Circular Economy: Principles, Benefits, and Challenges

Circular Economy: Principles, Benefits, and Challenges

A circular economy is a proposed economic system and a specific model of production and consumption, that aims to reduce or eliminate waste output through the continual use of finite resources. Thus, when compared to a linear economy, a circular economy is a closed-loop system that limits the creation of waste or disposal of used resources through material recycling, recovery, and regeneration.

History and Evolution of Circular Economy as a Concept

In the 1966 book “The Economics of the Coming Spaceship Earth,” American economist and interdisciplinary philosopher Kenneth Ewart Boulding noted the need for an economic system that fits the limits of the ecological system, particularly in consideration of limited pools of resources. He added that societies should be in a cyclical system of production.

Note that the concept cannot be traced back to a single date and person. A 1976 report to the European Commission entitled “Jobs for Tomorrow: The Potential for Substituting Manpower for Energy” by architect and industrial analyst Walter Stahel and Genevieve Reday envisioned an economy in a closed loop and its possible impacts on job creation, economic competitiveness, resource savings, and waste prevention.

The first known appearance of the term “circular economy” was in the 1988 article “The Economics of Natural Resources” published in the Development Review journal and penned by A. Kneese. His discussion focuses on the supply and demand, as well as the appropriate allocation and consumption of natural resources.

Several thinkers have introduced and discussed similar concepts and principles, thus contributing to the further development of the circular economy concept. Take note of the following:

1. Cradle to Cradle Process

German chemist Michael Braungart and American architect William McDonough, who was also regarded as the “father of the circular economy,” wrote “Cradle to Cradle: Remaking the Way We Make Things” in 2002 and introduced the Cradle to Cradle Certification based on eliminating the concept of waste, harnessing energy from renewable resources, and respecting human and natural systems. The book also discusses the value of upcycling.

2. Biomimicry

In her 1997 book “Biomimicry: Innovation Inspired by Nature,” biologist and innovation consultant Janine Benyus proposed an approach to solving human problems she called biomimicry. It involves referencing the natural environment as a model, measure, and mentor for defining and developing sustainable innovations.

3. Natural Capitalism

Paul Hawken, Amory Lovins, and L. Hunter Lovins positioned natural capitalism as a key driver to the next industrial revolution characterized by an overlap between business and environmental interests. They also presented four principles underpinning natural capitalism: increasing the productivity of natural resources, shift to biologically inspired production models, move to a service-and-flow business model, and reinvestment in natural capital.

4. Regenerative Design

Professor of landscape architecture John T. Lyle introduced regenerative design, which is a process-oriented whole systems approach to design that works as a positive force for repairing natural and human systems. His book “Regenerative Design for Sustainable Development and Design for Human Ecosystems” and other works laid down the foundation of the circular economy framework, while inspiring the creation of the John T. Lyle Center for Regenerative Studies that offers courses in agriculture, environmental design, engineering, and science.

Understanding the Benefits of a Circular Economy

Sustainability is the main benefit of a circular economy. More specifically, this economic system provides solutions to the pressing problems caused by the current models of production and consumption used in traditional or linear economic systems.

Conservation of the Environment

Modern economic activities starting from the first industrial revolution, the exploitation of fossil fuels as the primary source of energy, and the onset of globalization and consumerism have brought forth environmental issues to include environmental degradation, as well as the ongoing climate emergency due to climate change and global warming. The conservation of the environment is fundamentally one of the goals and specific benefits of a circular economy.

Waste reduction is one of the key objectives of a circular economic system. A 2018 report from the World Bank noted that global waste production could rise by 70 percent by 2050. Findings from a study by R. Geyer, J. R. Jambeck, and K. L. Law revealed that of the 8.3 billion metric tons of plastics that have been produced, 6.3 billion metric tons have become plastic waste. These discarded plastics end up in landfills, in seas and oceans, washed ashore, or partially degraded into microplastics, thus polluting the environment.

Several principles and practices aimed at resolving problems regarding waste production have been proposed and practiced. Consider upcycling as an example. Coined in 1994 in an article published by design-oriented organization Salvo and written by Thornton Kay, this form of recycling involves transforming discarded or unwanted products, waste materials, and byproducts into high-value and functional repurposed and upcycled products. Its goal is to reduce wastes, conserve finite resources, and disregard the use of landfills as the only solution to managing waste products.

Waste-to-energy technologies and techniques such as waste incineration and plastic-to-fuel conversion via pyrolysis also provide solutions for reducing waste accumulation through the productive use of waste materials, particularly by repurposing them as alternative sources of energy. The energy recovered from these materials can complement the existing energy mix of a community and promote energy security while reducing dependence on hydrocarbons as a primary source of energy.

Another key objective of a circular economic system is to design and deploy systems and standards used in production to both conserve the environment and maximize the utilization of natural resources and the processed end-products. A sustainable practice of unearthing and processing raw material into production inputs, as well as recycling and repurposing end-products, reduces the need for extracting natural resources. Resource extraction and processing are often harmful to the environment. For instance, the upstream, midstream, and downstream activities within the hydrocarbon industries are energy-intensive. Mining alters the natural topography of a particular area while producing byproducts that are harmful to the environment.

The realm of food production has seen the introduction of novel technologies, methodologies, and principles intended to promote agricultural sustainability and food security. For example, regenerative agriculture focuses on topsoil regeneration to maximize the utilization of land resources and increase their resilience to climate change while increasing crop yields. Furthermore, vertical farming seeks to cultivate agricultural produces minus the use of large tracks of lands, as well as to promote urban farming by equipping cities and metropolises with capabilities to produce their food.

Hybrid systems aimed at utilizing the multiple benefits of a natural resource also serve as a solution to conserve the environment without compromising production and consumption requirements. A notable example is the CETO system technology used in Australia to generate clean energy using oceanic waves while desalinating water.

Positive Economic and Social Impacts

As mentioned above, a circular economy is a proposed economic system that aims to develop and implement a closed-loop model of modern production and consumption. Banking on its positive impacts on the conservation of the environment, it promotes a harmonious alignment between the limits of the natural resources and the modern requirements of economic activities. Nevertheless, this economic system can favorably affect the economy both at the macroeconomic and microeconomic levels.

Nevertheless, sustainable development is the primary macroeconomic benefit of a circular economy. By maximizing the utility of natural resources, as well as by finding ways to mitigate the negative impacts of economic activities, a circular economic system can meet the present needs of communities without compromising the future needs of the next generation. Short-term and long-term economic growth would essentially become maintainable.

There are more specific macroeconomic benefits. For example, the American Chemistry Council mentioned that advanced economic technologies could employ 39,000 individuals in the United States and produce nearly USD 9 billion in economic output. The 2020 New Circular Economy Plan of the European Parliament also noted that the new economic system can create about 700,000 jobs in the European Union alone by 2030.

Data from the Ellen MacArthur Foundation, a nonprofit organization based in the United Kingdom that promotes the transition to a circular economy, showed that the economic system would also reduce the cost of health care associated with the food sector by USD 550 billion while increasing the annual disposable income of each household in the European Union by EU 3,000.00. Other benefits include encouraging innovation and improving competition within the free market, and reducing the risks associated with the supply of raw materials or natural resources.

From a microeconomic standpoint, a circular economy also has specific benefits for business organizations. More specifically, the general benefit centers on the adoption of a circular business model in which an organization aims to achieve a competitive advantage through the sustainable use of production inputs and outputs, and other resources required to maintain its value chain. Of course, more than just a corporate social responsibility, the primary goal of this model is to extract the maximum value from these resources.

Several businesses in different industries and sectors have also utilized models and strategies to maximize the advantages or benefits of a circular economy. For example, within the textile industry, some manufacturers have promoted the continuous use of discarded clothes and fibers through mechanisms that would allow their re-entry into the economy. Others such as Nike, particularly its Move to Zero program, and Adidas, with its Adidas x Parley for the Oceans collaboration, have used waste materials such as discarded plastics as raw materials in the production of sports apparel.

The construction industry has also utilized different methods and models for promoting sustainable construction. These include using material aggregates from waste incineration facilities, as well as deploying modular construction systems that provide advantages for easier deconstruction, renovation, and the reuse of components, thus minimizing or eliminating urban decay. Within the automotive industry, a report by Accenture noted revealed that a circular economy could double the revenue of automakers by 2030 and lower the cost base by 14 percent. Numerous automakers have manufactured and used parts made from recycled materials.

Considering the macroeconomic and microeconomic gains mentioned above, a circular economic system also addresses the need to meet numerous socioeconomic indicators. Consider the human development index as an example. Because this statistic composite measures the achievement of a country based on life expectancy, education, and gross national income per capita, a closed-loop model of production and consumption that promotes environmental conservation and sustainable development could effectively improve the social and economic dimensions of a particular country.

Challenges to the Implementation of a Circular Economy

There is still a need to refine the scope and definition of a circular economic system. For example, a 2020 review by M. Geissdoerfer noted that there is still a considerable lack of clarity about the theoretical conceptualization of circular business models. Hence, while the principle of a circular economy is considerably straightforward, its implementations across different facets of the economy and society would require the development and implementation of more specific systems, models, and standards. The concept in itself is too broad.

Furthermore, deploying a circular economy both at the national and global levels would mean disrupting existing economic activities. One of the challenges of a circular economy centers on the need to orchestrate coordination across different actors. For instance, within manufacturing processes based on a circular business model, an exploratory study by A. Rashid et al. highlighted the need to utilize technological capabilities.

However, to leverage technology for the transition toward a circular economy, different stakeholders have to work together. These stakeholders include scholars and researchers, policymakers and other government officials, business leaders and major industry players, and community leaders, among others. Hence, at the global level, implementing a circular economy would essentially require a drastic paradigm shift that could have implications as regards international relations and geopolitics.

The fact remains that most of the economies around the world are based on a linear economic system characterized by the extraction of natural resources, transforming them into finished products, and distributing these products to the end-users until they are accumulated as wastes. Several modern economic activities and production inputs are too important that disruptions would affect several critical infrastructures. Consider the hydrocarbon industry as an example. The upstream, midstream, and downstream components of this industry remain resource-intensive. To date, alternative sources of energy such as offshore wind power and concentrated solar power, as well as waste-to-energy via incineration or plastic pyrolysis are not enough to replace and eliminate the reliance on oil, gas, and coal.

Cost is another issue. To illustrate, one of the disadvantages of building and operating waste incineration facilities is the required financial resources. An analysis of the financial and economic model of waste incineration plant construction by S. Shilkina and A. showed that building a new plant is cost-inefficient because the entire project would not push through or be repaid without substantial subsidies from the government. A World Bank report also showed that compared with other methods of solid waste disposal such as landfills, composting, and anaerobic digestion, waste-to-energy facilities are the most expensive to maintain. Specifically, they have almost twice the maintenance cost of landfills and composting.

Within the hydrocarbon industry, recovering 840,000 waste products from decommissioned oil and gas installations will cost GBP 25 billion. The decommissioning of North Sea oil and gas installations had a net drain on the government funds in 2017. Note that in the next 30 to 40 years, the oil and gas sector of the United Kingdom would have to decommission around 600 installations. Taxpayers would have to cover between 50 to 70 percent of the total cost. Thus, there is a need to choose between spending on material recovery or allocating the budget for a more beneficial and productive expenditure.

The analysis of J. Korhonen, A. Honkasalo, and J. Seppälä best explains the limit of a circular economy. Based on the law of thermodynamics, specifically the second law of thermodynamics, the researchers mentioned that all spontaneous processes are irreversible and associated with an increase in entropy. Implementing a perfectly circular economy is impossible because it would either have parts of the economy having some linear characteristics or consume large amounts of energy to recover and recycle waste materials. A 2015 commentary by the European Academies’ Science Advisory Council came to a similar conclusion. It explained that the energy and resource requirements of waste recovery and recycling increase in a linear with the increase in the percentage of waste materials.


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