production and consumption able to create further value. Corporate arguments in favour of the circular economy are that it could secure the supply of raw materials, reduce the price volatility of inputs and control costs, reduce spills and waste, extend the life cycle of products, serve new segments of customers, and generate long-term shareholder value. A key idea behind the circular business models is to create loops throughout to recapture value that would otherwise be lost.
Of particular concern is the irrevocable loss of raw materials due to their increase in entropy in the linear business model. Starting with the production of waste in manufacturing, the entropy increases further by mixing and diluting materials in their manufacturing assembly, followed by corrosion and wear and tear during the usage period. At the end of the life cycle, there is an exponential increase in disorder arising from the mixing of materials in landfills. As a result of this directionality of the entropy law, the world's resources are effectively "lost forever".
Circular development is directly linked to the circular economy and aims to build a sustainable society based on recyclable and renewable resources, to protect society from waste, and to be able to form a model that no longer considering resources as infinite. This new model of economic development focuses on the production of goods and services, taking into account environmental and social costs. Circular development, therefore, supports the circular economy to create new societies in line with new waste management and sustainability objectives that meet the needs of citizens. It is about enabling economies and societies, in general, to become more sustainable.
However, critiques of the circular economy suggest that proponents of the circular economy may overstate the potential benefits of the circular economy. These critiques put forward the idea that the circular economy has too many definitions to be delimited, making it an umbrella concept that, although exciting and appealing, is hard to understand and assess. Critiques mean that the literature ignores much-established knowledge. In particular, it neglects the thermodynamic principle that one can neither create nor destroy matter. Therefore, a future where waste no longer exists, where material loops are closed, and products are recycled indefinitely is, in any practical sense, impossible. They point out that a lack of inclusion of indigenous discourses from the Global South means that the conversation is less eco-centric than it depicts itself. There is a lack of clarity as to whether the circular economy is more sustainable than the linear economy and what its social benefits might be, in particular, due to diffuse contours. Other issues include the increasing risks of cascading failures which are a feature of highly interdependent systems, and have potential harm to the general public. When implemented in bad faith, touting "circular economy" activities may be used for reputation and as impression management for public relations purposes by large corporations and other vested interests; constituting a new form of greenwashing. It may thus not be the cure-all many had hoped for.