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What is Circular Economy?

In 1684, the steam engine was invented by Thomas Savery which has arguably kick-started the industrial revolution. Since then, human civilization has produced large amounts of goods. Humans have invented fast fashion, industrialized agriculture, processed foods and other forms of mass-produced goods. Despite the job generation, improvement in human life and technological advancements that have come along with the industrial revolution, we have also generated tremendous amounts of waste. Wrapping our heads around the enormous amount of food and goods that are thrown away every year is not an easy task. For example, every second, the equivalent of one garbage truck of textiles ends up in the landfill or gets incinerated. This amounts to upwards of 31.5 billion garbage trucks of textiles every year. It is estimated that every year, 2.5 billion tonnes of waste is generated in the EU. These issues have been caused due to the linear nature of our economies. Manufacturers use raw materials and make products which are non-recyclable and perish easily. They do not consider what happens when the products reach the end their life and therefore, the products are thrown in landfills.

Linear Economy

As mentioned above, for most of human civilization, our economies have been ‘linear’. A linear economy traditionally follows the “take–make–dispose” step-by-step plan. Figure 1 (left) shows how in a linear economy the raw materials are collected and then transformed into products that are used until they are finally discarded as non-recyclable waste. For example, the clothing industry has been largely based on a linear economy model which has led to such huge wastes.

Figure 1 Illustrations of linear economy, reuse economy and circular economy.

From Linear to Reuse Economy

Plastic consumption is a great example of a linear and reuse economy models. Reuse economy models (Figure 1-center), essentially, involving recycling the products after they reach their end of life or have served their purpose they were originally meant for. Although reuse economy models generate less waste than linear economy models, there is still some non-recyclable waste during the consumption of a product. Plastics illustrate how a reuse economy can benefit the society, there is still a large portion of products which are non-recyclable and after a certain point not viable for reuse.

From Reuse to Circular Economy

Similar to a reuse economy, the circular economy model relies on recycling but there is theoretically no waste generated as the manufacturers design products to be reused and recycled (Figure 1- right). For example, recycling plastics into pellets for making new plastic products eliminates majority of plastic waste. It involves extending the life-cycle of products to reduce waste and create further value. It is often described as an economic system of three elements: closed loops in which raw materials, components and products lose their value as little as possible; use of renewable energy; and systems thinking.

  • As mentioned earlier, having closed material/product cycle is the core element of a circular economy. Every residual stream can be used to make a new product so there is no waste. Toxic substances are the only things eliminated from the process.
  • Since it is not possible to recycle energy, it is important for energy to last as long as possible and not have harmful emissions in a circular economy. Therefore, the circular economy systems are fed by renewable energy sources.
  • In a circular economy, every actor, such as a company, organization, government and individual, is connected to each other. There needs to be a network where the actions of one player influence other players. Without it, a circular economy cannot sustain.
Figure 2 Elements of a circular economy such as product design, supply chain collaboration, etc.

Figure 2 illustrates all elements involved in a circular economy including the above-mentioned core elements. A circular economy model requires society to think differently about products and consumption. It also makes people change the way they think about products, the value of repurposed products and consumption patterns.

What are the benefits?

The European Parliament estimates that EU companies could save about €600 billion – equivalent to 8% of annual turnover, while also reducing total annual greenhouse gas emissions by 2-4% if they apply principles of a circular economy. This includes measures such as waste prevention, ecodesign and re-use. Transitioning towards a circular economy would also lead to the creation of 580,000 new jobs in the EU alone. The Ellen MacArthur Foundation estimates that China could save CNY70 trillion for households and businesses by 2040 through circular economy models. There would be USD700 million annual material cost saving globally while also reducing 48% of carbon dioxide emissions by 2030.

Apart from the economic benefits, there are environmental and system benefits that come with circular economy models. Higher land productivity, less waste in the food value chain, and the return of nutrients to the soil would enhance the value of the land and the soil significantly. Currently, land degradation costs an estimated USD40 billion annually worldwide excluding the hidden costs of increased fertilizer use, loss of biodiversity, and unique landscape. Recovering all of the nitrogen, phosphorous, and potassium from food, animal and human waste streams globally could contribute an estimated 2.7 times the nutrients contained within the volumes of chemical fertilizers currently used.

According to Ellen MacArthur Foundation, the circular economy could result in a reduction of primary material consumption (i.e. car and construction materials, real estate land, synthetic fertilizer, pesticides, agricultural water use, fuels, and nonrenewable electricity) by 32% by 2030. Circular economy models have direct impacts on the waste reduction which not only helps in reducing pollution but also clears up landfill areas.

Is it similar to the Doughnut Economy?

Figure 3 A diagram of a Doughnut Economy as shown by Kate Raworth.

Kate Raworth is a senior visiting research associate at Oxford University’s Environmental Change Institute as well as a senior associate at Cambridge Institute for Sustainability Leadership. She has popularized the concept of ‘Doughnut’ Model of Economics. It incorporates the social and planetary challenges that are posed by the 21st century. The Doughnut economy derives social priorities from the UN Sustainable Goals and sets out the minimum standard of living for everyone. The Doughnut model has an integrated approach that utilizes the circular economy principles to achieve a set of 11 societal goals within the framework of 9 planetary boundaries. Figure 3 shows how the core of the model depicts the proportion of people that lack access to life’s essential services like healthcare, education and equity. On the other hand, the periphery of the model represents the ecological ceilings (planetary boundaries) that life depends on and must not be overshot.

Since April 2020, Kate Raworth has been working with the City of Amsterdam on its post-pandemic economic recovery. The adoption of the Doughnut model has been under works for a year in Amsterdam. The city has plans to reduce the consumption of new materials by 50% over the next decade. Successful implementation of the Doughnut model could go long way to help the EU achieve its circular economy targets.

Where is Circular Economy making an impact?

  • In 2019, the CEO of NITI Aayog (the strategic policy making arm of the Govt. of India), Mr. Amitabh Kant, illustrated how circular economy can help generate 1.4 crore jobs in the next 5-7 years and create lakhs of new entrepreneurs if proper policies and legislation are established. Although the government has failed to recognize the value of sustainable models such as the circular economy and the doughnut economy in India, efforts are being made in other places.
  • Aviation Industry: KLM and some other airlines have started to use cooking oil waste from restaurants to fly aeroplanes. Basically, the cooking oil waste is collected from cities, converted to biofuels, mixed with fossil fuels and the mixture powers transatlantic flights.
  •  Food Industry: Circular food systems have utilized three principles- sourcing food grown regeneratively, making most of the food and designing healthier food products.
  • Fashion Industry: There have been various companies that have utilized online platforms to resale used goods and keep luxurious and non-luxurious products circulating in the economy. Examples include- RealReal, thredUP, Everlane’s ReNew Line and H&M.
  • Renewable Energy Wastes: Solar PVs and wind turbines are designed by manufactures in a that they can be recycled about 95%. Even with the non-recyclable parts, people have started to use them in creative ways such as children playground made from non-recyclable wind blades.

The above-mentioned examples show how circular economy models can be a viable solution for most industries and governments. Municipal corporations should take inspiration from Amsterdam’s by recovering post-pandemic through a circular economy model. Many people have been expecting to bring the economies back to normalcy after the pandemic, but it is important to take this opportunity to change the current linear economy models to more sustainable ones. The pandemic has presented countries and companies with the perfect opportunity to make the transition.


Published by Pranshu Patel

I am an ambitious environmental science graduate who is passionate about climate change and decarbonisation. I enjoy researching and writing about sustainability and climate change.

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