What is the circular economy?

What is meant by circular economy, how does it differ from the current linear model, and why is it an important part of climate action?

Explainer Updated 7 July 2023 Published 17 June 2021 9 minute READ

What is the circular economy?

The circular economy is an evolution of the way the world produces and consumes both goods and services.

The circular model redefines the economy around principles of designing out waste and pollution, keeping products and materials in use for as long as possible.

Equally vital are restoring the world’s wilderness, building regenerative agricultural systems, using renewable materials, and shifting to renewable energy sources.

What a circular economy means

The circular economy means moving away from the world’s current – and enormously wasteful – economic model of ‘take, make, throw away’, in which resources are extracted, turned into products, used, and discarded.

It entails redesigning products to be more durable, reusable, repairable, and recyclable

It entails redesigning products to be more durable, reusable, repairable, and recyclable, and therefore kept in circulation for as long as possible. Beyond product design innovations, it also means changing the way we consume and use goods and services, and rethinking consumerism as a society.

The term ‘circular economy’ is sometimes used as if it is something that does not yet exist. In fact, many parts of the global economy are already ‘circular’ to some extent but are largely invisible to those living in developed economies.

In some developing nations there is already a far stronger tradition of repair and reuse of products.

Other nations play a vital and highly undervalued role in global recycling, such as the ship-breaking industry in Bangladesh and recycling operations across South East Asia.

The 2021 Circularity Gap Report states the global economy is only 8.6 per cent circular and sets an ambitious target of becoming 17 per cent circular by 2030 by targeting sectors with high potential for change.

Who invented the circular economy?

There was no single creator of the idea of a circular economy. The term is largely a 21st century construct, but the principles behind it were first talked about in the mid-twentieth century.

Kenneth Boulding’s The Economics of the Coming Spaceship Earth (1966), Herman Daly’s notion of a ‘steady-state economy’ from 1974, and Cradle to Cradle: Remaking the Way We Make Things (2002) by Michael Braungart and Bill McDonough are seminal publications on the topic.

Linear vs. circular economy

The linear economy is the term for our current globalized economy in which we extract resources, manufacture products, use them, and then throw them away. It is based on mass production and consumerist lifestyles of short-life disposable products such as mobile phones, fashion items such as trainers and clothes, and luxury items such as washing machines and cars.

The reason the linear economy has thrived in the past is because it offers high profits for manufacturers around the world and cheap prices for consumers in developed nations.

The linear economy does not price the cost of the enormous waste, pollution, and carbon emissions that are built into the system.

However, this low cost, high profit model is only possible because the linear economy does not price the cost of the enormous waste, pollution, and carbon emissions that are built into the system.

In fact, industry is often incentivised to waste, pollute, and emit, as they are rarely required to pay the full environmental or social costs of these actions.

If a price was put on social and environmental harms such as emissions or waste, and more circular and sustainable approaches were rewarded, there would be multiple improvements such as healthy ecosystems, safer working conditions, and high-quality environmental goods and services.

What are the benefits of a circular economy?

A circular economy offers a wide range of social, economic, and environmental benefits.

By maximising the lifetime of our products and materials and designing out waste, circularity reduces both our demand for raw materials and the environmental impact associated with obtaining them.

And using recycled raw materials will, in most cases, use less energy when manufacturing products, therefore reducing carbon emissions.

Circularity reduces both our demand for raw materials and the environmental impact of obtaining them.

The circular economy, if done right, both shrinks harmful activities such as carbon emissions, air pollution, and toxicity exposure, and increases positive actions such as habitat restoration, renewable energy, and cleaning the air.

The circular economy also offers social benefits particularly in low-income economies, because integrating informal waste pickers into formal waste collection provides job security and fair wages.

Circularity also promises to deliver substantial economic benefits. Scaling up reuse, repair, remanufacturing, and recycling creates millions of jobs and stimulates innovation. Capturing and reusing critical materials such as rare earth metals helps make the economy more resilient to global supply chain shocks and ensures the world has the materials to create the renewable energy infrastructure it needs.

What are the disadvantages of a circular economy?

Some industries potentially lose out in the transition to a circular economy, as any business producing cheap goods with built-in, planned obsolescence would suffer. There are millions of jobs connected with this linear, high-waste economy – many in low-income countries – and so any switch to a circular economy could not happen overnight.

A good example is those people working in factories which produce ‘fast fashion’ – cheap, ready-made clothes – who are very vulnerable to sudden changes in consumption.

It is important discussions of the circular economy focus on the concept of a just transition, where the impact on people is built into careful, co-operative planning. Those who depend on traditional industries must not be adversely affected by the change, or existing inequalities aggravated.

How does a ‘just transition’ to a circular economy work?

The transition to a circular economy must compensate for job losses through retraining, new skills development, alternative employment, and other measures to support workers and communities.  Any transition must not disproportionally affect poor and vulnerable communities and countries or it will likely fail.

The circular economy could have a positive net effect on job creation provided workers acquire the necessary skills. The International Labour Organization already estimates a global net increase of jobs from 7-8 million by 2030 due to shifts towards circular economy.

A just transition must also include fair and equitable access to natural resources and procedural justice to ensure workers and affected communities have a seat at the table when decisions are made.

Moving from a linear to a circular economy

The transition to a circular economy requires cultural change as well as new models of business and trade. Technology does not provide all the solutions, altering consumer behaviour is also vital.

Technology does not provide all the solutions - altering consumer behaviour is also vital.

Consumers in developed nations have to adjust to a world in which products are no longer seen as disposable fashion or prestige items to be constantly replaced with newer models.

Repair and reuse must be a far larger and high-prized part of the economy and society, as does sharing. The waste from printers, washing machines, and cars is considerable.  

Digital technology should make this shift easily achievable but it requires a change of mindset by most in the developed world.

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Is a circular economy possible?

The circular economy is not idealistic or unrealistic. There are already many circular solutions being practised today, and many successful businesses operate on practical circular principles.

The world’s current economic model assumes a planet capable of unlimited abundance. 

It is necessary to achieve a circular economy at scale to provide for future generations and prevent degradation of ecosystems beyond repair. The world’s current economic model assumes a planet capable of unlimited abundance and of supporting endless economic growth.  

It is now starkly evident our wasteful economic system is extending far beyond the carrying capacity of the planet, leading to disastrous consequences ranging from mass extinction and crop failure to climate-induced migration.

A circular economy, combining both efficiency and sufficiency – rich nations curtailing their consumption – is the logical way to prevent a future era of shortages and irretrievable damage to the natural world.  

Putting an end to an age of mass waste requires ambitious policy developments domestically, and international cooperation in which countries mutually support each other in the transition to a future with minimal pollution and carefully-managed natural resources, from rare earth metals to forests and wilderness.  

What are some examples of a circular economy?

The notion of circular economy can be applied to most areas of human economic activity, from the way food, plastics, and clothes are produced and consumed to the way waste is handled.

Food circular economy

The way the world farms now is unsustainable. The livestock industry clears forests, losing vital carbon sinks while emitting enormous amounts of carbon dioxide and methane.

The area required to grow the world’s wasted food is the size of Canada and India combined.

Clearing land for monoculture crops is equally destructive, as the soil gets more and more degraded and around one-third of all food produced never reaches the table.

This is a vital area requiring urgent attention. Habitat loss is occurring at an unprecedented rate in human history due to mass monoculture crop planting and linear economy practices in agriculture and fishing.

There is a real threat of population collapse and a catastrophic ‘domino’ effect occurring across the food chain as a result.

Circular solutions would implement regenerative farming practices, change diets towards alternative protein sources, and reduce food waste through better storage systems, food redistribution models, and household behaviour change.

Plastic circular economy

Plastic offers many benefits, it can keep food fresh during transport without adding much weight and therefore reduces transport emissions and food waste compared to alternatives.

But it also creates significant problems. Its production is mostly dependent on the use of fossil fuels. It can take decades, even centuries, to break down. As microplastics, it poisons and chokes terrestrial and marine animals.

The world is currently failing to capture plastics before they enter the environment. It is estimated there will be a heavier weight of plastics than fish in the sea by 2050.

The priority should be to reduce the use of unnecessary plastic while avoiding substitutes which have worse environmental impacts. One way is to move away from single-use plastics towards reuse alternatives such as reusable coffee cup schemes or refill isles in supermarkets.

Plastics must also be captured before they become waste and pollute the environment through incentives such as deposit return schemes.

Finally, plastic products need to be redesigned with recycling in mind using individual polymer plastics. The European Union (EU) is leading the way currently, setting an ambitious target to make all plastic packaging fully recyclable by 2030.

UN members are currently undertaking negotiations to introduce a legally-binding global plastics treaty to end global plastics pollution. The treaty will be an important international mechanism that will provide overall coordination and can improve the governance of plastics around the world.

Global adoption of circular economy practices on plastics, facilitating a just transition and protecting human health from the adverse effects of plastic pollution will likely be core obligations of the treaty.

Clothes and textiles circular economy

The global textile industry is one of the largest polluters in the world.

It is responsible for around 8-10 per cent of global carbon emissions – more than all flights and maritime shipping combined – and consumes 79 trillion litres of water a year.

This ‘linear’ model sees 87 per cent of textile fibre input burnt or landfilled, representing a lost economic opportunity of $100 billion globally every year.   

Circular economy solutions could hugely improve the environmental performance of textile supply chains by designing clothes which last, recycling old garments, introducing bio-based materials, and scaling business models for repair and rental.

Waste circular economy

Today, an average person causes four times their own body weight of waste every year. Around one-third is mismanaged, either being dumped or burned in the open.

The main aim of the circular economy is to design waste out of the economic system. This requires a mindset shift from thinking of end-of-life products as discardable ‘trash’ to instead being a valuable source of materials.

Recycling should be considered the ‘least-best option’ in the circular economy when compared to reusing or repairing. Germany, Austria and South Korea now recycle 50-55 per cent of their waste. Japan recycles up to 98 per cent of its metals.

Globally the picture is bleak as only around 8-9 per cent of resources consumed are recycled, and many rich countries continue to dump their waste in developing countries.

The world must make products easier to recycle, scale up recycling infrastructure in both developed and developing countries, develop stricter controls on shipments of waste around the world, and ensure recycling workers have safety rights.

Improved recycling requires better communication and sorting systems and new expensive infrastructure. But it is an essential step to reduce waste.

Circular economy and trade

No country can achieve a circular economy in isolation. All are deeply connected and dependent upon international trade in goods and services to gain access to vital skills and equipment to undertake circular economy activities (such as repair, refurbishment and remanufacturing). Trade is therefore an important enabler of a circular economy.  

But trade can also be an inhibitor of a circular economy if it encourages unregulated shipments of hazardous waste (particularly to low-income countries which lack the infrastructure to handle the waste) or goods and services which promote a wasteful linear economy. 

The global trading system therefore needs a 21st century revamp so that sustainable circular trade is encouraged and harmful linear trade is restricted.

The future of circular economies

The COVID-19 pandemic provides a unique opportunity for the massive investment required to transition towards a more circular economy.

But the vast majority of COVID-19 recovery funding has not been earmarked to incentivise more circular solutions. According to a report by the Global Recovery Observatory only 2.5 per cent of funding has ‘positive green characteristics’ such as reducing greenhouse gas emissions.

It is urgent and necessary the world ties the development of the circular economy to the United Nations (UN) Sustainable Development Goals (SDGs) and links funding to circular outcomes. By focusing equally on environmental and social goals, the circular economy can contribute to reducing inequalities, improving wellbeing, and environmental quality.

To ensure the global transition to a circular economy supports the SDGs, the global community needs to work together to develop a common vision for a just and equitable circular economy and roadmap for how to get there.

The world is still thinking only of today and failing to plan for tomorrow. A circular world can seem complex or difficult to achieve in a world of competing interests. But whatever the challenges, they are far simpler to deal with than the environmental catastrophe being delivered by our current economic model.