What is a Circular Economy and Why is it Important for the Future?

FEATURED ARTICLE

There is a carrying biocapacity for human life on the planet. We can measure it through the life-sustaining resources that Earth can provide us each year. Currently, our ecological footprint is about one and a half times our Earth’s biocapacity. By 2050, it is expected that an equivalent of three Earths will be needed to sustain our way of life. Global consumption of virgin materials such as biomass, metals and minerals is expected to double over the next 40 years.¹ Meanwhile, our annual waste generation is expected to jump 70% by 2050.² Our insatiable demand for Earth’s natural resources is untenable and our throwaway economy now poses a threat to our planet’s very future. In order to avoid climate breakdown, we must act now – and swiftly. Rethinking the way we produce, consume and exchange, therefore, is now a critical step in our course to achieving a more circular economy and, in turn, a more sustainable world.

What is a circular economy?

A circular economy is one which intends to ‘design waste out’. In fact, a circular economy is based on the principle that there is no such thing as waste at all. To achieve circularity, products must be designed to last (and good quality materials must be used too) and then optimised for a cycle of disassembly and reuse that makes it easier to transform and renew them. A circular system distinguishes itself from the activities of disposal and recycling, where large amounts of energy and labour are lost and waste simply ends up being buried in the ground or incinerated. The goal of a circular economy is to preserve and enhance the world’s natural capital by controlling the supply of its finite stocks and balancing renewable resource flows.

Why we need a circular economy

It helps to compare a circular economy with a linear economy. A linear economy follows a “Take-Make-Waste” model, which means that raw materials are collected, transformed into products and then used until their end-of-life and finally discarded as waste. In a linear system, value is created by producing and selling as many products as possible.

Take: New (virgin) raw materials are extracted. This process often involves significant energy and results in the emission of greenhouse gases and the degradation of the natural environment from which the raw materials are extracted.
Make: Raw materials are then transformed into products that are used for a finite period. Energy is dispensed and waste by-products are accumulated (including further greenhouse gas emissions) during this phase.
Waste: Products are finally discarded as waste at the end of their useful life (where further greenhouse gas emissions and pollution are released at the disposal stage).

Advancing our society towards more circular business models

Today, our economic systems are predominantly linear. In the past century, as we have scaled these systems, our utilisation rates of raw materials have exploded. In the last 50 years alone, we have more than tripled our raw material use.³ Moreover, an estimated 90% of what we currently take from Earth currently goes to waste, with just 8.6% recycled.⁴ Transitioning to a truly circular economy, therefore, requires urgent and large-scale action. Not just from all parts of government but also from society at large. National and local governments need to create the overarching supportive framework for the transition to a circular economy which combines a strong consumer-focused educational and public lobbying campaign with new rules and incentives for businesses. Such new circularity frameworks will encourage consumers to make more sustainability-driven choices that compel a more sustainability-driven response from businesses who will be motivated to incorporate far greater circularity within their business models. The good news is that we are already heading in the right direction.

The aim of a circular economy

Circular business models promote economic systems where the value of products, materials and other resources is maintained for as long as possible. Resources that no longer have usefulness in one economic activity become inputs into another. In this way circular business models progressively seek to decouple economic activities from the consumption of Earth’s finite resources, reducing dependency on virgin raw materials and exposure to resource price volatility while providing new business opportunities. These business models seek to build more resilient and durable incentive systems that are good for both productivity and the planet. For citizens, circular business models provide high quality, functional and safe products, which are efficient and affordable, last longer and are designed for reuse, repair and high-quality recycling.

In contrast to the linear economy’s “Take-Make-Waste” model, the circular economy enforces a “Make-Use-Recycle” model. In this context, however, “Recycle” does not just refer to the industrial act of recycling but is intended to refer to a number of “Value-Recovery” models including Reuse, Repair, Refurbish, Remanufacture, Repurpose and Recycle.

This Featured Article has been produced by Sustainable Market Strategies. Rize ETF Ltd make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the information contained in this article.

References

European Union, “Communication from the Commission to the European Parliament, The Council, The European Economic and Social Committee and The Committee of The Regions: A New Circular Economy Action Plan for a cleaner and more competitive Europe”, 2020. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1583933814386&uri=COM:2020:98:FIN

Ibid.

Circular Online, “Report: ‘Throwaway global economy’ is fuelling climate change”, January 2022. Available at: https://www.circularonline.co.uk/news/report-throwaway-global-economy-is-fuelling-climate-change/

Ibid.