The basic idea of the CE is to shift from a system in which resources are extracted, turned into products and finally discarded towards one in which resources are maintained at their highest value possible. This might involve reusing and repairing products, or recovering their component materials at the end of each product’s life for repurposing into new goods or for new uses. Equally, the CE might mean restructuring an industrial or agricultural system so that waste from one process becomes the feedstock for another, or replacing non-renewable materials with renewable and biological materials. Overall, CE approaches could significantly reduce the need for extraction of primary resources and use of energy inputs.
Figure 1 identifies different types of activities that fit within a CE, and indicates the point in the value chain at which each activity plays a role. Innovations can occur all the way from the material input stage to the ‘end-of-first-life’ stage.
Figure 1: Circular economy activities
Figure 1: Circular economy activities
The scale of the economic opportunity is highlighted in recent studies focused on OECD countries. A McKinsey analysis for the Ellen MacArthur Foundation found material cost savings worth up to $630 billion per year by 2025 in EU manufacturing sectors.15 Accenture has identified a $4.5 trillion global opportunity before 2030 through avoiding waste, making businesses more efficient and creating new employment opportunities.16 A recent study focused on the US finds that $2 trillion in annual US revenues could be generated by shifting to circular manufacturing.17 The Ellen MacArthur Foundation also finds that opportunities in India amount to $218 billion per year by 2030.18
A recent study focused on the US finds that $2 trillion in annual US revenues could be generated by shifting to circular manufacturing
Advances in digital technology constitute important enablers for CE business models.19 With affordable ‘asset-tracking’ technology and predictive analytics, for example, it is possible to optimize when products should be repaired, upgraded or recycled. Using digital platforms to manage product-sharing between consumers increases the ‘utilization rate’ of each product, and also tends to decrease the total number of products needed. Companies leasing products to consumers – through what are known as ‘product as a service’ models – also have an incentive to make these products more durable and easy to repair.20
If developing countries were expected to simply follow in the footsteps of developed economies, the CE would be decades away
In a bid to capitalize on such opportunities, public- and private-sector decision-makers around the world have set out policies on the CE (see Figure 2), though these vary in how they refer to the CE and in their approaches.21 The British Standards Institution has set out BS 8001 as the first standard for implementing the principles of the CE in organizations.22 At the government level, the EU, Japan and China have all developed ambitious CE strategies.23 Perhaps the most important of these is the new EU Circular Economy Action Plan.24 Although progress on implementation has so far been slow,25 the action plan could eventually affect not only waste-management policy but also product design standards and extended producer responsibility. This will have potentially large knock-on effects for the EU’s trading partners.26
Figure 2: Circular economy activity around the world
Figure 2: Circular economy activity around the world
Despite this growing momentum, many barriers stand in the way of businesses seeking to capture the value found in modelling exercises. Developed economies, in particular, are locked into existing resource-intensive industrial systems and infrastructure. For larger businesses, a lack of consumer awareness of the CE concept is one reason for caution when investing in new product lines, but perhaps the greatest challenge is how to introduce new business models without undermining existing revenue streams. Potentially disruptive smaller firms, meanwhile, often lack access to the necessary data, logistics and knowledge to make a breakthrough.
Consequently, even in countries with high rates of traditional recycling, such as Germany or the Netherlands, there is some way to go before a CE takes shape.27 If developing countries were expected to simply follow in the footsteps of developed economies, the CE would be decades away. Fortunately, this is an agenda on which developing countries can forge their own paths, supported through cooperation with others.
15 Ellen MacArthur Foundation and McKinsey Center for Business and Environment (2015), Growth Within: A Circular Economy Vision for a Competitive Europe, https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/europes-circular-economy-opportunity (accessed 1 Nov. 2017).
16 Lacy, P. and Rutqvist, J. (2015), Waste to Wealth: Creating advantage in a circular economy, New York: Palgrave Macmillan.
17 Closed Loop Partners (2017), Capital Landscape for Investment in Circular Supply Chains, September 2017, http://www.closedlooppartners.com/wp-content/uploads/2017/10/Investing-In-Circular-Supply-Chains-Capital-Landscape_FINAL-PUBLIC-1.pdf (accessed 17 Nov. 2017).
18 Ellen MacArthur Foundation (2016), Circular Economy in India: Rethinking growth for long-term prosperity (accessed 10 May 2017).
19 Ellen MacArthur Foundation (2016), Intelligent Assets: Unlocking the Circular Economy Potential, https://www.ellenmacarthurfoundation.org/assets/downloads/publications/EllenMacArthurFoundation_Intelligent_Assets_080216-AUDIO-E.pdf (accessed 23 Oct. 2017).
20 Lacy and Rutqvist (2015), Waste to Wealth: Creating advantage in a circular economy.
21 Kirchherr, J., Reike, D. and Hekkert, M. (2017), ‘Conceptualizing the circular economy: An analysis of 114 defintions’, Resources, Conservation and Recycling, 127: pp. 221–32, doi: 10.1016/j.resconrec.2017.09.005 (accessed 20 Nov. 2017).
22 British Standards Institution (2017), ‘The rise of the circular economy’, https://www.bsigroup.com/en-GB/standards/benefits-of-using-standards/becoming-more-sustainable-with-standards/Circular-Economy/ (accessed 20 Nov. 2017).
23 The EU passed a major package on the CE in late 2015. China has identified 10 CE priorities in its 13th Five-Year Plan (2016–20). Japan passed its Law for the Promotion of Effective Utilization of Resources in 1991.
24 European Commission (2015), Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, 12 December 2015, http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52015DC0614 (accessed 11 Mar. 2017).
25 Wijkman, A. and Bastioli, C. (2017), ‘Squaring the circle of plastics recycling’, EURACTIV, 27 September 2017, https://www.euractiv.com/section/circular-economy/opinion/squaring-the-circle-of-plastics-recycling/ (accessed 10 Oct. 2017).
26 Wilson, S., Benton, D., Branmayr, C. and Hazell, J. (2017), How will Europe’s Ecodesign Measures affect the circular economy in low-income countries?, London: Tearfund, http://www.green-alliance.org.uk/resources/Europe_Ecodesign_Affect_Circular_Economy_Low_Income_Countries.pdf (accessed 23 Oct. 2017).
27 De Jong, Van der Gaast, Kraak, Bergema and Usanov (2016), The Circular Economy and Developing Countries.