Updated: Sep 13, 2021
Is a world without trash possible? Scientists have been looking into this question for years, and seems like the most practical answer is to promote "circular economy" - where resources are recycled endlessly.
What is the definition of Circular Economy?
There are more than 100 different definitions of circular economy used in scientific literature and journals. Due to its diverse application and definitions, it is much more difficult to make circularity measurable.
In general, the definition focuses on how to use raw materials or on system change, following the 3-R approach:
Reduce (minimum consumption of raw materials)
Reuse (maximum reuse of products and components)
Recycle (high quality reuse of raw materials)
The three key elements of circular economy are: Closed cycles, Renewable energy and System thinking. In the Closed cycles, it is important that materials are recycled at its best, at the same time, products and components have to remain their high quality during the cycles (Korhonen, Nuur, Feldmann & Birkie, 2018). In the Renewable energy, renewable energy is the prime source for a circular economy. In the Systems thinking, all factors of the economy (company, person, organism) are connected, forming a network and every action of 1 individual will have effects on the others. Hence, before any choice is made, short term and long term consequences are necessary to be reviewed (Ellen MacArthur Foundation, 2015a).
What are the benefits of Circular Economy?
Fewer Greenhouse Gas Emissions:
Clearly, Circular economy can have various positive environmental effects on the ecosystem of our planet. One of the most obvious impact is to reduce greenhouse gas emission and the use of raw materials, maximising agricultural productivity and reduce negative externalities of the current linear model. Some examples are as below:
Using renewable energy in the long run has a lower pollution level than fossil fuels.
As more wastes are recycled, fewer materials and production processes are required to make product, hence saving more energy and natural resources.
More energy-efficient and non-toxic materials will be chosen and become more popular than the existing one
According to a study by Ellen MacArthur Foundation, a circular economy development path could help halving carbon dioxide emissions by 2030 in relative to 2018 levels.
According to the principles of the circular economy on farming, important nutrients need to be returned to the soil through anaerobic processes and composting, in order to soften the exploitation of land and natural ecosystems. As a result, not only there will be less waste (organic waste), the soil will also get healthier and more resilient, creating a greater ecosystem balance.
A model of circular economy in Europe's food systems proves its potential to reduce 80% of artificial fertiliser use, contributing to a natural balance of soils (a study of Ellen MacArthur Foundation).
Greater potential for economic growth
In circular economy, more revenues are generated from new circular activities, along with lower production costs (bet getting products and materials more effectively and reused), there is a potential to increase GDP and economic growth, according to a McKinsey report.
Companies will also likely to benefit from circular economy, as input costs are lower and there could be new profit streams from circular economy model (new markets, energy reduction, assurance of supply, etc.)
According to a report of Ellen McArthur's Foundation, in a circular economy model, new services definitely demanded. Potential services include Collection and reverse logistics companies, longer lives and higher utilisation products, etc.
Moreover, circular economy can create more jobs, especially for entry-level and semi-skilled jobs with its new model and streams of job. According to a study by Ellen MacArthur Foundation and McKinsey, more jobs are created thanks to:
Recycling, repairing and up cycling practices (for new designers, mechanical engineers, etc.) to make new products from waste
New businesses and niche markets thanks to innovation processes and new business models
Higher consumption and spending thanks to lower prices
More resources are saved
The circular economy has the potential to save up to 70% of materials compared to the current linear economy (according to World Economic Forum) . This great saving in natural resources will greatly help the world's increasing population to meet up its demands, as instead of going to landfills, materials can be recycled to be used again or simply products can last longer. Environmentally, this also reduces the negative impacts of the current new material extracting industry.
Why are we not having circular economy yet?
Despite its great benefits in terms of economy and environment, circular economy has a number of barriers that make it still unlikely to be widely applied at the moment.
There are a numbers of economic barriers to the implementation of circular economy, for example:
Generally, social and environmental externalities are not yet considered in prices, and finance market signals are still the prime decision maker when any economic decisions are made
Raw materials prices are not yet too expensive for producers, at the same time, high-quality secondary resources are not yet price competitive enough
It is difficult for all businesses and investors to change from the current linear economy logic to a new circular economy model
The demand for circular products is still considered a niche market and generally only exists in developed countries
There is a lack of qualified professionals with the right skills and knowledges to build circular economy model.
Besides, there are also some institutional barriers, for example, there are not yet enough laws and regulations that prepare for new kinds of innovations in circular economy. In addition, the GDP index still doesn't cover social and environmental externalities, hence there is no courage for firms to switch to circular economy.
A sample framework to create a circular business model (according to Copper8, KMPG Sustainability and Kennedy van Der Laan)
Step 1: Establish that the business is committed to create value in a circular way.
Step 2: Incorporate this goal in the vision and strategy by determining the ultimate outcomes that the company works for and how the company can help contributing to this (for example, a fully closed food waste chain)
Step 3: Create the vision and strategy concrete by choosing which circular value proposition the company will use to reach the potential customers, and with which partners (suppliers, organisations, governments, etc.) the company will work together
Step 4: Translate the value proposition into a circular revenue model, for example, a Product-as-a-Service model.