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. Show
2  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:
3 Design out waste and pollutionWhat 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 useWhat 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. 5 Regenerate natural systemsWhat 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 thoughtHaving just learnt the three principles of the circular economy, how would you describe the principles that underpin the current, linear economy? 6 The circular economy system diagramAt 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.
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.
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.
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.
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.
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. 8 Biological and technical material flowsCan 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. 9 Access versus ownershipDo 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 ThoughtWhere on the butterfly diagram would you place:
10 The economic benefitsWhat 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, 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.
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.
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.
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. 11 Environmental and system-wide benefitsWhat 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 represents a powerful contribution to achieving global climate targets Environmental and system benefits in detail
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.
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 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. Returning biological material back into the soil 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 circular economy principle of regeneration at work. 12 The opportunity for companiesHow 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
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 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.
A circular economy would create demand for new business services, such as:
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. 13 The opportunity for individualsWhat 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
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.
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.
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.
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. 14 SystemsShifting 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. Close Systems thinkingIf we do a poor job of designing systems - by, for example, leaving out key elements - we run the risk of being surprised by system failures. The diagram below is a classic example of a poorly-mapped-out system, yet it is widely used in Economics courses. This ‘circulation of money’ diagram misses out environmental factors, unpaid work, and the commons, all of which are crucial areas of our economy. One might say they are hitched to everything else. We need to be careful that our way of thinking about the
circular economy isn’t found equally wanting. Discussions about the circular economy can often be rather narrow: closed loops, product service systems, business models, and other such practical actions. But a more holistic look at the system reveals other necessary elements, such as the science and philosophy that shapes how we think and act, as well as legislation and infrastructural elements. Instead, all of this could be characterised as a sandwich, where the tasty filling is the part most are happy to focus upon. Without the other elements there is a real risk that the circular economy becomes ‘business as usual’ with a few tweaks here and there. For an in-depth look at how systems operate, you might want to check out this great read by Professor Thomas Homer-Dixon.
The problems within the current economy15 The origins of the conceptAn 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. Close Schools of thoughtGerman chemist Michael Braungart and American architect Bill McDonough, developed the Cradle to Cradle™ concept and certification process. This design philosophy considers all material involved in industrial and commercial processes to be nutrients, of which there are two main categories: technical and biological. The Cradle to Cradle framework focuses on design for effectiveness in terms of producing products with positive impact. Cradle to Cradle’s three principles 1. Cradle to Cradle design takes inspiration from natural systems, where there is no concept of waste: everything is a resource for something else. Biological nutrients should be safely returned to the soil, while technical nutrients should be used again and again at high quality. 2. The second principle is to use clean and renewable energy. The argument goes that natural systems thrive on current solar income and human systems could too. Renewable energy is clean (at the point of use), low-cost to operate, creates no emissions in use, and utilises abundant resources. 3. Finally, celebrate diversity: diversity builds resilience in natural systems, and can do so in human systems, too. Equally, no two places are the same: a diverse approach is often necessary to overcome the challenges and meet the opportunities offered by different geographies.
Bill McDonough - Resource Abundance by DesignIn his 1976 research report to the European Commission, Walter Stahel, architect and economist, sketched a vision of an
economy in loops (or circular economy), The Potential for Substituting Manpower for Energy, co-authored with Genevieve Reday. The vision looked at its impact on job creation, economic competitiveness, resource savings, and waste prevention. Credited with having coined the expression “Cradle to Cradle” in the late 1970s, Stahel worked at developing a ‘closed loop’ approach to production processes and created the Product Life Institute in Geneva more than 25 years ago. It pursues four main goals: product-life extension, long-life goods, reconditioning activities, and waste prevention. It also insists on the importance of selling services rather than products, an idea referred to as the ‘functional service economy’, now more widely absorbed into the notion of ‘performance economy’. Stahel argues that the circular economy should be considered a framework: as a generic notion, the circular economy draws on several more specific approaches that gravitate around a set of basic principles. Read more about Walter Stahel’s thinking in his latest book: The Circular Economy – A User’s Guide.
Walter Stahel - Performance EconomyWatch Walter Stahel introduce his ‘Performance Economy’ concept: “Innovation inspired by nature” - Janine Benyus The idea at the core of Biomimicry is that life has already solved most of the problems we are currently grappling with. To give some obvious examples: birds can fly with no need for fossil fuels, barnacles can adhere to underwater surfaces and have a tremendous ability to stay attached, insects outweigh humans yet cause no pollution or waste, leaves soak up sunlight and manage to efficiently and effectively transport water and nutrients through a dense network. Biomimicry holds that we can find solutions to human challenges by emulating nature’s patterns and strategies. Janine Benyus, author of Biomimicry: Innovation Inspired by Nature, defines her approach as “a new discipline that studies nature’s best ideas and then imitates these designs and processes to solve human problems”. Visit the Biomimicry Institute to learn more about biomimicry.
Janine BenyusWatch Janine Benyus describe the application and the potential of biomimicry in this talk: The study of
material and energy flows through industrial systems. Focusing on connections between operators within the ‘industrial ecosystem’, this approach aims at creating closed-loop processes in which waste serves as an input, thus eliminating undesirable by-products. Industrial ecology adopts a systemic point of view, designing production processes so they perform as close to living systems as possible. This is achieved by considering local ecological constraints and looking at global impact of processes from the outset. This framework is sometimes referred to as the ‘science of sustainability’, given its interdisciplinary nature. The principles of industrial ecology can also be applied in the services sector. With an emphasis on natural capital restoration, industrial ecology also focuses on social wellbeing. In the US, John T. Lyle started developing ideas on regenerative design that could be applied to all systems, i.e., beyond agriculture,
for which the concept of regeneration had already been formulated. Arguably, he laid the foundations of the circular economy framework, which developed and gained notoriety thanks to McDonough (who had studied with Lyle), Braungart and Stahel. Today, the Lyle Center for Regenerative Studies offers courses on the subject. Initiated by former Ecover CEO and Belgian businessman Gunter Pauli, the Blue Economy is an
open-source movement bringing together concrete case studies, initially compiled in an eponymous report handed over to the Club of Rome. As the official manifesto states, "using the resources available in cascading systems, (…) the waste of one product becomes the input to create a new cash flow". Based on 21 founding principles, the Blue Economy insists on solutions being determined by their local environment and physical/ecological characteristics, putting the emphasis on gravity as the primary source of energy. The report, which doubles up as the movement’s manifesto, describes "100 innovations that can create 100 million jobs within the next 10 years", and provides many examples of winning South-South collaborative projects— another original feature of this approach intent on promoting its hands-on focus. 16 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. When a company focuses on increasing its profitability by reaping cost reductions?Global standardization strategy focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
Which of the following strategies is most likely to be pursued by a firm when there are strong pressures for cost reductions and demand for local responsiveness is minimal?Which of the following is true of a firm that pursues a global standardization strategy? It reaps maximum benefits from economies of scale and learning effects. A firm is most likely to pursue a global standardization strategy when: there are strong pressures for cost reduction.
Which strategy makes the most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal?Which strategy makes most sense when there are strong pressures for cost reductions and minimal demands for local responsiveness? Global standardization strategy.
Which of the following is most likely to be the advantage of locating a value creation activity in the optimal location for that activity?Which of the following is most likely to be the advantage of locating a value creation activity in the optimal location for that activity? It enables a firm to differentiate its product offering from those of competitors.
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Which of the following terms best represents the systematic reductions in production costs that have been observed to occur over the life of a product?
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