Circular Economy Overview

Today's linear ‘take, make, dispose’ economic model relies on large quantities of cheap, easily accessible materials and energy, and is a model that is reaching its physical limits. A circular economy is an attractive and viable alternative that businesses have already started exploring today.

The principles of a circular economy

The circular economy provides multiple value creation mechanisms that are decoupled from the consumption of finite resources. In a true circular economy, consumption happens only in effective bio-cycles; elsewhere use replaces consumption. Resources are regenerated in the bio-cycle or recovered and restored in the technical cycle. In the bio-cycle, life processes regenerate disordered materials, despite or without human intervention. In the technical cycle, with sufficient energy available, human intervention recovers materials and recreates order, on any timescale considered. Maintaining or increasing capital has different characteristics in the two cycles.

The circular economy rests on three principles, each addressing several of the resource and system challenges that industrial economies faces.

Principle 1: Preserve and enhance natural capital controlling finite stocks and balancing renewable resource flows.

This starts by dematerialising utility—delivering utility virtually, whenever possible. When resources are needed, the circular system selects them wisely and chooses technologies and processes that use renewable or better-performing resources, where possible. A circular economy also enhances natural capital by encouraging flows of nutrients within the system and creating the conditions for regeneration of, for example, soil.

Principle 2: Optimise resource yields circulating products, components, and materials at the highest utility at all times in both technical and biological cycles.

This means designing for remanufacturing, refurbishing, and recycling to keep components and materials circulating in and contributing to the economy.

Circular systems use tighter, inner loops whenever they preserve more energy and other value, such as embedded labour. These systems also keep product loop speed low by extending product life and optimising reuse. Sharing in turn increases product utilisation. Circular systems also maximise use of end-of-use bio-based materials, extracting valuable bio-chemical feedstocks and cascading them into different, increasingly low-grade applications.

Principle 3: Foster system effectiveness revealing and designing out negative externalities.

This includes reducing damage to human utility, such as food, mobility, shelter, education, health, and entertainment, and managing externalities, such as land use, air, water and noise pollution, release of toxic substances, and climate change.

Download below the Ellen MacArthur Foundation's 20-page executive summary report to read about these principles in more detail. Towards a Circular Economy: Business Rationale for an Accelerated Transition summarises the Foundation's analysis to date, and presents its latest thinking on the need for a transition, what the impact might be on the economy, society and the environment, and how we might get there.

Download Towards a Circular Economy: Business Rationale for an Accelerated Transition