What is the circular economy?
The Circular economy is an economic system where the value of products, materials, and resources is maintained in the economy for as long as possible, and the generation of waste is minimized. It is an economy that is restorative and regenerative by design to preserve all-natural capital for the long-term sustainability of the planet and its inhabitants.
It is all about transforming our current economic model, known as the “linear economy” where we follow the “take-make-dispose” model. We take natural resources to make products, and we dispose of them once we used them. This is no longer working from a sustainability and finite resource perspectives. To remodel the current unsustainable system, we have to change the way we manage resources, the way we make and use products, and the way we manage waste materials. The following diagram shows the fundamental difference between linear and circular economies. Instead of disposing materials, we reduce, repair, and recycle in a circular economy.
The followings are essential elements of a circular economy:
- Regenerate: transiting towards renewable resources of energy and materials;
- Share: increasing the utilization of resources by sharing;
- Closing loops: closing economic and ecological loops of resources by recycling and extracting values from waste such as turning outputs from one manufacturer into inputs for another;
- Exchange: replacing existing materials, process and technologies with circular ones;
A circular economy is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems (Ellen MacArthur Foundation).
As a simple explanation, the following transitions are needed for the circular economy.
In production stage, we need to transition to:
- Less extraction of natural resources;
- Lower usage of primary resources;
- More usage of renewable resources;
- Substitution of production inputs with recycled materials;
In consumer stage, we need to transition to:
- Using less energy and resources;
- Sharing resources such as transportation, accommodation, clothing etc;
- Change of ownership: leasing rather than possessing such as leasing phone rather than buying it;
In disposal stage, we need to transition to:
- Start treating waste as a resource rather than a problem;
- Generating value from waste stream such as manure from fertilizer;
Why is it important?
The concept of a circular economy is grounded in the ideas of sustainability and finite resource. Introduced by Pearce and Turner in the late 80s and influenced by Boulding’s (1966) work, which describes the earth as a closed and circular system with limited recourses, the circular economy is based on the principles of sustainable development.
Arguably, a circular economy is a necessary condition for maintaining economic growth in a sustainable way. The whole purpose of the circular economy is to create a thriving economy that can benefit everyone within the limits of our planet. If we keep the current trends of overproduction, over-consumption, and over-exploitation, the earth may end up filled up with wastes. If we fail to address sustainability, it will result in the extinction of humankind on Earth. There is no planet B; we live on a finite Earth.
Each year, 90 billion tonnes of primary materials are extracted and used globally, with only nine per cent recycled.
Meanwhile, the human population, subsequently the consumption of finite resources, is growing at a significant pace. Right now, the world needs to feed more than 820 million hungry people and there will be an additional 2 billion people by the year 2050.
The good news is that many countries have already started initiatives to shift into circular economy. China, for example, a country that is expected to produce one-quarter of the world’s municipal solid waste by 2025, has led the world in promoting the re-circulation of waste materials through setting targets and adopting policies and legislation. They have set national goals for the circular economy that 50% of all used packaging material must be biodegradable by 2020; 50% of all waste must be recycled by 2025; and new products must contain 20% recycled materials.
What opportunities lie in the circular economy?
A successful circular economy will have environmental, economic, and social benefits. While a core motivation of a circular economy is to minimize environmental impacts such as reducing greenhouse gas emissions and increasing the efficient use of natural resources, a circular economy is critical in ensuring future prosperity and economic security.
It is estimated that the circular economy might have up to $4.5 trillion commercial opportunity and it could support the development of new industries and jobs. A report by Access Economics estimated that for every 10,000 tonnes of recycled waste, 9.2 full-time equivalent positions are created, in contrast to 2.8 if the same waste was destined for landfill.
Within Australia, the Commonwealth Scientific and Industrial Research Organization (CSIRCO 2020) estimated that there will be potential economic benefit of $23 billion in present value GDP by 2025. By 2047-48, it is estimated that the benefit of a circular economy will likely rise to a present value of $210 billion in GDP and an additional 17,000 full-time equivalent jobs for Australia.
What can we do about it as individuals?
The circular economy is not easy to implement. Identifying potential opportunities, solutions and challenges across key sectors are crucial. Shifting to a circular system involves everyone and everything: businesses, governments, and individuals; our cities, our products, and our jobs.
As individuals, we can start adopting new attitudes in our life including:
- Try to live with fewer things;
- Buy less and lease more;
- Share your resources;
- Donate or pass your resources to someone in need;
- Value quality over quantity;
- Shift attitudes away from the appeal of the ‘brand new’ to appreciating the value of the ‘brand renewed’;
- Use recycled goods more often;
- Repair and redesign your possessions such as machines, appliances, clothes;
- If you are a producer, reconsider your production design and try to adopt technologies that can enable you to use recycled resources;
- Investment in recycling and waste infrastructure;
Upcoming articles on THRIVE will discuss business cases in a circular economy. Keep engaging with us for innovative and transformative ideas that can prosper your business in a more sustainable way!
Access Economics Pty Limited (2019), ” Employment in waste management and recycling “, available at <http://www.environment.gov.au/system/files/resources/5cc6a848-a93e-4b3f-abf7-fc8891d21405/files/waste-and-recycling-employment.pdf >
CSIRO (2020), “Circular Economy and Waste Management “, available at <https://www.csiro.au/en/Research/Environment/Circular-Economy >.
The Ellen MacArthur Foundation (2020), “What is a circular economy?”, available at <https://www.ellenmacarthurfoundation.org/circular-economy/concept>.
KPMG and the Commonwealth Scientific and Industrial Research Organization (2020), “Potential Economic Pay-off of circular economy”, available at <https://home.kpmg/au/en/home/insights/2020/05/potential-economic-pay-off-circular-economy-australia.html >.
Mathews JA and Tan H (2016), ” Lessons from China “, NATURE, Vol. 531, available at <https://www.greengrowthknowledge.org/sites/default/files/downloads/best-practices/Circular%20Economy%20%28Lessons%20from%20China%29_Nature.pdf>.
Lacy P, Long J and Spindler W (2020), “How can businesses accelerate the transition to a circular economy? ” at World Economic Forum, available at <https://www.weforum.org/agenda/2020/01/how-can-we-accelerate-the-transition-to-a-circular-economy/ >.
Schröder P (2020), “What does the EU circular economy plan mean for China? “, at China Dialogue, available at <https://chinadialogue.net/en/business/11912-what-does-the-eu-circular-economy-plan-mean-for-china/>.