A circular economy is a systemic approach to economic development designed to benefit businesses, society, and the environment. In contrast to the ‘take-make-waste’ linear model, a circular economy is regenerative by design and aims to gradually decouple growth from the consumption of finite resources. After defining what an economy actually is, this learning path explores the nuances of the concept of a circular economy, including the difference between biological and technical materials, the different opportunities that exist to keep materials and products in use, and the history of the idea. Finally, the benefits of shifting from a linear to a circular economy are highlighted.

1
What is the economy?

To understand the circular economy we first need to understand what an economy actually is.

In this video, Ken Webster takes us right back to the basics of what an economy is.

2 The circular economy

The circular economy

An economy that is restorative and regenerative by design.

In a circular economy economic activity builds and rebuilds overall system health. The concept recognises the importance of the economy needing to work effectively at all scales – for big and small businesses, for organisations and individuals, globally and locally.

It is based on three principles:

  • Design out waste and pollution
  • Keep products and materials in use
  • Regenerate natural systems
Design out waste and pollution
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Design out waste and pollution

What if waste and pollution were never created in the first place?

A circular economy reveals and designs out the negative impacts of economic activity that cause damage to human health and natural systems. This includes the release of greenhouse gases and hazardous substances, the pollution of air, land, and water, as well as structural waste such as traffic congestion.

4 Keep products and materials in use

Keep products and materials in use

What if we could build an economy that uses things rather than uses them up?

A circular economy favours activities that preserve value in the form of energy, labour, and materials. This means designing for durability, reuse, remanufacturing, and recycling to keep products, components, and materials circulating in the economy. Circular systems make effective use of bio-based materials by encouraging many different uses for them as they cycle between the economy and natural systems.

Regenerate natural systems
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Regenerate natural systems

What if we could not only protect, but actively improve the environment?

A circular economy avoids the use of non-renewable resources and preserves or enhances renewable ones, for instance by returning valuable nutrients to the soil to support regeneration, or using renewable energy as opposed to relying on fossil fuels.

Pause for thought

Having just learnt the three principles of the circular economy, how would you describe the principles that underpin the current, linear economy?

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The circular economy system diagram

The circular economy system diagram

At the Ellen MacArthur Foundation we have tried to capture the essence of the circular economy in the diagram above, which is somewhat understandably nicknamed the ‘butterfly diagram’.

The diagram tries to capture the flow of materials, nutrients, components, and products, whilst adding an element of financial value. It builds on several schools of thought, but is perhaps most recognisably influenced by Cradle to Cradle’s two material cycles.

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A few definitions

Maintain/prolong (& share)

This innermost loop of the technical cycle shows the strategy of keeping products and materials in use by prolonging their lifespan for as long as possible through designing for durability as well as maintenance and repair. These longer-lasting products can then be shared amongst users who are able to enjoy access to the service they provide, removing the need to create new products.

Reuse/redistribute

Technical products and materials can also be reused multiple times and redistributed to new users in their original form or with little enhancement or change. Marketplaces such as eBay are proof of this already well-established approach.

Refurbish/remanufacture

Remanufacturing and refurbishment are two similar, yet slightly different, processes of restoring value to a product. When a product is remanufactured it is disassembled to the component level and rebuilt (replacing components where necessary) to as-new condition with the same warranty as a new product. Refurbishment is largely a cosmetic process whereby a product is repaired as much as possible, usually without disassembly and the replacement of components.

Recycle

Recycling is the process of reducing a product all the way back to its basic material level, thereby allowing those materials (or a portion of them at least) to be remade into new products. While this is undoubtedly an important process in a circular economy, the loss of embedded labour and energy, the necessary costs to remake products entirely, and the inevitable material losses mean that it is a lower value process than those closer to the centre of the system diagram, such as reuse and remanufacturing.

Cascades

This loop, within the biological cycle, refers to the process of putting used materials and components into different uses and extracting, over time, stored energy and material order. Along the cascade, this material order declines until the material ultimately needs to be returned to the natural environment as nutrients. A cascade, for example, might be a pair of cotton jeans being turned into furniture stuffing and then into insulation material before being anaerobically digested so that it may be returned to the soil as nutrients.

Biological and technical material flows
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Biological and technical material flows

Can a material safely re-enter the natural world?

The first thing that most people notice about the diagram is the separation into two distinct halves, or cycles, which represent two fundamentally distinct flows of material: biological and technical.

Biological materials - represented in green cycles on the left side of the diagram - are those materials that can safely re-enter the natural world, once they have gone through one or more use cycles, where they will biodegrade over time, returning the embedded nutrients to the environment.

Technical materials - represented in blue on the right hand side - cannot re-enter the environment. These materials, such as metals, plastics, and synthetic chemicals, must continuously cycle through the system so that their value can be captured and recaptured.

Access versus ownership
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Access versus ownership

Do we consume products or use them?

One particular subtlety of the diagram is the distinction between consumers and users. In a circular economy, biological materials are the only ones that can be thought of as consumable, while technical materials are used. It makes no sense to say that we consume our washing machines and cars in the same way that we consume food. This is a subtle, but important distinction in how we view our relationship to materials.

Further to this, it raises questions about the necessity of owning products in the way that we traditionally do. What benefit is there in owning a drill when you just want to put holes in your wall to hang a picture? It is access to the service a product provides that is important, rather than the product itself. Understanding this shift in mindset lays the groundwork to many of the practicalities of shifting our economy from linear to circular.

Pause For Thought

Where on the butterfly diagram would you place:

  • a mobile phone repair service?
  • a car-sharing scheme?
  • plastic bottle recycling?
  • regenerative agriculture?
The economic benefits
10

The economic benefits

What are the macroeconomic impacts of shifting to a new economic model?

The circular economy has been gaining traction with business and government leaders alike. Their imagination is captured by the opportunity to gradually decouple economic growth from virgin resource inputs, encourage innovation, increase growth, and create more robust employment. If we transition to a circular economy, the impact will be felt across society. The slider below illustrates some of the potential macroeconomic benefits of shifting to a circular economy.

Economic benefits in detail

Economic growth

Economic growth, as defined by GDP, would be achieved mainly through a combination of increased revenues from emerging circular activities, and lower cost of production through the more productive utilisation of inputs. These changes in input and output of economic production activities affect economy-wide supply, demand, and prices. Its effects ripple through all sectors of the economy adding to overall economic growth.

Material cost savings

Based on detailed product-level modelling, it is estimated that, in the sectors of complex medium-lived products (such as mobile phones and washing machines) in the EU, the annual net-material cost savings opportunity amounts to up to USD 630 billion. For fast moving consumer goods (such as household cleaning products), there is a material cost-saving potential of up to USD 700 billion globally.

Job creation potential

The largest comparative study to date of the employment impacts of a circular economy transition points to “positive employment effects occurring in the case that the circular economy is implemented”. This impact on employment is largely due to increased spending fuelled by lower prices; high-quality, labour-intensive recycling activities; and higher skilled jobs in remanufacturing. New jobs will be created across industrial sectors, within small and medium enterprises, through increased innovation and entrepreneurship, and a new service-based economy.

Innovation

The aspiration to replace linear products and systems with circular ones is an enormous creative opportunity. The benefits of a more innovative economy include higher rates of technological development, improved materials, labour, energy efficiency, and more profit opportunities for companies.

Environmental and system-wide benefits
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Environmental and system-wide benefits

What impact will shifting to a circular economy have on the environment?

The potential benefits of shifting to a circular economy extend beyond the economy and into the natural environment. By designing out waste and pollution, keeping products and materials in use, and regenerating, rather than degrading, natural systems, the circular economy can be the mechanism by which we achieve global climate targets.

Environmental and system benefits in detail

Carbon dioxide emissions

For Europe, a circular economy development path could halve carbon dioxide emissions by 2030, relative to today’s levels across mobility, food systems, and the built environment. In addition, sector specific analysis indicates that the UK could reduce greenhouse gas emissions by 7.4 million tonnes per annum by keeping organic waste out of landfills.

Primary material consumption

The circular economy could result in a reduction of primary material consumption (i.e. car and construction materials, real estate land, synthetic fertiliser, pesticides, agricultural water use, fuels, and non-renewable electricity) by 32% by 2030.

Land productivity and soil health

Land degradation costs an estimated USD 40 billion annually worldwide, without taking into account the hidden costs of increased fertiliser use, loss of biodiversity, and unique landscapes. Higher land productivity, less waste in the food value chain, and the return of nutrients to the soil will enhance the value of land and soil as assets. By returning biological material back into the soil, the circular economy will reduce the need for replenishment with additional nutrients. Recovering all of the nitrogen, phosphorus, and potassium from food, animal and human waste streams globally could contribute nearly 2.7 times the nutrients contained within the volumes of chemical fertiliser currently used. This is the principle of regeneration at work.

The opportunity for companies
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The opportunity for companies

How will companies benefit from the circular economy?

Businesses would benefit significantly by shifting their operations in line with the principles of the circular economy. These benefits include the creation of new profit opportunities, reduced costs due to lower virgin-material requirements, and stronger relationships with customers. The sliders below expand on these and more benefits.

Opportunity for companies in detail

Profit opportunities

Businesses could lower costs and create new profit streams. Analysis of complex medium-lived products (e.g. mobile phones) and fast-moving consumer goods (e.g. household cleaning products) shows that the circular economy would support the following improvements:

  • The cost of remanufacturing mobile phones could be reduced by 50% per device
  • High-end washing machines could be leased instead of sold – customers would save roughly a third per wash, and manufacturers would earn roughly a third more in profits

Reduced volatility and greater security of supply

The shift to a circular economy means using less virgin material and more recycled inputs, reducing a company’s exposure to ever more volatile raw materials prices and increasing resilience. The threat of supply chains being disrupted by natural disasters or geopolitical imbalances is reduced because decentralised operators provide alternative materials sources.

New demand for business services

A circular economy would create demand for new business services, such as:

  • Collection and reverse logistics companies that support end-of-use products being reintroduced into the system
  • Product remarketers and sales platforms that facilitate longer use or higher utilisation of products
  • Parts and component remanufacturing, and product refurbishment offering specialised knowledge and services

Improved customer interaction and loyalty

Circular solutions offer new ways to creatively engage customers. New business models, such as rentals or leasing contracts, establish longer-term relationships, as the number of touch points increases over the lifetime of a product. These business models offer companies the chance to gain unique insights into usage patterns that can lead to a virtuous circle of improved products, better service, and greater customer satisfaction.

The opportunity for individuals
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The opportunity for individuals

What does the circular economy mean for individuals?

The circular economy will not only benefit businesses, the environment, and the economy at large, but also the individual. Ranging from increased disposable income to improved living conditions and associated health impacts, the benefits for individuals of a system based on the principles of circularity are significant.

The opportunity for individuals in detail

Increased disposable income

Analysis shows that a circular economy could increase the disposable income of the average European household. The cost of products and services would be reduced and there would be less unproductive time (e.g. time stuck in traffic). The average disposable income for EU households would increase by EUR 3000 by 2030.

Greater utility

The utility, or benefit, felt by customers may be enhanced by the additional choice or quality that circular models provide. Customer choice increases as producers tailor products or services to better meet customer needs.

Reduced obsolescence

For customers, overcoming premature obsolescence (the untimely failure of products) will significantly bring down total ownership costs and deliver higher convenience as they would avoid hassles associated with repairs and returns.

Health

Shifting to a circular food system could lower the healthcare costs associated with pesticide use by USD 550 billion globally. There would also be significant reductions of antimicrobial (an agent that kills microorganisms or stops their growth) resistance, air pollution, water contamination, and foodborne diseases. It is estimated that a circular economy for food, catalysed by cities, could save 290,000 lives otherwise lost to outdoor air pollution per year, by 2050.

Systems
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Systems

Shifting from linear to circular requires systemic solutions.

There is no simple fix and no stones can be left unturned in the pursuit of system change. Business models, product and service design, legislation, accounting practices, urban planning, farming practices, materials extraction, manufacturing, and more, all currently have undesirable qualities from a circular perspective. Yet, we cannot change just one element of the existing system and expect the change we need. Systems change is difficult to achieve and great ideas often don’t come to fruition because of failures in managing the complexities involved. What we should do, though, is learn to understand how complex systems - like an economy - operate, because understanding is the first step towards creating better solutions.

The origins of the concept
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The origins of the concept

An idea whose time has come.

The notion of circularity has deep historical and philosophical origins. The idea of feedback, of cycles in real-world systems, is ancient and has echoes in various schools of philosophy. It enjoyed a revival in industrialised countries after World War II when the advent of computer-based studies of non-linear systems unambiguously revealed the complex, interrelated, and therefore unpredictable nature of the world we live in – more akin to a metabolism than a machine. With current advances, digital technology has the power to support the transition to a circular economy by radically increasing virtualisation, de-materialisation, transparency, and feedback-driven intelligence.

The generic concept has been refined and developed by a number of schools of thought that you can read about in the expander below.

Why now?
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Why now?

Moving from vision to reality.

Our economy is currently locked into a system which favours the linear model of production and consumption. However, this lock-in is weakening under the pressure of several powerful disruptive trends. We must take advantage of this favourable alignment of economic, technological, and social factors in order to accelerate the transition to a circular economy. Circularity is making inroads into the linear economy and has moved beyond the proof of concept; the challenge we face now is to mainstream the circular economy, and bring it to scale.

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