How does the circular economy work? What you need to know about this production and consumption approach, with its goals and benefits.
What is the circular economy? The answer to this question is crucial to understanding the challenge of sustainability.
To begin with, we can say that its opposite is the linear economy, which has so far dominated in developed countries. Extract, produce, use, throw away: this is the standard approach that has dominated production and consumption for decades.
In practice, companies take raw materials and transform them into products, which are purchased by consumers, who ultimately throw them away, creating waste that ends up in landfills and the oceans.
Fears related to climate change and environmental degradation, however, are now challenging the sustainability of this linear model and suggest aiming for the so-called circular economy, whose slogan is: extract, produce, use and reuse.
In short, the circular economy was born to allow us to minimize waste and to be able to make the most of the raw materials we have.
Below, the definition of circular economy, why it is so important globally, its advantages and objectives around the world.
What is the circular economy? The definition
The circular economy, as we have mentioned, is opposed to the linear one and provides for a more conscious production and consumption model. The most widely used definition for the term is the one given by the Ellen MacArthur Foundation:
is a generic term to define an economy designed to be able to regenerate itself. In a circular economy, there are two types of material flows: biological ones, which can be reintegrated into the biosphere, and technical ones, which are intended to be revalued without entering the biosphere.
The UNDP, United Nations Development Programme, defines the circular economy as:
The circular economy, on the other hand, aims to minimize waste and promote sustainable use of natural resources, through smarter product design, longer use, recycling and more, as well as regenerating nature.
In addition to helping solve the problem of pollution, the circular economy can play a fundamental role in solving other complex challenges, such as climate change and biodiversity loss.
In practice, for many it is a real revolution that is not easy to apply, even if there are now virtuous business examples in this sense.
The most skeptical point out that making a production cycle completely self-sufficient is practically impossible. New inputs will always be needed and waste will always be created.
However, investing in more circular supply chains is the feasible challenge. This can mean switching to recycled materials, extending the life cycle of a product and improving recovery at the end of its life cycle.
Why the circular economy is important at an environmental and economic level
The approach to production and consumption offered by the circular economy is considered necessary by many analysts. First of all, to manage resources more sustainably and, therefore, the health of the environment.
As suggested by studies by the European Union, reusing and recycling raw materials and products promotes a more conscious and careful use of natural resources. Furthermore, it reduces the destruction of the landscape and habitats, favoring the maintenance of biodiversity.
In this way it is easier to reduce polluting emissions. According to the European Environment Agency, industrial processes and product use cause 9.10% of greenhouse gas emissions in the EU, while waste management accounts for 3.32%.
With more efficient and sustainable products already in the process of resource extraction and production, it is possible to limit the consumption of energy and raw materials that have ended up in nature.
It is estimated that over 80% of the environmental impact of a product is already determined during the design phase and this is why the circular economy offers a valid alternative to the vicious circle of the linear economy.
On a purely economic level, the circular production method traces the path for new opportunities for companies to make profits,
through less dependence on traditional raw materials.
For example, the cost opportunities of a circular economy are immense. Raw materials often represent 30% to over 50% of production costs. If resource efficiency were to be improved by 30%, the potential savings could exceed €600 billion per year in Europe, thus providing a competitive boost to industry.
The benefits of the circular economy
As already mentioned, the advantages of the circular economy range from environmental health to the intelligent exploitation of resources to positive returns for companies themselves.
In summary, the virtuous circle of the circular economy includes:
- reduction of polluting pressure on the environment;
- facilitation of the energy transition;
- decrease in countries’ dependence on raw materials;
- increase in the competitiveness of companies;
- stimulation of innovation to redesign materials and products;
- boost to economic growth;
- increase in employment;
- increased savings and quality of life for consumers
To give some examples in numbers, reconditioning light commercial vehicles instead of recycling them could save Europe €6.4 billion per year on materials (about 15% of the expenditure for this item) and €140 million in energy costs, with a reduction in greenhouse gas emissions of 6.3 million tonnes.
Furthermore, it is estimated that in the EU, thanks to the circular economy, there could be 700,000 new jobs by 2030.
Finally, the impact on the purchase of raw materials would be significant. According to Eurostat, the EU imports about half of the resources it consumes.
The total value of trade (imports plus exports) of raw materials between the EU and the rest of the world has almost tripled since 2002, with exports growing faster than imports. With the circular economy approach, this trend could become more favorable to state revenues.
Goals and virtuous examples of the circular economy around the world
The world is moving towards a circular economy and some signs from institutions, governments and companies are already evident.
The United Nations, together with 175 nations, are developing a Global Treaty to address plastic pollution. In July 2023, the administration of US President Joe Biden set a new goal to phase out federal purchases of single-use plastics by 2035.
The Council of the European Union set new goals in May to meet at least 25% of the bloc’s annual demand for critical raw materials through recycling.
In 2024, the U.S. and EU helped fund new chemical recycling facilities such as those of Eastman Chemical Co. and Itero Technologies Ltd.
Swancor Holding Co. has developed wind turbine blades made of recyclable carbon fiber, which are being tested by companies including Vestas Wind Systems A/S.
Ikea is piloting an online marketplace for customers to buy and sell secondhand furniture made by the company.
Colgate-Palmolive Co. has developed toothpaste tubes that can be recycled more easily.
There are a few dozen funds that offer investors a circularity strategy, the largest of which is BlackRock Inc. Circular Economy Fund, with nearly $1.3 billion in assets under management as of August. Goldman Sachs Group Inc. lets investors filter stocks based on companies’ performance in recycling, waste management and reuse.
Original article published on Money.it Italy. Original title: Cos’è l’economia circolare? Come funziona, obiettivi e vantaggi
